<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
GATEFIELD CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
[LOGO]
47100 BAYSIDE PARKWAY
FREMONT, CALIFORNIA 94538
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 15, 1997
------------------------
To the Stockholders of GateField Corporation:
The Annual Meeting of Stockholders of GateField Corporation (the "Company")
will be held at 47100 Bayside Parkway, Fremont, California 94538, on Monday,
December 15, 1997 at 3:30 p.m., local time, to consider and act upon the
following matters:
1. To elect four directors. If the proposed amendment to the Company's
Certificate of Incorporation providing for a classified Board of
Directors (proposal two below) is adopted, the four directors will be
elected to a classified Board, with the Class I director being initially
elected for a one-year term, the Class II directors being initially
elected for a two-year term, and the Class III director being initially
elected for a three-year term. If the proposed amendment is not adopted,
all four directors will be elected for a one-year term.
2. To approve an amendment to the Company's Certificate of Incorporation
providing for the classification of the Board of Directors into three
classes, with members of each class serving staggered three-year terms.
3. To approve an amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of Common Stock of the Company
from 40,000,000 to 65,000,000 shares.
4. To approve the issuance of securities of the Company exceeding twenty
percent of the outstanding Common Stock of the Company.
5. To ratify the selection of Deloitte & Touche LLP as independent auditors
for the Company for the current fiscal year.
6. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Stockholders of record at the close of the business on November 10, 1997
will be entitled to notice of and to vote at the meeting or any adjournment
thereof. A list of stockholders will be available for inspection ten days prior
to the meeting at the Company's executive offices, located at 47100 Bayside
Parkway, Fremont, California.
By Order of the Board of Directors
Douglas E. Klint
SECRETARY
Fremont, California
November 24, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER
TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF THE PROXY
IS MAILED IN THE UNITED STATES.
<PAGE>
GATEFIELD CORPORATION
47100 BAYSIDE PARKWAY
FREMONT, CALIFORNIA 94538
------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON DECEMBER 15, 1997
------------------------
INTRODUCTION
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of GateField Corporation (the "Company") for
use at the Annual Meeting of Stockholders to be held on December 15, 1997, and
at any adjournment of that meeting. All proxies will be voted in accordance with
the stockholders' instructions, and if no choice is specified, the proxies will
be voted in favor of the matters set forth in the accompanying Notice of
Meeting. Any proxy may be revoked by a stockholder at any time before its
exercise by delivery of written revocation or a subsequently dated proxy to the
Secretary of the Company or by voting in person at the Annual Meeting.
The Company's Annual Report for the year ended December 31, 1996 was mailed
to stockholders, along with these proxy materials, on or about November 24,
1997.
QUORUM REQUIREMENT
At the close of business on November 10, 1997, the record date for the
determination of stockholders entitled to notice of and to vote at the Annual
Meeting, there were outstanding and entitled to vote an aggregate of 35,538,756
shares of Common Stock of the Company and 1,000,000 shares of Series B
Convertible Preferred Stock of the Company (the "Preferred Stock"), constituting
all of the outstanding voting stock of the Company. Holders of Common Stock are
entitled to one vote per share. Holders of Preferred Stock are entitled to the
number of votes equal to the number of whole shares of Common Stock into which
the shares of Preferred Stock held by such holder are convertible. Holders of
Preferred Stock are entitled to an aggregate of 4,582,500 votes.
The holders of a majority of the votes represented by the shares of Common
Stock and Preferred Stock outstanding and entitled to vote at the Annual Meeting
shall constitute a quorum for the transaction of business at the Annual Meeting.
Shares of Common Stock and Preferred Stock represented in person or by proxy
(including shares which abstain or otherwise do not vote with respect to one or
more of the matters presented for stockholder approval) will be counted for
purposes of determining whether a quorum is present at the Annual Meeting.
VOTES REQUIRED
The affirmative vote of the holders of shares representing a plurality of
the votes cast by the holders of the Common Stock and Preferred Stock is
required for the election of directors. The affirmative vote of the holders of
shares representing a majority of the votes represented by the holders of the
Common Stock and Preferred Stock present and entitled to vote at the meeting on
the matter is required for the approval of proposal four (the proposed issuance
of securities exceeding twenty percent of the outstanding Common Stock of the
Company) and proposal five (ratification of the selection of Deloitte & Touche
LLP as the Company's independent auditors for the current fiscal year). The
affirmative vote of the holders of shares representing a majority of the votes
represented by the holders of Common Stock and Preferred Stock
1
<PAGE>
outstanding on the record date is required for approval of proposal two (the
proposed amendment to the Company's Certificate of Incorporation providing for
the classification of the Board of Directors) and proposal three (the proposed
amendment to the Company's Certificate of Incorporation to increase the number
of authorized shares of Common Stock).
Shares which abstain from voting as to a particular matter, and shares held
in "street name" by a broker or nominee who indicates on a proxy that it does
not have discretionary authority to vote as to a particular matter, will not be
voted in favor of such matter, and also will not be counted as votes cast on
such matter. Accordingly, abstentions and "broker non-votes" will have no effect
on the voting on a matter that requires the affirmative vote of a certain
percentage of the votes cast on a matter (such as the election of directors, the
approval of the proposed issuance of securities exceeding twenty percent of the
outstanding Common Stock of the Company and the ratification of the selection of
Deloitte & Touche LLP as the Company's independent auditors for the current
fiscal year). However, because shares which abstain and shares represented by
"broker non-votes" are considered outstanding shares, abstentions and "broker
non-votes" with respect to a matter that requires the affirmative vote of a
certain percentage of the outstanding shares (such as the proposed amendments to
the Company's Certificate of Incorporation) will have the same effect as a vote
against such matter.
BENEFICIAL OWNERSHIP OF VOTING STOCK
The following table sets forth the beneficial ownership of the Company's
Common Stock and Preferred Stock as of November 10, 1997 (i) by each person who
is known by the Company to beneficially own more than 5% of the outstanding
shares of either the Common Stock or Preferred Stock, (ii) by each director and
nominee for director, (iii) by each of the executive officers named in the
Summary Compensation Table set forth under the caption "Executive Compensation"
below (the "Named Executives"), and (iv) by all current directors, nominees for
director and executive officers as a group.
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF
SHARES OUTSTANDING SHARES OUTSTANDING
BENEFICIALLY COMMON BENEFICIALLY PREFERRED
BENEFICIAL OWNER OWNED(1) STOCK(2) OWNED(1) STOCK
- ----------------------------------------------------------- ----------- --------------- ----------- ---------------
5% STOCKHOLDERS
Idanta Partners Ltd. (3) .................................. 5,580,251 13.6% 1,000,000 100%
4660 La Jolla Village Drive
Suite 850
San Diego, CA 92122
DIRECTORS/NOMINEES
James R. Fiebiger (4)...................................... 145,000 * 0 *
Benjamin Huberman (5)...................................... 110,000 * 0 *
Horst G. Sandfort (6)...................................... 57,595 * 0 *
David J. Dunn (7).......................................... 5,524,448 13.5% 990,000 99.0%
Jonathan S. Huberman (8)................................... 4,408,398 11.0% 790,000 79.0%
OTHER NAMED EXECUTIVES
Douglas E. Klint (9)....................................... 33,542 * 0 *
Charles R. Olson (10)...................................... 0 * 0 *
Phillips W. Smith (11)..................................... 608,293 1.7% 0 *
All current directors, nominees for director and executive
officers as a group (8 persons) (12)..................... 6,478,878 15.4% 990,000 99.0%
</TABLE>
- ------------------------
* Less than 1%
2
<PAGE>
(1) Each stockholder possesses sole voting and investment power with respect to
the shares listed, except as otherwise indicated. In accordance with the
rules of the Securities and Exchange Commission, each stockholder is deemed
to beneficially own any shares subject to stock options, warrants or
convertible securities which are currently exercisable or which become
exercisable within 60 days after November 10, 1997, and any reference in
these footnotes to shares subject to stock options, warrants and
convertible securities held by the person or entity in question refers only
to such stock options, warrants and convertible securities. The inclusion
herein of shares listed as beneficially owned does not constitute an
admission of beneficial ownership.
(2) Number of shares deemed outstanding includes 35,538,756 shares outstanding
as of November 10, 1997 and any shares subject to stock options, warrants
or convertible securities held by the person or entity in question.
(3) Consists of (i) 790,000 shares of Preferred Stock, 3,620,175 shares of
Common Stock issuable upon conversion of the Preferred Stock and 788,223
shares of Common Stock issuable upon the exercise of warrants held by
Idanta Partners Ltd. ("Idanta"), (ii) 200,000 shares of Preferred Stock,
916,500 shares of Common Stock issuable upon conversion of the Preferred
Stock and 199,550 shares of Common Stock issuable upon the exercise of
warrants held by the Dunn Family Trust, and (iii) 10,000 shares of
Preferred Stock, 45,825 shares of Common Stock issuable upon conversion of
the Preferred Stock and 9,978 shares of Common Stock issuable upon the
exercise of warrants held by the Perscilla Faily Trust. David J. Dunn, a
nominee for director of the Company and Perscilla Faily are the trustees of
trusts (the Dunn Family Trust and the Perscilla Faily Trust, respectively),
each of which are, along with Jonathan S. Huberman, a nominee for director
of the Company, the general partners of Idanta and share voting and
dispositive power with respect to shares owned by Idanta. David J. Dunn is
the trustee of the Dunn Family Trust and possesses sole voting and
dispositive power with respect to the shares owned by the Dunn Family
Trust. Perscilla Faily is the trustee of the Perscilla Faily Trust and
possesses sole voting and dispositive power with respect to the shares
owned by the Perscilla Faily Trust.
(4) Includes 30,000 shares issuable upon the exercise of outstanding warrants
and 100,000 shares issuable upon the exercise of outstanding stock options
which will vest on December 31, 1997 based on the attainment of certain
management business objectives. Does not include stock options to purchase
600,000 shares of Common Stock granted to Mr. Fiebiger in 1997, none of
which were exercisable as of November 10, 1997 or, except as described
above, will be exercisable within sixty-day period thereof.
(5) Includes 80,000 shares issuable upon the exercise of outstanding warrants.
(6) Consists of 57,595 shares issuable upon the exercise of outstanding
warrants.
(7) Consists of (i) 790,000 shares of Preferred Stock, 3,620,175 shares of
Common Stock issuable upon conversion of the Preferred Stock and 788,223
shares of Common Stock held by Idanta and (ii) 200,000 shares of Preferred
Stock, 916,500 shares of Common Stock issuable upon conversion of the
Preferred Stock and 199,550 shares of Common Stock issuable upon the
exercise of warrants held by the Dunn Family Trust. David J. Dunn and
Perscilla Faily are the trustees of trusts (the Dunn Family Trust and the
Perscilla Faily Trust, respectively), each of which are, along with
Jonathan S. Huberman, the general partners of Idanta and share voting and
dispositive power with respect to shares owned by Idanta. David J. Dunn is
the trustee of the Dunn Family Trust and possesses sole voting and
dispositive power with respect to the shares owned by the Dunn Family
Trust.
(8) Consists of 790,000 shares of Preferred Stock, 3,620,175 shares of Common
Stock issuable upon conversion of the Preferred Stock and 788,223 shares of
Common Stock issuable upon the exercise of warrants held by Idanta.
Jonathan S. Huberman is a general partner of Idanta, and shares voting and
dispositive power with respect to such shares with David J. Dunn, the
trustee of the Dunn Family Trust, and Perscilla Faily, the trustee of the
Perscilla Faily Trust.
(9) Includes 33,542 shares issuable upon the exercise of outstanding stock
options which will vest on December 31, 1997 based on the attainment of
certain management business objectives.
(10) Mr. Olson resigned as an officer of the Company in October 1996.
(11) Mr. Smith resigned as a director and officer of the Company in September
1997.
(12) Includes 1,000,000 shares of Preferred Stock, 4,582,500 shares of Common
Stock issuable upon conversion of the Preferred Stock and 1,258,085 shares
issuable upon the exercise of outstanding options and warrants.
3
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
At this Annual Meeting, the stockholders will vote to elect one Class I
Director, whose term will expire at the 1998 Annual Meeting, two Class II
Directors, whose terms will expire at the 1999 Annual Meeting, and one Class III
Director, whose term will expire at the 2000 Annual Meeting (in all cases
subject to the election and qualification of their successors or to their
earlier death, resignation or removal).
The persons named in the enclosed proxy will vote to elect James R. Fiebiger
as a Class I Director, David J. Dunn and Horst G. Sandfort as Class II
Directors, and Jonathan S. Huberman as a Class III Director, unless authority to
vote for the election of any or all of the nominees is withheld by marking the
proxy to that effect. Messrs. Fiebiger and Sandfort are currently directors of
the Company. Messrs. Jonathan Huberman and Dunn have been nominated by the Board
of Directors for election in place of Mr. Benjamin Huberman, who is currently a
director of the Company but is not standing for re-election, and Mr. Smith, who
resigned as a director in September 1997. Messrs. Jonathan Huberman and Dunn are
being nominated in accordance with the terms of a Stock Purchase Agreement (the
"Idanta Agreement"), dated November 10, 1997, among the Company, Idanta Partners
Ltd., the Dunn Family Trust and the Perscilla Faily Trust (collectively, the
"Idanta Entities"). Jonathan S. Huberman is the son of Benjamin Huberman. All of
the nominees have indicated their willingness to serve, if elected, but if any
should be unable or unwilling to stand for election, proxies may be voted for a
substitute nominee designated by the Board of Directors.
If proposal two, the proposed amendment to the Company's Certificate of
Incorporation to provide for the classification of the Board of Directors, is
not adopted, all four directors will be elected for a one-year term expiring at
the 1998 Annual Meeting of Stockholders (subject to the election and
qualification of their successors or to their earlier death, resignation or
removal).
NOMINEES FOR DIRECTOR OF THE COMPANY
Set forth below are the names and certain information with respect to each
nominee for director of the Company.
NOMINEE FOR CLASS I DIRECTOR (NOMINATED FOR INITIAL TERM EXPIRING AT THE
1998 ANNUAL MEETING)
JAMES R. FIEBIGER, age 56, has been a director of the Company since 1994.
Mr. Fiebiger has been President and Chief Executive Officer of the Company since
October 1997, and was President of the GateField Division of the Company from
June 1997 to October 1997. Dr. Fiebiger had been a Consultant for the
semiconductor industry since serving as President and Chief Operating Officer of
VLSI Technology, Inc., a manufacturer of semiconductors, from February 1988 to
August 1993. Previous positions include President and CEO of Thomson-Mostek and
Senior Vice President and Assistant General Manager of Motorola's Worldwide
Semiconductor Sector. Dr. Fiebiger is currently a member of the Board of
Directors of Mentor Graphics Corporation and Thunderbird Technology, Inc.
NOMINEES FOR CLASS II DIRECTOR (NOMINATED FOR INITIAL TERM EXPIRING AT THE
1999 ANNUAL MEETING)
DAVID J. DUNN, age 66, has been Chairman of the Board of Directors of Iomega
Corporation since 1980. Mr. Dunn has been Managing Partner of Idanta, a venture
capital firm, since 1971. Mr. Dunn is being nominated as a Class II director in
accordance with the terms of the Idanta Agreement.
HORST G. SANDFORT, age 55, has been a director of the Company since 1995.
Mr. Sandfort has served as President and CEO of Intellon Corporation since June
1997. From September 1995 to June 1997 he was the President of the GateField
Division of the Company. From 1991 to September 1995, he was the
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<PAGE>
Executive Vice President for Geographic Markets at LSI Logic, where he was
responsible for Sales, Marketing and Engineering in Asia, Canada, Europe and the
United States.
NOMINEE FOR CLASS III DIRECTOR (NOMINATED FOR INITIAL TERM EXPIRING AT THE
2000 ANNUAL MEETING)
JONATHAN S. HUBERMAN, age 32, has been with Idanta since 1995, most recently
as General Partner. Mr. Huberman is being nominated as a Class III director
pursuant to the Idanta Agreement. Mr. Huberman was a Management Consultant with
the Boston Consulting Group, a management consulting company, from 1992 to 1995.
Previously, he was a Marketing Manager at Cray Research, Inc. Mr. Huberman is
currently a member of the Board of Directors of HyperParallel, Inc., Boxer Cross
Corporation and Cosmederm Technologies, Inc.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Messrs. Jonathan Huberman and Dunn are being nominated to serve as directors
of the Company in accordance with the terms of a Stock Purchase Agreement (the
"Idanta Agreement"), dated November 10, 1997, among the Company, Idanta Partners
Ltd ("Idanta"), the Dunn Family Trust and the Perscilla Faily Trust
(collectively, the "Idanta Entities"). On November 10, 1997, the Company,
pursuant to the Idanta Agreement, issued to the Idanta Entities an aggregate of
1,000,000 shares of Series B Convertible Preferred Stock (convertible into up to
6,110,000 shares of Common Stock) and warrants to purchase an aggregate of up to
997,751 shares of Common Stock at an exercise price of $1.00 per share
(collectively, the "Warrants"), for an aggregate purchase price of $4.5825
million. Upon the satisfaction of the conditions set forth in the Idanta
Agreement (including stockholder approval of proposal two, proposal three and
proposal four of this Proxy Statement), the Company will issue an aggregate of
4,582,500 shares of Common Stock to the Idanta Entities at a purchase price of
$1.00 per share, and upon such issuance of Common Stock, the Warrants shall be
cancelled. For a more complete description of the transaction with the Idanta
Entities, see proposal four below. Mr. Jonathan Huberman is the son of Benjamin
Huberman and is a general partner of Idanta. Mr. Dunn is the Managing General
Partner of Idanta and is the trustee of the Dunn Family Trust.
Pursuant to the Idanta Agreement, the Company has agreed to cause Messrs.
Jonathan Huberman and David Dunn to be nominated for election to the Company's
Board of Directors at this Annual Meeting, and for re-election to the Board of
Directors on each proxy statement filed for each subsequent meeting of
stockholders as their respective terms expire, until the earlier of (i) the date
the Company first reports Annual Net Income (as defined in the Idanta Agreement)
of at least $15 million and (ii) the date that the Idanta Entities (and their
affiliates) owns less than one-half of the total number of shares of preferred
stock and common stock purchased pursuant to the Idanta Agreement.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Messrs. Jonathan Huberman and Dunn are being nominated to serve as directors
of the Company in accordance with the terms of a Stock Purchase Agreement (the
"Idanta Agreement"), dated November 10, 1997, among the Company, Idanta Partners
Ltd ("Idanta"), the Dunn Family Trust and the Perscilla Faily Trust
(collectively, the "Idanta Entities"). On November 10, 1997, the Company,
pursuant to the Idanta Agreement, issued to the Idanta Entities an aggregate of
1,000,000 shares of Series B Convertible Preferred Stock (convertible into up to
6,110,000 shares of Common Stock) and warrants to purchase an aggregate of up to
997,751 shares of Common Stock at an exercise price of $1.00 per share
(collectively, the "Warrants"), for an aggregate purchase price of $4.5825
million. Upon the satisfaction of the conditions set forth in the Idanta
Agreement (including stockholder approval of proposal two, proposal three and
proposal four of this Proxy Statement), the Company will issue an aggregate of
4,582,500 shares of Common Stock to the Idanta Entities at a purchase price of
$1.00 per share, and upon such issuance of Common Stock, the Warrants shall be
cancelled. For a more complete description of the transaction with the Idanta
Entities, see proposal four below. Mr. Jonathan Huberman is the son of Benjamin
Huberman
5
<PAGE>
and is a general partner of Idanta. Mr. Dunn is the Managing General Partner of
Idanta and is the trustee of the Dunn Family Trust.
During the year ended December 31, 1996 the Company paid Benjamin Huberman,
a director of the Company, consulting fees in the amount of $80,000. Mr.
Huberman has worked closely with the Company in developing and marketing the
Company's consulting services. Management believes that this arrangement is at
least as favorable as could be negotiated with outside consultants.
During the year ended December 31, 1996 the Company paid James Fiebiger, a
director of the Company, consulting fees in the amount of $37,750. Dr.
Fiebiger's consulting services were rendered for product development, strategic
planning and marketing consulting services for Field programmable Gate Array
Products developed by the Company's GateField Division. Management believes that
this arrangement is at least as favorable as could be negotiated with outside
consultants.
BOARD AND COMMITTEE MEETINGS
The Board of Directors has a standing Audit Committee which recommends the
engagement of the Company's independent auditors, approves services performed by
such auditors and reviews and evaluates the Company's accounting system and its
system of internal controls. The Audit Committee met once during the year ended
December 31, 1996. The current members of the Audit Committee are Benjamin
Huberman and Horst G. Sandfort.
The Board of Directors has a standing Nominating Committee which establishes
the criteria and qualifications for prospective nominees for director and
provides recommendations to the Board regarding nominees for director. The
Nominating Committee will consider nominees recommended by stockholders upon
submission of a signed written recommendation and resume to the Company's
Corporate Secretary. The Nominating Committee met four times during the year
ended December 31, 1996. The current members of the Nominating Committee are
Benjamin Huberman and Horst G. Sandfort.
The Board of Directors has a standing Compensation Committee which
administers the Company's stock plans and approves salaries, stock options and
other compensation arrangements for executive officers of the Company. The
Compensation Committee met four times during the year ended December 31, 1996.
The current members of the Compensation Committee are Benjamin Huberman and
Horst G. Sandfort.
The Board of Directors met eight times during the year ended December 31,
1996. Each incumbent director attended at least 75% of the number of meetings of
the Board and of the committees on which he then served.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of two non-employee directors,
Horst G. Sandfort and Benjamin Huberman. During the year ended December 31,
1996, the Compensation Committee consisted of two non-employee directors,
Benjamin Huberman and James Fiebiger. Horst G. Sandfort was appointed to serve
on the Compensation Committee after his resignation as an executive officer of
the Company in June 1997. Neither James Fiebiger nor Benjamin Huberman was at
any time during the year ended December 31, 1996 or at any other time prior
thereto an officer or employee of the Company.
During the year ended December 31, 1996 the Company paid Benjamin Huberman,
a director of the Company, consulting fees in the amount of $80,000. Mr.
Huberman has worked closely with the Company in developing and marketing the
Company's consulting services. Management believes that this arrangement is at
least as favorable as could be negotiated with outside consultants.
During year ended December 31, 1996 the Company paid James Fiebiger, a
director of the Company, consulting fees in the amount of $37,750. Dr.
Fiebiger's consulting services were rendered for product
6
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development, strategic planning and marketing consulting services for Field
programmable Gate Array Products developed by the Company's GateField Division.
Management believes that this arrangement is at least as favorable as could be
negotiated with outside consultants.
No executive officer of the Company serves as a member of the Board of
Directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
COMPENSATION OF DIRECTORS
Members of the Board of Directors who are not employees of the Company
receive a retainer of $2,500 per quarter plus a fee of $1,000 for attendance at
each Board and committee meeting and are reimbursed for their expenses in
attending meetings of the Board of Directors.
On September 10, 1990, Mr. Benjamin Huberman received from the Company
warrants to purchase 50,000 shares of Common Stock at an exercise price of $1.00
per share, the market value of the Common Stock on the date of the grant. The
warrants granted on September 10, 1990 have fully vested. On August 16, 1993,
Mr. Huberman received from the Company additional warrants to purchase 30,000
shares of Common Stock at an exercise price of $2.06 per share, the market value
of the Common Stock on the date of the grant. The warrants granted on August 16,
1993 have fully vested. On July 28, 1997, the Board of Directors of the Company
approved the exchange of the warrants held by Mr. Huberman for new warrants to
purchase an aggregate of 80,000 shares of Common Stock at an exercise price of
$0.47 per share, the fair market value of the Common Stock on such date.
On February 4, 1994, Dr. Fiebiger received from the Company warrants to
purchase 50,000 shares of Common Stock at an exercise price of $3.63 per share,
the market value of the Common Stock on the date of the grant. These warrants
become exercisable for 10,000 shares on each anniversary of the date of grant.
On July 28, 1997, the Board of Directors of the Company approved the exchange of
the warrants held by Dr. Fiebiger for new warrants to purchase an aggregate of
50,000 shares of Common Stock at an exercise price of $0.47 per share, the fair
market value of the Common Stock on such date.
On July 28, 1997, the Board of Directors approved the issuance to Mr.
Sandfort of warrants to purchase 57,595 shares of Common Stock at an exercise
price of $0.47 per share, the market value of the Common Stock on such date, in
exchange for vested employee stock options to purchase 57,595 shares of Common
Stock issued to Mr. Sandfort. These warrants become fully exercisable on the
date of the filing with the Securities and Exchange Commission of this Proxy
Statement.
All warrants issued to directors expire eight years after their respective
issue dates or 90 days after resignation from the Board of Directors, whichever
occurs first.
During the year ended December 31, 1996 there were no stock options granted
under the Company's 1995 Director Stock Option Plan.
7
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following Summary Compensation Table sets forth certain information
concerning the compensation for each of the last three fiscal years of the
Company's Chief Executive Officer and the Company's four other most highly
compensated executive officers during the year ended December 31, 1996 (the
"Named Executives").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION-
AWARDS(2)
---------------
ANNUAL COMPENSATION(1) NUMBER OF
------------------------------------- SHARES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(3) COMPENSATION STOCK OPTIONS COMPENSATION
- --------------------------------------------- --------- --------- ----------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Phillips W. Smith (4) ....................... 1996 $ 245,016 $ 0 $ 26,780(5) 100,000 $ 16,780(6)
President and Chief 1995 200,000 0 44,048(5) 0 15,340(7)
Executive Officer 1994 200,000 0 64,912(8) 0 19,990(9)
Peter J. Cassidy (10) ....................... 1996 131,673 0 0 0 9,039(11)
Executive Vice President & 1995 182,500 0 0 0 9,125(11)
Chief Financial Officer 1994 175,000 0 0 0 7,314(11)
Douglas E. Klint ............................ 1996 142,007 0 0 30,000 7,100(11)
Vice President, General Counsel 1995 129,750 7,785 0 20,000 6,488(11)
and Corporate Secretary 1994 120,998 0 0 0 6,050(11)
Charles R. Olson (12)........................ 1996 148,504 27,956 0 0 11,687(11)
Vice President & General Manager, 1995 150,000 93,400 0 150,000 7,500(11)
Accelerator Division
Horst G. Sandfort (13)....................... 1996 238,534 15,000 0 0 4,050(11)
President, 1995 80,000 15,000 0 400,000 0
GateField Division
</TABLE>
- ------------------------------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted because such perquisites and other personal benefits
constituted less than the lesser of $50,000 or 10% of the total of annual
salary and bonus for the executive officer for each fiscal year.
(2) The Company did not make any restricted stock awards, grant any stock
appreciation rights or make and long-term incentive plan payouts during the
years ended December 31, 1994, 1995 and 1996.
(3) Messrs. Smith, Cassidy and Klint are paid bonuses based on the Company's
profitability. Mr. Olson was paid incentive compensation based on the
Accelerator Division revenues and gross profit margin. Mr. Sandfort was
granted a one-time guaranteed bonus of $15,000 in 1996.
(4) Mr. Smith resigned as an officer and director of the Company in September
1997.
(5) Represents cost of living adjustments for California housing.
(6) Includes $12,250 contributed by the Company to a cafeteria benefit plan and
$1,500 contributed by the Company to a 401(k) plan, and $3,030 for term
life insurance premium reimbursement.
(7) Includes $10,000 contributed by the Company to a cafeteria benefit plan and
$2,310 contributed by the Company to a 401(k) plan, and $3,030 for term
life insurance premium reimbursement.
(8) Represents $25,937 in cost of living adjustments for California housing and
$38,975 in tax gross up reimbursement payments for 1993 and 1994.
(9) Represents $10,000 contributed by the Company to a cafeteria benefit plan
and $2,310 contributed by the Company to a 401(k) plan, and $7,680 for term
life insurance premium reimbursement.
(10) Mr. Cassidy died in August 1996.
(11) Represents the value of the Company's contributions to defined benefit
plans.
8
<PAGE>
(12) Mr. Olson became an executive officer of the Company in June 1995. His
annual base salary in 1995 was $150,000. Mr. Olson left the Company in
October 1996.
(13) Mr. Sandfort was hired by the Company on September 6, 1995 at an annual
base salary of $240,000. He was paid $80,000 in salary during the year
ended December 31, 1995. Mr. Sandfort resigned as President of the
GateField Division of the Company in June 1997.
OPTION GRANTS
The following table sets forth certain information concerning grants of
stock options during the year ended December 31, 1996 to each of the Named
Executives.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS
------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION(2)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION --------------------
NAME GRANTED FISCAL YEAR SHARE(1) DATE 5% 10%
- ---------------------------------------------- ----------- ----------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Phillips W. Smith............................. 100,000 4.3% $ 1.63 10/29/04 $ 14,223 $30,630
Peter J. Cassidy.............................. 0 0 N/A N/A 0 0
Douglas E. Klint (3).......................... 30,000 1.3% $ 1.63 10/29/04 $ 4,310 $9,282
Charles R. Olson.............................. 0 0 N/A N/A 0 0
Horst G. Sandfort............................. 0 0 N/A N/A 0 0
</TABLE>
- ------------------------------
(1) Options become exercisable over a four-year period and generally terminate
three months following termination of the executive officer's employment
with the Company or the expiration date, whichever occurs earlier. The
options are subject to accelerated vesting upon the achievement of certain
management business objectives. The exercise price of each option was
determined to be equal to the fair market value per share of the Common
Stock on the date of grant.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. The gains shown are net of the option exercise price,
but do not include deductions for taxes or other expenses associated with
the exercise of the option or the sale of the underlying shares. The actual
gains, if any, on the exercises of stock options will depend on the future
performance of the Common Stock, the optionholder's continued employment
through the option period, and the date on which the options are exercised.
(3) On July 28, 1997 the Board of Directors authorized the exchange of
outstanding stock options held by all employees for new options with an
exercise price of $0.47 per share, the fair market value of the Common Stock
on such date. Each new option covered an equal number of shares covered by
the outstanding option. The new options vest over the same period provided
in the outstanding options. Mr. Klint exchanged stock options for 63,542
shares of Common Stock under such exchange program.
9
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information concerning the aggregate
number of shares of Common Stock acquired upon option exercises by the Named
Executives during the year ended December 31, 1996 and the value realized upon
exercise as well the as the number and value of unexercised options held by each
of the Named Executives on December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF
UNDERLYING UNEXERCISED
UN-EXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS
FISCAL AT FISCAL
YEAR-END YEAR-END(2)
SHARES ---------------- -------------------
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED(1) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------- ----------- ----------- ---------------- -------------------
<S> <C> <C> <C> <C>
Phillips W. Smith................................ 0 0 0 / 100,000 $0 / $9,000
Peter J. Cassidy (3)............................. 0 0 300,000 / 0 $216,000 / $0
Douglas E. Klint................................. 0 0 3,542 / 30,000 $2,550 / $2,700
Charles R. Olson................................. 20,000 70,845 0 / 0 $0 / $0
Horst G. Sandfort................................ 0 0 0 / 400,000 $0 / $36,000
</TABLE>
- ------------------------
(1) Based on the fair market value of the Common Stock on the date of exercise
less the option exercise price.
(2) Based on a value of $1.72 per share, the fair market value of the Common
Stock on December 31, 1996, less the option exercise price.
(3) Mr. Cassidy died in August 1996. Represents options held by his estate which
are exercisable through August 1998.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The 1984 Stock Option Plan (the "1984 Plan") was originally adopted by the
Board of Directors in March 1984 and approved by the stockholders in April 1984
and has been subsequently amended. The 1984 Plan provided for a maximum of
3,500,000 shares of Common Stock to be issued pursuant to options granted
thereunder. In February 1992, the Board of Directors approved an amendment to
the 1984 Plan, increasing the number of shares reserved under the 1984 Plan from
3,500,000 shares to 4,000,000 shares which increase was approved by the
stockholders at the 1992 Annual Meeting of Stockholders. Options granted under
the 1984 Pan may be either "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") or
options that do not qualify for special tax treatment. The 1984 Plan also
permitted the grant of stock appreciation rights ("SAR") for all or any part of
the number of shares covered by an unexercised option under the 1984 Plan.
However, no SARs were ever granted. All employees of the Company were eligible
to receive options and SARs under the 1984 Plan. The 1984 Plan terminated in
March 1994 and no further options may be granted under this plan.
In August 1993, the Board of Directors approved the 1993 Stock Option Plan
(the "1993 Plan") and reserved 1,500,000 shares for issuance thereunder. In
August 1995, the Board of Directors approved an amendment to the 1993 Plan,
increasing the number of shares reserved under the 1993 Plan from 1,500,000
shares to 3,000,000 shares. The 1993 Plan and the 3,000,000 shares reserved for
issuance under the 1993 Plan was ratified and approved by the Stockholders at
the December 18, 1995 Special Meeting of Stockholders.
In June 1996, the Board of Directors approved the 1996 Stock Option Plan
(the "1996 Plan") and reserved 750,000 shares for issuance thereunder.
10
<PAGE>
The 1984 Plan, the 1993 Plan and the 1996 Plan (collectively, the "Plans")
are administered by the Compensation Committee (the "Committee"). No member of
the Committee may be granted an option under the 1984 Plan, the 1993 Plan or the
1996 Plan. The Committee (i) designates the employees (including officers and
directors who are employees of the Company) to receive options, (ii) determines
the number and price of shares to be optioned to each optionee, and (iii)
determines such other provisions of the individual options as it may deem
necessary or desirable, subject to the limitations contained in the Plans. The
Board of Directors may amend the 1984 Plan, the 1993 Plan or the 1996 Plan at
any time; however, certain amendments are subject to approval by the
stockholders and adversely affected optionees.
Incentive stock options granted under the Plans must have a per share
exercise price of not less than the fair market value per share at the date of
grant. Non-qualified stock options may be granted at such price as may be
determined by the Committee.
The exercise price of options granted under the Plans are payable in cash,
but the Board of Directors may, in its discretion, allow all or any portion of
the exercise price to be paid by tendering shares of Common Stock valued at fair
market value. Options may not be transferred by the optionee except by will or
the laws of descent and distribution and may be exercised only while the
optionee is employed by the Company or a subsidiary and for three months
thereafter.
The Committee may grant options that are exercisable in full at any time or
from time to time or in installments or upon the occurrence of specified events.
No option may be exercised for more than ten years from the date of grant, and
no option granted to any person who owns stock of the Company possessing more
than 10% of the voting power of all capital stock of the Company may be
exercised for more than five years from the date of grant.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company has entered into severance agreements with Messrs. Fiebiger and
Klint which generally provide for the continued payment of each executive's
monthly base salary for a period of up to twelve months, or until such executive
gains employment, whichever occurs first, in the event such executive's
employment with the Company is terminated by the Company without cause.
The Company is also party to an Employment, Confidential Information and
Invention Assignment Agreement with Messrs. Fiebiger and Klint and which
includes a covenant by each of such executives not to compete with the business
of the Company during the term of such executive's employment with the Company,
and contains customary confidentiality and invention assignment provisions.
In June 1997, Dr. Fiebiger was appointed as the President of the GateField
Division of the Company. In October 1997, Dr. Fiebiger became the President and
Chief Executive Officer of the Company. Dr. Fiebiger earns a base salary of
$180,000 per year. In addition, Dr. Fiebiger was granted options to purchase
600,000 shares of Common Stock at an exercise price of $0.47 per share.
One-sixth of the options will vest on December 31, 1997, based on the
achievement by the Company of certain management business objectives by the
Company. Thereafter, approximately five percent of the options vest each
quarter, based on the achievement by the Company of certain management business
objectives.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors is comprised of two
non-employee directors. Horst G. Sandfort is a former or current officer or
employee of the Company.
The Compensation Committee is responsible for setting and administering the
policies governing annual compensation of executive officers, including the
annual management incentive plans and the Company's stock option plans. In
addition, the Committee reviews compensation levels of executive officers and
evaluates their performance.
11
<PAGE>
It is the compensation policy of the Committee that a substantial portion of
the annual compensation opportunities of each executive officer be contingent
upon the performance of the Company. The Committee also believes that employee
equity ownership is highly motivating, provides a major incentive to employees
in building stockholder value and serves to align the interests of employees
with stockholders.
The salaries for executive officers generally are based on a review of
salaries for comparable positions among competing companies, and are adjusted
annually to take into account cost of living increases, merit increases and
adjustments deemed necessary to continue to attract and retain highly qualified
executive officers.
Under the Company's annual incentive plan, incentive compensation is paid
based on the performance of the Company as a whole. Bonuses for Messrs. Smith
and Klint are paid based on attainment of Company profitability goals. Mr.
Sandfort's bonus was based on revenue and expense goals for the GateField
Division. Annual incentive compensation at targeted levels of performance
represents approximately 50% of total cash compensation for the CEO and 25% to
45% for the executive officers. The targeted amounts of incentive compensation
are established in the Company's annual operating plan, which is approved by the
Board annually.
The Company's performance is measured for purposes of compensation decisions
under the annual incentive plan against goals established by the Committee in
consultation with management prior to the fiscal year based on the Company's
annual operating plan.
The financial goals for the year ended December 31, 1996 which related to
Company revenue and net profit before tax were not achieved. No bonuses were
paid to executive officers for performance during the year ended December 31,
1996. Mr. Olson was paid incentive compensation of $27,956 related to revenue
and gross profit attainment during the year ended December 31, 1996. During the
year ended December 31, 1996, stock options for 30,000 shares and 100,000 shares
were granted to Messrs. Klint and Smith, respectively.
Horst G. Sandfort
Chairman, Compensation Committee
Benjamin Huberman
Member, Compensation Committee
12
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Common Stock of the Company from December 31, 1991 through December 31, 1996
with the cumulative total return during this period of (i) the Nasdaq Composite
Index and (ii) the Hambrecht and Quist Technology Index. This graph assumes the
investment of $100 on December 31, 1991 in the Company's Common Stock, the
Nasdaq Composite Index and the Hambrecht and Quist Technology Index, and assumes
dividends are reinvested.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
GateField Corp. 100 73 58 30 178 37
Nasdaq 100 116 134 131 185 227
H&Q Technology Index 100 115 126 146 219 262
</TABLE>
13
<PAGE>
PROPOSAL TWO
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO PROVIDE FOR CLASSIFIED BOARD OF DIRECTORS
The Company's Board of Directors has unanimously approved and recommended
that the stockholders of the Company approve an amendment to the Company's
Certificate of Incorporation to add a new Article 11 (the "Classified Board
Provision"), which would provide for the classification of the Board of
Directors into three classes of directors with staggered terms of office. The
Classified Board Provision would also provide that it may be amended or repealed
only by the affirmative vote of the holders of at least 75% of the outstanding
shares of voting stock of the Company. The Company's Board of Directors has also
approved amendments to the Company By-Laws that would conform the applicable
sections thereof to the comparable sections of the Classified Board Provision,
which amendments would become effective only upon the effectiveness of the
proposed amendment to the Certificate of Incorporation by the addition of the
Classified Board Provision.
A copy of the Classified Board Provision is attached as Annex A to this
Proxy Statement, and stockholders are urged to review it carefully. The Board of
Directors reserves the right to make minor revisions to the text of the
Classified Board Provision, provided such revisions do not materially alter the
meaning or effect of the Classified Board Provision.
The Board of Directors has approved the amendment to the Company's
Certificate of Incorporation to add the Classified Board Provision in accordance
with the Company's obligations under the Stock Purchase Agreement, dated
November 10, 1997, among the Company, Idanta Partners Ltd., the Dunn Family
Trust and the Perscilla Faily Trust (collectively, the "Idanta Entities"). The
approval by the stockholders of the Company of the amendment to the Certificate
of Incorporation to add the Classified Board Provision is a condition to the
obligation of the Idanta Entities to purchase 4.5825 million shares of Common
Stock pursuant to such agreement. See proposal four below.
The Company's By-Laws now provide that all directors are to be elected
annually for a term of one year. Delaware law permits provisions in a
certificate of incorporation or by-law approved by stockholders that provide for
a classified board of directors. The Classified Board Provision would amend the
Company's Certificate of Incorporation to provide that directors will be
classified into three classes, as nearly equal in number as possible. One class
would hold office initially for a term expiring at the 1998 Annual Meeting;
another class would hold office initially for a term expiring at the 1999 Annual
Meeting; and another class would hold office initially for a term expiring at
the 2000 Annual Meeting. At each Annual Meeting following this initial
classification and election, the successors to the class of directors whose
terms expire at that meeting would be elected for a term of office to expire at
the third succeeding Annual Meeting after their election and until their
successors have been duly elected and qualified. In the event of any increase or
decrease in the authorized number of directors, the Board of Directors shall
apportion the newly created or eliminated directorships resulting from such
increase or decrease to ensure that no one class has more than one director more
than any other class. See proposal one, "Election of Directors" as to the
initial composition of each class of directors if this proposal is adopted.
The proposed classified board amendment will significantly extend the time
required to effect a change in control of the Board of Directors and may
discourage hostile takeover bids for the Company. Currently, a change in control
of the Board of Directors can be made by stockholders holding a plurality of the
votes cast at a single Annual Meeting. If the Company implements a classified
board of directors, it will take at least two Annual Meetings for even a
majority of stockholders to make a change in control of the Board of Directors,
because only a minority of the directors will be elected at each meeting.
Under Delaware law, directors chosen to fill vacancies on a classified board
shall hold office until the next election of the class for which such directors
shall have been chosen, and until their successors are elected and qualified.
Delaware law also provides that, unless the certificate of incorporation
provides
14
<PAGE>
otherwise, directors serving on a classified board of directors may be removed
only for cause. The Company's Certificate of Incorporation does not provide
otherwise. Accordingly, the Classified Board Provision contains conforming
provisions. Presently, all directors of the Company are elected annually and all
of the directors may be removed, with or without cause, by a majority vote of
the shares of the Common Stock entitled to vote at an election of directors.
Cumulative voting is not authorized by the Certificate of Incorporation.
ADVANTAGES. The classified board proposal is designed to assure continuity
and stability in the Board of Directors' leadership and policies. While
management has not experienced any problems with such continuity in the past, it
wishes to ensure that this experience will continue. The Board of Directors also
believes that the classified board proposal will assist the Board of Directors
in protecting the interests of the Company's stockholders in the event of an
unsolicited offer for the Company.
DISADVANTAGES. Because of the additional time required to change control of
the Board of Directors, the classified board proposal will tend to perpetuate
present management. Because the classified board proposal will increase the
amount of time required for a takeover bidder to obtain control of the Company
without the cooperation of the Board of Directors, even if the takeover bidder
were to acquire a majority of the Company's outstanding stock, it will tend to
discourage certain tender offers, perhaps including some tender offers that
stockholders may feel would be in their best interests. The classified board
proposal will also make it more difficult for the stockholders to change the
composition of the Board of Directors even if the stockholders believe such a
change would be desirable.
Under Delaware law, stockholders are not entitled to dissenter's rights with
respect to the proposed amendment to the Company's Certificate of Incorporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL THIS PROPOSAL.
PROPOSAL THREE
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
The Company is presently authorized to issue 42,000,000 shares of capital
stock, consisting of 40,000,000 shares of Common Stock, par value $.10 per
share, and 2,000,000 shares of series preferred stock, par value $.10 per share.
The Board of Directors has designated 1,000,000 shares of series preferred
stock, par value $.10 per share, as Series B Convertible Preferred Stock
("Series B Preferred Stock"). As of November 10, 1997, there were 35,538,756
shares of Common Stock and 1,000,000 shares of Series B Preferred Stock
outstanding. The Company currently does not have any authorized but unissued and
unreserved Common Stock.
The Board has adopted, subject to stockholder approval, an amendment to the
Certificate of Incorporation of the Company providing for an increase in the
number of authorized shares of Common Stock of the Company from 40,000,000
shares to 65,000,000 shares. If the proposed amendment is approved, paragraph
4(a) of Article 4 of the Company's Certificate of Incorporation would be amended
to read as follows:
4.(a) The corporation is authorized to issue a total of 67,000,000
shares of all classes of stock, of which, 65,000,000 shall be shares of
Common Stock with a par value of $.10 per share and 2,000,000 shall be
shares of series preferred stock with a par value of $.10 per share.
The additional Common Stock to be authorized by adoption of the amendment
would have rights identical to the currently outstanding Common Stock of the
Company. Adoption of the proposed amendment and issuance of the Common Stock
would not affect the rights of the holders of currently outstanding Common Stock
of the Company, except for effects incidental to increasing the number of shares
of the Company's Common Stock outstanding. If the amendment is adopted, it will
become
15
<PAGE>
effective upon filing of a Certificate of Amendment of the Company's Certificate
of Incorporation with the Secretary of State of the State of Delaware.
On November 10, 1997, the Company issued 1,000,000 shares of its Series B
Convertible Preferred Stock (convertible into up to 6,110,000 shares of Common
Stock) and warrants to purchase an aggregate of up to 997,751 shares of Common
Stock at an exercise price of $1.00 per share (the "Warrants"), to Idanta
Partners, Ltd. ("Idanta"), the Dunn Family Trust and the Perscilla Faily Trust
(collectively, the "Idanta Entities"), for an aggregate purchase price of
$4.5825 million, pursuant to a Stock Purchase Agreement (the "Idanta
Agreement"), dated November 10, 1997, among the Company and the Idanta Entities.
Upon the satisfaction of the conditions set forth in the Idanta Agreement
(including stockholder approval of this proposal, proposal two and proposal four
of this Proxy Statement), the Company will issue an aggregate of 4,582,500
shares of Common Stock to the Idanta Entities at a purchase price of $1.00 per
share, and upon such issuance of Common Stock, the Warrants shall be cancelled.
See proposal four below.
The Company does not currently have a sufficient number of authorized shares
of Common Stock under the Certificate of Incorporation to enable the Company to
complete the transactions contemplated by the Idanta Agreement, specifically the
issuance by the Company of 4.5825 million shares of Common Stock to the Idanta
Entities for an aggregate purchase price of $4.5825 million.
In addition, the Company does not currently have a sufficient number of
authorized shares of Common Stock under the Certificate of Incorporation to
enable it to reserve a sufficient number of shares of Common Stock for issuance
upon the conversion of the Series B Preferred Stock. In the event that at any
time after October 31, 1999 all outstanding shares of Series B Preferred Stock
cannot be fully converted into Common Stock because the Company has failed to
reserve or otherwise provide for a sufficient number of shares of Common Stock
to effect such conversion, each share of Series B Preferred Stock shall, at the
option of the holder, be redeemed by the Company at a redemption price per share
equal to the greater of (i) $4.5825 in cash plus accrued and unpaid dividends
thereon, and (ii) the result obtained by multiplying the last reported sale
price per share of Common Stock by the number of shares of Common Stock into
which each share of Series B Preferred Stock may then be converted.
Furthermore, the Company does not currently have a sufficient number of
authorized shares of Common Stock under the Certificate of Incorporation to
enable it to reserve a sufficient number of shares of Common Stock for issuance
upon exercise of outstanding warrants, including without limitation, the
warrants to purchase an aggregate of approximately 9.9% of the outstanding
Common Stock of the Company granted to Siemens AG pursuant to that certain
License Agreement, dated October 22, 1997, between the Company and Siemens AG.
The Company intends to use the additional shares of Common Stock to issue
4.5825 million shares to the Idanta Entities pursuant to the Idanta Agreement
and to reserve a sufficient number of shares of Common Stock to effect a
conversion of the Series B Preferred Stock. Although at present the Board of
Directors has no plans to issue the additional shares of Common Stock that would
be authorized under the amendment (other than 4.5825 million shares of Common
Stock to the Idanta Entities pursuant to the terms of the Idanta Agreement and
shares of Common Stock to Siemens AG pursuant to the license agreement described
above), it desires to have such shares available to provide additional
flexibility to use its capital stock for business and financial purposes in the
future. Subject to the requirements and limitations of the Nasdaq National
Market, the additional shares may be used, without further stockholder approval,
for various purposes including, without limitation, raising capital,
establishing strategic relationships with other companies and expanding the
Company's business or product lines through the acquisition of other businesses
or products, or providing equity incentives to employees, officers or directors.
The additional shares of Common Stock that would become available for
issuance if the proposal were adopted could also be used by the Company to
oppose a hostile takeover attempt or delay or prevent changes in control of
management of the Company. For example, without further stockholder approval,
16
<PAGE>
the Board could strategically sell shares of Common Stock in a private
transaction to purchasers who would oppose a takeover or favor the current
Board.
Although this proposal to increase the authorized Common Stock has been
prompted by business and financial considerations and not by the threat of any
hostile takeover attempt (nor is the Board currently aware of any such attempts
directed at the Company), nevertheless, stockholders should be aware that
approval of this proposal could facilitate future efforts by the Company to
deter or prevent changes in control of the Company.
The Company's audited consolidated financial statements, management's
discussion and analysis of financial condition and results of operations, and
certain supplementary financial information are incorporated by reference to the
Company's 1996 Annual Report on Form 10-K.
Under Delaware law, stockholders are not entitled to dissenter's rights with
respect to the proposed amendment to the Company's Certificate of Incorporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL THIS PROPOSAL.
PROPOSAL FOUR
APPROVAL OF THE ISSUANCE OF SECURITIES
EXCEEDING 20% OF THE OUTSTANDING COMMON STOCK
The By-laws of the National Association of Securities Dealers, Inc. (the
"NASD") require the Company to obtain stockholder approval in connection with a
transaction other than a public offering involving the sale or issuance by the
Company of Common Stock (or securities convertible into or exercisable for
Common Stock) equal to 20 percent or more of the Common Stock or 20 percent or
more of the voting power outstanding before the issuance for less than the
greater of book value or market value of the Common Stock.
On November 10, 1997, the Company entered into a Stock Purchase Agreement
(the "Agreement") among the Company, Idanta Partners Ltd. ("Idanta"), the Dunn
Family Trust and the Perscilla Faily Trust (collectively, the "Idanta
Entities"), pursuant to which the Company issued to the Idanta Entities an
aggregate of 1,000,000 shares of its Series B Convertible Preferred Stock (the
"Series B Preferred Stock") and warrants to purchase an aggregate of up to
997,751 shares of its Common Stock at an exercise price of $1.00 per share
(collectively, the "Warrants"), all for an aggregate purchase price of
$4,582,500 in cash. The shares of Common Stock issuable upon conversion of the
Preferred Stock and upon exercise of the Warrants constituted approximately
19.9% of the outstanding Common Stock at the time of the issuance of the Series
B Preferred Stock and the Warrants.
Upon the satisfaction of the conditions set forth in the Agreement
(including stockholder approval of this proposal, proposal two and proposal
three), the Idanta Entities will also purchase, pursuant to the Agreement, an
aggregate of 4,582,500 shares of the Common Stock of the Company at a purchase
price of $1.00 per share, and upon such issuance of Common Stock, the Warrants
shall be cancelled. The shares of Common Stock issuable upon conversion of the
Series B Preferred Stock, together with the shares of Common Stock to be issued
to the Idanta Entities, will constitute approximately 33% of the outstanding
Common Stock at the time of the issuance of the Common Stock.
Each share of Series B Preferred Stock accrues a dividend of $0.137475 per
share per annum and is convertible, at the option of the holder, into 4.5825
shares of Common Stock; provided, however, each share of Series B Preferred
Stock shall, at the option of the holders of 51% of the Series B Preferred
Stock, be redeemed by the Company at a redemption price of $4.5825 in cash per
share plus accrued and unpaid dividends thereon or be convertible, at the option
of the holder, into 6.11 shares of Common Stock, in the event that (i) the
stockholders of the Company, do not, prior to December 19, 1997, approve (A) the
issuance of securities exceeding twenty percent of the outstanding Common Stock
to the Idanta Entities,
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(B) an amendment to the Company's Certificate of Incorporation to provide for a
classified Board of Directors and (C) an amendment to the Company's Certificate
of Incorporation to increase the number of authorized shares of Common Stock, or
(ii) any of the representations and warranties of the Company contained in the
Agreement shall be false or misleading, the Company fails to perform or observe
and of its covenants or agreements made in the Agreement, the Company becomes
insolvent or seeks relief under any bankruptcy law, trading in the shares of
Common Stock on the Nasdaq National Market is suspended for a period of five
days, the Common Stock is delisted from the Nasdaq National Market or the
Company fails to file a registration statement with respect to the shares of
Common Stock issued or issuable to the Idanta Entities pursuant to the
Agreement.
Further, in the event that at any time after October 31, 1999 all
outstanding shares of Series B Preferred Stock cannot be fully converted into
Common Stock because the Company has failed to reserve or otherwise provide for
a sufficient number of shares of Common Stock to effect such conversion, each
share of Series B Preferred Stock shall, at the option of the holder, be
redeemed by the Company at a redemption price per share equal to the greater of
(i) $4.5825 in cash plus accrued and unpaid dividends thereon, and (ii) the
result obtained by multiplying the last reported sale price per share of Common
Stock by the number of shares of Common Stock into which each share of Series B
Preferred Stock may then be converted.
Each holder of outstanding shares of Series B Preferred Stock is entitled to
vote (on an as-converted basis) with respect to all matters presented to the
stockholders of the Company for their action or consideration. In addition, the
holders of outstanding shares of Series B Preferred Stock, so long as at least
500,000 shares of Series B Preferred Stock are outstanding, are entitled to vote
as a separate class with respect to certain actions by the Company including,
any amendment to the Company's Certificate of Incorporation or By-laws, if such
action would adversely affect the preferences, rights, privileges or powers of,
or the restrictions provided for the benefit of, Series B Preferred Stock, any
authorization or issuance of a new or existing class or series of capital stock
(other than Common Stock for a per share consideration greater than the
conversion price of the Preferred Stock then in effect or upon the exercise of
options and warrants outstanding prior to November 10 (other than the option to
acquire 9.9% of the outstanding Common Stock granted to Siemens AG)), any
authorization or issuance of shares of stock of any class or any bonds,
debentures, notes or other obligations convertible into or exchangeable for, any
shares of stock of the Company, any reclassification of Common Stock or any new
or existing class or series of capital stock, any payment or declaration of a
dividend or distribution on any shares of capital stock, and any issuance of
options, warrants or other securities exercisable or convertible into stock
(other than options and warrants to purchase Common Stock for a per share
consideration greater than the conversion price of the Preferred Stock then in
effect).
The Series B Preferred Stock has a liquidation preference equal to the
greater of (i) $9.165 per share and (ii) such amount per share as would have
been payable had each such share been converted into Common Stock immediately
prior to a liquidation, dissolution or winding up of the Company. In the event
of a merger or consolidation of the Company, or sale of all or substantially all
of the assets of the Company, the holders of the Series B Preferred Stock may
elect to treat such merger, consolidation or asset sale as a liquidation of the
Company.
The proceeds from the sale of capital stock of the Company pursuant to the
Agreement will be used by the Company for working capital purposes.
In connection with the purchase by the Idanta Entities of the capital stock
of the Company described above, the Company granted to such purchasers demand
registration rights and agreed to register under the Securities Act the shares
of Common Stock issued pursuant to the Agreement, the share of Common Stock
issuable upon conversion of the Series B Preferred Stock, and the shares of
Common Stock issuable upon exercise of the Warrant.
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The transactions contemplated by the Agreement have been approved by the
Board of Directors of the Company for purposes of Section 203 of the Delaware
General Corporation Law.
The Company's authorized capital currently consists of 40,000,000 shares of
Common Stock, $.10 par value per share, of which 35,538,756 are issued and
outstanding as of November 10, 1997, and 2,000,000 shares of Preferred Stock,
par value $.10 per share, of which 1,000,000 shares have been designated Series
B Convertible Preferred Stock, $.10 par value per share, and all of which shares
are issued and outstanding on the date of this Proxy Statement. All outstanding
shares of Common Stock are fully paid and nonassessable. The holders of Common
Stock are entitled to one vote for each share held of record on all matters
voted upon by stockholders and may not cumulate votes for the election of
directors. Subject to the rights of the Series B Preferred Stock and any other
future series or class of Preferred Stock, each share of outstanding Common
Stock is entitled to participate equally in any distribution of net assets made
to the stockholders in liquidation, dissolution, or winding up of the Company
and is entitled to participate equally in dividends as and when declared by the
Board of Directors. There are no redemption, sinking fund, conversion or
preemptive right with respect to the shares of Common Stock. All shares of
Common Stock have equal rights and preferences.
At present, all of the 1,000,000 outstanding shares of Preferred Stock have
been issued to the Idanta Entities. Under governing Delaware law and the
Company's Certificate of Incorporation no action by the Company's stockholders
is required to authorize the issuance of any shares of Preferred Stock. The
Board of Directors is empowered to establish, and to designate the name of, each
class or series of the shares of Preferred Stock and to set the terms of such
shares (including terms with respect to redemption, sinking fund, dividend,
liquidation, preemptive, conversion and voting rights and preferences).
Accordingly, the Board of Directors, without stockholder approval, may issue
shares of Preferred Stock with terms (including terms with respect to
redemption, sinking fund, dividend, liquidation, preemptive, conversion and
voting rights and preferences) that could adversely effect the voting power and
other rights of holders of the Common Stock. The terms of the securities sold by
the Company pursuant to the Agreement, including dividend rate, conversion
prices, voting rights, redemption prices and similar matters, have been
determined by the Board of Directors, based on negotiations with the Idanta
Entities.
Pursuant to the Agreement, the Company has agreed to cause Messrs. Jonathan
Huberman and David Dunn to be nominated for election to the Company's Board of
Directors at this Annual Meeting, and for re-election to the Board of Directors
on each proxy statement filed for each subsequent meeting of stockholders as
their respective terms expire, until the earlier of (i) the date the Company
first reports Annual Net Income (as defined in the Agreement) of at least $15
million and (ii) the date that the Idanta Entities (and their affiliates) owns
less than one-half of the total number of shares of preferred stock and common
stock purchased by them pursuant to the Agreement.
The description of the terms of the Agreement, the Certificate of
Designations of the Series B Preferred Stock and the Warrants contained in this
Proxy Statement, which the Company believes addresses all material terms of such
documents, is qualified in its entirety by reference to the express provisions
of such documents. A copy of the Agreement is attached hereto as Annex B, the
form of Certificate of Designations of the Series B Preferred Stock is included
as Exhibit C thereto, and the form of Warrant is included as Exhibit B thereto.
On September 8, 1997, the last full trading day prior to the date on which
representatives of the Company and Idanta reached tentative agreement on the
terms of the Agreement, the closing sale price of the Company's Common Stock, as
reported by the Nasdaq National Market, was $1.47 per share. On November 7,
1997, the last full trading day prior to the execution and delivery of the
Agreement, the closing sale price of the Company's Common Stock, as reported by
the Nasdaq National Market, was $2.31 per share.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL THIS PROPOSAL.
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PROPOSAL FIVE
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected the firm of Deloitte & Touche LLP as the
Company's independent auditors for the current fiscal year. Deloitte & Touche
LLP has served as independent auditors for the Company since 1992. Although
stockholder approval of the Board of Directors' selection of Deloitte & Touche
LLP is not required by law, the Board of Directors believes that it is advisable
to give stockholders an opportunity to ratify this selection. If this proposal
is not approved at the Annual Meeting, the Board of Directors may reconsider its
selection.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting and will have the opportunity to make a statement if they desire
to do so and will also be available to respond to appropriate questions from
stockholders.
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OTHER MATTERS
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Section
16(a)"), requires the Company's officers and directors, and persons who own more
than ten percent of a registered class of the Company's equity securities, to
file reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with
the Securities and Exchange Commission ("SEC"). Such officers, directors and
ten-percent stockholders are also required by SEC rules to furnish the Company
with copies of all Section 16(a) forms that they file.
Based solely on its review of the copies of such reports received by it, or
representations from certain "reporting persons" that no Form 5 was required for
such persons, the Company believes that, during the last fiscal year, all
Section 16(a) filing requirements applicable to its officers, directors, and ten
percent stockholders were complied with.
MATTERS TO BE CONSIDERED AT THE MEETING
The Board of Directors does not know of any other matters which may come
before the Annual Meeting. However, if any other matters are properly presented
to the Annual Meeting, it is the intention of the persons named in the
accompanying proxy to vote, or otherwise act, in accordance with their judgment
on such matters.
SOLICITATION OF PROXIES
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and regular
employees, without additional remuneration, may solicit proxies by telephone,
telegraph, facsimile, e-mail and personal interviews. Beacon Hill Partners, Inc.
has been engaged by the Company to solicit proxies on behalf of the Company. For
these services, the Company will pay Beacon Hill Partners, Inc. a fee of $2,500
plus reimbursement of out-of-pocket expenses. Brokers, custodians and
fiduciaries will be requested to forward proxy soliciting material to the owners
of stock held in their names, and the Company will reimburse them for their
out-of-pocket expenses in this connection.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the Annual Meeting of
Stockholders in 1998 must be received by the Company at its principal office not
later than December 31, 1997 for inclusion in the proxy statement for that
meeting.
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Securities and
Exchange Commission are incorporated herein by reference: the Company's Annual
Report on Form 10-K for the year ended December 31, 1996; and Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1997, June 30, 1997 and September
30, 1997.
Certain financial information from the Form 10-K and management's discussion
and analysis of this information has been included in the Annual Report to
Stockholders which has previously been mailed to stockholders.
All documents filed by the Company pursuant to sections 13(a), 13(c), 14 and
15(d) of the Securities Exchange Act of 1934, as amended, after the mailing date
of this proxy statement and prior to December 15, 1997, the date of the Annual
Meeting, shall be deemed to be incorporated by reference herein and to be a part
hereof from the date of filing of such documents. Any statement contained in
this proxy statement or in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Proxy Statement to the
extent that a statement contained herein or in any subsequently-filed document
which also is or is deemed to be incorporated by reference herein modifies or
superseded such statement. Any such statement so modified or superseded shall
not be deemed, as modified or superseded, to constitute a part of this Proxy
Statement.
This Proxy Statement incorporates documents by reference which are not
presented herein or delivered herewith. The Company will provide without charge
to each person to whom this proxy Statement is delivered, on the written or oral
request of any such person, by first class mail or other equally prompt means
within one business day of receipt of such request, a copy of any or all of the
foregoing documents incorporated herein by reference (other than any exhibits to
such documents which are not specifically incorporated herein by reference).
Requests should be directed to:
GateField Corporation
47100 Bayside Parkway
Fremont, California 94538
Attn: Investor Relations Coordinator
Telephone No.: (510) 623-4400
By Order of the Board of Directors
Douglas E. Klint
SECRETARY
November 24, 1997
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION WILL BE
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK PERSONALLY
EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
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ANNEX A
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO PROVIDE FOR CLASSIFIED BOARD OF DIRECTORS
The Certificate of Incorporation of the Company shall be amended by the
addition of the following Article 11:
11. This Article 11 is inserted for the management of the business and for
the conduct of the affairs of the Corporation.
(a) NUMBER OF DIRECTORS. The number of directors of the Corporation shall
not be less than three. The exact number of directors within the limitations
specified in the preceding sentence shall be fixed from time to time pursuant to
a resolution adopted by the Board of Directors.
(b) CLASSES OF DIRECTORS. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the authorized number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such a fraction is two-thirds, one of the extra directors shall
be a member of Class II, unless otherwise provided for from time to time by
resolution adopted by a majority of the Board of Directors.
(c) TERMS OF OFFICE. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting next following the end
of the Corporation's fiscal year ending December 31, 1997; each initial director
in Class II shall serve for a term ending on the date of the annual meeting next
following the end of the Corporation's fiscal year ending December 31, 1998; and
each initial director in Class III shall serve for a term ending on the date of
the annual meeting next following the fiscal year ending December 31, 1999; and
provided further, that the term of each director shall continue until the
election and qualification of his successor and shall be subject to his earlier
death, resignation or removal.
(d) ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
until the expiration of his current term, subject to his earlier death,
resignation or removal, and (ii) the newly created or eliminated directorships
resulting from such increase or decrease shall be apportioned by the Board of
Directors among the three classes of director in accordance with the provisions
of paragraph (b) above.
(e) QUORUM; ACTION AT MEETING. A majority of the total number of directors
then in office shall constitute a quorum at all meetings of the Board of
Directors. In the event one or more of the directors shall be disqualified to
vote at any meeting, then the required quorum shall be reduced by one for each
such director so disqualified; PROVIDED, HOWEVER, that in no case shall less
than one-third of the number of directors fixed pursuant to paragraph (a) above
constitute a quorum. If at any meeting of the Board of Directors there shall be
less than such a quorum, a majority of those present may adjourn the meeting
from time to time. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the Board of Directors unless a greater number is
required by law, by the By-Laws of the Corporation or by this Certificate of
Incorporation.
(f) REMOVAL. If and for so long as the Board of Directors is classified
pursuant to Section 141(d) of the General Corporation Law of Delaware,
stockholders may effect the removal of a director or the entire Board of
Directors only for cause, unless this Certificate of Incorporation provides
otherwise.
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(g) VACANCIES. Unless and until filled by the stockholders, any vacancy in
the Board of Directors, however occurring, including a vacancy resulting from
the enlargement of the Board, may be filled by a vote of a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. A director elected to fill a vacancy shall be elected to hold office
until the next election of the class for which such director shall have been
chosen, subject to the election and qualification of his successor and to his
earlier death, resignation or removal.
(h) AMENDMENTS. Notwithstanding any other provisions of law, this
Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
votes which all of the stockholders would be entitled to cast at an annual
election of directors or class of directors shall be required to amend, repeal
or to adopt any provision inconsistent with, this Article 11.
* * *
Section 2 of Article II, Sections 1, 2 and 14 of Article III and Section 1
of Article VIII of the By-Laws of the Company, to the extent that they are
inconsistent with the provisions of Article 11, shall be amended to conform to
the provisions of this Article 11.
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ANNEX B
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") dated as of November 10,
1997, is entered into by and among GateField Corporation, a Delaware corporation
with offices at 47100 Bayside Parkway, Fremont, California 94538 (the
"Company"), and the entities listed on Exhibit A hereto (the "Purchasers"), in
connection with the purchase of (i) 1,000,000 shares of the Company's Series B
Convertible Preferred Stock, par value $.10 (the "Preferred Stock"), convertible
into up to 6,110,000 shares of the Company's common stock, $.10 par value (the
"Common Stock"), to be sold to the Purchasers at the First Closing (as defined
below), (ii) Common Stock Purchase Warrants in the form attached hereto as
Exhibit B, to purchase an aggregate of 997,751 shares of Common Stock at a
purchase price of $1.00 per share (collectively, the "Warrants"), to be sold to
the Purchasers at the First Closing (as defined below), and (iii) 4,582,500
shares of Common Stock to be sold to the Purchasers at the Second Closing (as
defined below). The shares of Common Stock issuable upon conversion of the
Preferred Stock, the shares of Common Stock issuable upon exercise of the
Warrants, and the Common Stock sold to the Purchasers at the Second Closing are
collectively referred to herein as the "Shares". The Certificate of Designation
setting forth the rights, restrictions, privileges and preferences of the
Preferred Stock (the "Certificate of Designation") is attached hereto as Exhibit
C. The solicitation of this Agreement and the offer and sale of the Preferred
Stock, the Warrants and the Shares, are being made in reliance upon the
provisions of Regulation D ("Regulation D") promulgated by the Securities and
Exchange Commission ("SEC") under the United States Securities Act of 1933, as
amended (the "Securities Act") or upon the provisions of Section 4(2) of the
Securities Act. The Preferred Stock, the Warrants and the Shares are sometimes
collectively referred to herein as the "Securities." The Common Stock issuable
upon conversion of the Preferred Stock and the Common Stock issuable upon
exercise of the Warrants are sometimes collectively referred to herein as the
"Underlying Stock."
In consideration of the mutual promises, representations, warranties and
conditions set forth herein, and intending to be legally bounded hereby, the
Company and the Purchasers agree as follows:
1. PURCHASE AND SALE OF SECURITIES; CLOSING CONDITIONS
1.1 PURCHASE AND SALE OF SECURITIES.
(a) PURCHASE OF PREFERRED STOCK AND THE WARRANTS. Each of the
Purchasers hereby agrees to purchase and the Company agrees to sell to each
of the Purchasers (i) the number of shares of Preferred Stock set forth
opposite such Purchaser's name on Exhibit A and (ii) a Warrant to purchase
the number of shares of Common Stock set forth opposite such Purchaser's
name on Exhibit A, for the aggregate purchase price set forth opposite such
Purchaser's name on Exhibit A. The closing of the purchase of such Preferred
Stock and the Warrants shall take place on the "First Closing," subject to
the satisfaction (or waiver) of the conditions thereto set forth in Sections
1.2 and 1.3 below:
(b) PURCHASE OF COMMON STOCK. Each of the Purchasers hereby agrees to
purchase and the Company agrees to sell to each of the Purchasers the number
of shares of Common Stock set forth opposite such Purchaser's name on
Exhibit A for the purchase price of $1.00 per share. The closing of the
purchase of such Common Stock shall take place on the "Second Closing,"
subject to the satisfaction (or the waiver) of the conditions set forth in
Sections 1.2 and 1.3 below. Notwithstanding the foregoing, if the
stockholders of the Company do not approve the proposals to be submitted to
them at the 1997 Annual Meeting of Stockholders to be held on or prior to
December 19, 1997, as set forth in Section 1.3(a)(x), each of the Purchasers
shall be relieved of its obligation to purchase Common Stock at the Second
Closing.
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(c) PAYMENT AND DELIVERY OF STOCK CERTIFICATES. On each Closing Date
(as defined below), (i) each of the Purchasers shall pay the portion of the
purchase price for the Securities to be issued and sold at the applicable
Closing to such Purchaser by check or wire transfer to the Company, in
accordance with the Company's written instructions, against delivery of duly
executed stock certificates and the warrant which each such Purchaser is
then purchasing and (ii) the Company shall deliver to each such Purchaser
such stock certificates and the warrant against delivery of such purchase
price.
(d) CLOSING DATES. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Sections 1.2 and 1.3 below, the date and
time of the issuance and sale of the Preferred Stock, the Warrants and
Common Stock pursuant to this Agreement (the "Closing Dates") shall be (i)
in the case of the First Closing, 10:00 a.m. Pacific Standard Time on
November 10, 1997 (the "First Closing Date"), and (ii) in the case of the
Second Closing, 10:00 a.m. Pacific Standard Time, three business days
following notification of the satisfaction (or waiver) of the condition to
such Closing set forth in Section 1.3(b)(vii) (the "Second Closing Date")
or, in each case, at such mutually agreed upon time.
1.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO ISSUE AND SELL
THE PREFERRED STOCK, WARRANTS AND COMMON STOCK. The obligation hereunder of the
Company to issue and sell the Preferred Stock, Warrants and Common Stock to each
of the Purchasers at each respective Closing is subject to the satisfaction, at
or before such Closing, of each of the conditions set forth below. These
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.
(a) ACCURACY OF THE PURCHASER'S REPRESENTATION AND WARRANTIES. The
representations and warranties of the Purchasers contained in this Agreement
shall be true and correct as of the date when made and as of the applicable
Closing Date as though made at each such time.
(b) PERFORMANCE BY THE PURCHASER. The Purchasers shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the applicable Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent jurisdiction
which prohibits or adversely affects any of the transactions contemplated by
this Agreement, and no proceeding shall have been commenced which may have
the effect of prohibiting or adversely affecting any of the transactions
contemplated by this Agreement.
1.3 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASERS TO ACQUIRE THE
PREFERRED STOCK, WARRANTS AND COMMON STOCK. The obligation of the Purchasers
hereunder to acquire and pay for the Preferred Stock, Warrants and Common Stock
at each of the First Closing and the Second Closing, as applicable, is subject
to the satisfaction, at or before the Closing Date in respect of such Closing,
of each of the following conditions. Each of these conditions is for each of the
Purchaser's sole benefit and may be waived by a Purchaser at any time in its
sole discretion.
(a) As to the First Closing:
(i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company contained in this Agreement
shall be true and correct as of the date when made and as of the First
Closing Date as though made at each such time.
(ii) PERFORMANCE BY THE COMPANY. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions contained in this Agreement and in all other agreements
related to this Agreement to be performed, satisfied or complied with by
the Company at or prior to the First Closing.
(iii) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits or adversely effects any of the
transactions
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contemplated by this Agreement, and no proceeding shall have been
commenced which may have the effect of prohibiting or adversely affecting
any of the transactions contemplated by this Agreement.
(iv) ADVERSE CHANGES. Since December 31, 1996, no event which had
or is likely to have a Material Adverse Effect has occurred, except as
described in the Company's Form 10-Qs filed with the SEC for the
quarterly periods ended March 31, and June 30, 1997. For purposes of this
Agreement, "Material Adverse Effect" means any effect on the business,
operations, properties, prospects, condition, financial or otherwise, net
worth, or results of operations of the Company and which is material and
adverse to the Company or to other entities controlled by the Company,
taken as a whole, and/or any condition or situation which would prohibit
or otherwise interfere with the ability of the Company or other entity
controlled by the Company to enter into and perform its obligations under
this Agreement.
(v) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK. As
of the First Closing Date, (A) the trading of the Common Stock shall not
have been suspended by the SEC, The Nasdaq Stock Market, Inc. ("Nasdaq
Inc.") or the National Association of Securities Dealers, Inc. (the
"NASD"), (B) the Common Stock shall not have been delisted from the
Nasdaq National Market (the "Exchange"), and (C) the Company shall not
have been advised in writing that the Common Stock will be delisted from
the Exchange.
(vi) THE LEGAL OPINION. The Company shall have delivered to each
of the Purchasers the opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, independent counsel to the Company, with
respect to the matters set forth in Exhibit D attached hereto, dated as
of the First Closing Date.
(vii) OFFICER'S CERTIFICATE. The Company shall have delivered to
the Purchasers a certificate in such form and substance as shall be
reasonably satisfactory to the Purchasers, executed by an executive
officer of the Company as of the First Closing Date, to the effect that
all of the conditions to the First Closing shall have been satisfied.
(viii) REGISTRATION RIGHTS AGREEMENT. The Company and the Purchasers
shall have executed and delivered the Registration Rights Agreement
attached hereto as Exhibit E.
(ix) IRREVOCABLE LETTER OF INSTRUCTION. The Company shall have
issued to the transfer agent for the Common Stock (and to any substitute
or replacement transfer agent for its Common Stock coterminous with the
Company's appointment of any such substitute or replacement transfer
agent) irrevocable instructions regarding the issuance of certificates
representing the Securities in such form and substance as shall be
reasonably satisfactory to the Purchasers.
(x) PROXY STATEMENT. The Company shall have filed with the SEC and
Nasdaq Inc., a Notice of 1997 Annual Meeting of Stockholders to be held
on or prior to December 19, 1997, together with a preliminary Proxy
Statement requesting stockholder approval (A) of an amendment to the
Company's Certificate of Incorporation providing for the classification
of the Board of Directors into three classes, with members of each class
serving staggered three-year terms, (B) of an amendment to the Company's
Certificate of Incorporation providing for the increase in the number of
shares of authorized Common Stock from 40,000,000 to 65,000,000 and (C)
to sell securities of the Company to the Purchasers which prior to such
sale represent more than 20% of the Company's outstanding voting stock;
and nominating a four (4) person Board of Directors with Dr. James R.
Fiebiger being nominated as a Class I Director for an initial term of one
year, Messrs. Horst G. Sandfort and David J. Dunn being nominated as
Class II Directors for an initial term of two years, and Mr. Jonathan S.
Huberman being nominated as a Class III Director for an initial term of
three years.
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(xi) CERTIFICATE AND DOCUMENTS. The Company shall have delivered
to the Purchasers:
(A) the Certificate of Incorporation of the Company, as amended
and in effect as of the date of the First Closing, certified
by the Secretary of State of the State of Delaware;
(B) certificates, as of the most recent practicable dates, as to
the corporate good standing of the Company issued by the
Secretary of State of the State of Delaware and the
Secretary of State of the State of California;
(C) the By-laws of the Company, as amended and in effect as of
the date of the First Closing, certified by the Secretary of
the Company; and
(D) resolutions of the Board of Directors of the Company
authorizing and approving all matters in connection with this
Agreement and the transactions contemplated hereby and
authorizing and approving the amendments to the Company's
Certificate of Incorporation and the other matters described
in Section 1.3(a)(x) of this Agreement, certified by the
Secretary of the Company as of the First Closing Date.
(xii) OTHER MATTERS. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchasers and their
counsel, and the Purchasers and their counsel shall have received all
such counterpart originals or certified or other copies of such documents
as they may reasonably request.
(b) As to the Second Closing:
(i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company contained in this Agreement
shall be true and correct as of the date when made and as of the Second
Closing Date as though made at each such time.
(ii) PERFORMANCE BY THE COMPANY. The Company shall have performed,
satisfied and complied in all respects with all covenants, agreements and
conditions contained in this Agreement and in all other agreements
related to this Agreement to be performed, satisfied or complied with by
the Company at or prior to the Second Closing.
(iii) ADVERSE CHANGES. Since December 31, 1996, no event which had
or is likely to have a Material Adverse Effect has occurred, except as
described in the Company's Form 10-Qs filed with the SEC for the
quarterly periods ended March 31, and June 30, 1997.
(iv) NO SUSPENSION OF TRADING OR DELISTING OF COMMON STOCK. As of
the Second Closing Date, (A) the trading of the Common Stock shall not
have been suspended by the SEC, Nasdaq Inc. or the NASD, (B) the Common
Stock shall not have been delisted from the Exchange, and (C) the Company
shall not have been advised in writing that the Common Stock will be
delisted from the Exchange.
(v) THE LEGAL OPINION. The Company shall have delivered to each of
the Purchasers the opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, independent counsel to the Company, dated as of
the Second Closing Date, with respect to the matters set forth in Exhibit
D attached hereto, dated as of the Second Closing Date.
(vi) OFFICER'S CERTIFICATE. The Company shall have delivered to
the Purchasers a certificate in such form and substance as shall be
reasonably satisfactory to the Purchasers, executed by an executive
officer of the Company as of the Second Closing Date, to the effect that
all the conditions to the Second Closing shall have been satisfied.
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(vii) STOCKHOLDER'S MEETING. The stockholders of the Company shall
have approved the amendments to the Company's Certificate of
Incorporation and other matters specified in Section 1.3(a)(x).
(viii) HART-SCOTT-RODINO ACT. All applicable waiting periods (and
any extensions thereof) under the Hart-Scott-Rodino Act shall have
expired or otherwise been terminated.
(ix) AMENDMENT TO BYLAWS. The Board of Directors of the Company
shall have amended the Bylaws of the Company to include a provision with
respect to the matters specified in Section 4.10.
(x) CERTIFICATE AND DOCUMENTS. The Company shall have delivered to
the Purchasers:
(A) the Certificate of Incorporation of the Company, as amended
and in effect as of the date of the Second Closing, certified
by the Secretary of State of the State of Delaware;
(B) certificates, as of the most recent practicable dates, as to
the corporate good standing of the Company issued by the
Secretary of State of the State of Delaware and the
Secretary of State of the State of California;
(C) the By-laws of the Company, as amended and in effect as of
the date of the Second Closing, certified by the Secretary
of the Company; and
(D) resolutions of the Board of Directors of the Company
authorizing and approving all matters in connection with this
Agreement and the transactions contemplated hereby, certified
by the Secretary of the Company as of the Second Closing
Date.
(xi) OTHER MATTERS. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchasers and their
counsel, and the Purchasers and their counsel shall have received all
such counterpart originals or certified or other copies of such documents
as they may reasonably request.
1.4 CONVERSION OF PREFERRED STOCK. In the event the stockholders of the
Company fail to approve the proposals specified in Section 1.3(a)(x) at the 1997
Annual Meeting of Stockholders to be held on or prior to December 19, 1997, the
Purchasers holding at least 51% of the then outstanding shares of Preferred
Stock shall have the right, upon fifteen (15) days prior written notice to the
Company, to redeem the Preferred Stock, in whole or in part, for a cash payment
from the Company equal to $4.5825 per share plus accrued and unpaid dividends
thereon (subject to adjustment for stock splits, stock dividends, combination or
similar recapitalizations affecting such shares); provided, however, that if the
Purchasers do not elect to redeem the Preferred Stock, as provided above, the
Conversion Price (as defined in the Certificate of Designation of the Preferred
Stock) of all shares of the Preferred Stock shall be reduced from $1.00 to $.75
per share.
2. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Each of the Purchasers severally represents and warrants to the Company
that:
2.1 NO GOVERNMENT RECOMMENDATION OR APPROVAL. Such Purchaser
understands that no United States federal or state agency, or similar agency
of any other country, has passed upon or made any recommendation or
endorsement of the Company or the offering of the Securities.
2.2 INTENT. Such Purchaser is purchasing the Securities for its own
account and not with a view towards distribution and such Purchaser has no
present arrangement (whether or not legally binding) at any time to sell the
Securities to or through any person or entity; provided, however, that by
making the representations herein, such Purchaser does not agree to hold the
Securities for any minimum or
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other specific term and reserves the right to dispose of the Securities at
any time in accordance with Federal and state securities laws applicable to
such disposition. Such Purchaser understands that the Securities must be
held indefinitely unless such Securities are subsequently registered under
the Securities Act or an exemption from registration is available. Such
Purchaser has been advised or is aware of the provisions of Rule 144
promulgated under the Securities Act.
2.3 SOPHISTICATED INVESTOR. Such Purchaser is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and, except for the
Perscilla Faily Trust, an accredited investor (as defined in Rule 501 of
Regulation D), and such Purchaser has such experience in business and
financial matters that it is capable of evaluating the merits and risks of
an investment in the Securities. Such Purchaser acknowledges that the
Securities are speculative and involve a high degree of risk.
2.4 INDEPENDENT INVESTIGATION. Such Purchaser, in making its decision
to purchase the Securities subscribed for hereunder, has relied upon an
independent investigation made by it and/or its representatives and has not
relied on any oral or written representations or assurances from the Company
or any representative or agent of the Company, other than as set forth in
this Agreement, in the public filings of the Company and in the documents
described herein. Prior to the date hereof, such Purchaser has been
furnished with and has reviewed the Company's latest proxy statement and
Annual Report on Form 10-K sent to the Company's stockholders and all
documents filed by the Company since December 31, 1996 pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (such documents are collectively referred to in this
Agreement as the "Exchange Act Reports"). Such Purchaser has had a
reasonable opportunity to ask questions of and receive answers from the
Company concerning the Company and the offering of securities and has
received satisfactory answers to all inquiries it has made with respect to
the Company and the Securities. Such Purchaser acknowledges the price and
terms of the Securities offered hereby have been determined by negotiation
based, in part, on the market price for the Common Stock, and does not
necessarily bear any relationship to the assets, book value or potential
performance of the Company or any other recognized criteria of value.
2.5 AUTHORITY. This Agreement has been duly authorized and validly
executed, and delivered by such Purchaser and is a valid and binding
agreement enforceable in accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally.
2.6 NO LEGAL ADVICE FROM COMPANY. Such Purchaser acknowledges that it
has had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with his or its own legal counsel and tax
advisors. Except for any statements or representations of the Company made
in this Agreement and in the Exchange Act Reports, the Purchaser is relying
solely on such counsel and advisors and not on any statements or
representations of the Company or any of its representative or agents for
legal, tax or investment advice with respect to this investment, the
transactions contemplated by this Agreement or the securities laws of any
jurisdiction.
2.7 NO BROKERS. Such Purchaser has taken no action which would give
rise to any claim by any person for brokerage commission, finder's fees or
similar payments by the Company relating to this Agreement or the
transactions contemplated hereby.
2.8 NOT AN AFFILIATE. Prior to the First Closing, such Purchaser has
not been an officer, director or "affiliate" (as that term is defined in
Rule 405 of the Securities Act) of the Company.
2.9 RELIANCE ON REPRESENTATIONS AND WARRANTIES. Such Purchaser
understands that the Securities are being offered and sold to it in reliance
on specific provisions of United States federal and state securities laws
and that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgements and understandings
of such Purchaser set forth in this Agreement in order to determine the
applicability of such provisions.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Subject to and except as disclosed by the Company in APPENDIX A annexed
hereto (the "Disclosure Schedule"), the Company represents and warrants to each
of the Purchasers that:
3.1 COMPANY STATUS. The Company has registered the Common Stock
pursuant to Section 12(b) or 12(g) of the Exchange Act, is in full
compliance with all reporting requirements of the Exchange Act, and the
Company has maintained all requirements for the continued listing of the
Common Stock, and the Common Stock is currently listed on the Exchange. The
Company has not been advised that the Common Stock will be delisted from the
Exchange.
3.2 CURRENT PUBLIC INFORMATION. The Exchange Act Reports are the only
filings made by the Company since December 31, 1996 pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act.
3.3 NO DIRECTED SELLING EFFORTS OR GENERAL SOLICITATION IN REGARD TO
THIS TRANSACTION. Neither the Company nor any of its affiliates nor any
distributor or any person acting on its or their behalf has conducted any
"directed selling efforts" with respect to the Preferred Stock, the Warrants
or the Common Stock nor has the Company conducted any general solicitation
(as that term is used in Regulation D) with respect to any of the
Securities, nor have they made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would
require registration of the Securities under the Securities Act.
3.4 CAPITALIZATION; ISSUANCE OF SECURITIES.
(a) As of the date of this Agreement, the authorized capital stock of
the Company consists of 40,000,000 shares of Common Stock, of which
35,538,756 shares are issued and outstanding, and 2,000,000 shares of series
preferred stock, of which 1,000,000 shares have been designated Preferred
Stock, none of which shares are issued or outstanding. The Company has
adopted and filed the Certificate of Designation with the Secretary of State
of the State of Delaware. As of the date of the Second Closing, the
authorized capital stock of the Company consists of 65,000,000 shares of
Common Stock and 2,000,000 shares of series preferred stock, of which
1,000,000 shares have been designated Preferred Stock, all of which are
issued and outstanding. All of the issued and outstanding shares of Common
Stock have been duly and validly issued and are fully paid and
non-assessable. Except as set forth in Section 3.4 of the Disclosure
Schedule (i) no subscription, warrant, option, convertible security or other
right (contingent or otherwise) to purchase or acquire any shares of capital
stock of the Company is authorized or outstanding, (ii) the Company has no
obligation (contingent or otherwise) to issue any subscription, warrant,
option, convertible security or other such right or to issue or distribute
to holders of any shares of its capital stock any evidences of indebtedness
or assets of the Company, and (iii) the Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any
shares of its capital stock or any interest therein or to pay any dividend
or make any other distribution in respect thereof. All of the issued and
outstanding shares of capital stock of the Company have been offered, issued
and sold by the Company in compliance with applicable Federal and state
securities laws.
(b) The issuance, sale and delivery of the Securities in accordance with
this Agreement, the issuance and delivery of the shares of Common Stock
issuable upon conversion of the Preferred Stock and the issuance and
delivery of the shares of Common Stock upon exercise of the Warrants, have
been duly authorized by all necessary corporate action on the part of the
Company, and after the approval by the Company's stockholders of an
amendment to the Company's Certificate of Incorporation increasing the
number of authorized shares of Common Stock, all such shares shall be duly
reserved for issuance. Upon issuance of the Securities (other than the
Underlying Stock), the Securities (other than the Underlying Stock) will be
duly and validly issued, fully paid and non-assessable; after the approval
by the Company's stockholders of an amendment to the Company's
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Certificate of Incorporation increasing the number of authorized shares of
Common Stock, the shares of Common Stock issuable upon conversion of the
Preferred Stock shall be duly reserved by the Company for issuance, and when
issued and delivered in accordance with the terms of the Preferred Stock,
will be duly and validly issued, fully paid and non-assessable; and after
the approval by the Company's stockholders of an amendment to the Company's
Certificate of Incorporation increasing the number of authorized shares of
Common Stock, the shares of Common Stock issuable upon exercise of the
Warrants have been duly reserved by the Company for issuance, and when
issued and delivered in accordance with the terms of the Warrants, will be
duly and validly issued, fully paid and non-assessable.
(c) There are no agreements, written or oral, between the Company and
any holder of its capital stock or any security convertible into its capital
stock, or to the best of the Company's knowledge, among any such holders,
relating to the acquisition (including, without limitation, rights of first
refusal or pre-emptive rights), disposition, registration under the
Securities Act, or voting of the capital stock of the Company.
3.5 ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries, except for those listed on its Form 10-K filed with the SEC
for the year ended December 31, 1996. The Company and each such subsidiary
is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary other than those
in which the failure so to qualify would not have a Material Adverse Effect.
References to the "Company" in this Agreement shall also include each
subsidiary of the Company, except where the context otherwise requires.
3.6 AUTHORIZATION; ENFORCEMENT. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement and
to issue the Securities in accordance with the terms hereof and thereof,
(ii) the execution, issuance and delivery of this Agreement, the Preferred
Stock, the Warrants and the Common Stock by the Company and all other
agreements, including without limitation, the Registration Rights Agreement,
required to be executed by the Company as provided herein (collectively, the
"Ancillary Agreements"), and the consummation by the Company of the
transactions contemplated hereby and thereby, including without limitation,
the issuance of Common Stock upon the conversion or exercise thereof, have
been duly authorized by all necessary corporate action, and no further
consent or authorization of the Company or its Board of Directors or
stockholders is required, (iii) this Agreement and the Ancillary Agreements
have been duly executed and delivered by the Company, and (iv) this
Agreement, the Ancillary Agreements, the Preferred Stock and the Warrants
constitute, and upon execution, issuance and delivery thereof the Preferred
Stock and the Warrants shall be, valid and binding obligations of the
Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable
principles of general application.
3.7 CORPORATE DOCUMENTS. The Company has furnished or made available
to the Purchaser true and correct copies of the Company's Certificate of
Incorporation, as in effect on the date hereof (the "Certificate"), and the
Company's By-Laws, as in effect on the date hereof (the "By-Laws").
3.8 NO CONFLICTS. The execution, delivery and performance of this
Agreement and the Preferred Stock, the Warrants and Common Stock by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby, including without limitation the issuance of common
stock upon the conversion or exercise thereof, do not and will not (i)
result in a violation of or conflict with the Certificate or By-Laws or (ii)
violate, conflict with, or constitute a
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breach of or default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement,
indenture or instrument to which the Company or any of its subsidiaries is a
party, or result in a violation of any Federal, state, local or foreign law,
rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected, except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as
would not, individually or in the aggregate, have a Material Adverse Effect.
The business of the Company is not being conducted in violation of any law,
ordinance or regulations of any governmental entity, except for possible
violations which either singly or in the aggregate do not and will not have
a Material Adverse Effect. The Company is not required under Federal, state
or local law, rule or regulation in the United States to obtain any consent,
authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform
any of its obligations under this Agreement or issue and sell the Securities
in accordance with the terms hereof and thereof (other than (i) compliance
with the applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "Hart-Scott-Rodino Act") and (ii)
any SEC, NASD, Nasdaq Inc. or state securities filings which may be required
to be made by the Company subsequent to either the First Closing or the
Second Closing, and any registration statement which may be filed pursuant
hereto); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the
relevant representations and agreements of the Purchasers herein.
3.9 EXCHANGE ACT REPORTS; FINANCIAL STATEMENTS. The Company has
delivered or made available to the Purchasers true and complete copies of
the Exchange Act Reports (including, without limitation, proxy information
and solicitation materials). As of their respective dates, the Exchange Act
Reports complied in all material respects with the requirements of the
Exchange Act and rules and regulations of the SEC promulgated thereunder and
other Federal, state and local laws, rules and regulations applicable to
such Exchange Act Reports, and none of the Exchange Act Reports contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Exchange
Act Reports comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed
or summary statements) and fairly present the financial condition of the
Company as of the dates thereof and the results of operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments which in the aggregate will not be
material).
3.10 NO MATERIAL ADVERSE CHANGE. Since December 31, 1996, the date
through which the most recent annual report of the Company on Form 10-K
which has been prepared and filed with the SEC, a copy of which is included
in the Exchange Act Reports, there has been no material adverse change in
the business, operations, properties, prospects, condition, financial or
otherwise, net worth, or results of operations of the Company or its
subsidiaries, except as described in the Company's Form 10-Qs filed with the
SEC for the quarterly periods ended March 31, and June 30, 1997, and the
Disclosure Schedule.
3.11 NO UNDISCLOSED LIABILITIES. The Company and its subsidiaries have
no liabilities or obligations of any type, which in the aggregate exceed
$100,000, that are not fully reflected or disclosed in
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the Exchange Act Reports, other than those incurred in the ordinary course
of the Company's or its subsidiaries' respective businesses since June 30,
1997.
3.12 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or circumstance
has occurred or exists with respect to the Company or its subsidiaries or
their respective businesses, properties, prospects, operations or condition,
financial or otherwise, which, under applicable law, rule or regulation,
requires disclosure in the Exchange Act Reports or public disclosure prior
to the date hereof by the Company and which has not been so disclosed.
3.13 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers
to buy any security, under circumstances that would require registration
under the Securities Act of the offer, issuance and sale of the Securities
to the Purchasers.
3.14 NO BROKERS. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Purchasers relating to this Agreement or the
transactions contemplated hereby.
3.15 PROFORMA SEPTEMBER 30, 1997 FINANCIAL STATEMENTS. The proforma
balance sheet and financial statements of the Company as of September 30,
1997 (the "Pro Forma Financials") which have been furnished to the
Purchasers are true and correct in all material respects. The Pro Forma
Financials have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods
involved (except to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present the financial condition
of the Company as of the dates thereof and the results of operations and
cash flows for the periods then ended (subject to normal year-end audit
adjustments which in the aggregate will not be material).
3.16 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration
or filing with, any governmental authority is required on the part of the
Company in connection with the execution and delivery of this Agreement, the
offer, issuance, sale and delivery of the Securities, or the other
transactions to be consummated at the First and Second Closings (other than
the stockholder approval with respect to the Second Closing in accordance
with Section 1.3(b)(vii)), as contemplated by this Agreement, except such
filings as shall have been made prior to and shall be effective on and as of
such Closing. Based on the representations made by the Purchasers in Section
2 of this Agreement, the offer and sale of the Securities to the Purchasers
will be in compliance with applicable Federal and state securities laws.
3.17 LITIGATION. There is no action, suit or proceeding, or
governmental inquiry or investigation, pending, or, to the best of the
Company's knowledge, any basis therefor or threat thereof, against the
Company, which questions the validity of this Agreement or the right of the
Company to enter into it, or which might result, either individually or in
the aggregate, in a Material Adverse Effect.
3.18 INTELLECTUAL PROPERTY. Set forth in the Disclosure Schedule is a
true and complete list of all patents, patent applications, trademarks,
service marks, trademark and service mark applications, trade names,
copyright registrations and licenses presently used by the Company or
necessary for the conduct of the Company's business as conducted and as
proposed to be conducted, as well as any agreement under which the Company
has access to any confidential information used by the Company in its
business (collectively, the "Intellectual Property Rights"). The Company
owns, or has the right to use under the agreements or upon the terms
described in the Disclosure Schedule, all of the Intellectual Property
Rights, and has taken all actions reasonably necessary to protect the
Intellectual Property Rights. The business conducted or proposed by the
Company does not and will not cause the Company to infringe or violate any
of the patents, trademarks, service marks, trade names, copyrights,
licenses, trade secrets or other intellectual property rights of any other
person or entity. The Company is not aware that any employee is obligated
under any contract (including any license, covenant or
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commitment of any nature), or subject to any judgment, decree or order of
any court or administrative agency, that would conflict or interfere with
(i) the performance of employee's duties as an officer, employee or director
of the Company, (ii) the use of such employee's best efforts to promote the
interests of the Company or (iii) the Company's business as conducted or
proposed to be conducted. No other person or entity (including without
limitation any prior employer of any employee of the Company) has any right
to or interest in any inventions, improvements, discoveries or other
confidential information utilized by the Company in its business.
3.19 MATERIAL CONTRACTS AND OBLIGATIONS. Section 3.19 of the
Disclosure Schedule lists each material agreement to which the Company is a
party or subject, including without limitation all material employment and
consulting agreements, employee benefit, bonus, pension, profit-sharing,
stock option, stock purchase and similar plans and arrangements, and
distributor and sales representative agreements. The Disclosure Schedule
lists each agreement with any stockholder, officer or director of the
Company, or any "affiliate" or "associate" of such persons (as such terms
are defined in the rules and regulations promulgated under the Securities
Act), including without limitation any agreement or other arrangement
providing for the furnishing of services by, rental of real or personal
property from, or otherwise requiring payments to, any such person or entity
and any agreement relating to the Intellectual Property Rights. The Company
has delivered to counsel to the Purchasers copies of all of the foregoing
agreements. All of such agreements and contracts are valid, binding and in
full force and effect.
3.20 EMPLOYEES. All employees of the Company whose employment
responsibility requires access to confidential or proprietary information of
the Company have executed and delivered nondisclosure and assignment of
invention agreements in the form attached hereto as Exhibit F, and all of
such agreements are in full force and effect.
3.21 ERISA. The Company does not have or otherwise contribute to or
participate in any employee benefit plan subject to the Employee Retirement
Income Security Act of 1974.
3.22 BOOKS AND RECORDS. The minute books of the Company contain
complete and accurate records of all meetings and other corporate actions of
its stockholders and its Board of Directors and committees thereof. The
Company has delivered to counsel to the Purchasers copies of all of the
minutes of all meetings and other corporate actions of its stockholders and
its Board of Directors and committees thereof held or taken since October 1,
1995.
3.23 SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW. The
transactions contemplated by this Agreement have been approved by the Board
of Directors of the Company for purposes of Section 203 of the Delaware
General Corporation Law.
3.24 DISCLOSURES. Neither this Agreement nor any Attachment or Exhibit
hereto, nor any report, certificate or instrument furnished to any Purchaser
or its counsel in connection with the transactions contemplated by this
Agreement, when read together, contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. The Company knows
of no information or fact which has or would have a Material Adverse Effect
which has not been disclosed in the Disclosure Schedule.
4. COVENANTS
4.1 REGISTRATION RIGHTS. The Company agrees that, at the First Closing, it
will enter into a Registration Rights Agreement with the Purchasers, in the form
and substance of Exhibit E attached hereto.
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4.2 RESERVATION OF COMMON STOCK.
(a) As of the date hereof, the Company has reserved and the Company shall
continue to reserve and keep available at all times, free of preemptive rights,
250,000 shares of Common Stock for the purpose of enabling the Company to
satisfy any obligation to issue shares of its Common Stock upon conversion of
the Preferred Stock and exercise of the Warrants, and to sell to each of the
Purchasers shares of its Common Stock at the Second Closing. The number of
shares so reserved shall be increased to reflect stock splits and stock
dividends and distributions.
(b) From and after the date of stockholder approval of an amendment to the
Company's Certificate of Incorporation to increase the number of authorized
shares of Common Stock, the Company shall reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue shares of its Common
Stock upon conversion of the Preferred Stock and exercise of the Warrants, and
to sell to each of the Purchasers shares of its Common Stock at the Second
Closing. The number of shares so reserved shall be increased to reflect stock
splits and stock dividends and distributions.
4.3 LISTING OF SHARES. The Company hereby agrees, promptly following the
First Closing, to take such action to cause the Shares to be listed on the
Exchange as promptly as possible but no later than 90 days following the First
Closing Date. The Company further agrees, if the Company applies to have its
Common Stock traded on any principal stock exchange or market, it will include
the Shares in such application and will take such other action as is necessary
or desirable to cause the Shares to be listed on such other exchange or market
as promptly as possible.
4.4 EXCHANGE ACT REGISTRATION. The Company will cause its Common Stock to
continue to be registered under Section 12(g) or 12(b) of the Exchange Act, will
comply in all respects with its reporting and filing obligations under the
Exchange Act, and will not take any action or file any document (whether or not
permitted by the Exchange Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act. The Company will take all action under its
control to continue the listing and trading of its Common Stock on the Exchange
and will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the NASD, the Nasdaq Inc. and the
Exchange.
4.5 LEGENDS. The Shares, and certificates evidencing the same shall, upon
the effectiveness of the Registration Statement to be filed pursuant to the
Registration Rights Agreement described in Section 4.1 (the "Registration
Statement") be free of legends (except as provided in Section 5.1 below), "stop
transfers," so-called, "stock transfer restrictions," or other restrictions.
4.6 CORPORATE EXISTENCE. The Company will take all steps necessary to
preserve and continue the corporate existence of the Company.
4.7 BOARD OF DIRECTORS NOMINATIONS. The Company will cause David J. Dunn
and Jonathan S. Huberman, or their successors as designated by the Purchasers
(by action of the holders of at least 51% of the then outstanding Shares on
as-converted basis), to be nominated on the Company's management slate of
Directors for election to the Company's Board of Directors at the 1997 Annual
Meeting of Stockholders to be held on or prior to December 19, 1997, and for
re-election to the Company's Board of Directors on each Proxy Statement filed
for each subsequent Annual Meeting of Stockholders (or Special Meeting of
Stockholders where directors are elected) as their respective board seats come
up for re-election until the earlier of (a) the date that the Company first
reports Annual Net Income of at least Fifteen Million Dollars ($15,000,000) and
(b) the date that the Purchasers (including for this purpose each of the
Purchaser's general partners and members of their respective immediate families
to whom shares may have been distributed by a Purchaser) collectively own less
than the Minimum Holdings (as defined below). The "Minimum Holdings" shall be
the number of shares of Common Stock equal to 50% of the sum of (i) 4,582,500
(subject to appropriate adjustment for any stock dividend, stock split,
combination or other
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<PAGE>
similar recapitalization) (such number being the total number of shares of
Common Stock issuable, as of the First Closing, upon conversion of the Preferred
Stock issued to the Purchasers at the First Closing) and (ii) the total number
of shares of Common Stock, if any, issued to the Purchasers at the Second
Closing. For purposes of determining the total number of shares of Common Stock
owned by the Purchasers, each of the Purchaser's general partners and members of
their respective immediate families to whom shares may have been distributed by
a Purchaser, such holders shall be deemed to own the total number of shares of
Common Stock issuable upon conversion of the Preferred Stock. "Annual Net
Income", as used herein, means the net income of the Company for a full fiscal
year as reported in the Company's audited financial statements for such year,
adjusted, however, by excluding from revenue for such fiscal year any
extraordinary or non-recurring revenue and any up-front license fees which
entitle the licensee-payor to license rights for a period in excess of one year.
4.8 RIGHT OF FIRST REFUSAL.
(a) Until such time as the earlier of (i) the date that the Company first
reports Annual Net Income of Fifteen Million Dollars ($15,000,000) and (ii) the
date that the Purchasers and their respective affiliates described in Section
4.7 collectively own less than the Minimum Holdings, each of the Purchasers
shall have the right of first refusal to purchase all or part of its pro rata
share of any New Securities (as defined below) which the Company may, from time
to time, propose to sell and issue, subject to the terms and conditions set
forth below. Each Purchaser's pro rata share, for purposes of this Section 4.8,
shall equal a fraction, the numerator of which is the number of shares of Common
Stock then held by such Purchaser or issuable upon conversion or exercise of any
shares of Preferred Stock, the Warrants or other convertible securities,
options, rights or warrants then held by such Purchaser, and the denominator of
which is the total number of shares of Common Stock then outstanding plus the
number of shares of Common Stock issuable upon conversion or exercise of then
outstanding Preferred Stock or the Warrants or other convertible securities,
option, rights or warrants held by the Purchasers.
(b) "New Securities" shall mean any shares of capital stock of the Company
whether now authorized or not, and rights, options or warrants to purchase
capital stock, and securities of any type whatsoever which are, or may become,
convertible into capital stock; provided, however, that the term "New
Securities" does not include
(i) the shares of Preferred Stock and the Warrants issued or issuable to
the Purchasers pursuant to the terms of this Agreement or the shares of
Common Stock issued or issuable to the Purchasers upon conversion of such
securities;
(ii) securities issued for the acquisition of another corporation by the
Company by merger, purchase of substantially all the assets of such
corporation or another reorganization resulting in the ownership by the
Company of not less than a majority of the voting power of such corporation;
(iii) not more than 4,037,618 shares of Common Stock (such number being
subject to adjustment for any stock dividend, stock split, subdivision,
combination or other recapitalization of the Common Stock of the Company)
issued to directors or employees of or consultants to the Company pursuant
to the Company's stock option plans and such additional shares of Common
Stock that may be issued to employees of or consultants to the Company
pursuant to stock option plans approved by a majority of the members of the
Company's Board of Directors then in office;
(iv) not more than 117,433 shares of Common Stock (such number being
subject to adjustment for any stock dividend, stock split, subdivision,
combination or other recapitalization of the Common Stock of the Company)
issued to employees of the Company pursuant to the Company's employee stock
purchase plan;
(v) not more than 304,500 shares of Common Stock (such number being
subject to adjustment for any stock dividend, stock split, subdivision,
combination or other recapitalization of the Common
B-13
<PAGE>
Stock of the Company) issued to Halifax Fund L.P. or Capital Ventures
International or their permitted transferees, pursuant to warrants issued to
such holders and outstanding on the date hereof;
(vi) not more than 202,595 shares of Common Stock (such number being
subject to adjustment for any stock dividend, stock split, subdivision,
combination or other recapitalization of the Common Stock of the Company)
issued to Benjamin Huberman, James Fiebiger, Ton Tanke and Horst Sandfort or
their permitted transferees, pursuant to warrants issued to such holders and
outstanding on the date hereof;
(vii) not more than 500,000 shares of Common Stock (such number being
subject to adjustment for any stock dividend, stock split, subdivision,
combination or other recapitalization of the Common Stock of the Company)
issued to Siemens Aktiengesellschaft ("Siemens"), pursuant to Section 5.1 of
that certain License Agreement between the Company and Siemens dated October
22, 1997; or
(viii) securities issued as a result of any stock split, stock dividend or
reclassification of Common Stock, distributable on a pro rata basis to all
holders of Common Stock.
(c) In the event the Company intends to issue New Securities, it shall give
each Purchaser written notice of such intention, describing the type of New
Securities to be issued, the price thereof and the general terms upon which the
Company proposes to effect such issuance. Each of the Purchasers shall have 20
days from the date of its receipt of any such notice to agree to purchase all or
part of its pro rata share of New Securities, and any additional New Securities
not purchased by the other Purchasers, for the price and upon the general terms
and conditions specified in the Company's notice by giving written notice to the
Company stating the quantity of New Securities to be so purchased. In the event
a Purchaser elects not to purchase all of its pro rata share of New Securities,
and if each of the other Purchasers has given written notice to the Company that
it does not desire to purchase the New Securities not being purchased, the
Company may issue the New Securities described in the Company's notice within 30
days after the expiration of such 20-day period, for the price and upon the
general terms and conditions specified in the Company's notice to the
Purchasers.
(d) For purposes of this Section 4.8, "Purchaser" shall include the general
partners, officers or other affiliates of the Purchaser and members of their
families, and the Purchasers may apportion, to the extent such apportionment
would not prevent the Company from issuing New Securities in satisfaction of its
obligations under this Section 4.8 pursuant to an exemption from registration
under the Securities Act, its pro rata share among itself and such general
partners, officers, affiliates and family members in such proportion as it deems
appropriate.
4.9 ABSENCE OF STOCKHOLDER APPROVAL. In the event the stockholders of the
Company do not approve the proposals described in Section 1.3(a)(x) of this
Agreement at the Company's 1997 Annual Meeting of Stockholders to be held on or
prior to December 19, 1997, the Company shall promptly reimburse each of the
Purchasers for the reasonable costs and expenses, including reasonable
attorneys' fees, incurred by such Purchaser in connection with this Agreement
and the transactions contemplated hereby; and the condition to exercise
contained in the second paragraph of the Warrants shall cease to apply with the
effect that such Warrants shall be irrevocably exercisable in accordance with
their terms.
4.10 BOARD OF DIRECTORS EXPANSION, ETC. The Company and the Purchasers
agree that the election of the Chairman of the Board of the Company, if any, and
the nomination of additional Directors to serve as members of the Board beyond
the number specified in Section 1.3(a)(x) of this Agreement shall require the
affirmative vote of three-fourths of the members of the Board of Directors then
in office, and the Company shall use its best efforts to cause its Board of
Directors to amend by the By-laws of the Company to include therein such a
provision. Any amendments to such bylaw provision shall require the affirmative
vote of three-fourths of the members of the Board of Directors then in office.
4.11 HART-SCOTT-RODINO ACT. The Company and the Purchasers shall each
promptly file any Notification and Report Forms and related material that it may
be required to file with the Federal Trade
B-14
<PAGE>
Commission and the Antitrust Division of the United States Department of Justice
under the Hart-Scott-Rodino Act, shall use its best efforts to obtain an early
termination of the applicable waiting period, and shall make any further filings
or information submissions pursuant thereto that may be necessary, proper or
advisable.
4.12 SALE OF SHARES UNDER RULE 144. From and after the First Closing, at
the request of any holder of Shares (or other Registrable Securities (as defined
in the Registration Rights Agreement) who proposes to sell the same in
compliance with Rule 144 under the Securities Act, the Company shall (a)
promptly furnish to such holder a written statement as to its compliance with
the filing requirements of the SEC as set forth in Rule 144, as the same may be
amended from time to time, and (b) make such additional filings of reports with
the SEC as will enable the holders of Registrable Securities to make sales
thereof pursuant to such Rule. The Company shall provide its transfer agent with
appropriate instructions and/or opinions of counsel in order for any restrictive
legend contained on the certificates for the Shares (or other Registrable
Securities) to be removed when appropriate and for such holders to sell,
transfer and/or dispose of the Registrable Securities in accordance with Rule
144.
4.13 EXERCISE OF THE WARRANTS. Each of the Purchasers agrees that it shall
not exercise the Warrants, in whole or in part, on or prior to December 19,
1997, PROVIDED, HOWEVER, each of the Purchasers may elect to exercise Warrants,
in whole or in part, prior to such date in the event of any proposed (a) merger
or consolidation of the Company into or with another corporation or other
entity, (b) sale or other transfer in one or more transactions of 50% or more of
the assets or earning power of the Company, (c) tender or exchange offer for
securities of the Company, (d) sale or other transfer in one or more
transactions of 20% or more of the securities of the Company, or (e)
liquidation, dissolution or winding up of the Company.
4.14 ABSENCE OF MATERIAL CHANGES. In addition to any other rights provided
by law or in the Certificate of Designations, prior to January 31, 1998, without
the prior written consent of the Purchasers holding at least 51% of the Shares
then outstanding, the Company shall not: (a) issue any stock, bonds or other
corporate securities or grant any option or issue any warrant to purchase or
subscribe for any of such securities or issue any securities convertible into
such securities, EXCLUDING, HOWEVER, options to purchase Common Stock issued to
employees of the Company in the ordinary course of business pursuant to the
Company's existing stock option plans; (b) declare or make any payment or
distribution to its stockholders with respect to its stock, including without
limitation a stock split or stock dividend, or purchase or redeem any shares of
its capital stock; (c) reclassify any shares of its capital stock; (d) merge or
consolidate with or into any corporation or other entity, or sell all or
substantially all of its assets; or (e) commit or agree to do any of the
foregoing in the future.
5. LEGENDS
5.1 LEGENDS. The certificates evidencing the Preferred Stock, the
certificates evidencing the Common Stock purchased by the Purchaser at the
Second Closing and certificates evidencing any shares of Common Stock issued
upon conversion of the Preferred Stock prior to the effectiveness of the
Registration Statement and, except as hereinafter provided in this Section 5.1,
after effectiveness of the Registration Statement, will bear the following
legend (the "Legend"):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
At the First Closing, the Company will issue to the transfer agent for its
Common Stock (and to any substitute or replacement transfer agent for its Common
Stock coterminous with the Company's appointment of any such substitute or
replacement transfer agent) irrevocable instructions in form and substance
reasonably satisfactory to the Purchasers. It is the intent and purpose of such
instructions to require the
B-15
<PAGE>
transfer agent for the Common Stock from time to time to issue certificates
evidencing the Shares free of the Legend during the following periods and under
the following circumstances and without consultation by the transfer agent with
Company or its counsel and without the need for any further advice or
instruction to the transfer agent by or from the Company or its counsel:
(a) At any time from and after the effectiveness of the Registration
Statement, except during periods when use of the Registration Statement is
suspended (as described in Section 7 of the Registration Rights Agreement):
(i) Upon any surrender of one or more Preferred Stock certificates
for conversion into Underlying Stock, to the extent such surrender is
accompanied by a conversion notice requesting the issuance of
certificates evidencing Common Stock free of the Legend and either
containing or also accompanied by representations to the effect that the
holder of the surrendered securities intends to effect one or more sales
of such Shares pursuant to and in accordance with the Registration
Statement, including the prospectus delivery requirements applicable
thereto; and
(ii) upon any surrender of one or more certificates evidencing
Shares and which bear the Legend, to the extent accompanied by a notice
requesting the issuance of new certificates free of the Legend to replace
those surrendered and containing or also accompanied by representations
by the holder of the surrendered securities to the effect of those
described in Section 5.1(a)(i) above.
(b) At any time from and after the First Closing Date, upon any
surrender of one or more certificates evidencing Shares and which bear the
Legend, to the extent accompanied by a notice requesting the issuance of new
certificates free of the Legend to replace those surrendered and containing
or also accompanied by representations that (i) the holder thereof is
permitted to dispose thereof pursuant to Rule 144 promulgated under the
Securities Act or (ii) the holder intends to effect the sale or other
disposition of such securities, whether or not pursuant to the Registration
Statement, to a purchaser or purchasers who will not be subject to the
registration requirements of the Securities Act, or (iii) such holder is not
then subject to such requirements.
In addition, and if applicable, the Company shall reissue the Preferred
Stock, the Common Stock and the Underlying Stock without the Legend at such time
as (i) the holder thereof is permitted to dispose thereof pursuant to Rule 144
under the Securities Act or (ii) the holder intends to effect a sale thereof to
a purchaser or purchasers who will not be subject to the registration
requirements of the Securities Act, or (iii) the holder is not then subject to
such requirements.
5.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No legend has been or
shall be placed on the share certificates representing the Securities and no
instructions or "stop transfers," so called, "stock transfer restrictions," so
called, or other restrictions have been or shall be given to the Company's
transfer agent with respect thereto, other than as set forth in this Section 5.
5.3 PURCHASER'S COMPLIANCE. Nothing in this section shall affect in any
way the Purchasers' obligations under and agreement to comply with all
applicable securities laws upon resale of the Securities.
6. CHOICE OF LAW AND VENUE
THIS AGREEMENT SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF CALIFORNIA,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW, EXCEPT TO THE
EXTENT THAT THE LAW OF THE STATE OF DELAWARE REGULATES THE COMPANY'S ISSUANCE OF
SECURITIES.
B-16
<PAGE>
7. ASSIGNMENT; ENTIRE AGREEMENT; AMENDMENT
7.1 ASSIGNMENT. This Agreement may not be assigned by the Purchasers or
the Company to any other person. Notwithstanding the foregoing, the provisions
of this Agreement shall inure to the benefit of, and be enforceable by, any
assignee of a Purchaser which is a general partner of such Purchaser and by any
transferee of any of the Securities purchased or acquired by such Purchaser
hereunder with respect to the Securities held by such person or entity.
7.2 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Preferred Stock, the
Warrants, the Common Stock, the Registration Rights Agreement, the Ancillary
Agreements and the other agreements and documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof and supersede all prior
agreements and understandings relating to such subject matter, and no party
shall be liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth in this Agreement
or therein. Except as expressly provided in this Agreement, neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought.
8. PUBLICITY
The Company agrees that it will not disclose, and will not include in any
public announcement, the name of a Purchaser without its consent, unless and
until such disclosure is required by law or applicable regulation, and then only
to the extent of such requirement and subject to the prior review of the content
of such disclosure by each of the Purchasers.
9. NOTICES, ETC.; EXPENSES; INDEMNITY
9.1 NOTICES. Any notice, demand, request or other communication required
or permitted to be given by either the Company or a Purchaser pursuant to the
terms of this Agreement shall be in writing and shall be deemed to have been
duly given when delivered personally or by facsimile, with a hard copy to follow
by overnight delivery by a reputable courier:
If to the Company, at 47100 Bayside Parkway, Fremont, California 94538,
Attention: President, Facsimile No: (510) 623-4405, or at such other address
or addresses as may have been furnished in writing by the Company to the
Purchasers, with a copy to Andrew J. Hirsch, Esq., Wilson Sonsini Goodrich &
Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto, California
94304, Facsimile No. (650) 493-6811; or
If to a Purchaser, at its address set forth in Exhibit A, or at such
other address or addresses as may have been furnished to the Company in
writing by such Purchaser, with a copy to Paul P. Brountas, Esq., Hale and
Dorr LLP, 60 State Street, Boston, Massachusetts 02109, Facsimile No: (617)
526-5000.
9.2 INDEMNIFICATION. Each party ("Indemnifying Party") shall indemnify the
other party against any loss, liabilities, expenses, cost or damages (including
reasonable attorney's fees) incurred as a result of the Indemnifying Party's
breach of any representation, warranty, covenant or agreement in this Agreement.
In addition, if the Company fails for any reason to sell the Preferred Stock to
the Purchasers at the First Closing, the Company shall promptly pay the
Purchaser an amount equal to the Purchasers' reasonable expenses and costs
(including without limitation, reasonable attorneys' fees) incurred in
connection with this Agreement and the transactions contemplated hereby.
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<PAGE>
10.COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be enforceable against the parties actually executing such counterparts,
and all of which together shall constitute one instrument.
11.SURVIVAL; SEVERABILITY
The representations, warranties, covenants and agreements of the parties
hereto shall survive both the First Closing and the Second Closing. In the event
that any provision of this Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable or void, this Agreement
shall continue in full force and effect without said provision; provided that
the absence of such provision does not materially change the economic benefit of
this Agreement to any party.
12.TITLE AND SUBTITLES
The titles and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this Agreement.
IN WITNESS WHEREOF, the parties have signed this Agreement the day and year
first written above.
<TABLE>
<S> <C>
ATTEST GATEFIELD CORPORATION
/s/ DOUGLAS E. KLINT By: /s/ JAMES R. FIEBIGER
- ---------------------------------------------
Douglas E. Klint --------------------------------------------
VICE PRESIDENT, GENERAL COUNSEL James R. Fiebiger
AND CORPORATE SECRETARY ITS PRESIDENT AND CHIEF EXECUTIVE OFFICER
PURCHASERS:
IDANTA PARTNERS LTD.
By: /s/ DAVID J. DUNN
--------------------------------------------
David J. Dunn, TRUSTEE
DUNN FAMILY TRUST
GENERAL PARTNER
DUNN FAMILY TRUST
By: /s/ DAVID J. DUNN
--------------------------------------------
David J. Dunn, TRUSTEE
PERSCILLA FAILY TRUST
By: /s/ PERSCILLA FAILY
--------------------------------------------
Perscilla Faily, TRUSTEE
</TABLE>
B-18
<PAGE>
EXHIBIT A
LIST OF PURCHASERS
<TABLE>
<CAPTION>
NO. OF SHARES NO. OF SHARES NO. OF SHARES
OF PREFERRED OF COMMON STOCK OF COMMON STOCK
STOCK ISSUABLE UPON AGGREGATE PURCHASE TO BE PURCHASED
TO BE PURCHASED EXERCISE OF PRICE TO BE PAID AT SECOND
NAME AND ADDRESS OF PURCHASER AT FIRST CLOSING WARRANT AT FIRST CLOSING CLOSING
- ------------------------------------ ----------------- ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
Idanta Partners Ltd. ............... 790,000 788,223 $ 3,620,175 3,620,175
4660 La Jolla Village Drive, Suite
850
San Diego, California 91222
Attn: David J. Dunn
Facsimile No.: (619) 452-2013
Dunn Family Trust .................. 200,000 199,550 $ 916,500 916,500
4660 La Jolla Village Drive, Suite
850
San Diego, California 91222
Attn: David J. Dunn, Trustee
Facsimile No.: (619) 452-2013
Perscilla Faily Trust .............. 10,000 9,978 $ 45,825 45,825
4660 La Jolla Village Drive, Suite
850
San Diego, California 91222
Attn: Perscilla Faily, Trustee
Facsimile No.: (619) 452-2013
----------------- ---------- ------------------ ----------------
TOTAL........................... 1,000,000 997,751 $ 4,582,500 4,582,500
----------------- ---------- ------------------ ----------------
----------------- ---------- ------------------ ----------------
</TABLE>
B-A-1
<PAGE>
EXHIBIT B
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT
Warrant No. ______ Number of Shares: ____________________
(subject to adjustment)
Date of Issuance: November 10, 1997
GATEFIELD CORPORATION
COMMON STOCK PURCHASE WARRANT
(Void after November 10, 1999)
GateField Corporation, a Delaware corporation (the "Company"), for value
received, hereby certifies that ______, or its registered assigns (the
"Registered Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company, at any time or from time to time on or after the date
of issuance and on or before November 10, 1999 at not later than 5:00 p.m.
(California time), ______ shares of Common Stock, $.10 par value per share, of
the Company, at a purchase price of $1.00 per share. The shares purchasable upon
exercise of this Warrant, and the purchase price per share, each as adjusted
from time to time pursuant to the provisions of this Warrant, are hereinafter
referred to as the "Warrant Shares" and the "Purchase Price," respectively.
Notwithstanding the foregoing, if (A) the stockholders of the Company
approve the proposals to be submitted to them at the 1997 Annual Meeting of
Stockholders to be held or or prior to December 19, 1997, as set forth in
Section 1.3(a)(x) of the Stock Purchase Agreement among the Company, the
Registered Holder, the Dunn Family Trust and the Perscilla Faily Trust
(collectively, the "Purchasers"), dated November 10, 1997 (the "Stock Purchase
Agreement"), and (B) the Company issues 4,582,500 shares of its Common Stock to
the Purchasers at the Second Closing (as defined the Stock Purchase Agreement),
then, and only in such event, this Warrant shall be cancelled and all of the
rights of the Registered Holder and the obligations of the Company hereunder
shall be of no further force or effect and shall terminate effective at the
later of, (i) the time such stockholder approval is so obtained and certified by
the Secretary of the Company and the amendment to the Certificate of
Incorporation of the Company so approved by the stockholders is duly filed and
recorded under the laws of the State of Delaware and (ii) the effective time of
the transactions consummated at the Second Closing (as defined in the Stock
Purchase Agreement).
1. EXERCISE.
(a) This Warrant may be exercised by the Registered Holder, in whole or in
part, by surrendering this Warrant, with the purchase form appended hereto as
EXHIBIT I duly executed by such Registered Holder or by such Registered Holder's
duly authorized attorney, at the principal office of the Company, or at such
other office or agency as the Company may designate, accompanied by payment in
full, in lawful money of the United States, of the Purchase Price payable in
respect of the number of Warrant Shares purchased upon such exercise.
(b) The Registered Holder may, at its option, elect to pay some or all of
the Purchase Price payable upon an exercise of this Warrant by cancelling a
portion of this Warrant exercisable for such number of Warrant Shares as is
determined by dividing (i) the total Purchase Price payable in respect of the
number of Warrant Shares being purchased upon such exercise by (ii) the excess
of the Fair Market Value per share of Common Stock as of the effective date of
exercise, as determined pursuant to subsection 1(c) below (the
B-B-1
<PAGE>
"Exercise Date") over the Purchase Price per share. If the Registered Holder
wishes to exercise this Warrant pursuant to this method of payment with respect
to the maximum number of Warrant Shares purchasable pursuant to this method,
then the number of Warrant Shares so purchasable shall be equal to the total
number of Warrant Shares, minus the product obtained by multiplying (x) the
total number of Warrant Shares by (y) a fraction, the numerator of which shall
be the Purchase Price per share and the denominator of which shall be the Fair
Market Value per share of Common Stock as of the Exercise Date. The Fair Market
Value per share of Common Stock shall be determined as follows:
(i) If the Common Stock is listed on a national securities exchange, the
Nasdaq National Market, or another nationally recognized exchange or trading
system as of the Exercise Date, the Fair Market Value per share of Common
Stock shall be deemed to be the last reported sale price per share of Common
Stock thereon on the Exercise Date; or, if no such price is reported on such
date, such price on the next preceding business day (provided that if no
such price is reported on the next preceding business day, the Fair Market
Value per share of Common Stock shall be determined pursuant to clause
(ii)).
(ii) If the Common Stock is not listed on a national securities
exchange, the Nasdaq National Market, or another nationally recognized
exchange or trading system as of the Exercise Date, the Fair Market Value
per share of Common Stock shall be deemed to be the amount most recently
determined by the Board of Directors to represent the fair market value per
share of the Common Stock (including without limitation a determination for
purposes of granting Common Stock options or issuing Common Stock under an
employee benefit plan of the Company); and, upon request of the Registered
Holder, the Board of Directors (or a representative thereof) shall promptly
notify the Registered Holder of the Fair Market Value per share of Common
Stock. Notwithstanding the foregoing, if the Board of Directors has not made
such a determination within the three-month period prior to the Exercise
Date, then (A) the Fair Market Value per share of Common Stock shall be the
amount next determined by the Board of Directors to represent the fair
market value per share of the Common Stock (including without limitation a
determination for purposes of granting Common Stock options or issuing
Common Stock under an employee benefit plan of the Company), (B) the Board
of Directors shall make such a determination within 15 days of a request by
the Registered Holder that it do so, and (C) the exercise of this Warrant
pursuant to this subsection 1(b) shall be delayed until such determination
is made.
(c) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in subsection 1(a) above.
At such time, the person or persons in whose name or names any certificates for
Warrant Shares shall be issuable upon such exercise as provided in subsection
1(d) below shall be deemed to have become the holder or holders of record of the
Warrant Shares represented by such certificates.
(d) As soon as practicable after the exercise of this Warrant in full or in
part, and in any event within 10 days thereafter, the Company, at its expense,
will cause to be issued in the name of, and delivered to, the Registered Holder,
or as such Holder (upon payment by such Holder of any applicable transfer taxes)
may direct:
(i) a certificate or certificates for the number of full Warrant Shares
to which such Registered Holder shall be entitled upon such exercise plus,
in lieu of any fractional share to which such Registered Holder would
otherwise be entitled, cash in an amount determined pursuant to Section 3
hereof; and
(ii) in case such exercise is in part only, a new warrant or warrants
(dated the date hereof) of like tenor, calling in the aggregate on the face
or faces thereof for the number of Warrant Shares equal (without giving
effect to any adjustment therein) to the number of such shares called for on
the face of this Warrant minus the sum of (a) the number of such shares
purchased by the Registered Holder
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upon such exercise plus (b) the number of Warrant Shares (if any) covered by
the portion of this Warrant cancelled in payment of the Purchase Price
payable upon such exercise pursuant to subsection 1(b) above.
2. ADJUSTMENTS.
(a) If outstanding shares of the Company's Common Stock shall be subdivided
into a greater number of shares or a dividend in Common Stock shall be paid in
respect of Common Stock, the Purchase Price in effect immediately prior to such
subdivision or at the record date of such dividend shall simultaneously with the
effectiveness of such subdivision or immediately after the record date of such
dividend be proportionately reduced. If outstanding shares of Common Stock shall
be combined into a smaller number of shares, the Purchase Price in effect
immediately prior to such combination shall, simultaneously with the
effectiveness of such combination, be proportionately increased. When any
adjustment is required to be made in the Purchase Price, the number of Warrant
Shares purchasable upon the exercise of this Warrant shall be changed to the
number determined by dividing (i) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Purchase Price in effect immediately prior to such adjustment,
by (ii) the Purchase Price in effect immediately after such adjustment.
(b) If there shall occur any capital reorganization or reclassification of
the Company's Common Stock (other than a change in par value or a subdivision or
combination as provided for in subsection 2(a) above), or any consolidation or
merger of the Company with or into another corporation, or a transfer of all or
substantially all of the assets of the Company, then, as part of any such
reorganization, reclassification, consolidation, merger or sale, as the case may
be, lawful provision shall be made so that the Registered Holder of this Warrant
shall have the right thereafter to receive upon the exercise hereof the kind and
amount of shares of stock or other securities or property which such Registered
Holder would have been entitled to receive if, immediately prior to any such
reorganization, reclassification, consolidation, merger or sale, as the case may
be, such Registered Holder had held the number of shares of Common Stock which
were then purchasable upon the exercise of this Warrant. In any such case,
appropriate adjustment (as reasonably determined in good faith by the Board of
Directors of the Company) shall be made in the application of the provisions set
forth herein with respect to the rights and interests thereafter of the
Registered Holder of this Warrant, such that the provisions set forth in this
Section 2 (including provisions with respect to adjustment of the Purchase
Price) shall thereafter be applicable, as nearly as is reasonably practicable,
in relation to any shares of stock or other securities or property thereafter
deliverable upon the exercise of this Warrant.
(c) When any adjustment is required to be made in the Purchase Price, the
Company shall promptly mail to the Registered Holder a certificate setting forth
the Purchase Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment. Such certificate shall also set forth the
kind and amount of stock or other securities or property into which this Warrant
shall be exercisable following the occurrence of any of the events specified in
subsection 2(a) or (b) above.
3. FRACTIONAL SHARES. The Company shall not be required upon the exercise
of this Warrant to issue any fractional shares, but shall make an adjustment
therefor in cash on the basis of the Fair Market Value per share of Common
Stock, as determined pursuant to subsection 1(b) above.
4. REQUIREMENTS FOR TRANSFER.
(a) This Warrant and the Warrant Shares shall not be sold or transferred
unless either (i) they first shall have been registered under the Securities Act
of 1933, as amended (the "Act"), or (ii) the Company first shall have been
furnished with an opinion of legal counsel, reasonably satisfactory to the
Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Act.
(b) Notwithstanding the foregoing, no registration or opinion of counsel
shall be required for (i) a transfer by a Registered Holder which is a
partnership to a partner of such partnership or a retired partner
B-B-3
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of such partnership who retires after the date hereof, or to the estate of any
such partner or retired partner, if the transferee agrees in writing to be
subject to the terms of this Section 4, or (ii) a transfer made in accordance
with Rule 144 under the Act.
(c) Each certificate representing Warrant Shares shall bear a legend
substantially in the following form:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be offered,
sold or otherwise transferred, pledged or hypothecated unless and until
such securities are registered under such Act or an opinion of counsel
satisfactory to the Company is obtained to the effect that such
registration is not required."
The foregoing legend shall be removed from the certificates representing any
Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.
5. NO IMPAIRMENT. The Company will not, by amendment of its charter or
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
6. LIQUIDATING DIVIDENDS. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Shares purchased upon such exercise, the Liquidating Dividend which
would have been paid to such Registered Holder if he had been the owner of
record of such Warrant Shares immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
7. NOTICES OF RECORD DATE, ETC. In case:
(a) the Company shall take a record of the holders of its Common Stock
(or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to
receive any other right; or
(b) of any capital reorganization of the Company, any reclassification
of the capital stock of the Company, any consolidation or merger of the
Company with or into another corporation (other than a consolidation or
merger in which the Company is the surviving entity), or any transfer of all
or substantially all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company, then, and in each such case, the Company will
mail or cause to be mailed to the Registered Holder of this Warrant a notice
specifying, as the case may be, (i) the date on which a record is to be
taken for the purpose of such dividend, distribution or right, and stating
the amount and character of such dividend, distribution or right, or (ii)
the effective date on which such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up is
to take place, and the time, if any is to be fixed, as of which the holders
of record of Common Stock (or such other stock or securities at the time
deliverable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for
securities or other property deliverable upon
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such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be mailed at least
ten (10) days prior to the record date or effective date for the event
specified in such notice.
8. RESERVATION OF STOCK. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant,
such number of Warrant Shares and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant.
9. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 4
hereof, issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such Registered
Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the number of shares of Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
10. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
11. TRANSFERS, ETC.
(a) The Company will maintain a register containing the names and addresses
of the Registered Holders of this Warrant. Any Registered Holder may change its
or his address as shown on the warrant register by written notice to the Company
requesting such change.
(b) Subject to the provisions of Section 4 hereof, this Warrant and all
rights hereunder are transferable, in whole or in part, upon surrender of this
Warrant with a properly executed assignment (in the form of EXHIBIT II hereto)
at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant register, the
Company may treat the Registered Holder of this Warrant as the absolute owner
hereof for all purposes; PROVIDED, HOWEVER, that if and when this Warrant is
properly assigned in blank, the Company may (but shall not be obligated to)
treat the bearer hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.
12. MAILING OF NOTICES, ETC. All notices and other communications from the
Company to the Registered Holder of this Warrant shall be mailed by first-class
certified or registered mail, postage prepaid, to the address furnished to the
Company in writing by the last Registered Holder of this Warrant who shall have
furnished an address to the Company in writing. All notices and other
communications from the Registered Holder of this Warrant or in connection
herewith to the Company shall be mailed by first-class certified or registered
mail, postage prepaid, to the Company at its principal office set forth below.
If the Company should at any time change the location of its principal office to
a place other than as set forth below, it shall give prompt written notice to
the Registered Holder of this Warrant and thereafter all references in this
Warrant to the location of its principal office at the particular time shall be
as so specified in such notice.
13. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
14. CHANGE OR WAIVER. Any term of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
15. HEADINGS. The headings in this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
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<PAGE>
16. GOVERNING LAW. This Warrant will be governed by and construed in
accordance with the laws of the State of California.
GATEFIELD CORPORATION
By:
------------------------------------
James R. Fiebiger
ITS PRESIDENT AND CHIEF EXECUTIVE
OFFICER
ATTEST
- ---------------------------------------------
Douglas E. Klint
VICE PRESIDENT, GENERAL COUNSEL
AND CORPORATE SECRETARY
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EXHIBIT C
TERMS OF
CERTIFICATE OF DESIGNATION OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
GATEFIELD CORPORATION
One million (1,000,000) shares of the authorized and unissued Preferred
Stock of the Corporation are hereby designated "Series B Convertible Preferred
Stock" (the "Series B Preferred Stock") with the following rights, preferences,
powers, privileges and restrictions, qualifications and limitations.
1. DIVIDENDS.
(a) The holders of shares of Series B Preferred Stock shall be entitled to
receive dividends of $0.137475 per share per annum (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares), payable when and as declared by
the Board of Directors of the Corporation. The right to receive dividends on
Series B Preferred Stock shall accrue and shall be cumulative from the date of
issuance of each share of Series B Preferred Stock, whether or not declared.
(b) The Corporation shall not declare or pay any distributions (as defined
below) on shares of Common Stock until the holders of the Series B Preferred
Stock then outstanding shall have first received a distribution at the rate
specified in paragraph (a) of this Section 1.
(c) For purposes of this Section 1, unless the context requires otherwise,
"distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
2. LIQUIDATION, DISSOLUTION OR WINDING UP; CERTAIN MERGERS, CONSOLIDATIONS
AND ASSET SALES.
(a) In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, including any insolvency or bankruptcy proceeding
affecting the Company which is not dismissed within sixty (60) days of the
filing thereof, the holders of shares of Series B Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders, before any payment shall be made
to the holders of Common Stock or any other class or series of stock ranking on
liquidation junior to the Series B Preferred Stock (such Common Stock and other
stock being collectively referred to as "Junior Stock") by reason of their
ownership thereof, an amount equal to the greater of (i) $9.165 per share
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares),
plus any accrued and unpaid dividends, whether declared or not, or (ii) such
amount per share as would have been payable had each such share been converted
into Common Stock pursuant to Section 4 immediately prior to such liquidation,
dissolution or winding up. If upon any such liquidation, dissolution or winding
up of the Corporation the remaining assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the holders of
shares of Series B Preferred Stock the full amount to which they shall be
entitled, the holders of shares of Series B Preferred Stock and any class or
series of stock ranking on liquidation on a parity with the Series B Preferred
Stock shall share ratably in any distribution of the remaining assets and funds
of the Corporation in proportion to the respective amounts which would
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otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.
(b) After the payment of all preferential amounts required to be paid to the
holders of Series B Preferred Stock and any other class or series of stock of
the Corporation ranking on liquidation on a parity with the Series B Preferred
Stock, upon the dissolution, liquidation or winding up of the Corporation, the
holders of shares of Junior Stock then outstanding shall be entitled to receive
the remaining assets and funds of the Corporation available for distribution to
its stockholders.
(c) In the event of any merger or consolidation of the Corporation into or
with another corporation (except one in which the holders of capital stock of
the Corporation immediately prior to such merger or consolidation continue to
hold at least 80% by voting power of the capital stock of the surviving
corporation), or the sale of all or substantially all the assets of the
Corporation, if the holders of at least 51% of the then outstanding shares of
Series B Preferred Stock so elect by giving written notice thereof to the
Corporation at least three days before the effective date of such event, then
such merger, consolidation or asset sale shall be deemed to be a liquidation of
the Corporation, and all consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or all consideration
payable to the Corporation, together with all other available assets of the
Corporation (in the case of an asset sale), shall be distributed to the holders
of capital stock of the Corporation in accordance with Subsections 2(a) and 2(b)
above. The Corporation shall promptly provide to the holders of shares of Series
B Preferred Stock such information concerning the terms of such merger,
consolidation or asset sale and the value of the assets of the Corporation as
may reasonably be requested by the holders of Series B Preferred Stock in order
to assist them in determining whether to make such an election. If the holders
of the Series B Preferred Stock make such an election, the Corporation shall use
its best efforts to amend the agreement or plan of merger or consolidation to
adjust the rate at which the shares of capital stock of the Corporation are
converted into or exchanged for cash, new securities or other property to give
effect to such election. The amount deemed distributed to the holders of Series
B Preferred Stock upon any such merger or consolidation shall be the cash or the
value of the property, rights or securities distributed to such holders by the
acquiring person, firm or other entity. The value of such property, rights or
other securities shall be determined in good faith by the Board of Directors of
the Corporation. If no notice of the election permitted by this Subsection (c)
is given, the provisions of Subsection 4(h) shall apply.
3. VOTING.
(a) Each holder of outstanding shares of Series B Preferred Stock shall be
entitled to the number of votes equal to the number of whole shares of Common
Stock into which the shares of Series B Preferred Stock held by such holder are
then convertible (as adjusted from time to time pursuant to Section 4 hereof),
at each meeting of stockholders of the Corporation (and written actions of
stockholders in lieu of meetings) with respect to any and all matters presented
to the stockholders of the Corporation for their action or consideration. Except
as provided by law, by the provisions of Subsection 3(b) or Subsection 3(c)
below or by the provisions establishing any other series of Preferred Stock,
holders of Series B Preferred Stock and of any other outstanding series of
Preferred Stock shall vote together with the holders of Common Stock as a single
class.
(b) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of the Series B Preferred Stock so as to affect
adversely the Series B Preferred Stock, without the written consent or
affirmative vote of the holders of a majority of the then outstanding shares of
Series B Preferred Stock, given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a class. For this purpose, without
limiting the generality of the foregoing, the authorization of any shares of
capital stock on a parity with, or with priority or preference over, the Series
B Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed to affect adversely the Series B Preferred Stock.
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<PAGE>
(c) In addition to any other rights provided by law, so long as at least
500,000 shares of Series B Preferred Stock shall be outstanding (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), the
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of not less than 50% of the then outstanding shares of
Series B Preferred Stock:
(i) Amend or repeal any provision of, or add any provision to, the
Corporation's Certificate of Incorporation or By-laws, if such action would
adversely affect the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, Series B Preferred Stock;
(ii) Authorize or issue any new or existing class or classes or series
of capital stock, excluding, however, shares of Common Stock issued (A) for
a per share consideration greater than the Conversion Price (as defined in
Section 4(a)), or (B) upon the exercise of options and warrants to acquire
Common Stock which were outstanding prior to the Original Issue Date (as
defined in Section 4(d)), other than the stock warrant to acquire Common
Stock granted to Siemens Aktiengesellschaft ("Siemens") pursuant to Section
5.2 of that certain License Agreement, dated as of October 22, 1997, between
the Company and Siemens;
(iii) Authorize or issue shares of stock of any class or any bonds,
debentures, notes or other obligations convertible into or exchangeable for,
or having rights to purchase, any shares of stock of the Corporation;
(iv) Reclassify any Common Stock or any new or existing class or classes
or series of capital stock;
(v) Pay or declare any dividend or distribution on any shares of its
capital stock (except dividends payable solely in shares of Common Stock),
or apply any of its assets to the redemption, retirement, purchase or
acquisition, directly or indirectly, through subsidiaries or otherwise, of
any shares or its capital stock; or
(vi) Issue any options, warrants or other securities exercisable or
exchangeable for or convertible into shares of stock of the Corporation,
EXCLUDING, HOWEVER, options and warrants to purchase Common Stock for a per
share consideration (including for this purpose the consideration paid for
any such warrants plus the consideration, if any, paid upon the acquisition
of such shares of Common Stock) of greater than the Conversion Price (as
defined in Section 4(a)).
4. OPTIONAL CONVERSION. The holders of the Series B Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time
to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $4.5825 by the Conversion Price (as
defined below) in effect at the time of conversion. The "Conversion Price"
shall initially be $1.00 per share or if the election is made to reduce the
Conversion Price pursuant to the provisions of Section 5(a) hereof, $.75 per
share. Such initial Conversion Price, and the rate at which shares of Series
B Preferred Stock may be converted into shares of Common Stock, shall be
subject to adjustment as provided below. In addition, any accrued and unpaid
dividends in respect of shares of Series B Preferred Stock surrendered for
conversion shall be convertible into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the
aggregate dollar amount of such accrued and unpaid dividends by the
Conversion Price.
In the event of a notice of redemption of any shares of Series B
Preferred Stock pursuant to Section 5 hereof, the Conversion Rights of the
shares designated for redemption shall terminate at the close of business on
the fifth business day preceding the date fixed for redemption, unless the
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<PAGE>
redemption price is not paid when due, in which case the Conversion Rights
for such shares shall continue until such price is paid in full. In the
event of a liquidation of the Corporation, the Conversion Rights shall
terminate at the close of business on the first full day preceding the date
fixed for the payment of any amounts distributable on liquidation to the
holders of Series B Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of the Series B Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
(c) MECHANICS OF CONVERSION.
(i) In order for a holder of Series B Preferred Stock to convert shares
of Series B Preferred Stock into shares of Common Stock, such holder shall
surrender the certificate or certificates for such shares of Series B
Preferred Stock, at the office of the transfer agent for the Series B
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice
that such holder elects to convert all or any number of the shares of the
Series B Preferred Stock represented by such certificate or certificates.
Such notice shall state such holder's name or the names of the nominees in
which such holder wishes the certificate or certificates for shares of
Common Stock to be issued. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or his or its attorney
duly authorized in writing. The date of receipt of such certificates and
notice by the transfer agent (or by the Corporation if the Corporation
serves as its own transfer agent) shall be the conversion date ("Conversion
Date"). The Corporation shall, as soon as practicable after the Conversion
Date, issue and deliver at such office to such holder of Series B Preferred
Stock, or to his or its nominees, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series B Preferred
Stock shall be outstanding, reserve and keep available out of its authorized
but unissued stock, for the purpose of effecting the conversion of the
Series B Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding Series B Preferred Stock. Before taking any
action which would cause an adjustment reducing the Conversion Price below
the then par value of the shares of Common Stock issuable upon conversion of
the Series B Preferred Stock, the Corporation will take any corporate action
which may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue fully paid and nonassessable
shares of Common Stock at such adjusted Conversion Price.
(iii) Upon any such conversion, all accrued and unpaid dividends on the
shares of Series B Preferred Stock surrendered for conversion shall be paid
to the holders thereof.
(iv) All shares of Series B Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to
be outstanding and all rights with respect to such shares, including the
rights, if any, to receive notices and to vote, shall immediately cease and
terminate on the Conversion Date, except only the right of the holders
thereof to receive shares of Common Stock in exchange therefor and payment
of any dividends declared but unpaid thereon. Any shares of Series B
Preferred Stock so converted shall be retired and cancelled and shall not be
reissued, and the Corporation (without the need for stockholder action) may
from time to time take such appropriate action as may be necessary to reduce
the authorized Series B Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other taxes that may
be payable in respect of any issuance or delivery of shares of Common Stock
upon conversion of shares of Series B Preferred
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Stock pursuant to this Section 4. The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of shares of Common Stock in a name
other than that in which the shares of Series B Preferred Stock so converted
were registered, and no such issuance or delivery shall be made unless and
until the person or entity requesting such issuance has paid to the
Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(d) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Corporation
shall at any time or from time to time after the date on which a share of
Series B Preferred Stock was first issued ("Original Issue Date") effect a
subdivision of the outstanding Common Stock, the Conversion Price then in
effect immediately before that subdivision shall be proportionately
decreased. If the Corporation shall at any time or from time to time after
the Original Issue Date combine the outstanding shares of Common Stock, the
Conversion Price then in effect immediately before the combination shall be
proportionately increased. Any adjustment under this paragraph shall become
effective at the close of business on the date the subdivision or
combination becomes effective.
(e) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time, or from time to time after the Original Issue
Date shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other
distribution payable in additional shares of Common Stock, then and in each
such event the Conversion Price for the Series B Preferred Stock then in
effect shall be decreased as of the time of such issuance or, in the event
such a record date shall have been fixed, as of the close of business on
such record date, by multiplying the Conversion Price for the Series B
Preferred Stock then in effect by a fraction:
(1) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or
distribution;
provided, however, if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the
date fixed therefor, the Conversion Price for the Series B Preferred Stock
shall be recomputed accordingly as of the close of business on such record
date and thereafter the Conversion Price for the Series B Preferred Stock
shall be adjusted pursuant to this paragraph as of the time of actual
payment of such dividends or distributions; and provided further, however,
that no such adjustment shall be made if the holders of Series B Preferred
Stock simultaneously receive a dividend or other distribution of shares of
Common Stock in a number equal to the number of shares of Common Stock as
they would have received if all outstanding shares of Series B Preferred
Stock had been converted into Common Stock on the date of such event.
(f) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time or from time to time after the Original Issue
Date for the Series B Preferred Stock shall make or issue, or fix a record
date for the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in securities of the Corporation
other than shares of Common Stock, then and in each such event provision
shall be made so that the holders of the Series B Preferred Stock shall
receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of the
Corporation that they would have received had the Series B Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including
the conversion date, retained such securities receivable by them as
aforesaid during such period, giving application to all adjustments called
for during such period under this paragraph with respect to the rights of
the
B-C-5
<PAGE>
holders of the Series B Preferred Stock; and provided further, however, that
no such adjustment shall be made if the holders of Series B Preferred Stock
simultaneously receive a dividend or other distribution of such securities
in an amount equal to the amount of such securities as they would have
received if all outstanding shares of Series B Preferred Stock had been
converted into Common Stock on the date of such event.
(g) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If the
Common Stock issuable upon the conversion of the Series B Preferred Stock
shall be changed into the same or a different number of shares of any class
or classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares or stock
dividend provided for above, or a reorganization, merger, consolidation, or
sale of assets provided for below), then and in each such event the holder
of each such share of Series B Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock
and other securities and property receivable upon such reorganization,
reclassification, or other change, by holders of the number of shares of
Common Stock into which such shares of Series B Preferred Stock might have
been converted immediately prior to such reorganization, reclassification,
or change, all subject to further adjustment as provided herein.
(h) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation or merger of the Corporation with or into another corporation
or the sale of all or substantially all of the assets of the Corporation to
another corporation (other than a consolidation, merger or sale which is
covered by Subsection 2(c)), each share of Series B Preferred Stock shall
thereafter be convertible (or shall be converted into a security which shall
be convertible) into the kind and amount of shares of stock or other
securities or property to which a holder of the number of shares of Common
Stock of the Corporation deliverable upon conversion of such Series B
Preferred Stock would have been entitled upon such consolidation, merger or
sale; and, in such case, appropriate adjustment (as determined in good faith
by the Board of Directors) shall be made in the application of the
provisions in this Section 4 set forth with respect to the rights and
interest thereafter of the holders of the Series B Preferred Stock, to the
end that the provisions set forth in this Section 4 (including provisions
with respect to changes in and other adjustments of the Conversion Price)
shall thereafter be applicable, as nearly as reasonably may be, in relation
to any shares of stock or other property thereafter deliverable upon the
conversion of the Series B Preferred Stock.
(i) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out
of all the provisions of this Section 4 and in the taking of all such action
as may be necessary or appropriate in order to protect the Conversion Rights
of the holders of the Series B Preferred Stock against impairment.
(j) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section
4, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder
of Series B Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at
any time of any holder of Series B Preferred Stock, furnish or cause to be
furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price then in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which then would be received upon the conversion of Series B
Preferred Stock.
B-C-6
<PAGE>
(k) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other
securities of the Corporation;
(ii) that the Corporation subdivides or combines its outstanding
shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or stock
distribution thereon), or of any consolidation or merger of the
Corporation into or with another corporation, or of the sale of all
or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at
the office of the transfer agent of the Series B Preferred Stock, and shall
cause to be mailed to the holders of the Series B Preferred Stock at their
last addresses as shown on the records of the Corporation or such transfer
agent, at least ten days prior to the date specified in (A) below or twenty
days before the date specified in (B) below, a notice stating
(A) the record date of such dividend, distribution, subdivision or
combination, or, if a record is not to be taken, the date as of which
the holders of Common Stock of record to be entitled to such
dividend, distribution, subdivision or combination are to be
determined, or
(B) the date on which such reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution or winding
up.
5. REDEMPTION FOR FAILURE TO OBTAIN STOCKHOLDER APPROVAL AND EVENT OF
NONCOMPLIANCE.
(a) In the event that:
(i) the Corporation's stockholders do not, prior to December 19,
1997, approve (x) an amendment to the Corporation's Certificate of
Incorporation providing for the classification of the Board of
Directors of the Corporation into three classes, with members of each
class serving staggered three-year terms, and the election of one
Director designated by the holders of Series B Preferred Stock as a
Class II Director with an initial term of two years and one Director
designated by the holders of Series B Preferred Stock as a Class III
Director with an initial term of three years, (y) an amendment to the
Company's Certificate of Incorporation providing for the increase in
the number of shares of authorized Common Stock from 40,000,000 to
65,000,000 and (z) the sale to Idanta Partners Ltd., the Dunn Family
Trust and the Perscilla Faily Trust of shares of Common Stock which,
together with the shares of Series B Preferred Stock owned by such
entities, represent more than twenty percent (20%) of the Company's
outstanding Common Stock (on an as-converted basis), or
(ii) an Event of Noncompliance (as defined below) occurs,
the holders of at least 51% of the then outstanding shares of Series B
Preferred Stock may elect to either (A) cause the Company to redeem the
shares of Series B Preferred Stock, in whole or in part, at a redemption
price equal to $4.5825 per share plus accrued and unpaid dividends thereon
(subject to adjustment for stock splits, stock dividends, combinations or
similar recapitalizations affecting such shares) in cash for each share of
Series B Preferred Stock then redeemed (the "Redemption Price")
B-C-7
<PAGE>
or (B) reduce the Conversion Price as to all shares of Series B Preferred
Stock from $1.00 to $.75 per share. If the election is made to reduce the
Conversion Price, it shall be evidenced by a written notice delivered to the
Company by such holders and such reduction shall automatically be effective
on the date of delivery of such notice to the Company.
(b) At least fifteen (15) days prior to the date fixed by holders electing
to redeem their shares of Series B Preferred Stock ("Redeeming Holders"), for
any redemption of Series B Preferred Stock (hereinafter the "Redemption Date"),
the Redeeming Holders shall send the Corporation written notice that notifies
the Corporation of their election to redeem such shares, specifying the
Redemption Date and the number of shares to be redeemed and calling upon the
Corporation to pay the Redemption Price (such notice hereinafter referred to as
the "Redemption Notice"). On or prior to the Redemption Date, each Redeeming
Holder shall surrender his or its certificate or certificates representing such
shares to the Corporation, and thereupon the Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares. From and after the Redemption Date,
unless there shall have been a default in payment of the Redemption Price, all
rights of the holders of the Series B Preferred Stock designated for redemption
in the Redemption Notice as holders of Series B Preferred Stock of the
Corporation (except the right to receive the Redemption Price without interest
upon surrender of their certificate or certificates) shall cease with respect to
such shares, and such shares shall not thereafter be transferred on the books of
the Corporation or be deemed to be outstanding for any purpose whatsoever.
(c) "Event of Noncompliance", as used herein, means any of the following:
(i) Any of the representations or warranties made by the Corporation in
the Stock Purchase Agreement between the Corporation and the purchaser of
the Series B Preferred Stock dated November 10, 1997 ("Stock Purchase
Agreement"), or in any certificate or financial or other written statements
of the Corporation furnished by or on behalf of the Corporation in
connection with the execution and delivery of the Stock Purchase Agreement
and the closings of the purchase of the securities contemplated thereby
shall be false or (when taken together with other information furnished by
or on behalf of the Corporation, including reports and/or filings made with
the Securities and Exchange Commission) misleading in any material respect
at the time made; or
(ii) The Corporation shall fail to perform or observe any covenant or
agreement in the Stock Purchase Agreement, or any other covenant, term,
provision, condition, agreement or obligations of the Corporation under the
terms hereof and such failure shall continue uncured for a period of ten
(10) business days after notice from any holder of Series B Preferred Stock
of such failure; or
(iii) The Corporation shall (i) become insolvent; (ii) admit in writing
its inability to pay its debts generally as they mature; (iii) make a
general assignment for the benefit of creditors or commence proceedings for
its dissolution; or (iv) apply for or consent to the appointment of a
trustee, liquidator or receiver for it or for a substantial part of its
property or business; or
(iv) A trustee, liquidator or receiver shall be appointed for the
Corporation or for a substantial part of its property or business without
its consent and shall not be discharged within sixty (60) days after such
appointment; or
(v) Any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or control of
the whole or any substantial portion of the properties or assets of the
Corporation and shall not be dismissed within sixty (60) days thereafter; or
(vi) Any money judgment, writ or warrant of attachment, or similar
process in excess of Five Hundred Thousand Dollars ($500,000) in the
aggregate shall be entered or filed against the Corporation or any of its
properties or other assets and shall remain unpaid, unvacated, unbonded and
B-C-8
<PAGE>
unstayed for a period of forty-five (45) days or in any event later than ten
(10) days prior to the date of any proposed sale thereunder; or
(vii) Bankruptcy, reorganization, insolvency or liquidation proceedings
or other proceedings, or relief under any bankruptcy law or any law for the
relief of debt shall be instituted by or against the Corporation and, if
instituted against the Corporation, shall not be dismissed within sixty (60)
days after such institution or the Corporation shall by any action or answer
approve of, consent to, or acquiesce in any such proceedings or admit to any
material allegations of, or default in answering a petition filed in, any
such proceeding; or
(viii) If prior to full conversion or redemption of the Series B Preferred
Stock, trading in the shares of the Common Stock on the Nasdaq National
Market shall be suspended for a period of five (5) consecutive trading days,
other than as a result of the suspension of trading in securities in
general, or if such shares are delisted and not relisted on the Nasdaq
National Market within thirty (30) days thereafter; or
(ix) If the Corporation has not, if requested by the holders of Series B
Preferred Stock to do so, in accordance with the Registration Rights
Agreement between the Corporation and the holders of the Series B Preferred
Stock, caused a registration statement relating to the resale of the Common
Stock issuable upon conversion of the Series B Preferred Stock to be filed
with the Securities and Exchange Commission and used its best efforts after
such filing to cause said registration statement to be declared effective,
as promptly as possible and in no event later than 60 days after request by
such holders, by the Securities and Exchange Commission.
6. REDEMPTION FOR FAILURE TO RESERVE SUFFICIENT SHARES OF COMMON STOCK.
(a) In the event that at any time after October 31, 1999 all outstanding
shares of Series B Preferred Stock cannot be fully converted into Common Stock
at any time because the Corporation has failed to reserve or otherwise provide a
sufficient number of shares of Common Stock to effect such conversion, the
holders of at least 51% of the then outstanding shares of Series B Preferred
Stock may elect to cause the Company to redeem the shares of Series B Preferred
Stock, in whole or in part, at a redemption price per share (the "Section 6
Redemption Price") equal to the greater of (i) the Redemption Price and (ii) the
result obtained by multiplying the Fair Market Value per share of Common Stock
(as defined below) by the number of shares of Common Stock into which each share
of Series B Preferred may then be converted.
(b) The "Fair Market Value per share of Common Stock" shall be deemed to be
the last reported sale price per share of Common Stock on a national securities
exchange, the Nasdaq National Market, or another nationally recognized exchange
or trading system on the date immediately preceding the date of delivery of the
Section 6 Redemption Notice; or, if no such price is reported on such date, such
price on the next preceding trading day on which such price is reported.
(c) Holders electing to redeem their shares of Series B Preferred Stock
pursuant to this Section 6 (the "Section 6 Redeeming Holders"), shall send the
Corporation written notice that notifies the Corporation of their election to
redeem such shares in accordance with this Section 6, specifying the date (not
less than ten days after the date of delivery of such notice) fixed by the
Section 6 Redeeming Holders for the redemption of Series B Preferred Stock
(hereinafter the "Section 6 Redemption Date"), and the number of shares to be
redeemed and calling upon the Corporation to pay the Section 6 Redemption Price
(such notice hereinafter referred to as the "Section 6 Redemption Notice").
(d) On or prior to the Section 6 Redemption Date, each Section 6 Redeeming
Holder shall surrender his or its certificate or certificates representing such
shares to the Corporation, and thereupon the Section 6 Redemption Price of such
shares shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares. From and after the Section 6
Redemption Date, unless there
B-C-9
<PAGE>
shall have been a default in payment of the Section 6 Redemption Price, all
rights of the holders of the Series B Preferred Stock designated for redemption
in the Section 6 Redemption Notice as holders of Series B Preferred Stock of the
Corporation (except the right to receive the Section 6 Redemption Price without
interest upon surrender of their certificate or certificates) shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
the books of the Corporation or be deemed to be outstanding for any purpose
whatsoever.
B-C-10
<PAGE>
GATEFIELD CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 15, 1997
The undersigned, revoking any prior proxies, hereby appoint(s) James R.
Fiebiger and Douglas E. Klint, and each of them with full power of substitution,
as proxies of the undersigned to attend the Annual Meeting of Stockholders of
GateField Corporation to be held on December 15, 1997 and at any adjournments
thereof, and there to vote and act upon the following matters in respect of all
shares of capital stock of the Company which the undersigned would be entitled
to vote or act upon, with all powers the undersigned would possess if personally
present.
Attendance of the undersigned at the meeting or at any adjourned session
thereof will not be deemed to revoke this proxy unless the undersigned shall
affirmatively indicate thereat the intention of the undersigned to vote said
shares in person. If the undersigned hold(s) any of the shares of the Company in
a fiduciary, custodial or joint capacity or capacities, this proxy is signed by
the undersigned in every such capacity as well as individually.
IN THEIR DISCRETION, THE NAMED PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, OR ANY ADJOURNMENT THEREOF.
<TABLE>
<S> <C> <C>
1. To elect the following individual as a Class I Director:
James R. Fiebiger / / FOR / / WITHHOLD
AUTHORITY
To elect the following individuals as Class II Directors:
David J. Dunn / / FOR / / WITHHOLD
AUTHORITY
Horst G. Sandfort / / FOR / / WITHHOLD
AUTHORITY
To elect the following individual as a Class III Director:
Jonathan S. Huberman / / FOR / / WITHHOLD
AUTHORITY
If the proposed amendment to the Company's Certificate of Incorporation providing for
a classified Board of Directors (proposal two) is not adopted, all four directors
will be elected for a one-year term.
2. To approve an amendment to the Company's Certificate of Incorporation providing for
the classification of the Board of Directors into three classes, with members of each
class serving staggered three-year terms.
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
(CONTINUED ON REVERSE SIDE)
<PAGE>
<TABLE>
<S> <C> <C>
3. To approve an amendment to the Company's Certificate of Incorporation to increase the
number of authorized shares of Common Stock of the Company from 40,000,000 to
65,000,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
4. To approve the issuance of securities of the Company exceeding twenty percent of the
outstanding Common Stock of the Company.
/ / FOR / / AGAINST / / ABSTAIN
5. To ratify the selection of Deloitte & Touche LLP as independent auditors for the
Company for the current fiscal year.
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS GIVEN WITH RESPECT TO ANY ELECTION TO OFFICE OR
PROPOSAL SPECIFIED ABOVE, THIS PROXY WILL BE VOTED FOR SUCH ELECTION TO OFFICE
OR PROPOSAL.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
<TABLE>
<S> <C> <C>
DATED ------------------------------
----------------------------------------
----------------------------------------
SIGNATURE(S)
PLEASE SIGN THIS PROXY EXACTLY AS YOUR
NAME APPEARS HEREON. JOINT OWNERS SHOULD
EACH SIGN PERSONALLY. TRUSTEES AND OTHER
FIDUCIARIES SHOULD INDICATE THE CAPACITY
IN WHICH THEY SIGN. IF A CORPORATION OR
PARTNERSHIP, THIS SIGNATURE SHOULD BE
THAT OF AN AUTHORIZED OFFICER WHO SHOULD
STATE HIS OR HER TITLE.
</TABLE>
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
