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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
- ---- ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________.
Commission file number 0-13244
GATEFIELD CORPORATION
(Formerly Zycad Corporation)
(Exact name of registrant as specified in its charter)
DELAWARE 41-1404495
(State of incorporation) (I.R.S. Employer Identification No.)
47100 BAYSIDE PARKWAY, FREMONT, CALIFORNIA 94538
(Address of principal executive offices) ( Zip Code)
Registrant's telephone number, including area code: (510) 623-4400
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: COMMON STOCK,
$0.10 PAR VALUE
PER SHARE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of voting stock held by non-affiliates of the
registrant on March 16, 1998, based upon the closing price of the Common
Stock on the Nasdaq National Market on such date and assuming a market value
of $4.5825 per share for the Series B Convertible Preferred Stock was
approximately $44,931,943.
Registrant had 40,798,143 shares of Common Stock and 1,000,000 shares of Series
B Convertible Preferred Stock outstanding as of March 16, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1997 Annual Report to Stockholders are
incorporated by reference into Parts II and IV hereof. The Annual Report shall
be deemed "filed" with the Commission only with respect to those portions
specifically incorporated by reference herein. Portions of the registrant's
definitive Proxy Statement for its Annual Meeting of Stockholders for 1997,
which will be filed with the Securities and Exchange Commission within 120 days
after the end of the Company's fiscal year, are incorporated by reference into
Part III hereof.
PART I
THE DISCUSSION IN THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS REPORT THAT ARE NOT
PURELY HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED INCLUDING STATEMENTS REGARDING THE COMPANY'S
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EXPECTATIONS, BELIEFS, INTENTIONS OR STRATEGIES REGARDING THE FUTURE. ALL
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED ON INFORMATION
AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE COMPANY ASSUMES NO
OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN "FACTORS AFFECTING FUTURE RESULTS", INCORPORATED BY REFERENCE INTO
ITEM 7 OF THIS ANNUAL REPORT, AS WELL AS THOSE DISCUSSED IN THIS SECTION AND
ELSEWHERE IN THIS REPORT, AND THE RISKS DISCUSSED IN THE COMPANY'S SECURITIES
AND EXCHANGE COMMISSION FILINGS.
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
GateField Corporation (formerly Zycad Corporation), a Delaware corporation
incorporated in 1984 ("GateField" or the "Company"), designs, develops and
markets high density, high performance programmable logic solutions and
related development system software. GateField is a supplier of flash
technology Field Programmable Gate Arrays ("FPGAs"), trademarked as
programmable ASICs ("ProASIC-TM-"), that are based on two proprietary
technologies: the GateField flash-based switching element and the very
fine-grained, gate array like, Sea-of-Tiles-TM- ProASIC-TM- architecture. The
Company also offers design services including rapid system prototyping and
system design with emphasis on applications using GateField's programmable
logic devices.
Programmable logic devices are standard semiconductor components that can be
configured by the end customer thus providing shorter design cycle times and
reduced development costs. The Company's products provide fast time-to-market
for electronic equipment manufacturers in the networking, telecommunications,
computer, peripheral, industrial control, instrumentation and consumer
markets. GateField's distribution channels include direct sales, manufacturing
representatives, distributors, and authorized design centers throughout the
world.
During 1997, the Company completed its transition from a provider of high
performance verification products to a provider of products based on its
ProASIC-TM- technology. This transition resulted in the sale of several of
its assets including: its ownership in QSS Inc., a joint venture established
with QSS Ltd. to distribute the DOORS technology and other related products
in the North American market; the technology related to its LightSpeed
software product family which consisted of a logic simulation accelerator and
a logic simulation engine; all the assets relating to its verification
business including its rights, title and interest in its hardware fault
simulation products known as XP and PXP product lines and its software fault
simulation and test business. Finally, the Company transferred its
maintenance business on the above mentioned products to Zycad TSS, Inc., a
company formed by former employees of the Company. GateField has therefore
changed its focus from high performance verification products to flash
technology FGPAs and related development system software, and design services.
INDUSTRY BACKGROUND
Three principal types of digital integrated circuits are used in most digital
electronic systems: microprocessors, memory and logic. Microprocessors are used
for control and computing tasks, memory is used to store programming
instructions and data, and logic devices are needed to adapt these processing
and storage capabilities to a specific application. Logic contains
interconnected groupings of simple logical "AND" and logical "OR" functions as
well as sequential elements ("Flipflops"), commonly represented as "gates".
Typically, complex combinations of individual gates are required to implement
the specialized logic functions required for systems applications. While system
designers use a relatively small number of standard architectures to meet their
microprocessor and memory needs, they require a wide variety of logic circuits
in order to achieve end product differentiation.
The stratified logic market includes, among many other segments, low-density
standard transistor-transistor logic circuits ("TTLs") and custom-designed
application specific integrated circuits ("ASICs"). TTLs are standard logic
circuits that can be purchased "off the shelf" and interconnected on a printed
circuit board. ASICs are customized circuits that offer electronic system
manufacturers the benefits of higher levels of circuit integration: improved
system performance, reduced system size, and lower system cost.
ASICs include conventional gate arrays and programmable logic circuits.
Conventional gate arrays are customized to perform desired logical functions at
the time the device is manufactured. Since they are "hard wired," conventional
gate arrays are subject to the risks associated with long development cycles,
inventory obsolescence and an inherent inability to change the logic design.
Programmable logic circuits, on the other hand, are manufactured as standard
devices customized at the designer's desktop or at the end of the customer's
manufacturing line using the supplier's programming systems. Design changes can
typically be implemented in as little as a few hours, as compared to several
weeks for conventional gate arrays. In addition, significant savings can result
from the elimination of non-recurring engineering costs and expenses associated
with the redesign and testing. Thus programmable logic circuits are being used
by a growing number of electronic system
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manufacturers in response to increased demand for product differentiation, time
to market pressures, and desired manufacturing flexibility.
Electronic system manufacturers customize programmable logic devices to
perform the desired logical functions by using EDA systems. The principal
limitation on the wider use of more complex programmable logic has been price
and performance factors approaching those of conventional gate arrays. On
current architectures, programming elements based on SRAM technology occupy
relatively large amounts of area within a circuit, which tends to increase
the overall size and cost of each circuit. In addition, on current
architectures the size of SRAM programming elements tends to limit the number
of interconnect points in a circuit, which tends to limit flexibility and
performance.
Before programmable logic devices can be programmed there are various steps
that must be accomplished by a designer using EDA design software. These
steps include defining the function, verifying the design, and laying out the
circuit. Traditionally, logic functions have been defined using schematic
capture tools, which essentially permit the designer to construct a circuit
diagram on the computer. As programmable logic designers have begun to
design higher capacity circuits, the time required to create schematic
diagrams using schematic capture tools has become prohibitive. To address
this problem, designers are increasingly turning to hardware description
languages ("HDLs), also known as high-level description ("HLD"), which permit
the designer to describe the circuit functions at an abstract level and to
verify the performance of logic functions at that level. The HDL can then be
fed into logic synthesis software that automatically converts the abstract or
high-level description to a gate-level representation equivalent to that
produced by schematic capture tools. After a gate-level representation of the
logic function has been created and verified, it must be translated or "laid
out" onto the generic logic elements of the programmable device. This is
achieved by placing the logic gates and routing their interconnections, a
process referred to as "place and route". As designers have begun to design
higher capacity circuits, the need for automatic (instead of manual) place
and route capability has become increasingly important. This transition to
the use of HDLs presents a challenge to the designer to learn new design
methods and to use new design tools. In addition, not all programmable logic
circuit architectures are equally well suited for use with logic synthesis
and place and route tools.
Customer requirements for improved functionality, performance, reliability and
lower cost are often addressed through the use of components that integrate ever
larger numbers of logic gates onto a single integrated circuit. However, while
global competition is increasing the demand for more complex products, it is
also shortening product life cycles and requiring more frequent product
enhancements. GateField provides programmable logic solutions, which combine the
high logic density typically associated with custom gate arrays with the time to
market advantages of programmable logic and the availability of a standard
product.
COMPANY STRATEGY
GateField's strategy is to become a leading supplier of flash programmable ASIC
and related software development tools which enable its customers to reduce
their own product's time-to-market and to significantly reduce the time required
to ramp up to volume production. This strategy includes the following elements:
MARKETING PENETRATION. The Company is focusing its marketing efforts on gate
array designers within established electronic system companies who are already
familiar with high level design methodologies as well as an emerging group of
programmable logic designers who are starting to use higher density programmable
logic devices. A key element of GateField's strategy is to provide development
software products that integrate seamlessly with the users' choice of EDA
environment. In support of this strategy, the Company engages in joint
marketing efforts with EDA companies like Exemplar Logic and Auspy Incorporated,
with the goal of providing a complete solution to the end user. GateField's
distribution channels include direct sales, manufacturing representatives,
distributors, and authorized design centers in the major markets of North
America, Japan, Europe and Asia.
PROPRIETARY PROGRAMMING ELEMENT AND DEVICE ARCHITECTURE. GateField holds
patents on various aspects of the underlying programming switch technology and
the gate array like architecture (ProASIC). The Company believes its proprietary
technology will allow its products to easily integrate into industry standard
ASIC design flow. The Company is focused on providing products which emphasizes
design portability and reuse, predictable system performance, device utilization
and, ultimately, increased designer productivity.
PROGRAMMABLE ASIC PRODUCTS. GateField's programmable ASIC devices utilize
flash technology to provide a unique combination of reprogrammability, high
density and non-volatility. The Company's ProASIC technology eliminates the
need for external configuration storage devices releasing the system designer
from special design considerations related to board design and system
initialization procedures. In addition, programmable ASIC devices tend to be
much smaller than circuits of comparable performance and capacity made under
comparable design rules. The Company believes end user benefits include:
standard ASIC design flow, seamless migration to an ASIC for high volume,
increased designer productivity, faster time-to-market, smaller device sizes,
higher performance and reduced inventories.
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SOFTWARE TOOLS. GateField's software development efforts are focused on
value-add and ease-of-use. In addition, the Company intends to embrace industry
standards and develop seamless interfaces with industry standard EDA tools.
The Company believes the industry's acceptance of its ProASIC devices will
increase if it facilitates the customer's use of his preferred design
methodology and his "best of breed" open EDA tools with GateField's software
solutions. As an example, the Company has developed a highly automated "place
and route" tool for its ProASIC technology and offers it at moderate prices to
accelerate the adoption of its programmable ASIC solution.
DESIGN SERVICES. GateField believes its design services group is a key success
factor in the adoption and proliferation of the Company's ProASIC technology.
Customers benefit by drawing on the group's core competencies in rapid system
prototyping, reconfigurable computing, and design conversions. The group
strives to build important relationships with electronic system manufacturers by
helping them meet their important time-to-market challenge.
CONDUIT FOR INTELLECTUAL PROPERTY (IP) PROLIFERATION. Standard ASIC design
flow and a unique combination of high capacity, reprogrammability and
non-volatility make ProASIC devices an effective vehicle for efficient and
secure intellectual property (IP) distribution, implementation, verification
and evaluation. Each ProASIC device holds its own electronic signature and
can be configured to make copying and reverse engineering prohibitive. The
Company believes these key features provide a secure silicon medium for IP
delivery by IP suppliers and intends to target these companies in its direct
marketing efforts.
TECHNOLOGY LICENSING AND PRODUCTION RELATIONSHIPS. The Company's objective is
to sell non-exclusive licenses to its ProASIC technology to major semiconductor
companies as their preferred solution for embedded, re-programmable
system-level-integration (SLI) integrated circuits (ICs). In turn GateField
believes it will be able to gain access to leading edge flash technology and
adequate manufacturing capacity to fulfill customer product demand. The Company
believes it can avoid the capital and overhead required to establish its own
wafer fabrication facility and maintain its flexibility to utilize new process
technologies as they become available.
TECHNOLOGY
PROCESS. GateField's current products utilizes an established high-density
0.6 micron FLASH memory process with some enhancements. Two layers of metal
interconnect and two layers of polysilicon are crafted into programmable ASIC
devices with minimal customization. The process uses a LOCOS (LOCal
Oxidation of Silicon) well isolation structure starting from low-cost P-type
bulk silicon wafers. This etch and oxide growth process provides a more
effective isolation barrier between P-type and N-type well regions than
common oxide isolation. In addition, LOCOS well isolation results in higher
latch-up resistance, smaller device spacing and a more planar surface for
building metal interconnect layers upon. This characteristic becomes
increasingly important as larger gate-count devices are designed and
manufactured. GateField believes its technology will migrate with the ever
shrinking geometry characteristic of the semiconductor industry.
ARCHITECTURE. The design of the ProASIC product architecture is critical to
achieving high density, meeting performance goals, and obtaining of high-gate
count programmable ASICs (i.e. gate array compatibility). The architecture
consists of switches that program the chip's personality, the associated
routing, clocking and power grids and the underlying logic cell that provides
the programmable gates. Improvements in the architecture continue to drive
performance increases with each subsequent product generation. The switch is
re-programmable and non-volatile. It is comprised of an NMOS transistor
directly coupled to a flash memory cell. For GateField's present products,
an EPROM performs the programming function while Fowler-Nordheim tunneling
provides a global erase mechanism. The flash memory cell combined with the
small NMOS transistor is used for programming the logic function and
interconnect routing.
BASIC LOGIC UNIT AND PROGRAMMABLE IOS. The basic logic unit is comprised of a
programmable 3-input, 1-output cell. Each input may be programmed for signal
inversion eliminating the wasteful usage of cells as inverters only. Virtually
any logic function can be programmed including a flip-flop. This extraordinary
flexibility allows a programming range from 100% combinatorial to 100%
flip-flops and any combination of combinatorial and sequential elements.
Through the programming of the local switch matrix, the cell is configured and
combined with adjacent cells to form larger logic functions. Just as in a
sea-of-gates gate array architecture, the basic logic cell is stepped and
repeated in the horizontal and vertical directions to create a sea of
programmable logic cells. The I/O cell is also highly programmable. I/Os may
be programmed as input, output or bi-directional. In addition, the cells are
programmed for TTL, CMOS or PCI interface specifications. Slew-rate and output
drive/impedance programming enable close matching to a wide variety of bus
interface conditions. Additional programming options include pull-ups and open
drain/source configurations.
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EMBEDDED SRAM MEMORY. In the GF260F Embedded ProASIC product family, the
embedded memory is located across the top of the device. Depending upon the
family member, 6 to 20 blocks, each containing 256x9 bits of memory, are
available to support a variety of possible memory configurations. Each block
may be programmed as an independent memory or may be combined using dedicated
memory routing resources to form larger, more complex memories and FIFO
structures. In addition, GateField's unique architecture allows memory
paralleling to form memories of up to 11 independent memory ports (10 read, 1
write port).
INTERCONNECT ROUTING RESOURCES. Interconnect routing resources are available in
numerous levels of hierarchy providing the place and route tool (ASICmaster-TM-)
with optimal solutions for varying design styles and application types.
Although actual levels of hierarchy extend into the mid-teens, it is easiest to
describe the chip routing matrix as having four major hierarchical routing
levels; local, long, very-long, and global. In addition, robust power and
ground grids ensure minimal supply drops and ground rises regardless of chip
programming. One of the most powerful components of the ProASIC product
interconnect capability is the global hierarchical level which contains highly
flexible, chip-wide, high-performance resources. These resources begin with
four chip inputs dedicated to high-performance input signals. Each input pin
has a distribution interconnect scheme that ends at every basic logic cell. The
maximum skew between any two cells driven by these input nets is 1ns. Each
input may be programmed to cover the entire chip or any specific area for a
localized signal. These inputs may serve as clocks, global clears/resets, or
any other user defined function. When programmed as clocks, clock domains may
be assigned specific regions or may be dispersed throughout the entire core.
Any unused segments or areas of a clock net may be re-allocated to serve
additional local clocks or re-assigned for signal routing. The flexibility of
each net allows the programming of four clocks with complete chip coverage or
many more clocks with localized coverage.
PRODUCTS
GateField offers a range of flash-based programmable logic integrated circuits
and associated development software and hardware. The Company's integrated
circuits include products aimed at general logic replacement as an alternative
to ASICs. Programmable ASICs are available in a wide variety of plastic and
ceramic package types, including pin-grid array, surface mount like enhanced
super ball grid arrays and quad flat pack configurations. Pin counts range from
160 to 560 pins. External configuration storage devices are not needed due to
the non-volatility of flash-based ProASIC devices. Devices can be programmed
either by plugging them into the ASICmaker-TM- console that is sold by GateField
or on the system board through the In-System-Programming (ISP) interface. The
Company's development software products facilitate the design process for these
products.
Over the past 12 months, the Company has introduced two new product families
based on a 0.6-micron Flash technology. The Company believes the commercial
success of these products will depend upon the achievement of targeted yield,
product cost, and performance levels and the development of manufacturing,
marketing, and support capabilities. Even if such goals are accomplished, there
can be no assurance that these products will achieve significant market
acceptance.
PROGRAMMABLE ASIC PRODUCTS
GF100K PROASIC PRODUCT FAMILY. The first programmable ASIC product family
introduced by GateField consists of two devices with densities of 9,000 and
51,000 available gates. This product family served as the Company's "proof of
concept" demonstrating the feasibility of high complex, flash-based programmable
ASIC devices and seamless integration into a standard ASIC design environment.
This product is no longer recommended for new designs.
GF250F PROASIC PRODUCT FAMILY. This product family, introduced in March 1997,
features a new architecture and electrically PCI compliant input/output
structures. Individual devices range from 25,000 to 150,000 logic gates. In
contrast to SRAM based and antifuse solutions, these devices provide a high
number of sequential elements (Flipflops), facilitating the implementation of
pipelined structures which are often needed to operate systems at higher speeds.
Due to its gate array like Sea-of-Tiles architecture, the GF250F family delivers
high routability and predictability in terms of device performance and
gate utilization.
GF260F PROASIC EMBEDDED PRODUCT FAMILY. Introduced in October 1997 and based on
the Company's GF250F technology, this product family features embedded memory
blocks that can efficiently implement a variety of single port and dual port
memories as well as FIFO (First-In, First-Out) structures. The largest device
currently available can hold up to 92,000 logic gates and up to 23k bits of dual
port memory / FIFO.
DEVELOPMENT SOFTWARE PRODUCTS
ASICMASTER-TM-. GateField's ASICmaster product performs the placement and
routing of a standard gate level netlist into a GateField ProASIC device. After
successful completion of the layout task and verification of a device's
function, a programming bit stream is generated and loaded into a ProASIC device
via GateField's ASICmaker programming console. GateField's ASICmaster software
runs on PC platforms under Microsoft Windows NT as well as under the UNIX
operating system on Sun and Hewlett-Packard engineering workstations. The
software is typically delivered to the customer on CD-ROM along with
documentation manuals. The Company attempts to work closely with its customers
and potential new customers who are evaluating the GateField ProASIC technology,
tracking the progress of logic chip designs, providing
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applications design support, and for those customers who have purchased
maintenance agreements, upgrading the customers' software. Management
believes that close contact with its development software customers is a key
element in customer satisfaction and can also provide insight into new
product development areas.
ASIC MAKER-TM- DEVICE PROGRAMMER. The Company's ASICmaker device programmer is
used to configure GateField ProASIC devices. The ASICmaker accepts data from
the ASICmaster software, converts the data to the proper protocol and applies
the appropriate electrical signals to the device for storage. Customized
programming modules allow devices in different packages to be programmed by just
exchanging modules. ASICmaker also provides an ISP (In-System-Programming) mode,
allowing to program or re-program devices which are already residing on a system
board. Several devices on one board can be programmed using one programming
sequence.
PRODUCT DEVELOPMENT
The Company believes that its future business and operating results depend in
part on its ability to continue to enhance its existing products, develop new
products and improve price and performance of it products in a timely manner.
The Company continuously evaluates the emerging needs, developing standards
and emerging technologies of its target markets to identify new market or
product opportunities. GateField's product development activities are
primarily directed towards the design of new programmable ASIC solutions, the
utilization of advanced semiconductor manufacturing processes, the
development of new software tools and ongoing cost reductions and performance
improvements in existing products. The Company's recent research and
product development efforts have been directed principally towards new
product families based on an advanced 0.25-micron flash process, towards
enhanced place and route tools and towards other proprietary new
architectures. The Company's research and development expenses in 1997,
1996, and 1995 were $7.9 million, $15.8 million, and $11.3 million,
respectively. The Company intends to continue to spend substantial amounts
on research and development in order to continue to develop new products and
achieve market acceptance for such products. The Company believes that its
future success will depend in part upon its ability to attract and retain
highly-skilled engineering personnel and there can be no assurance that the
Company will be successful in attracting and retaining such personnel.
The Company has in the past and may in the future experience delays in new
product development. There can be no assurance that the Company will be
successful in developing and marketing product enhancements or new products that
respond to technological change, evolving industry standards and changing
customer requirements, that the Company will not experience difficulties that
could delay or prevent the successful development, introduction and marketing of
these products or product enhancements, or that its new products or product
enhancements will adequately meet the requirements of the marketplace and
achieve any significant degree of market acceptance. Failure of the Company,
for technological or other reasons, to develop and introduce new products and
product enhancements in a timely and cost-effective manner would have a material
adverse effect on the Company's business, operating results and financial
conditions. Complex products such as those offered by the Company may contain
undetected or unresolved defects when first introduced or as new versions are
released. There can be no assurance that, despite testing by the Company,
defects will not be found in new products or new versions of products following
commercial release, resulting in loss of market share, delay in or loss of
market acceptance or product recall.. Any such occurrence could have a material
adverse effect upon the Company's business, operating results and financial
condition.
MANUFACTURING
The Company's outsources the manufacture of its products to independent
contractors on a contract basis. The Company also relies upon a limited number
of suppliers who can produce its products to its specifications and in the
quantities and quality it desires. There can be no assurance that these
independent contractors and suppliers will be able to timely meet the Company's
future requirements for manufactured products, components and subassemblies.
The Company generally purchases limited source components pursuant to purchase
orders and has no guaranteed supply arrangements with these suppliers. Any
interruption in the supply of any of the key components currently obtained from
a limited source would disrupt its operations and have a materiel adverse effect
on the Company's business, operating results and financial condition.
GateField's ProASIC product wafers are currently manufactured by Rohm Co. LTD.
(Rohm), located in Kyoto, Japan under a manufacturing and development
partnership agreement. GateField and Rohm have built a strong working alliance
that dates back to October 1993. Rohm is widely recognized for its expertise in
large-scale integration (LSI) manufacturing and is one of the pioneers in flash
technology. The Company's products are currently manufactured on a 0.72-micron
EEPROM process fabricated by Rohm. Rohm has made a major thrust in EE/Flash
nonvolatile process technology and the Company believes Rohm will drive the
technology from 0.72 to 0.5 and 0.35. Assembly of ceramic pin grid array (CPGA)
packages was initially done at the Kyocera facility in San Diego. As volume
built, assembly of both CPGA and plastic quad flat pack (PQFP) was shifted to
ANAM and Hyundai in Korea and AAPI in the Philippines. ANAM is also assembling
GateField ProASIC devices in 352 pin and 560 pin enhanced Super Ball Grid Array
(eSBGA) packages. All wafer final quality assurance and reliability assurance
testing is done at GateField.
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MARKETING, SALES AND CUSTOMERS
GateField distributes its products through a direct sales force organization,
independent sales and manufacturer's representatives, distributors and
authorized design center in order to reach a broad base of potential customers.
The Company's direct sales personnel and independent sales representatives
generally focus on major target accounts. During 1997, 1996 and 1995, one
customer, Intel Corporation, accounted for 16%, 10% and 17% of consolidated
revenues, respectively.
GateField has international sales offices in Japan and Germany and a network of
technical distributors and authorized design centers throughout Japan, Europe,
Israel and the Far East which supports its international business. The Company
engaged in a non-exclusive sales and marketing agreement with its strategic
manufacturing partner Rohm Co. Ltd. in Kyoto, Japan. Rohm markets and sells
GateField's ProASIC products to Japanese customers in Japan and worldwide. From
time-to-time the Company expects that it may add or delete manufacturing
representative companies and distributors from its selling organization as it
deems appropriate for the level of business. Net revenues to unaffiliated
customers by foreign subsidiaries amounted to $5.9 million, $8.2 million, and
$9.0 million in 1997, 1996 and 1995 respectively. Included in the domestic
revenue figures are sales made directly to Japan and other Asian countries,
which amounted to $1.6 million in 1997, $2.1 million in 1996 and $6.1 million in
1995. When combined, export sales comprised approximately 38%, 31%, and 30% of
consolidated revenues in 1997, 1996 and 1995, respectively.
Customer service and support are important aspects of the programmable ASIC
business. To address customer needs, GateField provides several levels of user
support, including field applications assistance and design services. The
corporate applications engineering staff publishes data sheets and application
notes, conducts technical seminars, and provides design assistance via modem
links to the customer's design station. Customer service is supported with
inventory maintained both at the factory and at distributors' locations to
provide short-term delivery of chips.
COMPETITION
The semiconductor industry overall is intensely competitive and is characterized
by rapid technological change, rapid rates of product obsolescence, and price
erosion resulting from both product obsolescence and price competition.
GateField, as a new entry in the high end programmable logic market, competes
directly with a number of fast-growing domestic companies that devote a
significant portion of their resources to new product development and existing
product enhancement. The semiconductor industry also includes many large
domestic and foreign companies that have substantially greater financial,
technical, and marketing resources than GateField. The Company currently
experiences direct competition from market leaders Xilinx and Altera, as well as
Actel, Lucent and other large companies. The Company also experiences
competition from other companies who offer products that are indirectly
competitive with the Company's products or have announced their intention to
enter the market.
The principal factors of competition in the CMOS programmable logic marketplace
include product performance and features, the integration capacity and
flexibility of the individual circuits, the capability of software development
tools, quality and reliability, pricing, technical service and support, and the
ability to respond quickly to technical innovation. GateField believes it
competes favorably with respect to these factors, although it may be at a
disadvantage in comparison to larger companies with broader product lines,
greater technical service and support capabilities, and internal wafer
fabrication capabilities. GateField believes, however, that its proprietary
flash-based configuration switch and proprietary gate array like, homogeneous
Sea-of-Tiles architecture will lead to products with the unique feature
combination of ASIC design flow, high performance, high density, non-volatility
and reprogrammability. By further capitalizing on the installed base of ASIC and
programmable logic designers, who deploy the industry standard high level design
flow, the Company believes that it will be able to provide a competitive
programmable ASIC solution to the electronic system industry.
A number of very large, well-financed companies compete with GateField in its
core business. Some of these companies, including Lucent, Motorola, Philips,
and others, have proprietary wafer manufacturing ability, preferred vendor
status with many of the Company's customers, extensive marketing power and name
recognition, much greater financial resources than those of the Company, and
other significant advantages over the Company. The Company expects that as the
dollar volume of the programmable logic market grows, the attractiveness of this
market to larger, more powerful competitors will continue to increase and others
will enter the market.
LICENSES AND AGREEMENTS
On October 22, 1997 Siemens AG ("Siemens") and GateField entered into a
license agreement. Siemens licensed the Company's non-volatile and
reprogrammable ProASIC technology to be embedded into their system level
integration (SLI) products and GateField gains access to Siemens' advanced 0.25
micron (u) FLASH technology. The Company believes that the combination of this
process technology and the innovative ProASIC architecture will allow the
creation of reprogrammable and reconfigurable system-on-a-chip solutions that
will improve time-to-market and time-to-volume standards.
On March 18, 1998 Rohm Co., Ltd. ("Rohm") and GateField entered into a
Technology License Agreement under which Rohm licensed GateField's ProASIC
technology for use in nonembedded applications and in multi-chip applications
having process
<PAGE>
technology down to 0.5 micron and having an approximate raw gate capacity of a
total of 10,240 gates. In addition Rohm paid a one time fee to obtain a master
license for GateField's ASICmaster-TM- software.
PROPRIETARY RIGHTS
The Company's ability to compete is dependent in part on its proprietary rights
and technology. The Company relies on a combination of patent, copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its proprietary rights. The Company generally enters into
confidentiality or license agreements with its employees, resellers,
distributors, customers and potential customers and limits access to its
software, hardware designs, documentation and other proprietary information.
There can be no assurance that the steps taken by the Company in this regard
will be adequate to prevent misappropriation of its technology. The Company
currently has 5 issued United States patents. There can be no assurance that
the Company's patents will not be invalidated, circumvented or challenged, that
the rights granted thereunder will provide competitive advantages to the Company
or that any of the company's pending or future patent applications, whether or
not being currently challenged by applicable governmental patent examiners, will
be issued with the scope of the claims sought by the Company, if at all.
Furthermore, there can be no assurance that others will not develop technologies
that are similar or superior to the Company's technology or design around the
patents owned by the Company.
On October 10, 1995, United States Patent No. 5,457,653 was issued to the
Company for a "Technique to Prevent Deprogramming a Floating Gate Transistor
used to Directly Switch a Large Electrical Signal"; on January 14, 1997, United
States Patent No. 5,594,363 was issued to the Company for a "Logic Cell and
Routing Architecture in a Field Programmable Gate Array"; on January 14, 1997,
United States Patent No. 5,594,698 was issued to the Company for "Random Access
Memory (RAM) Based Configurable Arrays"; on February 18, 1997 United States
Patent No. 5,604,888 was issued to the Company for "Emulation System Employing
Motherboard and Flexible Daughterboards" and on May 27, 1997 United States
Patent No. 5,633,518 was issued to the Company for "Nonvolatile Reprogrammable
Interconnect Cell with FN Tunneling and Programming Method Thereof". These
patents are effective for a period of 20 years from the filing date and the
Company believes that these patents are an important factor in the protection of
its proprietary information. These are the first patents issued for the
GateField ProASIC technology and five more patent applications are pending at
this time.
The Company has common law trademark protection for its trademark "GateField"
(TM) Corporation, "ProASIC", (TM), "ProCore", (TM), "ProReady", (TM), "GF100K",
(TM), "GF200F", (TM), "GF250F, (TM), "GF260F", (TM), "GF360F", (TM), "GF460F",
(TM), "ASICmaker", (TM), "ASICmaster", (TM), "MEMORYmaster", (TM),
"Sea-of-Tiles", (TM), "ProIP", (TM), "ProSLI", (TM), "FlashLink", (TM).
EMPLOYEES
At December 31, 1997, the Company had 72 employees, including 15 in sales and
marketing, 26 in research and development, 19 in customer service and support
and 12 in general and administrative functions. The Company also contracts with
consultants who provide short-term services to the Company in various areas.
None of the Company's employees are represented by a labor organization and the
Company considers its relations with its employees to be good. The Company
believes its business depends to a significant extent on the contributions of
its senior management and other key personnel and on GateField's ability to
attract and retain highly qualified personnel. Competition to hire such
personnel in GateField's industry and location is intense. There can be no
assurance that the Company will be successful in attracting and retaining such
personnel.
ITEM 2. PROPERTIES
The Company leases approximately 30,769 square feet of office space in
Fremont, California for its headquarters, test and engineering operations
pursuant to a lease that expires in August of 1999. The Company also
subleases approximately 30,231 square feet of such office space at its
headquarters facility to Mattson Technology pursuant to a sublease agreement
that expires in August of 1999. The Company's Service Division occupies
approximately 6,633 square feet of office space in New Jersey pursuant to a
lease that expires on January 31, 2003. The Company also leases sales and
support office spaces in two domestic locations in Massachusetts and Texas,
and two international locations in Munich, Germany and in Yokohama, Japan on
a short-term or intermediate-term basis. Approximate future minimum lease
payments under all the leases are $1.9 million.
ITEM 3. LEGAL PROCEEDINGS
As of March 1, 1998 the Company was not involved in any pending legal
proceedings which the Company believes could have a material adverse effect
on the Company.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 15, 1997, the following items were voted on at the Annual Meeting of
Stockholders:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PROPOSAL FOR AGAINST/ BROKER
WITHHELD ABSTAIN NON-VOTES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Election of Directors:
James R. Fiebiger 36,964,896 270,622
David J. Dunn 36,969,012 266,506
Horst G. Sandfort 36,972,712 262,806
Jonathan S. Huberman 36,971,446 264,072
- --------------------------------------------------------------------------------
2. Approval of Classified
Board of Directors 20,259,644 1,136,579 159,270 15,680,025
- --------------------------------------------------------------------------------
3. Approval of Authorized
Share Increase to 23,234,334 698,125 135,708 13,167,351
65,000,000
- --------------------------------------------------------------------------------
4. Approval of Issuance of
Securities Exceeding 20,592,017 738,578 224,898 15,680,025
Twenty Percent of
Outstanding Shares
- --------------------------------------------------------------------------------
5. Ratification of Deloitte
& Touche LLP as 36,912,120 172,241 151,157
Independent Auditors
- --------------------------------------------------------------------------------
</TABLE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of March 16, 1998 are as follows:
Name Age Position
---- --- --------
James R. Fiebiger 56 President, Chief Executive Officer and Director
Stephen A. Flory 43 Vice President, Chief Financial Officer and
Treasurer
Douglas E. Klint 47 Vice President, General Counsel and Corporate
Secretary
Peter G. Feist 43 Vice President, Marketing
Charles S. Parr 42 Vice President, Worldwide Sales
Timothy Saxe 42 Vice President, Engineering
JAMES R. FIEBIGER, has been a director of the Company since 1994. Dr. 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.
<PAGE>
STEPHEN A. FLORY joined the Company as European Corporate Controller in
August 1988. From 1995 to 1997, he has been its corporate controller and was
promoted to Chief Financial Officer, Vice President and Treasurer in February
1997. Before joining GateField, Mr. Flory held various financial positions for
Motorola Corporation's European operations.
DOUGLAS E. KLINT joined the Company in December 1984 as Director of
Contracts, was named Corporate Secretary in June 1986, and was promoted to Vice
President, General Counsel and Corporate Secretary in November 1987.
PETER G. FEIST joined the Company in October 1996 as Vice President,
Marketing. From January 1995 to September 1996 he was Regional Manager Europe
for Hyundai Electronics, Digital Media Division. From April 1985 to December
1994 he was Director of Marketing in the USA for LSI Logic GmbH.
CHARLES S. PARR joined the Company in August 1996 as Vice President,
Worldwide Sales. From March 1996 to July 1996 he was Vice President of Sales
for MMC Networks, Inc. From August 1994 to March 1996 he was Vice President
North American Sales and Technology Centers for VLSI Technology, Inc. From
August 1990 to August 1994, he was Vice President Asia Pacific Operations for
VLSI Technology, Inc.
TIMOTHY SAXE joined the Company in September 1993 as Vice President,
Engineering. Prior to that he was Vice President Engineering at Crosscheck.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is quoted on the Nasdaq National Market under the symbol
"GATE."
The following table sets forth the range of high and low trading prices during
each quarter for the two years ended December 31, 1997:
<TABLE>
<CAPTION>
High Low
------------------------------------------------------------
<S> <C> <C>
1997
First Quarter $ 3.13 $ 1.56
Second Quarter $ 1.72 $ 0.56
Third Quarter $ 1.59 $ 0.47
Fourth Quarter $ 3.00 $ 1.06
------------------------------------------------------------
1996
First Quarter $ 9.13 $ 4.88
Second Quarter $ 8.88 $ 4.63
Third Quarter $ 6.13 $ 3.44
Fourth Quarter $ 3.63 $ 1.56
------------------------------------------------------------
</TABLE>
At March 16, 1998, there were 1,267 stockholders of record.
The Company has never paid any cash dividends on the Common Stock. The Company
currently intends to retain any earnings for future growth, and, therefore, does
not anticipate paying any cash dividends on the Common Stock in the foreseeable
future. Moreover, the Company's credit facility with Coast Business Credit and
the terms of the Company's Series B Convertible Preferred Stock prohibit the
payment of cash dividends other than to the holders of the Company's Series B
Convertible Preferred Stock.
On November 10, 1997, the Company issued 1,000,000 shares of Series B
Convertible Preferred Stock (the "Series B Stock") and warrants to purchase
(for a purchase price of $1.00 per share) an aggregate of 997,751 shares of
Common Stock to Idanta Partners Ltd., Dunn Family Trust and Perscilla Faily
Trust. The warrants will terminate upon the approval by the stockholders of
an increase in the Company's authorized common stock and the closing of the
common stock financing contemplated by the agreement. Both these
conditions were satisfied on January 14, 1998, accordingly these warrants
terminated at that date. The Series B Stock and the warrants were issued in
reliance upon the exemption from registration set forth in Section 4(2) of
the Securities Act of 1933, as amended (the "Securities Act"). Each share of
outstanding Series B Stock is convertible into the number of shares of Common
Stock equal to 4.5825 plus the amount of accrued and unpaid dividends on the
Series B Stock, provided that upon the occurrence of certain events, each
share of Series B Stock shall be convertible into the number of shares
obtained by dividing the sum of 4.5825 plus accrued and unpaid dividends by
0.75.
In February 1997, the Company completed a $3,500,000 private placement with
investors whereby the Company issued 6% Subordinated Convertible Debenture (the
"Debentures") and warrants to purchase an aggregate of 500,000 shares of Common
Stock. The Debentures accrued interest at an annual rate of 6%, beginning on
the date of issue, with principal due and payable
<PAGE>
three years from the date of issue, if and to the extent that the Debentures
were not previously converted. The Debentures were convertible at the option of
the holder into the Company's Common Stock. The warrants have a term of 60
months and are exercisable into Common Stock at an exercise price of $2.25 per
share. The Debentures and warrants were issued in reliance upon the exemption
from the registration set forth in Section 4(2) of the Securities Act.
On May 15, 1997, the Debentures were converted into 100,000 shares of the
Company's Series A Convertible Preferred Stock (the "Series A Stock") having an
aggregate stated value of $3,500,000. In addition, Preferred Stock purchase
warrants were issued to the holders of the Debentures for a total of 42,858
shares of Series A Stock for a term of 60 months at a purchase price of $35.00
per share (provided such warrants could only be exercisable when the last
reported sales price of the Common Stock on the most recent trading day is equal
to or greater than $1.50 per share). The Series A Stock and warrants to purchase
Series A Stock were issued in reliance upon the exemption from the registration
set forth in Section 4(2) of the Securities Act. During 1997, 51,972 shares of
the Series A Stock were converted into 4,546,928 shares of the Company's Common
Stock at prices ranging from $0.367 to $0.606 per share. The shares of Common
Stock issued upon the conversion of the Series A Stock were issued in reliance
upon the exemption from the registration set forth in Section 3(a)(9) of the
Securities Act. In August 1997, the Company redeemed all of the outstanding
shares of the Series A Stock and warrants to purchase Series A Stock for
$1,827,000. Also in August 1997, all of the outstanding warrants for 500,000
shares of Common Stock were exchanged for warrants to purchase 350,000 shares of
the Company's Common Stock at an exercise price of $0.53125 per share. The
warrants to purchase Common Stock issued upon the exchange of warrants were
issued in reliance upon the exemption from the registration set forth in Section
4(2) of the Securities Act. In September 1997, Common Stock warrants to
purchase an aggregate of 105,000 shares of Common Stock were exercised for an
aggregate price of $56,000. The shares of Common Stock issued upon exercise of
the warrants were issued in reliance upon the exemption from the registration
set forth in Section 3(a)(9) of the Securities Act.
In May 1996, the Company sold a total of $10,000,000 of subordinated convertible
debenture notes (the "Notes") to institutional investors as part of a private
placement. The Notes accrued interest at an annual rate of 6%, beginning on the
date of issue, with the principal due and payable three years from the date of
issue if and to the extent that the Notes are not previously converted. The
Notes are convertible at the option of the noteholders into Common Stock at a
price equal to 80% to 85% of the average closing bid price for the Common Stock
on the Nasdaq National Market for the five trading days prior to the date of
conversion. During 1996, an aggregate of $5,431,000 ($4,300,000 of the original
principal of the Notes and $1,131,000 of accrued interest) had been converted
into 2,691,000 shares of Common Stock. During 1997, an aggregate of $7,414,000
($5,700,000 of the original principal of the Notes and $1,714,000 of accrued
interest) had been converted into 7,418,000 shares of Common Stock. The shares
of Common Stock issued upon the conversion of the Notes were issued in reliance
upon the exemption from the registration set forth in Section 3(a)(9) of the
Securities Act. In addition, the investors received 2 1/2-year warrants to
purchase 59,500 shares of Common Stock at an exercise price of $10 per share.
The warrants were issued in reliance upon the exemption from the registration
set forth in Section 4(2) of the Securities Act. At December 31, 1997 there was
no outstanding balance on the Notes and a total of 10,109,000 shares of Common
Stock had been issued upon conversion of the Notes.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated herein by reference from
the section entitled "Selected Financial Data" in the Company's Annual Report to
Stockholders for the fiscal year ended December 31, 1997 ("Annual Report").
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is incorporated herein by reference from
the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information required by this Item is not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated herein by reference from
the financial statements contained in the Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required by this Item is not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item concerning directors of the Company is
incorporated herein by reference from the section entitled "Election of
Directors" included in the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders for the fiscal year ended December 31, 1997, which will
be filed with the Securities and Exchange Commission within 120 days of the
Company's fiscal year end (the "1997 Proxy Statement"). The information
required by this Item concerning executive officers of the Company is included
in Part I of this Annual Report on Form 10-K under the section captioned
"Executive Officers of the Registrant". The information required by this Item
concerning compliance with Section 16(a) of the Securities Exchange Act of 1934,
as amended, is incorporated herein by reference from the section entitled
"Section 16(a) Beneficial Ownership Reporting Compliance" included in the 1997
Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference from
the sections entitled "Election of Directors" "Compensation of Directors",
"Compensation Committee Interlocks and Insider Participation", "Executive
Compensation", "Employment and Severance Agreements" included in the 1997 Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference from
the section entitled "Beneficial Ownership of Voting Stock" included in the 1997
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference from
the section entitled "Election of Directors" "Compensation of Directors",
"Compensation Committee Interlocks and Insider Participation", "Executive
Compensation", "Employment and Severance Agreements" included in the 1997 Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following financial information is incorporated by reference into
Part II hereof from the Annual Report
1. Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Operations for the three years ended
December 31, 1997
Consolidated Statements of Stockholders' Equity for the three years
ended December 31, 1997
Consolidated Statements of Cash Flows for the three years ended
December 31, 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
Report of Independent Auditors on Financial Statement Schedule
Schedule II: Valuation and Qualifying Accounts
All other schedules have been omitted because they are not applicable,
not required, or the information required is included in the financial
statements or notes thereto.
3. Exhibits:
The exhibits are listed in the accompanying Index to Exhibits
immediately following the signature page.
<PAGE>
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated November 14, 1997
to report the execution of a license agreement with Siemens
Aktiengesellschaft and to report the execution of a stock purchase
agreement with Idanta Partners Ltd.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
GATEFIELD CORPORATION
--------------------------------
Registrant
Date: April 15, 1998 By: /s/ Stephen A. Flory
--------------------------------
Stephen A. Flory
Vice President, Chief Financial Officer and
Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below as of April 15, 1998 by the following persons on behalf
of the registrant and in the capacities indicated.
/s/James R. Fiebiger President, Chief Executive Officer and Director
- ------------------------ (Principal Executive Officer)
James R. Fiebiger
/s/Stephen A. Flory Vice President, Chief Financial Officer and Treasurer
- ------------------------ (Principal Financial and Accounting Officer)
Stephen A. Flory
/s/ Horst G. Sandfort Director
- ------------------------
Horst G. Sandfort
/s/ David J. Dunn Director
- ------------------------
David J. Dunn
/s/ Jonathan S. Huberman Director
- ------------------------
Jonathan S. Huberman
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of GateField Corporation:
We have audited the consolidated financial statements of GateField
Corporation (formerly Zycad Corporation) at December 31, 1997 and 1996, and
for each of the three years in the period ended December 31, 1997, and have
issued our report thereon dated April 8, 1998. Our audits also included the
consolidated financial statement schedule of GateField Corporation, listed at
Item 14(a)(2). This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
San Jose, California
April 8, 1998
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1997, 1996 and 1995
(amounts in thousands)
GATEFIELD CORPORATION AND SUBSIDIARIES
(Formerly Zycad Corporation)
<TABLE>
<CAPTION>
Balance at Additions Balance at
Beginning charged to cost End of
Descriptions of Period and expense Deductions Period
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deducted from assets:
Allowance for doubtful accounts
(accounts receivable):
Years ended December 31,
1997 $ 1,337 $ 169 $ 978(1) $ 528
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
1996 $ 296 $ 1,386 $ 345(1) $ 1.337
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
1995 $ 381 $ --- $ 85(1) $ 296
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
(1) Write-off of accounts and notes determined to be uncollectable.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3.1 Certificate of Incorporation of the Company, as amended.
3.2 Bylaws of the Company, as amended.
3.3 Certificate of Designation of Series B Convertible Preferred Stock of
the Company.
10.1** 1984 Stock Option Plan, as amended (incorporated by reference to
Exhibit 4.5 to the Company's Registration Statement on Form S-8 (File
No. 333-42363) filed on December 16, 1997).
10.2** 1993 Stock Option Plan (incorporated by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-8 (File No. 333-42363)
filed on December 16, 1997).
10.3** 1996 Stock Option Plan (incorporated by reference to Exhibit 4.2 to
the Company's Registration Statement on Form S-8 (File No. 333-42363)
filed on December 16, 1997).
10.4** 1995 Stock Option Directors Plan for Non-Employee Directors
(incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-8 (File No. 333-42363) filed on
December 16, 1997).
10.5** Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.4
to the Company's Registration Statement on Form S-8 (File No.
333-42363) filed on December 16, 1997).
10.6** Employment, Confidential Information and Invention and Assignment
Agreement, between the Company and Douglas E. Klint, as amended on
June 5, 1997.
10.7** Employment, Confidential Information and Invention and Assignment
Agreement, between the Company and Stephen A. Flory, as amended on
June 5, 1997.
10.8** Warrant Certificate for the purchase of 50,000 shares of Common Stock,
dated July 28, 1997, issued to James R. Fiebiger.
10.9** Warrant Certificate for the purchase of 7,500 shares of Common Stock,
dated November 25, 1997, issued to Benjamin Huberman.
10.10 Common Stock Purchase Warrant, dated August 21, 1997, issued to
Halifax Fund L.P.
10.11 Common Stock Purchase Warrant, dated August 21, 1997, issued to
Capital Ventures International.
10.12 Form of Registration Rights Agreement, dated February 13, 1997,
between the Company and each of Halifax Fund L.P., Capital Ventures
International, Heracles Fund, Joseph A. Umbach and Lewis A. Fraser
(incorporated by reference to Exhibit 4.19 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997).
10.13 Stock Purchase Agreement, dated November 10, 1997, between the
Company, Idanta Partners Ltd., Dunn Family Trust and Perscilla Faily
Trust.
10.14 Registration Rights Agreement, dated November 10, 1997, between the
Company, Idanta Partners Ltd., Dunn Family Trust and Perscilla Faily
Trust.
10.15 Credit Loan and Security Agreement, entered into at January 6, 1997,
between the Company and Coast Business Credit, a division of Southern
Pacific Thrift and Loan Association (incorporated by reference to
Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996).
10.16 Lease, dated March 6, 1992, between the Company and Renco Equities IV,
relating to premises at 47100 Bayside Parkway, Fremont, California.
10.17 Sub-Lease Agreement, dated October 27, 1997, between the Company and
Mattson Technology, relating to premises at 47100 Bayside Parkway,
Fremont, California.
<PAGE>
10.18 SICAN/GateField Technology Agreement, dated September 23, 1993,
between SICAN G.m.b.H. and the Company (incorporated by reference to
Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993).
10.19 License Agreement, dated October 22, 1997, between the Company and
Siemens Aktiengesellschaft (incorporated by reference to Exhibit 10.29
to the Company's Current Report on Form 8-K dated November 14, 1997).
10.20 Asset Purchase Agreement, dated April 14, 1997, between the Company
and IKOS Systems, Inc., regarding the purchase of the Company's
LightSpeed product family by IKOS Systems, Inc. (incorporated by
reference to Exhibit 10.26 to the Company's Current Report on Form 8-K
dated April 15, 1997).
10.21 Stock Purchase Agreement, dated April 14, 1997, between the Company
and Edison Venture Fund III, L.P. for the purchase of 2,420,000 shares
of QSS, Inc. (incorporated by reference to Exhibit 10.26 to the
Company's Current Report on Form 8-K dated May 15, 1997).
10.22 Asset Purchase Agreement, dated August 18, 1997, between the Company
and IKOS Systems, Inc., regarding the purchase of the Company's XP and
PXP hardware fault simulation product business by IKOS Systems, Inc.
(incorporated by reference to Exhibit 10.27 to the Company's Current
Report on Form 8-K, dated September 5, 1997).
10.23 Asset Purchase Agreement, dated August 20, 1997, between the Company
and Test Systems Strategies, Inc., regarding the purchase of the
Company's TDX software fault simulation and test business
(incorporated by reference to Exhibit 10.28 to the Company's Current
Report on Form 8-K dated September 5, 1997).
10.24 Purchase Agreement, dated October 31, 1997, between the Company, Zycad
Japan (GateField) KK and Zycad TSS Inc., regarding the purchase of the
maintenance business.
10.25 Severance Agreement and General Release of All Claims, dated September
30, 1997, between the Company and Phillips W. Smith.
13.1 Portions of the Annual Report to Stockholders for the year ended
December 31, 1997 (only those portions specifically incorporated by
reference herein are filed herewith).
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors, Deloitte & Touche LLP.
27.1 Financial Data Schedule (Fiscal year-ended December 31, 1997).
27.2 Financial Data Schedule (Fiscal year-ended December 31, 1996 and
1995).
- -------------------
** Management contract or compensation plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
</TABLE>
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
GATEFIELD CORPORATION
as amended
1. The name of the corporation is GATEFIELD CORPORATION.
2. The address of its registered office in the State of Delaware is No. 100
West Tenth Street, in the City of Wilmington, County of New Castle. The name
of its registered agent at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is:
To engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
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.
(b) Each holder of record of common stock shall be entitled to one
vote for each share of such stock standing in his name on the books of the
corporation.
(c) The Board of Directors is authorized to issue series preferred stock
from time to time in one or more series. Each series shall be distinctively
designated. Except as otherwise stated and expressed pursuant to the
provisions of this article, all series of series preferred stock shall rank
equally and be identical in all respects. The resolution or resolutions
providing for the issue of series preferred stock shall specify the voting
powers, if any, and the designations, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations, or restrictions thereof, of such series, including, but not
limited to:
(i) the number of shares to constitute the series and the distinctive
designation thereof;
(ii) the voting powers, full or limited, or no voting powers;
(iii) the redemption price or prices, if any, and the terms and conditions on
which shares of such series shall be redeemable at the option of the holders
thereof or of the corporation or on the occurrence of a specified event;
(iv) the rate of dividends payable on shares of such series; the conditions
on which and the times when such dividends are payable; the preference to, or
the relation to, the payment of the dividends on any other class or classes or
any other series of stock, whether cumulative or non-cumulative, and, if
cumulative, the dates from which dividends on shares of such series shall be
cumulative.
(v) the rights of shares of such series upon the liquidation, dissolution or
winding up of, or upon any distribution of the assets of, the corporation;
(vi) the rights, if any, of the holders of shares of such series or of the
corporation to convert such shares into, or exchange such shares for, shares
of any other class or classes or of any other series of the same or any other
class or classes of stock of the corporation, or the conversion or exchange
of shares of such series into such other shares upon the occurrence of a
specified event; and the price or prices or the rates of exchange and the
adjustments at which such shares shall be convertible or exchangeable; and
any other terms and conditions of such conversion or exchange; and
(vii) the sinking fund requirements, if any, be applied to the purchase or
redemption of shares of such series,
<PAGE>
including the amount of such fund or funds and the manner of application.
5A. The name and mailing address of the incorporator is as follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
<S> <C>
Richard E. Offerdahl 122 Demont Avenue East
St. Paul, Minnesota 55117
</TABLE>
5B. The name and mailing address of each person who is to serve as a director
until the first annual meeting of the stockholders or until a successor is
elected and qualified, is as follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
<S> <C>
Richard E. Offerdahl 122 Demont Avenue East
St. Paul, Minnesota 55117
James E. Thornton 131 Montrose Place
St. Paul, MN 55104
Raymond W. Allard 682 Woodridge Drive
St. Paul, MN 55118
</TABLE>
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by
statute, and by this Certificate of Incorporation, the Board of Directors is
hereby expressly authorized to make, alter or repeal the by-laws of the
corporation.
8. Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the corporation may be
kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the by-laws of the corporation. Elections of
directors need not be by written ballot unless the by-laws of the corporation
shall so provide.
9. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation, in the manner
now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
10. No Director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty by such Director as a Director, provided, however, that this Article 10
shall not eliminate or limit the liability of a Director to the extent
provided by applicable law (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the General Corporation Law of
the State of Delaware, or (iv) for any transaction from which the Director
derived an improper personal benefit. No amendment to or repeal of this
Article 10 shall apply to or have any effect on the liability or alleged
liability of any Director of the Corporation for or with respect to any acts
or omissions of such Director occurring prior to such amendment or repeal.
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.
<PAGE>
(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 11 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.
(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.
<PAGE>
Exhibit 3.2
GATEFIELD CORPORATION
BY-LAWS
as amended
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places both
within and without the State of Delaware as the board of directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held in the City of St. Paul, State of Minnesota, at such
place as may be fixed from time to time by the board of directors, or at such
other place either within or without the State of Delaware as shall be
designated from time to time by the board of directors and stated in the
notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and place, within or without the State of Delaware, as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
Section 2. Annual meetings of stockholders, commencing with the
year 1982, shall be held on the fourth Wednesday of April if not a legal
holiday, and if a legal holiday, then on the next secular day following, at
3:00 P.M., or at such other date and time as shall be designated from time to
time by the board of directors and stated in the notice of the meeting, at
which they shall elect directors by a plurality vote, and transact such other
business as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date and
hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than twenty nor more than forty-five days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in
the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected
by any stockholder who is present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the board
of directors, or at the request in writing of stockholders owning a majority
in amount of the entire capital stock of the corporation issued and
outstanding and entitled to vote. Such
<PAGE>
request shall state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the place, date and
hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not less than twenty nor more than forty-five days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction
of business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented
at any meeting of the stockholders, the stockholders entitled to vote
thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or represented any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the holders
of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or
of the certificate of incorporation, a different vote is required in which
case such express provision shall govern and control the decision of such
question.
Section 10. Unless otherwise provided in the certificate of incorporation
each stockholder shall at every meeting of the stockholders be entitled to
one vote in person or by proxy for each share of the capital stock having
voting power held by such stockholder, but no proxy shall be voted on after
three years from its date, unless the proxy provides for a longer period.
At all elections of directors of the corporation each stockholder having
voting power shall be entitled to exercise the right of cumulative voting as
provided in the certificate of incorporation, but only if so provided.
Section 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special
meeting of stockholders of the corporation, or any action which may be taken
at any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented
in writing.
ARTICLE III
DIRECTORS
Section 1.
(a) The number of directors which shall constitute the whole board
shall be not less than three. The first board shall consist of three
directors. Thereafter, within the limits above specified, the number of
directors shall be determined by resolution of the board of directors. The
directors shall be elected at the annual meeting of the stockholders, except
as provided in Section 2 of this Article III. Directors need not be
stockholders of the corporation.
<PAGE>
(b) 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 fraction is two-thirds, one of the extra directors shall
be a member of Class I and one of the extra directors shall be a member of
Class II, unless otherwise provided from time to time by resolution adopted
by the board of directors.
(c) 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 end of the corporation's fiscal
year ending December 31, 1999; 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.
Section 2.
(a) 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 directors in accordance
with the provisions of Article III, Section 1.
(b) 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.
Section 3. The business of the corporation shall be managed by or under the
direction of its board of directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these by-laws directed or required
to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold meetings, both
regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected board of directors shall
be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the
<PAGE>
failure of the stockholders to fix the time or place of such first meeting of
the newly elected board of directors, or in the event such meeting is not
held at the time and place so fixed by the stockholders, the meeting may be
held at such time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the board of directors, or as
shall be specified in a written waiver signed by all of the directors.
Section 6. Regular meetings of the board of directors may be held without
notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the president on
two days' notice to each director, either personally or by mail or by
telegram; special meetings shall be called by the president or secretary in
like manner and on like notice on the written request of two directors unless
the board consists of only one director; in which case special meetings shall
be called by the president or secretary in like manner and on like notice on
the written request of the sole director.
Section 8. 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 Article III, Section 1 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 these by-laws or by the certificate of incorporation.
Section 9. Unless otherwise restricted by the certificate of incorporation
or these by-laws, any action required or permitted to be taken at any meeting
of the board of directors or of any committee thereof may be taken without a
meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of incorporation
or these by-laws, members of the board of directors, or any committee
designated by the board of directors, may participate in a meeting of the
board of directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The board of directors may, by resolution passed
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting
of the committee.
In the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint
another member of the board of directors to act at the meeting in the place
of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the board of
directors, shall have and may exercise all the powers and authority of the
board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to
all papers which may require it; but no such committee shall have the power
or authority in reference to amending the certificate of incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending
the by-laws of the corporation; and, unless the resolution or the certificate
of incorporation expressly so provide, no such committee shall have the power
or authority to declare a dividend or to authorize the
<PAGE>
issuance of stock.
Such committee or committees shall have such name or names as may
be determined from time to time by resolution adopted by the board of
directors.
Section 12. Each committee shall keep regular minutes of its meetings and
report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of incorporation
or these by-laws, the board of directors shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any,
of attendance at each meeting of the board of directors and may be paid a
fixed sum for attendance at each meeting of the board of directors or a
stated salary as director. No such payment shall preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless the certificate of incorporation provides otherwise, 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.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be
given to any director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed
to such director or stockholder, at his address as it appears on the records
of the corporation, with postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall be deposited in the United
States mail. Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the provisions
of the statutes or of the certificate of incorporation or of these by-laws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
board of directors and shall be a chief executive officer, a president, a
vice-president, a secretary and a treasurer. The board of directors may also
choose additional vice-presidents, and one or more assistant secretaries and
assistant treasurers. Any number of offices may be held by the same person,
unless the certificate of incorporation or these by-laws otherwise provide.
The Board may designate administrative officers of the corporation in
addition to corporate officers. Such administrative and divisional vice
presidents and directors shall be deemed officers of the Company for purposes
of coverage under the Company's indemnification provisions, Directors and
Officer's liability insurance coverage and participation in Company benefit
plans and policies.
Section 2. The board of directors at its first meeting after each
annual meeting of stockholders shall choose a chief executive officer, a
president, one or more vice-presidents, a secretary and a treasurer.
Section 3. The board of directors may appoint such other officers
and agents as it shall deem necessary
<PAGE>
who shall hold their offices for such terms and shall exercise such powers
and perform such duties as shall be determined from time to time by the
board. The appointment of a chairman of the board or other similar officer of
the corporation shall require the affirmative vote of at least three-fourths
of the members of the board of directors then in office.
Section 4. The salaries of all officers and agents of the
corporation shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of
the corporation shall be filled by the board of directors.
THE PRESIDENT
Section 6. The President shall have general management and supervision of
the business operations and affairs of the corporation and may execute and
deliver in the name of the corporation powers of attorney, contracts, bonds
and other obligations and instruments.
THE VICE-PRESIDENTS
Section 7. In the absence of the chief executive officer and the
president or in the event of their inability or refusal to act, the
vice-president (or in the event there be more than one vice-president, the
vice-presidents in the order designated by the directors, or in the absence
of any designation then in the order of their election) shall perform the
duties of the chief executive officer and the president, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 8. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the board of directors in a book to
be kept for that purpose and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the board of directors,
and shall perform such other duties as may be prescribed by the board of
directors or president, under whose supervision he shall be. He shall have
custody of the corporate seal of the corporation and he, or an assistant
secretary, shall have authority to affix the same to any instrument requiring
it and when so affixed, it may be attested by his signature or by the
signature of such assistant secretary. The board of directors may give
general authority to any other officer to affix the seal of the corporation
and to attest the affixing by his signature.
Section 9. The assistant secretary, or if there be more than one,
the assistant secretaries in the order determined by the board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board
of directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 10. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts
and disbursements in books belonging to the corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the board of
directors.
Section 11. He shall disburse the funds of the corporation as may be ordered
by the board of directors, taking proper
<PAGE>
vouchers for such disbursements, and shall render to the president and the
board of directors, at its regular meetings, or when the board of directors
so requires, an account of all his transactions as treasurer and of the
financial condition of the corporation.
Section 12. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the board of
directors for the faithful performance of the duties of his office and for
the restoration to the corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control
belonging to the corporation.
Section 13. The assistant treasurer, or if there shall be more
than one, the assistant treasurers in the order determined by the board of
directors (or if there be no such determination, then in the order of their
election, shall, in the absence of the treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of
the treasurer and shall perform such other duties and have such other powers
as the board of directors may from time to time prescribe.
THE CHIEF EXECUTIVE OFFICER
Section 14. The chief executive officer of the corporation shall
preside at all meetings of the stockholders and the board of directors, shall
have general and active management of the business of the corporation and
shall see that all orders and resolutions of the board of directors are
carried into effect.
Section 15. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by, the
chairman or vice-chairman of the board of directors, or the president or a
vice-president and the treasurer or an assistant treasurer, or the secretary
or an assistant secretary of the corporation, certifying the number of shares
owned by him in the corporation.
Certificates may be issued for partly paid shares and in such case upon the
face or back of the certificates issued to represent any such partly paid
shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class
of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware,
in lieu of the foregoing requirements, there may be set forth on the face or
back of the certificate which the corporation shall issue to represent such
class or series of stock, a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
Section 2. Any of or all the signatures on the certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to
be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as
<PAGE>
if he were such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such
manner as it shall require and/or to give the corporation a bond in such sum
as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen
or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall
be the duty of the corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon
its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting: provided, however, that the board of directors may fix a new
record date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest
in such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting,
pursuant to law. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the certificate of
incorporation.
Section 2. Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the
<PAGE>
corporation, or for such other purpose as the directors shall think conducive
to the interest of the corporation, and the directors may modify or abolish
any such reserve in the manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual meeting, and
at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
CHECKS
Section 4. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons
as the board of directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 7. The corporation shall indemnify its officers, directors,
employees and agents to the extent permitted by the General Corporation Law
of Delaware.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered, amended or repealed or new by-laws
may be adopted by the stockholders or by the board of directors, when such
power is conferred upon the board of directors by the certificate of
incorporation at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
by-laws be contained in the notice of such special meeting. If the power
to adopt, amend or repeal by-laws is conferred upon the board of directors by
the certificate of incorporation it shall not divest or limit the power of
the stockholders to adopt, amend or repeal by-laws.
Section 2. Notwithstanding any other provisions of law, the certificate of
incorporation or these by-laws, 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, Article II, Section 2, Article III, Section 1, Article
III, Section 2, Article III, Section 8, Article III, Section 14, or this
Article VIII, Section 2 of these by-laws.
Section 3. Notwithstanding any other provisions of law, the certificate of
incorporation of the corporation or these by-laws, and notwithstanding the
fact that a lesser percentage may be specified by law, the affirmative vote
of the stockholders, in accordance with Article VIII, Section 1, or the
affirmative vote of at least three-fourths of the members of the board of
directors then in office shall be required to amend, repeal or to adopt any
provision inconsistent with Article V, Section 3 or this Article VIII,
Section 3 of these by-laws.
<PAGE>
Exhibit 3.3
CERTIFICATE OF DESIGNATIONS OF THE PREFERRED STOCK
OF
GATEFIELD CORPORATION
TO BE DESIGNATED
SERIES B CONVERTIBLE PREFERRED STOCK
GateField Corporation, a Delaware corporation (the "Corporation"),
pursuant to authority conferred on the Board of Directors of the Corporation
by the Certificate of Incorporation and in accordance with the provisions of
Section 151 of the General Corporation Law of the State of Delaware,
certifies that the Board of Directors of the Corporation, at a meeting duly
called and held, at which a quorum was present and acting throughout, duly
adopted the following resolution:
RESOLVED: That, pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation in accordance with the
provisions of its Certificate of Incorporation, a series of Preferred Stock
of the Corporation be and hereby is established, consisting of 1,000,000
shares, to be designated "Series B Convertible Preferred Stock" (hereinafter
"Series B Preferred Stock"); that the Board of Directors be and hereby is
authorized to issue such shares of Series B Preferred Stock from time to time
and for such consideration and on such terms as the Board of Directors shall
determine; and that, subject to the limitations provided by law and by the
Certificate of Incorporation, the powers, designations, preferences and
relative, participating, optional or other special rights of, and the
qualifications, limitations or restrictions upon, the Series B Preferred
Stock shall be as follows:
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,
<PAGE>
"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 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
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<PAGE>
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
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<PAGE>
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.
(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)).
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<PAGE>
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
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
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<PAGE>
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 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.
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<PAGE>
(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
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<PAGE>
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 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.
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<PAGE>
(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.
(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
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<PAGE>
(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") or (B) reduce
the Conversion Price as to all shares of Series B Preferred
-10-
<PAGE>
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
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<PAGE>
(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
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.
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<PAGE>
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 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.
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<PAGE>
GateField Corporation has caused this Certificate of Designations to be
signed by Douglas E. Klint, its authorized officer, this 10th day of
November, 1997.
By: /s/ Douglas E. Klint
--------------------------------
Douglas E. Klint
Vice President, Secretary and
General Counsel
-14-
<PAGE>
Exhibit 10.6
ZYCAD CORPORATION
EMPLOYMENT, CONFIDENTIAL INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT
I, Douglas E. Klint, as a Condition of my employment with Zycad Corporation,
its subsidiaries, successors and assigns (collectively the "Company"), and in
consideration of my employment with the Company and my receipt of the
compensation now and hereafter paid to me by the Company, agree to the
following:
1. AT-WILL EMPLOYMENT. I understand and acknowledge that my employment with
the Company is for an unspecified duration of time and constitutes "at-will"
employment. I acknowledge that this employment relationship may be
terminated at any time, with or without good cause or for any or no cause, at
the option of either the Company or myself, with or without notice.
2. CONFIDENTIAL INFORMATION.
(a) COMPANY INFORMATION. I agree at all times during the term of my
employment and thereafter, to hold in strictest confidence, and not to use,
except for the benefit of the Company, or to disclose to any person, firm or
corporation without written authorization of an officer of the Company, any
Confidential Information of the Company. I understand that "Confidential
Information" means any Company proprietary information, technical data, trade
secrets or know-how, including, but not limited to, research, product plans,
products, services, customer lists and customers (including, but not limited
to, customers of the Company on whom I called or with whom I became
acquainted during the term of my employment), markets, software,
developments, inventions, processes, formulas, technology, designs, drawings,
engineering, hardware configuration information, marketing, finances or other
business information disclosed to me by the company either directly or
indirectly in writing, orally or by drawings or observation of parts or
equipment. I further understand that Confidential Information does not
include any of the foregoing items which have become publicly known and made
generally available through no wrongful act of mine or of others who were
under confidentiality obligations as to the item or items involved.
(b) FORMER EMPLOYER INFORMATION. I agree that I will not, during my
employment with the Company, improperly use or disclose any proprietary
information or trade secrets of any former or concurrent employer or other
person or entity and that I will not bring onto the premises of the Company
any unpublished document or proprietary information belonging to any such
employer, person or entity unless consented to in writing by such employer,
person or entity.
(c) THIRD PARTY INFORMATION. I recognize that the Company has received, and
in the future will receive, from third parties their confidential or
proprietary information subject to a duty on the Company's part to maintain
the confidentiality of such information and to use it only for certain
limited purposes. I agree to hold all such confidential or proprietary
information in the strictest confidence and not to disclose it to any person,
firm or corporation or to use it except as necessary in carrying out my work
for the Company consistent with the Company's agreement
<PAGE>
with such third party.
3. INVENTIONS.
(a) INVENTIONS RETAINED AND LICENSED. I have attached hereto as Exhibit A a
list describing all inventions, original works or authorship, developments,
improvements and trade secrets which were made by me prior to my employment
with the Company (collectively "Prior Inventions"), which belong to me, which
relate to the Company's proposed business, products or research and
development, and which are not assigned to the Company hereunder; or, if no
such list is attached, I represent that there are no such Prior Inventions.
If in the course of my employment with the Company, I incorporate into a
Company product, process or machine a Prior Invention owned by me or in which
I have an interest, the Company is hereby granted and shall have a
non-exclusive, royalty-free, irrevocable, perpetual, worldwide license to
make, have made, modify, use and sell such Prior invention as part of or in
connection with such product, process or machine.
(b) ASSIGNMENT OF INVENTIONS. I agree that I will promptly make full written
disclosure to the Company, will hold in trust for the sole right and benefit
of the Company, and hereby assign to the Company, or its designee, all my
right, title and interest in and to any and all inventions, original works of
authorship, developments, concepts, improvements or trade secrets, whether or
not patentable or registerable under copyright or similar laws, which I may
solely or jointly conceive or develop or reduce to practice, during the
period of time I am in the employ of the Company (collectively "Inventions"),
except as provided in Section 3(f) below. I further acknowledge that all
original works of authorship which are made by me (solely or jointly with
others) within the scope and during the period of my employment with the
Company and which are protectable by copyright are "works made for hire," as
that term is defined in the United States Copyright Act.
(c) INVENTIONS ASSIGNED TO THE UNITED STATES. I agree to assign to the United
States government all my right, title and interest in and to any and all
inventions whenever such full title is required to be in the United States by
a Contract between the Company and the United States or any of its agencies.
(d) MAINTENANCE OF RECORDS. I agree to keep and maintain adequate and current
written records of all inventions made by me (solely or jointly with others)
during the term of my employment with the Company. The records will be in the
form of notes, sketches, drawings and any other format that may be specified
by the Company. The records will be available to, and remain the sole
property of, the Company at all times.
(e) PATENT AND COPYRIGHT REGISTRATIONS. I agree to assist the Company or its
designee, at the Company's expense, in every proper way to secure the
Company's rights in the inventions and any copyrights, patents, mask work
rights or other intellectual property rights relating thereto in any and all
countries, including the disclosure to the Company of all pertinent
information and data with respect thereto, the execution of all applicable
forms, specifications, oaths, assignments and all other instruments which the
Company shall deem necessary in order to apply for and obtain such rights and
in order to assign and convey to the Company, its successors, assigns and
nominees the sole and exclusive rights, title and interest in and to such
Inventions, and any copyrights, patents, mask work rights or other
intellectual property rights relating thereto. I further agree that my
obligation to execute or cause to be executed, when it is in my power to do
so, any such instrument or papers, shall continue after the termination of
this Agreement. If the Company is unable because of my mental or physical
incapacity or for any other reason to secure my signature to apply for or to
pursue any application for any United States or foreign patents or copyright
registrations covering inventions or original works of authorship assigned to
the Company as above, then I hereby irrevocably designate and appoint the
Company and its duly authorized officers and agents as my agent and
attorney-in-fact, to act for and on my behalf and stead, to execute and file
any such applications and to do all other lawfully permitted acts to further
the prosecution and issuance of letters patent or copyright registrations
thereon with the same legal force and effect as if executed by me.
(f) EXCEPTION TO ASSIGNMENTS. I understand that the provisions of this
Agreement requiring assignment of Inventions to the Company do not apply to
any inventions which qualifies under the provisions of California Labor Code
Section 2870 attached hereto as Exhibit B. I will advise the Company promptly
in writing of any inventions that I believe meet the criteria in California
Labor Code Section 2870 and not otherwise disclosed on Exhibit A.
4. CONFLICTING EMPLOYMENT. I agree that, during the term of my employment
with the Company, I will not engage in any other employment, occupation,
consulting or other business activity directly related to the business in
which the Company is now involved or becomes involved during the term of my
employment, nor will I engage in any other activities that conflict with my
obligations to the Company.
5. RETURNING COMPANY DOCUMENTS. I agree that, at the time of leaving the
employ of the Company, I will deliver to the Company (and will not keep in my
possession, recreate or deliver to anyone else) any and all devices, records,
data, notes, reports, proposals, lists, correspondence, specifications,
drawings, blueprints, sketches, materials, equipment, other documents or
property, or reproductions of any aforementioned items developed by me
pursuant to my employment with
<PAGE>
the Company or otherwise belonging to the Company, its successors or assigns.
In the event of the termination of my employment, I agree to sign and deliver
the Company's standard Termination Certification.
6. NOTIFICATION TO NEW EMPLOYER. In the event that I leave the employ of the
Company, I hereby grant consent to notification by the Company to my new
employer about my rights and obligations under this Agreement.
7. CORPORATE CODE OF BUSINESS ETHICS POLICY. I agree to diligently adhere to
the Company's Corporate Code of Business Ethics Policy a copy of which has
been received by me.
8. REPRESENTATIONS. I agree to execute any proper oath or verify any proper
document required to carry out the terms of this Agreement. I represent that
my performance of all the terms of this Agreement will not breach any
agreement to keep in confidence proprietary information acquired by me in
confidence or in trust prior to my employment by the Company. I have not
entered into, and I agree I will not enter into, any oral or written
agreement in conflict herewith.
9. ARBITRATION AND EQUITABLE RELIEF.
(a) ARBITRATION. Except as provided in Section 9(b) below, I agree that any
dispute or controversy arising out of or relating to any interpretation,
construction, performance or breach of this Agreement shall be settled by
arbitration, in accordance with the rules then in effect of the American
Arbitration Association. The arbitrator may grant injunctions or other relief
in such dispute or controversy. The decision of the arbitrator shall be
final, conclusive and binding on the parties to the arbitration. Judgment may
be entered on the arbitrator's decision in any court having jurisdiction. The
Company and I shall each pay one-half (1/2) of the costs and expenses of such
arbitration, and each of us shall separately pay our attorneys fees and
expenses.
(b) EQUITABLE REMEDIES. I agree that it would be impossible or inadequate to
measure and calculate the Company's damages from any breach of the covenants
set forth in Sections 2, 3, and 5 herein. Accordingly, I agree that if I
breach any of such Sections, the Company will have available, in addition to
any other right or remedy available, the right to obtain an injunction from a
court of competent jurisdiction restraining such breach or threatened breach
and to specific performance of any such provision of this Agreement. I
further agree that no bond or other security shall be required in obtaining
such equitable relief and I hereby consent to the issuance of such injunction
and to the ordering of specific performance.
10. GENERAL PROVISIONS.
(a) GOVERNING LAW: CONSENT TO PERSONAL JURISDICTION. This Agreement will be
governed by the laws of the State of California. I hereby expressly consent
to the personal jurisdiction of the state and federal courts located in
California for any lawsuit filed there against me by the Company arising from
or relating to this Agreement.
(b) ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and
understanding between the Company and me relating to the subject matter
herein and merges all prior discussions and agreements between us. No
moderation of, or amendment to, this Agreement, nor any waiver of any rights
under this Agreement, will be effective unless in writing signed by the party
to be charged. Any subsequent change or changes in my duties, salary or
compensation will not affect
<PAGE>
the validity or scope of this Agreement.
(c) SEVERABILITY. If one or more of the provisions of this Agreement are
deemed void by law, then the remaining provisions will continue in full force
and effect.
<PAGE>
(d) SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my heirs,
executors, administrators and other legal representatives and will be for the
benefit of the Company, its successors and assigns.
June 5, 1997 /S/ Douglas E. Klint
- ------------------------ ------------------------------
Signature of Employee
------------------------------
- ------------------------ Name of Employee
ZYCAD CORPORATION
By: /S/ Phillips W. Smith
-------------------------------
- ------------------------
Title: President and CEO
<PAGE>
EXHIBIT A
LIST OF PRIOR INVENTIONS AND ORIGINAL WORKS OF AUTHORSHIP
Title Date Identifying Number
or Brief Description
--------------------
____ No Inventions or improvements
____ Additional sheets attached
- ---------------------------------------
Signature
- ---------------------------------------
Name (please print or type)
- ---------------------------------------
Date
<PAGE>
EXHIBIT B
CALIFORNIA LABOR CODE SECTION 2870
EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS
"(a) Any provision in an employment agreement which provides that an employee
shall assign, or offer to assign, any of his or her rights in an invention to
his or her employer shall not apply to an invention that the employee
developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrable anticipated
research or development of the employer.
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision of an employment agreement purports to require
an employee to assign an invention otherwise excluded from being required to
be assigned under subdivision (a), the provision is against the public policy
of this state and is unenforceable."
<PAGE>
ZYCAD CORPORATION
CORPORATE CODE OF BUSINESS ETHICS POLICY
Zycad Corporation (the "Company") is committed to conducting its affairs in
strict compliance with the letter and spirit of the law and adhering to the
highest principles of business ethics. The basis for this policy is the
fundamental and abiding respect for law and ethical business practices, and a
realization that the Company's overall interests and those of employees,
stockholders and the public are best served by rigid adherence to this
policy. All employees of the Company are expected to conduct themselves in a
manner that supports these principles and demonstrates commitment to
excellence and integrity in business relationships. Accordingly, all
employees and independent contractors must avoid activities which are in
conflict, or give the appearance of being in conflict, with these principles
and with the interests of the Company. The following are potentially
compromising situations which must be avoided. Any exceptions must be
reported to the President and CEO and written approval for continuation must
be obtained.
1. Revealing confidential information or trade secrets to outsiders or
misusing confidential information or trade secrets. Unauthorized divulging of
information is a violation of this policy whether or not for personal gain
and whether or not harm to the Company is intended.
2. Providing to any agent, customer or representative of the customer as an
inducement or reward for assistance in making a deal, or accepting from
suppliers, competitors or customers, payment of any kind, expensive
entertainment, vacations or pleasure trips, gifts of more than nominal value
or other favors, except those which are customarily accepted or given as
common courtesy associated with usual business practice and good judgment.
3. Initiating or approving personnel actions affecting reward or punishment
of employees or applicants where there is a family relationship or is, or
appears to be, a personal or social involvement.
4. Initiating or approving any form of personal or social harassment of
employees.
5. Investing or holding outside directorships in suppliers, customers or
competing companies, including financial speculation, where such investment
or directorship might influence in any manner a decision or course of action
of the Company.
6. Borrowing from, or lending to, customers or suppliers.
7. Using "Inside Information" obtained by reason of their employment for
personal gain or advantage. This includes (a) the disclosure or improper use
of confidential information, (b) the purchase of securities based on such
things as knowledge of a pending acquisition, a major new development or
product, a dramatic increase or decrease in the level of business, or a
pending stock split, and (c) the acquisition of assets from the Company which
could be sold on more favorable terms to others.
8. Improperly using or disclosing to the Company any proprietary information
or trade secrets of any former or concurrent employer or other person or
entity with whom obligations of confidentiality exist.
<PAGE>
9. Unlawfully discussing prices, costs, customers, sales or markets with
competing companies or their employees.
10. Making any unlawful agreements with distributors with respect to prices.
11. Improperly using or authorizing the use of any inventions which are the
subject of patent claims of any other person or entity.
12. Engaging in side agreements, either oral or written, between a
salesperson and the customer beyond what is disclosed in the contractual
documents.
13. Failing to comply in all respects with the Antitrust Foreign Corrupt
Practices Act, and trade regulation laws applicable to operations of the
Company.
14. Failing to utilize corporate funds for lawful corporate purposes only and
properly and accurately reflecting all transactions on its books and records.
15. Engaging in any conduct which is not in the best interest of the Company.
Each employee and independent contractor must take every necessary action to
ensure compliance with these guidelines and to bring problem areas to the
attention of higher management for review. Violations of this code of
business ethics of interest policy may result in discharge without warning.
<PAGE>
ADDENDUM TO
ZYCAD CORPORATION EMPLOYMENT
CONFIDENTIAL INFORMATION AND
INVENTION AND ASSIGNMENT AGREEMENT
This Addendum is made this 5th day of June 1997 between Douglas E. Klint
("Employee") and Zycad Corporation (the "Company").
The Zycad Corporation Employment Confidential Information and Invention
Assignment Agreement is amended by adding a provision that reads as follows:
"In the event Employee's employment with the Company is terminated
involuntarily and without cause, or in the event the Company is sold,
or a change of control of 50% or more of the Company's outstanding
common stock occurs, or it is merged with another company and Employee
is not offered a comparable position with at least equal compensation,
the Company will pay Employee severance pay consisting of base salary
only plus health insurance benefits payable on a semimonthly basis for
a period of twelve (12) months or until Employee becomes re-employed,
whichever occurs first.
ZYCAD CORPORATION
By: /s/ Phillips W. Smith /s/ Douglas E. Klint
--------------------- --------------------
Phillips W. Smith Douglas E. Klint
<PAGE>
Exhibit 10.7
ZYCAD CORPORATION
EMPLOYMENT, CONFIDENTIAL INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT
I, Stephen A. Flory, as a Condition of my employment with Zycad Corporation,
its subsidiaries, successors and assigns (collectively the "Company"), and in
consideration of my employment with the Company and my receipt of the
compensation now and hereafter paid to me by the Company, agree to the
following:
1. AT-WILL EMPLOYMENT. I understand and acknowledge that my employment with
the Company is for an unspecified duration of time and constitutes "at-will"
employment. I acknowledge that this employment relationship may be
terminated at any time, with or without good cause or for any or no cause, at
the option of either the Company or myself, with or without notice.
2. CONFIDENTIAL INFORMATION.
(a) COMPANY INFORMATION. I agree at all times during the term of my
employment and thereafter, to hold in strictest confidence, and not to use,
except for the benefit of the Company, or to disclose to any person, firm or
corporation without written authorization of an officer of the Company, any
Confidential Information of the Company. I understand that "Confidential
Information" means any Company proprietary information, technical data, trade
secrets or know-how, including, but not limited to, research, product plans,
products, services, customer lists and customers (including, but not limited
to, customers of the Company on whom I called or with whom I became
acquainted during the term of my employment), markets, software,
developments, inventions, processes, formulas, technology, designs, drawings,
engineering, hardware configuration information, marketing, finances or other
business information disclosed to me by the company either directly or
indirectly in writing, orally or by drawings or observation of parts or
equipment. I further understand that Confidential Information does not
include any of the foregoing items which have become publicly known and made
generally available through no wrongful act of mine or of others who were
under confidentiality obligations as to the item or items involved.
(b) FORMER EMPLOYER INFORMATION. I agree that I will not, during my
employment with the Company, improperly use or disclose any proprietary
information or trade secrets of any former or concurrent employer or other
person or entity and that I will not bring onto the premises of the Company
any unpublished document or proprietary information belonging to any such
employer, person or entity unless consented to in writing by such employer,
person or entity.
(c) THIRD PARTY INFORMATION. I recognize that the Company has received, and
in the future will receive, from third parties their confidential or
proprietary information subject to a duty on the Company's part to maintain
the confidentiality of such information and to use it only for certain
limited purposes. I agree to hold all such confidential or proprietary
information in the strictest confidence and not to disclose it to any person,
firm or corporation or to use it except as necessary in carrying out my work
for the Company consistent with the Company's agreement with such third party.
<PAGE>
3. INVENTIONS.
(a) INVENTIONS RETAINED AND LICENSED. I have attached hereto as Exhibit A a
list describing all inventions, original works or authorship, developments,
improvements and trade secrets which were made by me prior to my employment
with the Company (collectively "Prior Inventions"), which belong to me, which
relate to the Company's proposed business, products or research and
development, and which are not assigned to the Company hereunder; or, if no
such list is attached, I represent that there are no such Prior Inventions.
If in the course of my employment with the Company, I incorporate into a
Company product, process or machine a Prior Invention owned by me or in which
I have an interest, the Company is hereby granted and shall have a
non-exclusive, royalty-free, irrevocable, perpetual, worldwide license to
make, have made, modify, use and sell such Prior Invention as part of or in
connection with such product, process or machine.
(b) ASSIGNMENT OF INVENTIONS. I agree that I will promptly make full written
disclosure to the Company, will hold in trust for the sole right and benefit
of the Company, and hereby assign to the Company, or its designee, all my
right, title and interest in and to any and all inventions, original works of
authorship, developments, concepts, improvements or trade secrets, whether or
not patentable or registerable under copyright or similar laws, which I may
solely or jointly conceive or develop or reduce to practice, during the
period of time I am in the employ of the Company (collectively "Inventions"),
except as provided in Section 3(f) below. I further acknowledge that all
original works of authorship which are made by me (solely or jointly with
others) within the scope and during the period of my employment with the
Company and which are protectable by copyright are "works made for hire," as
that term is defined in the United States Copyright Act.
(c) INVENTIONS ASSIGNED TO THE UNITED STATES. I agree to assign to the United
States government all my right, title and interest in and to any and all
inventions whenever such full title is required to be in the United States by
a Contract between the Company and the United States or any of its agencies.
(d) MAINTENANCE OF RECORDS. I agree to keep and maintain adequate and current
written records of all inventions made by me (solely or jointly with others)
during the term of my employment with the Company. The records will be in the
form of notes, sketches, drawings and any other format that may be specified
by the Company. The records will be available to, and remain the sole
property of, the Company at all times.
(e) PATENT AND COPYRIGHT REGISTRATIONS. I agree to assist the Company or its
designee, at the Company's expense, in every proper way to secure the
Company's rights in the inventions and any copyrights, patents, mask work
rights or other intellectual property rights relating thereto in any and all
countries, including the disclosure to the Company of all pertinent
information and data with respect thereto, the execution of all applicable
forms, specifications, oaths, assignments and all other instruments which the
Company shall deem necessary in order to apply for and obtain such rights and
in order to assign and convey to the Company, its successors, assigns and
nominees the sole and exclusive rights, title and interest in and to such
Inventions, and any copyrights, patents, mask work rights or other
intellectual property rights relating thereto. I further agree that my
obligation to execute or cause to be executed, when it is in my power to do
so, any such instrument or papers, shall continue after the termination of
this Agreement. If the Company is unable because of my mental or physical
incapacity or for any other reason to secure my signature to apply for or to
pursue any application for any United States or foreign patents or copyright
registrations covering inventions or original works of authorship assigned to
the Company as above, then I hereby irrevocably designate and appoint the
Company and its duly authorized officers and agents as my agent and
attorney-in-fact, to act for and on my behalf and stead, to execute and file
any such applications and to do all other lawfully permitted acts to further
the prosecution and issuance of letters patent or copyright registrations
thereon with the same legal force and effect as if executed by me.
(f) EXCEPTION TO ASSIGNMENTS. I understand that the provisions of this
Agreement requiring assignment of Inventions to the Company do not apply to
any inventions which qualifies under the provisions of California Labor Code
Section 2870 attached hereto as Exhibit B. I will advise the Company promptly
in writing of any inventions that I believe meet the criteria in California
Labor Code Section 2870 and not otherwise disclosed on Exhibit A.
4. CONFLICTING EMPLOYMENT. I agree that, during the term of my employment
with the Company, I will not engage in any other employment, occupation,
consulting or other business activity directly related to the business in
which the Company is now involved or becomes involved during the term of my
employment, nor will I engage in any other activities that conflict with my
obligations to the Company.
5. RETURNING COMPANY DOCUMENTS. I agree that, at the time of leaving the
employ of the Company, I will deliver to the Company (and will not keep in my
possession, recreate or deliver to anyone else) any and all devices, records,
data, notes, reports, proposals, lists, correspondence, specifications,
drawings, blueprints, sketches, materials, equipment, other documents or
property, or reproductions of any aforementioned items developed by me
pursuant to my employment with the Company or otherwise belonging to the
Company, its successors or assigns. In the event of the termination of my
employment, I agree to sign and deliver the Company's standard Termination
Certification.
<PAGE>
6. NOTIFICATION TO NEW EMPLOYER. In the event that I leave the employ of the
Company, I hereby grant consent to notification by the Company to my new
employer about my rights and obligations under this Agreement.
7. CORPORATE CODE OF BUSINESS ETHICS POLICY. I agree to diligently adhere to
the Company's Corporate Code of Business Ethics Policy a copy of which has
been received by me.
8. REPRESENTATIONS. I agree to execute any proper oath or verify any proper
document required to carry out the terms of this Agreement. I represent that
my performance of all the terms of this Agreement will not breach any
agreement to keep in confidence proprietary information acquired by me in
confidence or in trust prior to my employment by the Company. I have not
entered into, and I agree I will not enter into, any oral or written
agreement in conflict herewith.
9. ARBITRATION AND EQUITABLE RELIEF.
(a) ARBITRATION. Except as provided in Section 9(b) below, I agree that any
dispute or controversy arising out of or relating to any interpretation,
construction, performance or breach of this Agreement shall be settled by
arbitration, in accordance with the rules then in effect of the American
Arbitration Association. The arbitrator may grant injunctions or other relief
in such dispute or controversy. The decision of the arbitrator shall be
final, conclusive and binding on the parties to the arbitration. Judgment may
be entered on the arbitrator's decision in any court having jurisdiction. The
Company and I shall each pay one-half (1/2) of the costs and expenses of such
arbitration, and each of us shall separately pay our attorneys fees and
expenses.
(b) EQUITABLE REMEDIES. I agree that it would be impossible or inadequate to
measure and calculate the Company's damages from any breach of the covenants
set forth in Sections 2, 3, and 5 herein. Accordingly, I agree that if I
breach any of such Sections, the Company will have available, in addition to
any other right or remedy available, the right to obtain an injunction from a
court of competent jurisdiction restraining such breach or threatened breach
and to specific performance of any such provision of this Agreement. I
further agree that no bond or other security shall be required in obtaining
such equitable relief and I hereby consent to the issuance of such injunction
and to the ordering of specific performance.
10. GENERAL PROVISIONS.
(a) GOVERNING LAW: CONSENT TO PERSONAL JURISDICTION. This Agreement will be
governed by the laws of the State of California. I hereby expressly consent
to the personal jurisdiction of the state and federal courts located in
California for any lawsuit filed there against me by the Company arising from
or relating to this Agreement.
(b) ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and
understanding between the Company and me relating to the subject matter
herein and merges all prior discussions and agreements between us. No
moderation of, or amendment to, this Agreement, nor any waiver of any rights
under this Agreement, will be effective unless in writing signed by the party
to be charged. Any subsequent change or changes in my duties, salary or
compensation will not affect the validity or scope of this Agreement.
(c) SEVERABILITY. If one or more of the provisions of this Agreement are
deemed void by law, then the remaining provisions will continue in full force
and effect.
<PAGE>
(d) SUCCESSORS AND ASSIGNS. This Agreement will be binding upon my heirs,
executors, administrators and other legal representatives and will be for the
benefit of the Company, its successors and assigns.
June 5, 1997 /s/ Stephen A. Flory
-------------------------------------------
Signature of Employee
-------------------------------------------
Name of Employee
ZYCAD CORPORATION
By: /s/ Phillips W. Smith
Title: President and CEO
<PAGE>
EXHIBIT A
LIST OF PRIOR INVENTIONS AND ORIGINAL WORKS OF AUTHORSHIP
<TABLE>
<CAPTION>
Title Date Identifying Number
or Brief Description
--------------------
<S> <C> <C>
</TABLE>
____ No Inventions or improvements
____ Additional sheets attached
- ----------------------------------------------
Signature
- ----------------------------------------------
Name (please print or type)
- ----------------------------------------------
Date
<PAGE>
EXHIBIT B
CALIFORNIA LABOR CODE SECTION 2870
EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS
"(a) Any provision in an employment agreement which provides that an employee
shall assign, or offer to assign, any of his or her rights in an invention to
his or her employer shall not apply to an invention that the employee
developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrable anticipated
research or development of the employer.
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision of an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against
the public policy of this state and is unenforceable."
<PAGE>
ZYCAD CORPORATION
CORPORATE CODE OF BUSINESS ETHICS POLICY
Zycad Corporation (the "Company") is committed to conducting its affairs in
strict compliance with the letter and spirit of the law and adhering to the
highest principles of business ethics. The basis for this policy is the
fundamental and abiding respect for law and ethical business practices, and a
realization that the Company's overall interests and those of employees,
stockholders and the public are best served by rigid adherence to this
policy. All employees of the Company are expected to conduct themselves in a
manner that supports these principles and demonstrates commitment to
excellence and integrity in business relationships. Accordingly, all
employees and independent contractors must avoid activities which are in
conflict, or give the appearance of being in conflict, with these principles
and with the interests of the Company. The following are potentially
compromising situations which must be avoided. Any exceptions must be
reported to the President and CEO and written approval for continuation must
be obtained.
1. Revealing confidential information or trade secrets to outsiders or
misusing confidential information or trade secrets. Unauthorized divulging
of information is a violation of this policy whether or not for personal gain
and whether or not harm to the Company is intended.
2. Providing to any agent, customer or representative of the customer as an
inducement or reward for assistance in making a deal, or accepting from
suppliers, competitors or customers, payment of any kind, expensive
entertainment, vacations or pleasure trips, gifts of more than nominal value
or other favors, except those which are customarily accepted or given as
common courtesy associated with usual business practice and good judgment.
3. Initiating or approving personnel actions affecting reward or punishment
of employees or applicants where there is a family relationship or is, or
appears to be, a personal or social involvement.
4. Initiating or approving any form of personal or social harassment of
employees.
5. Investing or holding outside directorships in suppliers, customers or
competing companies, including financial speculation, where such investment
or directorship might influence in any manner a decision or course of action
of the Company.
6. Borrowing from, or lending to, customers or suppliers.
7. Using "Inside Information" obtained by reason of their employment for
personal gain or advantage. This includes (a) the disclosure or improper use
of confidential information, (b) the purchase of securities based on such
things as knowledge of a pending acquisition, a major new development or
product, a dramatic increase or decrease in the level of business, or a
pending stock split, and (c) the acquisition of assets from the Company which
could be sold on more favorable terms to others.
8. Improperly using or disclosing to the Company any proprietary information
or trade secrets of any former or concurrent employer or other person or
entity with whom obligations of confidentiality exist.
9. Unlawfully discussing prices, costs, customers, sales or markets with
competing
<PAGE>
companies or their employees.
10. Making any unlawful agreements with distributors with respect to prices.
11. Improperly using or authorizing the use of any inventions which are the
subject of patent claims of any other person or entity.
12. Engaging in side agreements, either oral or written, between a
salesperson and the customer beyond what is disclosed in the contractual
documents.
13. Failing to comply in all respects with the Antitrust Foreign Corrupt
Practices Act, and trade regulation laws applicable to operations of the
Company.
14. Failing to utilize corporate funds for lawful corporate purposes only and
properly and accurately reflecting all transactions on its books and records.
15. Engaging in any conduct which is not in the best interest of the Company.
Each employee and independent contractor must take every necessary action to
ensure compliance with these guidelines and to bring problem areas to the
attention of higher management for review. Violations of this code of
business ethics of interest policy may result in discharge without warning.
<PAGE>
ADDENDUM TO
ZYCAD CORPORATION EMPLOYMENT
CONFIDENTIAL INFORMATION AND
INVENTION AND ASSIGNMENT AGREEMENT
This Addendum is made this 5th day of June 1997 between Stephen A. Flory
("Employee") and Zycad Corporation (the "Company").
The Zycad Corporation Employment Confidential Information and Invention
Assignment Agreement is amended by adding a provision that reads as follows:
"In the event Employee's employment with the Company is terminated
involuntarily and without cause, or in the event the Company is sold,
or a change of control of 50% or more of the Company's outstanding
common stock occurs, or it is merged with another company and Employee
is not offered a comparable position with at least equal compensation,
the Company will pay Employee severance pay consisting of base salary
only plus health insurance benefits payable on a semimonthly basis for
a period of twelve (12) months or until Employee becomes re-employed,
whichever occurs first.
ZYCAD CORPORATION
By: /s/ Phillips W. Smith /s/ Stephen A. Flory
--------------------- --------------------
Phillips W. Smith Stephen A. Flory
<PAGE>
Exhibit 10.8
WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
OF
GATEFIELD CORPORATION
This certifies that James R. Fiebiger (the "Holder"), in consideration of the
sum of One Dollar ($1.00) and other good and valuable consideration, the
receipt of which is hereby acknowledged, and subject to the provisions
hereinafter set forth, is entitled to purchase from GateField Corporation
(the "Company") Fifty Thousand (50,000) fully paid and nonassessable shares
of the Company's Common Stock, $.10 par value (such stock being hereinafter
referred to as the "Common Stock" and such Common Stock as may be acquired
upon exercise hereof being hereinafter referred to as the "Warrant Stock"),
at the price of Forty Seven Cents ($.47) per share (the Last Sale Price of
the Company's common stock on July 28, 1997, the date of Board approval).
This Warrant is subject to the following provisions, terms and conditions:
1. Exercise and Issuance. This Warrant may be exercised in whole or in
part (but not as to any fractional share of Common Stock) at any time
commencing six (6) months from the date hereof (the "Issue Date") until the
eighth anniversary of the Issue Date or until ninety (90) days after the date
Mr. Fiebiger ceases to be a Director of GateField Corporation, whichever
occurs first. This Warrant shall not be exercised as to any part of the
shares covered thereby until six (6) months from the Issue Date of this
Warrant at which time the Warrant may be exercised as to one hundred percent
(100%) of such shares. The rights represented by this Warrant may be
exercised by the Holder by written notice of exercise delivered to the
Treasurer of the Company at the principal office of the Company accompanied
by this Warrant (properly endorsed, if required) and payment to it, by cash,
certified check or bank draft, of the purchase price of the shares of Warrant
Stock being purchased. The Company agrees that the Warrant Stock so purchased
shall be and is deemed to be issued as of the close of business on the date
on which this Warrant shall have been surrendered and payment made for such
Warrant Stock as aforesaid. Certificates for the shares of Warrant Stock so
purchased shall be delivered to the Holder within a reasonable time, not
exceeding fifteen (15) days after the rights represented by this Warrant
shall have been so exercised, and, unless this Warrant has expired, a new
Warrant representing the number of shares of Warrant Stock, if any, with
respect to which this Warrant has not been exercised shall also be delivered
to the Holder within such time.
2. Right to Convert Warrant into Stock: Net Issuance.
(a) In addition to and without limiting the rights of the holder under the
terms of this Warrant, the holder may elect to convert this Warrant or any
portion thereof (the "Conversion Right") into shares of Common Stock, the
aggregate value of which shares shall be equal to the value of this Warrant
or the portion thereof being converted. The Conversion Right may be exercised
by the holder by surrender of this Warrant at the principal office of the
Company together with notice of the holder's intention to exercise the
Conversion Right, in which event the Company shall issue to the holder a
number of shares of the Company's Common Stock computed using the following
formula:
Y - B x Y = X
----- A
Where: X = The number of shares of Common Stock to be issued to the holder.
Y = The number of shares of Common Stock purchasable under this Warrant
subject to the exercise election.
A = The fair market value of one share of the Company's Common Stock.
B = Exercise Price (as adjusted to the date of such calculations).
(b) For purposes of this Section 2, the "fair market value" per share of the
Company's Common Stock shall mean:
<PAGE>
(i) If the Common Stock is traded on a national securities exchange or
admitted to unlisted trading privileges on such an exchange, or is listed on
the National Market System (the "National Market System") of the National
Association of Securities Dealers Automated Quotations System (the "NASDAQ"),
the fair market value shall be the last reported sale price of the Common
Stock on such exchange or on the National Market System on the last trading
day before the effective date of exercise of the Conversion Right or if no
such sale is made on any such day, the mean of the closing bid and asked
prices for such day on such exchange or on the National Market System;
(ii) If the Common Stock is not so listed or admitted to unlisted trading
privileges, the fair market value shall be the average of the mean of the
last bid and asked prices reported on the last trading day before the date of
the election (1) by the NASDAQ or (2) if reports are unavailable under clause
(1) above, by the National Quotation Bureau Incorporated; and
(iii) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and ask prices are not reported, the fair market value
shall be the price per share which the Company could obtain from a willing
buyer for shares sold by the Company from authorized but unissued shares, as
such price shall be determined by mutual agreement of the Company and the
holder of this Warrant.
3. Notices of Record Date. In the event of any taking by the Company of a
record of its shareholders for the purpose of determining shareholders who
are entitled to receive payment of any dividend or other distribution, any
right to subscribe for, purchase or otherwise acquire any share of any class
or any other securities or property, or to receive any other right, or for
the purpose of determining shareholders who are entitled to vote in
connection with any proposed merger or consolidation of the Company with or
into any other corporation, or any proposed sale, lease or conveyance of all
or substantially all of the assets of the Company, or any proposed
liquidation, dissolution or winding up of the Company, then, in connection
with each such event, the Company shall mail to the holder of this Warrant at
least twenty (20) days prior written notice of the date on which any such
record is to be taken for the purpose of such dividend, distribution,
right(s) or vote of the shareholders. Each such written notice shall specify
the amount and character of any such dividend, distribution or right(s), and
shall set forth, in reasonable detail, the matter requiring any such vote of
the shareholders.
4. Compliance with Securities Act; Disposition of Warrant or Shares of
Common+Stock.
(a) COMPLIANCE WITH SECURITIES ACT. The holder of this Warrant, by
acceptance hereof, agrees that this Warrant, the Warrant Stock to be issued
upon exercise hereof are being acquired for investment and that such holder
will not offer, sell or otherwise dispose of this Warrant or any Warrant
Stock to be issued upon exercise hereof except under circumstances which will
not result in a violation of the Securities Act. This Warrant and all Warrant
Stock issued upon exercise of this Warrant (unless registered under the
Securities Act) shall be stamped or imprinted with a legend in substantially
the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE
HOLDER THAT SUCH REGISTRATION IS NOT REQUIRED OR (iii)+RECEIPT OF A NO-ACTION
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT THAT
REGISTRATION UNDER THE ACT IS NOT REQUIRED.
(b) DISPOSITION OF WARRANT AND SHARES OF WARRANT STOCK. With respect to
any offer, sale or other disposition of this Warrant or any Shares of Warrant
Stock acquired pursuant to the exercise of this Warrant prior to registration
thereof, the holder hereof and each subsequent holder of this Warrant agrees
to give written notice to the Company prior thereto, describing briefly the
manner thereof, together with a written opinion of such holder's counsel, if
reasonably requested by the Company, to the effect that such offer, sale or
other disposition may be effected without registration or qualification
(under the Securities Act as then in effect or any federal or state law then
in effect) of this Warrant or such Shares and indicating whether or not under
the Securities Act certificates for this Warrant or such Shares of Warrant
Stock to be sold or otherwise disposed of require any restrictive legend as
to applicable restrictions on transferability in order to insure compliance
with the Securities Act. Each certificate representing this Warrant or the
<PAGE>
Shares of Warrant Stock thus transferred (except a transfer pursuant to Rule
144) shall bear a legend as to the applicable restrictions on transferability
in order to insure compliance with the Securities Act unless, in the
aforesaid opinion of counsel for the holder, such legend is not required in
order to insure compliance with the Securities Act. Nothing herein shall
restrict the transfer of this Warrant or any portion hereof by the initial
holder hereof to any partnership affiliated with the initial holder, or to
any partner of any such partnership provided such transfer may be made in
compliance with applicable federal and state securities laws. The Company may
issue stop transfer instructions to its transfer agent in connection with the
foregoing restrictions.
5. Covenants of Company. The Company covenants and agrees that all shares
of Warrant Stock that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be duly authorized and
issued, fully paid and nonassessable and free from all liens and charges with
respect to the issuance thereof. The Company further covenants and agrees
that until expiration of this Warrant, the Company will at all times have
authorized and reserved for the purpose of issuance or transfer upon exercise
of the fights evidenced by this Warrant, a sufficient number of shares of
Common Stock to provide for the exercise of the rights represented by this
Warrant.
6. Exercise Price and Share Adjustments. The initial number of shares of
Common Stock purchasable upon exercise of this Warrant and the exercise price
payable therefor shall be subject to adjustment from time to time, as
provided below:
(a) In case the Company shall at any time hereafter subdivide or combine
the outstanding shares of Common Stock or declare a dividend payable in
Common Stock, the total number of shares of Common Stock purchasable upon the
exercise of this Warrant shall be adjusted so that the Holder shall be
entitled to receive the number of shares of Common Stock which the Holder
would have owned or have been entitled to receive immediately following any
of the events described above had this Warrant been exercised in full
immediately prior to any such event. An adjustment made pursuant to this
Section 3(a) shall, in the case of a subdivision or combination, be made as
of the effective date thereof, and in the case of a stock dividend, become
effective as of the record date therefore. In the event of any such
adjustment of the total number of shares of Common Stock purchasable upon the
exercise of this Warrant, the exercise price shall be adjusted to be the
amount resulting from dividing the number of shares of Common Stock covered
by this Warrant immediately after such adjustment into the total amount
payable upon exercise of this Warrant in full immediately prior to such
adjustment.
(b) If any capital reorganization or reclassification of the capital stock
of the Company (other than a subdivision or combination referred to in
Section 3(a) hereof), or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities or assets with respect to or
in exchange for such Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, the Holder
shall have the right to purchase and receive upon the basis and upon the
terms and conditions specified in this Warrant and in lieu of the Common
Stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, such shares of stock, securities or assets as
would have been issued or delivered to the Holder if he had exercised this
Warrant and had received upon exercise of this Warrant the Common Stock prior
to such reorganization, reclassification, consolidation, merger or sale. The
Company shall not effect any such consolidation, merger or sale, unless prior
to the consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and mailed
to the Holder at the last address of the Holder appearing on the books of the
Company, the obligation to deliver to the Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the
Holder may be entitled to purchase.
(c) If the Company takes any other action, or if any other event occurs
which does not come within the scope of the provisions of Sections 3(a) or
3(b), but which should result in an adjustment in the exercise price and/or
the number of shares subject to the Warrant in order to fairly protect the
purchase rights of the Holder, an appropriate adjustment in such purchase
fights shall be made by the Company.
(d) No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but the Company
<PAGE>
shall pay a cash adjustment in respect of any fraction of a share which would
otherwise be issuable in an amount equal to the same fraction of the market
price per share of Common Stock on the date of exercise.
(e) Upon any adjustment of the exercise price or number of shares
purchasable hereunder, the Company shall give written notice thereof, by
first class mail, postage prepaid, addressed to the Holder at the address of
the Holder as shown on the books of the Company, which notice shall state the
Warrant exercise price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
7. Holder Not Deemed a Stockholder. The Holder shall not be entitled to
vote on or be deemed the holder of Common Stock or any other securities which
may at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon the Holder any of the
rights of a stockholder of the Company or any right to vote for the election
of directors or upon any matter submitted to stockholders at any meeting
thereof, or give or withhold consent to any corporate action (whether upon
any recapitalization, issue of stock, reclassification of stock, change of
par value or change of stock to no par value, consolidation, merger,
conveyance or otherwise) or to receive notice of meetings or other actions
affecting stockholders, or to receive dividends or subscription rights or
other-wise, until the rights to purchase Warrant Stock hereunder shall have
been exercised.
8. Nontransferability. This Warrant is not transferable, in whole or in
part, and is exercisable only by the Holder or by the Holder's representative
or executor in the event of the Holder's death.
9. Investment Intent. The Holder acknowledges and agrees that this
Warrant and any shares of Warrant Stock which may be acquired upon exercise
hereof are being or will be acquired for investment purposes and not with a
view toward the distribution or sale thereof. The Holder acknowledges that
this Warrant and the Warrant Stock will not be registered under either
federal or applicable state securities laws and that the Company will be
relying upon the foregoing investment representation in agreeing to issue
this Warrant and the Warrant Stock to the Holder. The Holder acknowledges
that transferability of the Warrant Stock will be subject to restrictions
imposed by all applicable federal and state securities laws and agrees that
the certificates evidencing the Warrant Stock may be imprinted with an
appropriate legend setting forth these restrictions on transferability.
10. Amendment. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by means of an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought.
IN WITNESS WHEREOF, GateField Corporation has caused this Warrant
Certificate to be signed by its Corporate Secretary and has caused its
corporate seal to be imprinted hereon.
Date: July 28, 1997 GATEFIELD CORPORATION
(the "Company")
By /s/ Douglas E. Klint
--------------------
Douglas E. Klint
Corporate Secretary
Accepted by:
/s/ James R. Fiebiger
- ----------------------
James R. Fiebiger
<PAGE>
Exhibit 10.9
WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
OF
GATEFIELD CORPORATION
This certifies that Benjamin Huberman (the "Holder"), in consideration
of the sum of One Dollar ($1.00) and other good and valuable consideration,
the receipt of which is hereby acknowledged, and subject to the provisions
hereinafter set forth, is entitled to purchase from GateField Corporation
(the "Company") Seven Thousand Five Hundred (7,500) fully paid and
nonassessable shares of the Company's Common Stock, $.10 par value (such
stock being hereinafter referred to as the "Common Stock" and such Common
Stock as may be acquired upon exercise hereof being hereinafter referred to
as the "Warrant Stock"), at the price of One Dollar and Forty-Four Cents
($1.44) per share (the Last Sale Price of the Company's common stock on
November 25, 1997, the effective date of the grant).
This Warrant is subject to the following provisions, terms and conditions:
1. EXERCISE AND ISSUANCE. This Warrant may be exercised in whole or in part
(but not as to any fractional share of Common Stock) at any time commencing
six (6) months from the date hereof (the "Issue Date") until the eighth
anniversary of the Issue Date. This Warrant shall not be exercised as to
any part of the shares covered thereby until six (6) months from the Issue
Date of this Warrant at which time the Warrant may be exercised as to one
hundred percent (100%) of such shares. The rights represented by this
Warrant may be exercised by the Holder by written notice of exercise
delivered to the Treasurer of the Company at the principal office of the
Company accompanied by this Warrant (properly endorsed, if required) and
payment to it, by cash, certified check or bank draft, of the purchase
price of the shares of Warrant Stock being purchased. The Company agrees
that the Warrant Stock so purchased shall be and is deemed to be issued as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such Warrant Stock as aforesaid.
Certificates for the shares of Warrant Stock so purchased shall be
delivered to the Holder within a reasonable time, not exceeding fifteen
(15) days after the rights represented by this Warrant shall have been so
exercised, and, unless this Warrant has expired, a new Warrant representing
the number of shares of Warrant Stock, if any, with respect to which this
Warrant has not been exercised shall also be delivered to the Holder within
such time.
2. RIGHT TO CONVERT WARRANT INTO STOCK: NET ISSUANCE.
(a) In addition to and without limiting the rights of the holder under the
terms of this Warrant, the holder may elect to convert this Warrant or
any portion thereof (the "Conversion Right") into shares of Common
Stock,
1
<PAGE>
the aggregate value of which shares shall be equal to the value
of this Warrant or the portion thereof being converted. The
Conversion Right may be exercised by the holder by surrender of this
Warrant at the principal office of the Company together with notice of
the holder's intention to exercise the Conversion Right, in which
event the Company shall issue to the holder a number of shares of the
Company's Common Stock computed using the following formula:
Y - B x Y = X
-------
A
Where: X = The number of shares of Common Stock to be issued to the holder.
Y = The number of shares of Common Stock purchasable under this
Warrant subject to the exercise election.
A = The fair market value of one share of the Company's Common Stock.
B = Exercise Price (as adjusted to the date of such calculations).
(b) For purposes of this Section 2, the "fair market value" per share
of the Company's Common Stock shall mean:
(i) If the Common Stock is traded on a national securities exchange
or admitted to unlisted trading privileges on such an exchange,
or is listed on the National Market System (the "National Market
System") of the National Association of Securities Dealers
Automated Quotations System (the "NASDAQ"), the fair market value
shall be the last reported sale price of the Common Stock on such
exchange or on the National Market System on the last trading day
before the effective date of exercise of the Conversion Right or
if no such sale is made on any such day, the mean of the closing
bid and asked prices for such day on such exchange or on the
National Market System;
(ii) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the fair market value shall be the average of
the mean of the last bid and asked prices reported on the last
trading day before the date of the election (1) by the NASDAQ or
(2) if reports are unavailable under clause (1) above, by the
National Quotation Bureau Incorporated; and
(iii) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and ask prices are not reported, the
fair market value shall be the price per share which the Company
could obtain from a willing buyer for shares sold by the Company
2
<PAGE>
from authorized but unissued shares, as such price shall be
determined by mutual agreement of the Company and the holder of
this Warrant.
3. NOTICES OF RECORD DATE. In the event of any taking by the Company of a
record of its shareholders for the purpose of determining shareholders who
are entitled to receive payment of any dividend or other distribution, any
right to subscribe for, purchase or otherwise acquire any share of any
class or any other securities or property, or to receive any other right,
or for the purpose of determining shareholders who are entitled to vote in
connection with any proposed merger or consolidation of the Company with or
into any other corporation, or any proposed sale, lease or conveyance of
all or substantially all of the assets of the Company, or any proposed
liquidation, dissolution or winding up of the Company, then, in connection
with each such event, the Company shall mail to the holder of this Warrant
at least twenty (20) days prior written notice of the date on which any
such record is to be taken for the purpose of such dividend, distribution,
right(s) or vote of the shareholders. Each such written notice shall
specify the amount and character of any such dividend, distribution or
right(s), and shall set forth, in reasonable detail, the matter requiring
any such vote of the shareholders.
4. COMPLIANCE WITH SECURITIES ACT; DISPOSITION OF WARRANT OR SHARES OF
COMMON STOCK.
(a) COMPLIANCE WITH SECURITIES ACT. The holder of this Warrant, by
acceptance hereof, agrees that this Warrant, the Warrant Stock to
be issued upon exercise hereof are being acquired for investment
and that such holder will not offer, sell or otherwise dispose of
this Warrant or any Warrant Stock to be issued upon exercise hereof
except under circumstances which will not result in a violation of
the Securities Act. This Warrant and all Warrant Stock issued upon
exercise of this Warrant (unless registered under the Securities
Act) shall be stamped or imprinted with a legend in substantially
the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE
HOLDER THAT SUCH REGISTRATION IS NOT REQUIRED OR (iii) RECEIPT OF A
NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT
THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED.
(b) DISPOSITION OF WARRANT AND SHARES OF WARRANT STOCK. With respect
to any offer, sale or other disposition of this Warrant or any
Shares of Warrant Stock
3
<PAGE>
acquired pursuant to the exercise of this Warrant prior to
registration thereof, the holder hereof and each subsequent
holder of this Warrant agrees to give written notice to the
Company prior thereto, describing briefly the manner thereof,
together with a written opinion of such holder's counsel, if
reasonably requested by the Company, to the effect that such
offer, sale or other disposition may be effected without
registration or qualification (under the Securities Act as then
in effect or any federal or state law then in effect) of this
Warrant or such Shares and indicating whether or not under the
Securities Act certificates for this Warrant or such Shares of
Warrant Stock to be sold or otherwise disposed of require any
restrictive legend as to applicable restrictions on
transferability in order to insure compliance with the Securities
Act. Each certificate representing this Warrant or the Shares of
Warrant Stock thus transferred (except a transfer pursuant to
Rule 144) shall bear a legend as to the applicable restrictions
on transferability in order to insure compliance with the
Securities Act unless, in the aforesaid opinion of counsel for
the holder, such legend is not required in order to insure
compliance with the Securities Act. Nothing herein shall
restrict the transfer of this Warrant or any portion hereof by
the initial holder hereof to any partnership affiliated with the
initial holder, or to any partner of any such partnership
provided such transfer may be made in compliance with applicable
federal and state securities laws. The Company may issue stop
transfer instructions to its transfer agent in connection with
the foregoing restrictions.
5. COVENANTS OF COMPANY. The Company covenants and agrees that all shares
of Warrant Stock that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be duly authorized and
issued, fully paid and nonassessable and free from all liens and charges
with respect to the issuance thereof. The Company further covenants and
agrees that until expiration of this Warrant, the Company will at all times
have authorized and reserved for the purpose of issuance or transfer upon
exercise of the fights evidenced by this Warrant, a sufficient number of
shares of Common Stock to provide for the exercise of the rights
represented by this Warrant.
6. EXERCISE PRICE AND SHARE ADJUSTMENTS. The initial number of shares of
Common Stock purchasable upon exercise of this Warrant and the exercise
price payable therefor shall be subject to adjustment from time to time,
as provided below:
(a) In case the Company shall at any time hereafter subdivide or
combine the outstanding shares of Common Stock or declare a
dividend payable in Common Stock, the total number of shares of
Common Stock purchasable upon the exercise of this Warrant shall be
adjusted so that the Holder shall be entitled to receive the number
of shares of Common Stock which the Holder would have owned or have
been entitled to receive immediately following any of the events
described above had this Warrant been exercised
4
<PAGE>
in full immediately prior to any such event. An adjustment made
pursuant to this Section 3(a) shall, in the case of a subdivision
or combination, be made as of the effective date thereof, and in
the case of a stock dividend, become effective as of the record
date therefore. In the event of any such adjustment of the total
number of shares of Common Stock purchasable upon the exercise of
this Warrant, the exercise price shall be adjusted to be the
amount resulting from dividing the number of shares of Common
Stock covered by this Warrant immediately after such adjustment
into the total amount payable upon exercise of this Warrant in
full immediately prior to such adjustment.
(b) If any capital reorganization or reclassification of the capital
stock of the Company (other than a subdivision or combination
referred to in Section 3(a) hereof), or consolidation or merger of
the Company with another corporation, or the sale of all or
substantially all of its assets to another corporation shall be
effected in such a way that holders of Common Stock shall be
entitled to receive stock, securities or assets with respect to or
in exchange for such Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale,
the Holder shall have the right to purchase and receive upon the
basis and upon the terms and conditions specified in this Warrant
and in lieu of the Common Stock immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby,
such shares of stock, securities or assets as would have been
issued or delivered to the Holder if he had exercised this Warrant
and had received upon exercise of this Warrant the Common Stock
prior to such reorganization, reclassification, consolidation,
merger or sale. The Company shall not effect any such
consolidation, merger or sale, unless prior to the consummation
thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed
and mailed to the Holder at the last address of the Holder
appearing on the books of the Company, the obligation to deliver to
the Holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, the Holder may be
entitled to purchase.
(c) If the Company takes any other action, or if any other event occurs
which does not come within the scope of the provisions of Sections
3(a) or 3(b), but which should result in an adjustment in the
exercise price and/or the number of shares subject to the Warrant
in order to fairly protect the purchase rights of the Holder, an
appropriate adjustment in such purchase fights shall be made by the
Company.
(d) No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fraction of a share which would
otherwise be issuable in an amount equal
5
<PAGE>
to the same fraction of the market price per share of Common
Stock on the date of exercise.
(e) Upon any adjustment of the exercise price or number of shares
purchasable hereunder, the Company shall give written notice
thereof, by first class mail, postage prepaid, addressed to the
Holder at the address of the Holder as shown on the books of the
Company, which notice shall state the Warrant exercise price
resulting from such adjustment and the increase or decrease, if
any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is
based.
7. HOLDER NOT DEEMED A STOCKHOLDER. The Holder shall not be entitled to vote
on or be deemed the holder of Common Stock or any other securities which
may at any time be issuable on the exercise hereof for any purpose, nor
shall anything contained herein be construed to confer upon the Holder any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or give or withhold consent to any corporate action
(whether upon any recapitalization, issue of stock, reclassification of
stock, change of par value or change of stock to no par value,
consolidation, merger, conveyance or otherwise) or to receive notice of
meetings or other actions affecting stockholders, or to receive dividends
or subscription rights or other-wise, until the rights to purchase Warrant
Stock hereunder shall have been exercised.
8. NONTRANSFERABILITY. This Warrant is not transferable, in whole or in part,
and is exercisable only by the Holder or by the Holder's representative or
executor in the event of the Holder's death.
9. INVESTMENT INTENT. The Holder acknowledges and agrees that this Warrant
and any shares of Warrant Stock which may be acquired upon exercise hereof
are being or will be acquired for investment purposes and not with a view
toward the distribution or sale thereof. The Holder acknowledges that this
Warrant and the Warrant Stock will not be registered under either federal
or applicable state securities laws and that the Company will be relying
upon the foregoing investment representation in agreeing to issue this
Warrant and the Warrant Stock to the Holder. The Holder acknowledges that
transferability of the Warrant Stock will be subject to restrictions
imposed by all applicable federal and state securities laws and agrees that
the certificates evidencing the Warrant Stock may be imprinted with an
appropriate legend setting forth these restrictions on transferability.
10. AMENDMENT. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by means of an instrument in writing signed
by the party against which enforcement of the change, waiver, discharge or
termination is sought.
6
<PAGE>
IN WITNESS WHEREOF, GateField Corporation has caused this Warrant
Certificate to be signed by its Corporate Secretary and has caused its
corporate seal to be imprinted hereon.
Date: November 25, 1997 GATEFIELD CORPORATION
(the "Company")
By: /S/ DOUGLAS E. KLINT
--------------------
Douglas E. Klint
Corporate Secretary
Accepted by:
/s/ Benjamin Huberman
- ---------------------
Benjamin Huberman
7
<PAGE>
Exhibit 10.10
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE. THIS WARRANT MAY NOT
BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER PROVISIONS OF
THE FEDERAL ACT AND ALL APPLICABLE STATE SECURITIES LAWS.
Right to Purchase Shares of Common Stock of Zycad Corporation
August 21, 1997
- -------------------------
Common Stock Purchase Warrant
ZYCAD CORPORATION, a Delaware corporation (the "Company"), hereby
certifies that for $10.00 and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Halifax Fund, L.P.,
having an address at c/o Citco Fund Services Ltd., Corporate Centre, West Bay
Road, P.O. Box 31106, SMB, Grand Cayman, Cayman Islands ("Purchaser") or any
other Warrant Holder is entitled, on the terms and conditions set forth
below, to purchase from the Company at any time beginning after the date
hereof and ending thirty-six (36) months after the date hereof One Hundred
and Twenty Two Thousand and Five Hundred (122,500) shares of fully paid and
nonassessable shares of Common Stock, $.10 par value, of the Company (the
"Common Stock"), at a purchase price per share of Fifty Three and One
Hundred Twenty Five Thousand Cents (U.S. $.53125) per share of Common Stock
(the "Purchase Price"), as the same may be adjusted pursuant to Section 5
herein.
1. DEFINITIONS.
(a) the term "Warrant Holder" shall mean the Purchaser or any assignee
of all or any portion of this Warrant at any given time who, at the time of
assignment, acquired the right to purchase at least 2,000 Warrant Shares,
(such number being subject to adjustment after the date hereof pursuant to
Section 5 herein.)
(b) the term "Warrant Shares" shall mean the Shares of Common Stock or
other securities issuable upon exercise of this Warrant.
(c) other terms used herein which are defined in the Convertible
Securities Subscription Agreement (the "Agreement") or the Registration
Rights Agreement (the "Registration Rights Agreement"), both dated February
13, 1997 between the Company and the Purchaser, shall have the same meanings
herein as therein.
2. EXERCISE OF WARRANT. This Warrant may be exercised by
the Warrant Holder, in whole or in part, at any time and from time to time by
surrender of this Warrant, together with the form of subscription at the end
hereof duly executed by Warrant Holder, to the Company at its principal
office. In the event that the Warrant is not exercised in full, the number of
Warrant Shares shall be reduced by the number of such Warrant Shares for
which this Warrant is exercised, and the Company, at its expense, shall
forthwith issue and deliver to or upon the order of Warrant Holder a new
Warrant of like tenor in the name of Warrant Holder or as Warrant Holder
(upon payment by Warrant Holder of any applicable transfer taxes) may
request, reflecting such adjusted Warrant Shares.
If, despite the Company's obligations provided in Paragraphs 4(a) and
4(d) hereof, the Company shall not have registered pursuant to a Registration
Statement under the Act and/or available for issuance upon exercise of this
Warrant sufficient shares of Common Stock for such issuance as such
registered shares then, notwithstanding anything contained herein to the
contrary and in addition to and not in lieu of any of the other rights and
remedies to which the Warrant Holder may be entitled by reason of the
Company's failure fully to meet its obligations under Paragraphs 4(a) and
4(d)
<PAGE>
hereof, the Warrant Holder may, at its election exercised in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making
the cash payment otherwise contemplated to be made to the Company upon such
exercise in payment of the Purchase Price, elect instead to receive upon such
exercise the Net Number of shares of Common Stock determined according to the
following formula:
Net Number = (A x B) - (A x C)
-------------------
B
For purposes of the foregoing formula:
A = the total number of shares with respect to which this
Warrant is then being exercised.
B = the fair market value of a share of Common Stock at
the time of such calculation, as determined
in accordance with Paragraph 3(b) hereof.
C = the Purchase Price then in effect at the time of such
exercise.
3. DELIVERY OF STOCK CERTIFICATES.
(a) Subject to the terms and conditions of this Warrant, as
soon as practicable after the exercise of this Warrant in full or in part,
and in any event within five (5) days thereafter, the Company at its expense
(including, without limitation, the payment by it of any applicable issue
taxes) will cause to be issued in the name of and delivered to Warrant
Holder, or as Warrant Holder (upon payment by Warrant Holder of any
applicable transfer taxes) may lawfully direct, a certificate or certificates
for the number of fully paid and non-assessable shares of Common Stock to
which Warrant Holder shall be entitled on such exercise, together with any
other stock or other securities or property (including cash, where
applicable) to which Warrant Holder is entitled upon such exercise.
(b) This Warrant may not be exercised as to fractional
shares of Common Stock. In the event that the exercise of this Warrant, in
full or in part, would result in the issuance of any fractional share of
Common Stock, then in such event Warrant Holder shall be entitled to cash
equal to the fair market value of such fractional share. For purposes of
this Warrant, fair market value shall equal the closing trading price of the
Common Stock on the Nasdaq Stock Market, the American Stock Exchange or the
New York Stock Exchange, whichever is the principal trading exchange or
market for the Common Stock (the "Principal Market") on the date of
determination or, if the Common Stock is not listed or admitted to trading on
any national securities exchange or quoted in the Nasdaq Stock Market, the
average of the closing bid and asked prices on the over-the-counter market as
furnished by any New York Stock Exchange member firm reasonably selected from
time to time by the Company for that purpose, or, if the Common Stock is not
listed or admitted to trading on any national securities exchange or quoted
on the Nasdaq Stock Market or traded over-the-counter and the average price
cannot be determined a contemplated above, the fair market value of the
Common Stock shall be as reasonably determined in good faith by the Company's
Board of Directors.
4. COVENANTS OF THE COMPANY.
(a) The Company shall use its reasonable best efforts to
insure that a Registration Statement under the Act covering the issuance of
the Warrant Shares and the resale or other disposition thereof by Warrant
Holder is effective as provided in its Registration Rights Agreement.
(b) The Company shall take all necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, including, without limitation the notification of the Nasdaq
Stock Market, for the legal and valid issuance of this Warrant and the
Warrant Shares to the Warrant Holder under this Warrant.
- -2-
<PAGE>
(c) From the date hereof through the last date on which this
Warrant is exercisable, the Company shall take all steps reasonably necessary
and within its control to insure that the Common Stock remains listed on the
Principal Market and shall not amend its Certificate of Incorporation or
Bylaws so as to adversely affect any rights of the Warrant Holder under this
Warrant.
(d) The Company shall at all times reserve and keep
available, solely for issuance and delivery as Warrant Shares hereunder, such
shares of Common Stock as shall from time to time be issuable.
(e) The Warrant Shares, when issued in accordance with the
terms hereof, will be duly authorized and, when paid for or issued in
accordance with the terms hereof, shall be validly issued, fully paid and
non-assessable. The Company has authorized and reserved for issuance to
Warrant Holder the requisite number of shares of Common Stock to be issued
pursuant to this Warrant.
(f) With a view to making available to Warrant Holder the benefits
of Rule 144 promulgated under the Act and any other rule or regulation of the
SEC that may at any time permit Warrant Holder to sell securities of the
Company to the public without registration, the Company agrees to use its
reasonable best efforts to:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(ii) file with the SEC in a timely manner all reports and other documents
required of the Company under the Act and the Exchange Act; and
(iii) furnish to any Warrant Holder forthwith upon request a written
statement by the Company that it has complied with the reporting requirements
of Rule 144 and of the Act and the Exchange Act, a copy of the most recent
annual or quarterly report of the Company, and such other reports and
documents so filed by the Company as may be reasonably requested to permit
any such Warrant Holder to take advantage of any rule or regulation of the
SEC permitting the selling of any such securities without registration.
5. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number
of and kind of securities purchasable upon exercise of this Warrant and the
Purchase Price shall be subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the
Company shall at any time after the date hereof but prior to the expiration
of this Warrant subdivide its outstanding securities as to which purchase
rights under this Warrant exist, by split-up, spin-off, or otherwise, or
combine its outstanding securities as to which purchase rights under this
Warrant exist, the number of Warrant Shares as to which this Warrant is
exercisable as of the date of such subdivision, split-up, spin-off or
combination shall forthwith be proportionately increased in the case of a
subdivision, or proportionately decreased in the case of a combination.
Appropriate adjustments shall also be made to the purchase price payable per
share, but the aggregate purchase price payable for the total number of
Warrant Shares purchasable under this Warrant as of such date shall remain
the same.
(b) STOCK DIVIDEND. If at any time after the date hereof
the Company declares a dividend or other distribution on Common Stock payable
in Common Stock or other securities or rights convertible into Common Stock
("Common Stock Equivalents") without payment of any consideration by holders
of Common Stock for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
exercise or conversion thereof), then the number of shares of Common Stock
for which this Warrant may be exercised shall be increased as of the record
date (or the date of such dividend distribution if no record date is set) for
determining which holders of Common Stock shall be entitled to receive such
dividends, in proportion to the increase in the number of outstanding shares
(and shares of Common Stock issuable upon conversion of all such securities
convertible into Common Stock) of Common Stock as a result of such dividend,
and the Purchase Price shall be adjusted
- -3-
<PAGE>
so that the aggregate amount payable for the purchase of all the Warrant
Shares issuable hereunder immediately after the record date (or on the date
of such distribution, if applicable), for such dividend shall equal the
aggregate amount so payable immediately before such record date (or on the
date of such distribution, if applicable).
(c) OTHER DISTRIBUTIONS. If at any time after the date
hereof the Company distributes to holders of its Common Stock, other than as
part of its dissolution, liquidation or the winding up of its affairs, any
shares of its capital stock, any evidence of indebtedness or any of its
assets (other than cash, Common Stock or securities convertible into Common
Stock), then the Company shall decrease the per share Purchase Price of this
Warrant by an appropriate amount based upon the value distributed on each
share of Common Stock as determined in good faith by the Company's Board of
Directors.
(d) MERGER, ETC. If at any time after the date hereof
there shall be a merger or consolidation of the Company with or into or a
transfer of all or substantially all of the assets of the Company to another
entity, then the Warrant Holder shall be entitled to receive upon such
transfer, merger or consolidation becoming effective, and upon payment of the
aggregate Purchase Price then in effect, the number of shares or other
securities or property of the Company or of the successor corporation
resulting from such merger or consolidation, which would have been received
by Warrant Holder for the shares of stock subject to this Warrant had this
Warrant been exercised just prior to such transfer, merger or consolidation
becoming effective or to the applicable record date thereof, as the case may
be.
(e) RECLASSIFICATION, ETC. If at any time after the date
hereof there shall be a reorganization or reclassification of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, then the
Warrant Holder shall thereafter be entitled to receive upon exercise of this
Warrant, during the period specified herein and upon payment of the Purchase
Price then in effect, the number of shares or other securities or property
resulting from such reorganization or reclassification, which would have been
received by the Warrant Holder for the shares of stock subject to this
Warrant had this Warrant at such time been exercised.
(f) PURCHASE PRICE ADJUSTMENT. In the event that the
Company issues or sells any Common Stock or securities which are convertible
into or exchangeable for its Common Stock or any convertible securities, or
any warrants or other rights to subscribe for or to purchase or any options
for the purchase of its Common Stock or any such convertible securities
(other than shares or options issued or which may be issued pursuant to the
Company's employee or director option plans or shares issued upon exercise of
options, warrants or rights outstanding on the date of the Agreement and
listed in the Exchange Act Reports) at an effective purchase price per share
which is less than the Purchase Price then in effect or the fair market value
(as hereinabove defined) of the Common Stock on the trading day next
preceding such issue or sale, then in each such case, the Purchase Price in
effect immediately prior to such issue or sale shall be reduced effective
concurrently with such issue or sale to an amount determined by multiplying
the Purchase Price then in effect by a fraction, (x) the numerator of which
shall be the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issue or sale, including, without duplication,
those deemed to have been issued under any provision of the Debentures and
the Warrants plus (2) the number of shares of Common Stock which the
aggregate consideration received by the Company for such additional shares
would purchase at such fair market value or Purchase Price, as the case may
be, then in effect; and (y) the denominator of which shall be the number of
shares of Common Stock of the Company outstanding immediately after such
issue or sale including, without duplication, those deemed to have been
issued under any provision of the Debentures and Warrants. For purposes of
the foregoing fraction, Common Stock outstanding shall include, without
limitation, any Equity Offerings (as defined in the Debentures) then
outstanding, whether or not they are exercisable or convertible when such
fraction is to be determined.
In the event of any such issuance for a consideration which is less
than such fair market value and also less than the Purchase Price then in
effect, then there shall be only one such adjustment by reason of such
issuance, such adjustment to be that which results in the greatest reduction
of the Purchase Price computed as aforesaid. The number of shares which may
be purchased hereunder shall be increased proportionately to any reduction in
Purchase Price
- -4-
<PAGE>
pursuant to this paragraph 5(f), so that after such adjustments the aggregate
Purchase Price payable hereunder for the increased number of shares shall be
the same as the aggregate Purchase Price in effect just prior to such
adjustments.
6. NO IMPAIRMENT. The Company 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 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 Warrant Holder against impairment. Without limiting the
generality of the foregoing, the Company (a) will not increase the par value
of any Warrant Shares above the amount payable therefor on such exercise, and
(b) will take all such action as may be reasonably necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares on the exercise of this Warrant.
7. NOTICE OF ADJUSTMENTS; NOTICES. Whenever the Purchase Price or
number of Shares purchasable hereunder shall be adjusted pursuant to Section
5 hereof, the Company shall execute and deliver to the Warrant Holder a
certificate setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated and the Purchase Price and number of shares purchasable
hereunder after giving effect to such adjustment, and shall cause a copy of
such certificate to be mailed (by first class mail, postage prepaid) to the
Warrant Holder.
8. RIGHTS AS STOCKHOLDER. Prior to exercise of this Warrant, the
Warrant Holder shall not be entitled to any rights as a stockholder of the
Company with respect to the Warrant Shares, including (without limitation)
the right to vote such shares, receive dividends or other distributions
thereon or be notified of stockholder meetings. However, in the event of any
taking by the Company of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to
receive any dividend (other than a cash dividend) or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
the Company shall mail to each Warrant Holder, at least 10 days prior to the
date specified therein, a notice specifying the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
the amount and character of such dividend, distribution or right.
9. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
the Warrant and, in the case of any such loss, theft or destruction of the
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
10. SPECIFIC ENFORCEMENT; CONSENT TO JURISDICTION.
(a) The Company and the Warrant Holder acknowledge and
agree that irreparable damage would occur in the event that any of the
provisions of this Warrant were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Warrant and to enforce specifically the
terms and provisions hereof, this being in addition to any other remedy to
which either of them may be entitled by law or equity.
(b) Each of the Company and the Warrant Holder
(i) hereby irrevocably submits to the exclusive jurisdiction of the United
States District Court for the Southern District of New York for the purposes
of any suit, action or proceeding arising out of or relating to this Warrant
and (ii) hereby waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction
of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. Each of the Company and the Warrant Holder consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
to such party at the address in effect for notices to it under this Warrant
and agrees that such
- -5-
<PAGE>
service shall constitute good and sufficient service of process and notice
thereof. Nothing in this paragraph shall affect or limit any right to serve
process in any other manner permitted by law.
11. ENTIRE AGREEMENT; AMENDMENTS. This Warrant, the Exhibits
hereto and the provisions contained in the Agreement, the Registration Rights
Agreement or the Debentures and incorporated into this Warrant and the
Warrant Shares contain the entire understanding of the parties with respect
to the matters covered hereby and thereby and, except as specifically set
forth herein and therein, neither the Company nor the Warrant Holder makes
any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than
by a written instrument signed by the party against whom enforcement of any
such amendment or waiver is sought.
12. RESTRICTED SECURITIES. Sections 4.5, 5.1, 5.2 and 5.3 of the
Agreement are incorporated herein by reference and hereby made a part hereof.
- -6-
<PAGE>
13. NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective
(a) upon hand delivery or delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated below
(if delivered on a business day during normal business hours where such
notice is to be received), or the first business day following such delivery
(if delivered other than on a business day during normal business hours where
such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to
such address, or upon actual receipt of such mailing, whichever shall first
occur. The addresses for such communications shall be:
to the Company:
Zycad Corporation
47100 Bayside Parkway
Fremont, California 94538
Attn:
Fax: (510) 623-4575
with copies to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attn:
Fax:
to the Warrant Holder:
Halifax Fund, L.P.
c/o Citco Fund Services Ltd.
Corporate Centre, West Bay Road
P.O. Box 31106
SMB, Grand Cayman, Cayman Islands, BWI
Attn:
Fax:
with copies to:
The Palladin Group
40 W. 57th Street, Suite 1500
New York, NY 10019
Attn: Andrew Kaplan
Fax: (212) 698-0599
Copies of all notices to the Company or to the Warrant Holder shall also be
provided to:
Promethean Investment Group, L.L.C.
40 West 57th Street, Suite 1520
- -7-
<PAGE>
New York, NY 10019
Attn: James F. O'Brien, Jr.
Fax: (212) 698-0505
GOULSTON & STORRS
400 Atlantic Avenue
Boston, MA 02110-3333
Attn: Richard Langerman, Esq.
Fax: (617) 574-4112
Either party hereto may from time to time change its address for notices
under this Section 13 by giving at least 10 days prior written notice of such
changed address to the other party hereto.
14. MISCELLANEOUS. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. This Warrant shall be construed and
enforced in accordance with and governed by the laws of the State of New
York. The headings in this Warrant are for purposes of reference only, and
shall not limit or otherwise affect any of the terms hereof. The invalidity
or unenforceability of any provision hereof shall in no way affect the
validity or enforceability of any other provision.
15. EXPIRATION. The right to exercise this Warrant shall expire
thirty-six (36) months after the date hereof.
[Signatures on next page.]
- -8-
<PAGE>
Dated as of: August 21, 1997 ZYCAD CORPORATION
By: /s/ Phillips W. Smith
Title: President and CEO
[CORPORATE SEAL]
Attest:
By: /s/ Douglas E. Klint
Its: Vice President, Secretary and
General Counsel
Halifax Fund, L.P.
By: The Palladin Group
Its: Investment Adviser
By: /s/ Andrew Kaplan
Its: Vice President
- -9-
<PAGE>
FORM OF WARRANT EXERCISE
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO _____________________________
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, _________
shares of Common Stock of ZYCAD CORPORATION, a Delaware corporation (the
"Company"), and herewith makes payment of $__________ therefor, and requests
that the certificates for such shares be issued in the name of, and delivered
to _________________, whose address is __________________.
Dated:
----------------------------------------
(Signature must conform to name of holder as specified on the face of
the Warrant)
----------------------------------------
(Address)
Tax Identification Number:_____________
- -----------------
FORM OF ASSIGNMENT
(TO BE SIGNED ONLY ON TRANSFER OF WARRANT)
For value received, the undersigned hereby sells, assigns, and transfers unto
_________________ the right represented by the within Warrant to purchase
_____________ shares of Common stock of ZYCAD CORPORATION, a Delaware
corporation, to which the within Warrant relates, and appoints
_________________ Attorney to transfer such right on the books of ZYCAD
CORPORATION, a Delaware corporation, with full power of substitution the
premises.
Dated:
-----------------------------------
(Signature must conform to name of holder as specified on the face of
the Warrant)
-----------------------------------
(Address)
Signed in the presence of:
- --------------------------------
- -11-
<PAGE>
Exhibit 10.11
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE. THIS WARRANT MAY NOT
BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER PROVISIONS OF
THE FEDERAL ACT AND ALL APPLICABLE STATE SECURITIES LAWS.
Right to Purchase Shares of Common Stock of Zycad Corporation
August 21, 1997
- -------------------------
Common Stock Purchase Warrant
ZYCAD CORPORATION, a Delaware corporation (the "Company"), hereby
certifies that for $10.00 and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Capital Ventures
International, having an address at 1 Capital Place, P.O. Box 1787GT, Grand
Cayman, Cayman Islands ("Purchaser") or any other Warrant Holder is entitled,
on the terms and conditions set forth below, to purchase from the Company at
any time beginning after the date hereof and ending thirty-six (36) months
after the date hereof One Hundred and Twenty Two Thousand and Five Hundred
(122,500) shares of fully paid and nonassessable shares of Common Stock, $.10
par value, of the Company (the "Common Stock"), at a purchase price per
share of Fifty Three and One Hundred Twenty Five Thousand Cents (U.S.
$.53125) per share of Common Stock (the "Purchase Price"), as the same may be
adjusted pursuant to Section 5 herein.
1. DEFINITIONS.
(a) the term "Warrant Holder" shall mean the Purchaser or any assignee
of all or any portion of this Warrant at any given time who, at the time of
assignment, acquired the right to purchase at least 2,000 Warrant Shares,
(such number being subject to adjustment after the date hereof pursuant to
Section 5 herein.)
(b) the term "Warrant Shares" shall mean the Shares of Common Stock or
other securities issuable upon exercise of this Warrant.
(c) other terms used herein which are defined in the Convertible
Securities Subscription Agreement (the "Agreement") or the Registration
Rights Agreement (the "Registration Rights Agreement"), both dated February
13, 1997 between the Company and the Purchaser, shall have the same meanings
herein as therein.
2. EXERCISE OF WARRANT. This Warrant may be exercised by the
Warrant Holder, in whole or in part, at any time and from time to time by
surrender of this Warrant, together with the form of subscription at the end
hereof duly executed by Warrant Holder, to the Company at its principal
office. In the event that the Warrant is not exercised in full, the number
of Warrant Shares shall be reduced by the number of such Warrant Shares for
which this Warrant is exercised, and the Company, at its expense, shall
forthwith issue and deliver to or upon the order of Warrant Holder a new
Warrant of like tenor in the name of Warrant Holder or as Warrant Holder
(upon payment by Warrant Holder of any applicable transfer taxes) may
request, reflecting such adjusted Warrant Shares.
If, despite the Company's obligations provided in Paragraphs 4(a) and
4(d) hereof, the Company shall not have registered pursuant to a Registration
Statement under the Act and/or available for issuance upon exercise of this
Warrant sufficient shares of Common Stock for such issuance as such
registered shares then, notwithstanding anything contained herein to the
contrary and in addition to and not in lieu of any of the other rights and
remedies to which the Warrant Holder may be entitled by reason of the
Company's failure fully to meet its obligations under Paragraphs 4(a) and
4(d) hereof, the Warrant Holder may, at its election exercised in its sole
discretion, exercise this Warrant in whole or in part
<PAGE>
and, in lieu of making the cash payment otherwise contemplated to be made to
the Company upon such exercise in payment of the Purchase Price, elect
instead to receive upon such exercise the Net Number of shares of Common
Stock determined according to the following formula:
Net Number = (A x B) - (A x C)
-------------------
B
For purposes of the foregoing formula:
A = the total number of shares with respect to which this
Warrant is then being exercised.
B = the fair market value of a share of Common Stock at the
time of such calculation, as determined in accordance
with Paragraph 3(b) hereof.
C = the Purchase Price then in effect at the time of such
exercise.
3. DELIVERY OF STOCK CERTIFICATES.
(a) Subject to the terms and conditions of this Warrant, as soon
as practicable after the exercise of this Warrant in full or in part, and in
any event within five (5) days thereafter, the Company at its expense
(including, without limitation, the payment by it of any applicable issue
taxes) will cause to be issued in the name of and delivered to Warrant
Holder, or as Warrant Holder (upon payment by Warrant Holder of any
applicable transfer taxes) may lawfully direct, a certificate or certificates
for the number of fully paid and non-assessable shares of Common Stock to
which Warrant Holder shall be entitled on such exercise, together with any
other stock or other securities or property (including cash, where
applicable) to which Warrant Holder is entitled upon such exercise.
(b) This Warrant may not be exercised as to fractional shares of
Common Stock. In the event that the exercise of this Warrant, in full or in
part, would result in the issuance of any fractional share of Common Stock,
then in such event Warrant Holder shall be entitled to cash equal to the fair
market value of such fractional share. For purposes of this Warrant, fair
market value shall equal the closing trading price of the Common Stock on the
Nasdaq Stock Market, the American Stock Exchange or the New York Stock
Exchange, whichever is the principal trading exchange or market for the
Common Stock (the "Principal Market") on the date of determination or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange or quoted in the Nasdaq Stock Market, the average of the closing bid
and asked prices on the over-the-counter market as furnished by any New York
Stock Exchange member firm reasonably selected from time to time by the
Company for that purpose, or, if the Common Stock is not listed or admitted
to trading on any national securities exchange or quoted on the Nasdaq Stock
Market or traded over-the-counter and the average price cannot be determined
a contemplated above, the fair market value of the Common Stock shall be as
reasonably determined in good faith by the Company's Board of Directors.
4. COVENANTS OF THE COMPANY.
(a) The Company shall use its reasonable best efforts to insure
that a Registration Statement under the Act covering the issuance of the
Warrant Shares and the resale or other disposition thereof by Warrant Holder
is effective as provided in its Registration Rights Agreement.
(b) The Company shall take all necessary action and proceedings as
may be required and permitted by applicable law, rule and regulation,
including, without limitation the notification of the Nasdaq Stock Market,
for the legal and valid issuance of this Warrant and the Warrant Shares to
the Warrant Holder under this Warrant.
- -2-
<PAGE>
(c) From the date hereof through the last date on which this
Warrant is exercisable, the Company shall take all steps reasonably necessary
and within its control to insure that the Common Stock remains listed on the
Principal Market and shall not amend its Certificate of Incorporation or
Bylaws so as to adversely affect any rights of the Warrant Holder under this
Warrant.
(d) The Company shall at all times reserve and keep available,
solely for issuance and delivery as Warrant Shares hereunder, such shares of
Common Stock as shall from time to time be issuable.
(e) The Warrant Shares, when issued in accordance with the terms
hereof, will be duly authorized and, when paid for or issued in accordance
with the terms hereof, shall be validly issued, fully paid and
non-assessable. The Company has authorized and reserved for issuance to
Warrant Holder the requisite number of shares of Common Stock to be issued
pursuant to this Warrant.
(f) With a view to making available to Warrant Holder the benefits of
Rule 144 promulgated under the Act and any other rule or regulation of the
SEC that may at any time permit Warrant Holder to sell securities of the
Company to the public without registration, the Company agrees to use its
reasonable best efforts to:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(ii) file with the SEC in a timely manner all reports and other documents
required of the Company under the Act and the Exchange Act; and
(iii) furnish to any Warrant Holder forthwith upon request a written
statement by the Company that it has complied with the reporting requirements
of Rule 144 and of the Act and the Exchange Act, a copy of the most recent
annual or quarterly report of the Company, and such other reports and
documents so filed by the Company as may be reasonably requested to permit
any such Warrant Holder to take advantage of any rule or regulation of the
SEC permitting the selling of any such securities without registration.
5. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number of
and kind of securities purchasable upon exercise of this Warrant and the
Purchase Price shall be subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the
Company shall at any time after the date hereof but prior to the expiration
of this Warrant subdivide its outstanding securities as to which purchase
rights under this Warrant exist, by split-up, spin-off, or otherwise, or
combine its outstanding securities as to which purchase rights under this
Warrant exist, the number of Warrant Shares as to which this Warrant is
exercisable as of the date of such subdivision, split-up, spin-off or
combination shall forthwith be proportionately increased in the case of a
subdivision, or proportionately decreased in the case of a combination.
Appropriate adjustments shall also be made to the purchase price payable per
share, but the aggregate purchase price payable for the total number of
Warrant Shares purchasable under this Warrant as of such date shall remain
the same.
(b) STOCK DIVIDEND. If at any time after the date hereof the
Company declares a dividend or other distribution on Common Stock payable in
Common Stock or other securities or rights convertible into Common Stock
("Common Stock Equivalents") without payment of any consideration by holders
of Common Stock for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
exercise or conversion thereof), then the number of shares of Common Stock
for which this Warrant may be exercised shall be increased as of the record
date (or the date of such dividend distribution if no record date is set) for
determining which holders of Common Stock shall be entitled to receive such
dividends, in proportion to the increase in the number of outstanding shares
(and shares of Common Stock issuable upon conversion of all such securities
convertible into Common Stock) of Common Stock as a result of such dividend,
and the Purchase Price shall be adjusted
- -3-
<PAGE>
so that the aggregate amount payable for the purchase of all the Warrant
Shares issuable hereunder immediately after the record date (or on the date
of such distribution, if applicable), for such dividend shall equal the
aggregate amount so payable immediately before such record date (or on the
date of such distribution, if applicable).
(c) OTHER DISTRIBUTIONS. If at any time after the date hereof the
Company distributes to holders of its Common Stock, other than as part of its
dissolution, liquidation or the winding up of its affairs, any shares of its
capital stock, any evidence of indebtedness or any of its assets (other than
cash, Common Stock or securities convertible into Common Stock), then the
Company shall decrease the per share Purchase Price of this Warrant by an
appropriate amount based upon the value distributed on each share of Common
Stock as determined in good faith by the Company's Board of Directors.
(d) MERGER, ETC. If at any time after the date hereof there
shall be a merger or consolidation of the Company with or into or a transfer
of all or substantially all of the assets of the Company to another entity,
then the Warrant Holder shall be entitled to receive upon such transfer,
merger or consolidation becoming effective, and upon payment of the aggregate
Purchase Price then in effect, the number of shares or other securities or
property of the Company or of the successor corporation resulting from such
merger or consolidation, which would have been received by Warrant Holder for
the shares of stock subject to this Warrant had this Warrant been exercised
just prior to such transfer, merger or consolidation becoming effective or to
the applicable record date thereof, as the case may be.
(e) RECLASSIFICATION, ETC. If at any time after the date hereof
there shall be a reorganization or reclassification of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, then the Warrant Holder
shall thereafter be entitled to receive upon exercise of this Warrant, during
the period specified herein and upon payment of the Purchase Price then in
effect, the number of shares or other securities or property resulting from
such reorganization or reclassification, which would have been received by
the Warrant Holder for the shares of stock subject to this Warrant had this
Warrant at such time been exercised.
(f) PURCHASE PRICE ADJUSTMENT. In the event that the Company
issues or sells any Common Stock or securities which are convertible into or
exchangeable for its Common Stock or any convertible securities, or any
warrants or other rights to subscribe for or to purchase or any options for
the purchase of its Common Stock or any such convertible securities (other
than shares or options issued or which may be issued pursuant to the
Company's employee or director option plans or shares issued upon exercise of
options, warrants or rights outstanding on the date of the Agreement and
listed in the Exchange Act Reports) at an effective purchase price per share
which is less than the Purchase Price then in effect or the fair market value
(as hereinabove defined) of the Common Stock on the trading day next
preceding such issue or sale, then in each such case, the Purchase Price in
effect immediately prior to such issue or sale shall be reduced effective
concurrently with such issue or sale to an amount determined by multiplying
the Purchase Price then in effect by a fraction, (x) the numerator of which
shall be the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issue or sale, including, without duplication,
those deemed to have been issued under any provision of the Debentures and
the Warrants plus (2) the number of shares of Common Stock which the
aggregate consideration received by the Company for such additional shares
would purchase at such fair market value or Purchase Price, as the case may
be, then in effect; and (y) the denominator of which shall be the number of
shares of Common Stock of the Company outstanding immediately after such
issue or sale including, without duplication, those deemed to have been
issued under any provision of the Debentures and Warrants. For purposes of
the foregoing fraction, Common Stock outstanding shall include, without
limitation, any Equity Offerings (as defined in the Debentures) then
outstanding, whether or not they are exercisable or convertible when such
fraction is to be determined.
In the event of any such issuance for a consideration which is less than
such fair market value and also less than the Purchase Price then in effect,
then there shall be only one such adjustment by reason of such issuance, such
adjustment to be that which results in the greatest reduction of the Purchase
Price computed as aforesaid. The number of shares which may be purchased
hereunder shall be increased proportionately to any reduction in Purchase Price
- -4-
<PAGE>
pursuant to this paragraph 5(f), so that after such adjustments the aggregate
Purchase Price payable hereunder for the increased number of shares shall be
the same as the aggregate Purchase Price in effect just prior to such
adjustments.
6. NO IMPAIRMENT. The Company 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 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 Warrant Holder against impairment. Without limiting the
generality of the foregoing, the Company (a) will not increase the par value
of any Warrant Shares above the amount payable therefor on such exercise, and
(b) will take all such action as may be reasonably necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares on the exercise of this Warrant.
7. NOTICE OF ADJUSTMENTS; NOTICES. Whenever the Purchase Price or
number of Shares purchasable hereunder shall be adjusted pursuant to Section
5 hereof, the Company shall execute and deliver to the Warrant Holder a
certificate setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated and the Purchase Price and number of shares purchasable
hereunder after giving effect to such adjustment, and shall cause a copy of
such certificate to be mailed (by first class mail, postage prepaid) to the
Warrant Holder.
8. RIGHTS AS STOCKHOLDER. Prior to exercise of this Warrant, the
Warrant Holder shall not be entitled to any rights as a stockholder of the
Company with respect to the Warrant Shares, including (without limitation)
the right to vote such shares, receive dividends or other distributions
thereon or be notified of stockholder meetings. However, in the event of any
taking by the Company of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to
receive any dividend (other than a cash dividend) or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
the Company shall mail to each Warrant Holder, at least 10 days prior to the
date specified therein, a notice specifying the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
the amount and character of such dividend, distribution or right.
9. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
the Warrant and, in the case of any such loss, theft or destruction of the
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
10. SPECIFIC ENFORCEMENT; CONSENT TO JURISDICTION.
(a) The Company and the Warrant Holder acknowledge and agree
that irreparable damage would occur in the event that any of the provisions
of this Warrant were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Warrant and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which either
of them may be entitled by law or equity.
(b) Each of the Company and the Warrant Holder (i) hereby
irrevocably submits to the exclusive jurisdiction of the United States
District Court for the Southern District of New York for the purposes of any
suit, action or proceeding arising out of or relating to this Warrant and
(ii) hereby waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction
of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. Each of the Company and the Warrant Holder consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
to such party at the address in effect for notices to it under this Warrant
and agrees that such
- -5-
<PAGE>
service shall constitute good and sufficient service of process and notice
thereof. Nothing in this paragraph shall affect or limit any right to serve
process in any other manner permitted by law.
11. ENTIRE AGREEMENT; AMENDMENTS. This Warrant, the Exhibits hereto
and the provisions contained in the Agreement, the Registration Rights
Agreement or the Debentures and incorporated into this Warrant and the
Warrant Shares contain the entire understanding of the parties with respect
to the matters covered hereby and thereby and, except as specifically set
forth herein and therein, neither the Company nor the Warrant Holder makes
any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than
by a written instrument signed by the party against whom enforcement of any
such amendment or waiver is sought.
12. RESTRICTED SECURITIES. Sections 4.5, 5.1, 5.2 and 5.3 of the
Agreement are incorporated herein by reference and hereby made a part hereof.
13. NOTICES. Any notice or other communication required or permitted
to be given hereunder shall be in writing and shall be effective (a) upon
hand delivery or delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated below (if delivered
on a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice
is to be received) or (b) on the second business day following the date of
mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
- -6-
<PAGE>
to the Company:
Zycad Corporation
47100 Bayside Parkway
Fremont, California 94538
Attn:
Fax: (510) 623-4575
with copies to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attn:
Fax:
to the Warrant Holder:
Capital Ventures International
1 Capital Place
P.O. Box 1787GT
Grand Cayman, Cayman Islands
Attn:
Fax:
with copies to:
Attn:
Fax:
Copies of all notices to the Company or to the Warrant Holder shall also be
provided to:
Promethean Investment Group, L.L.C.
40 West 57th Street, Suite 1520
New York, NY 10019
Attn: James F. O'Brien, Jr.
Fax: (212) 698-0505
GOULSTON & STORRS
400 Atlantic Avenue
Boston, MA 02110-3333
Attn: Richard Langerman, Esq.
Fax: (617) 574-4112
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<PAGE>
Either party hereto may from time to time change its address for notices
under this Section 13 by giving at least 10 days prior written notice of such
changed address to the other party hereto.
14. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by
the party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the laws of the State of New York. The
headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity
or enforceability of any other provision.
15. EXPIRATION. The right to exercise this Warrant shall expire
thirty-six (36) months after the date hereof.
[Signatures on next page.]
Dated as of: August 21, 1997 ZYCAD CORPORATION
By: /s/ Phillips W. Smith
Title: President and CEO
[CORPORATE SEAL]
Attest:
By: /s/ Douglas E. Klint
Its: Vice President, Secretary
and General Counsel
Capital Ventures International by
Heights Capital Management as agent
By: /s/ Andrew Frost
Its: President
- -8-
<PAGE>
FORM OF WARRANT EXERCISE
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO _________________________
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, _________
shares of Common Stock of ZYCAD CORPORATION, a Delaware corporation (the
"Company"), and herewith makes payment of $__________ therefor, and requests
that the certificates for such shares be issued in the name of, and delivered
to _________________, whose address is __________________.
Dated: ___________________________________
(Signature must conform to name of holder as specified on the face of
the Warrant)
___________________________________
(Address)
Tax Identification Number:_____________
- ---------------------
FORM OF ASSIGNMENT
(TO BE SIGNED ONLY ON TRANSFER OF WARRANT)
For value received, the undersigned hereby sells, assigns, and transfers unto
_________________ the right represented by the within Warrant to purchase
_____________ shares of Common stock of ZYCAD CORPORATION, a Delaware
corporation, to which the within Warrant relates, and appoints
_________________ Attorney to transfer such right on the books of ZYCAD
CORPORATION, a Delaware corporation, with full power of substitution the
premises.
Dated: ___________________________________
(Signature must conform to name of holder as specified on the face of
the Warrant)
___________________________________
(Address)
Signed in the presence of:
____________________________
- -9-
<PAGE>
Exhibit 10.13
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.
<PAGE>
(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
2
<PAGE>
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.
3
<PAGE>
(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.
4
<PAGE>
(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
5
<PAGE>
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.
6
<PAGE>
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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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
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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
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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
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.
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<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>
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>
A-1
<PAGE>
Exhibit 10.14
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Registration Rights Agreement"),
entered into as of November 10, 1997, among GateField Corporation, a Delaware
corporation with offices at 47100 Bayside Parkway, Fremont, California 94538
(the "Company"), and the purchasers listed on Exhibit A (the "Purchasers").
W I T N E S S E T H:
WHEREAS, pursuant to a Stock Purchase Agreement, dated as of November
10, 1997 (the "Stock Purchase Agreement"), by and among the Company and the
Purchasers, the Company has agreed to sell and the Purchasers have agreed to
purchase an aggregate of (a) 1,000,000 shares of the Company's Series B
Convertible Preferred Stock, $.10 par value (the "Preferred Stock"),
convertible into up to 6,110,000 shares of the Company's common stock, $.10
par value (the "Common Stock"), (b) Common Stock Purchase Warrants to
purchase 997,751 shares of Common Stock at a purchase price of $1.00 per
share (collectively, the "Warrants"), and (c) 4,582,500 shares of Common
Stock. The shares of Common Stock issued or issuable upon conversion of the
Preferred Stock, the shares of Common Stock issued or issuable upon exercise
of the Warrants, and the shares of Common Stock to be sold to the Purchasers
pursuant to the Stock Purchase Agreement are collectively referred to herein
as the "Shares."
WHEREAS, pursuant to the terms of, and in partial consideration for,
each of the Purchaser's agreement to enter into the Stock Purchase Agreement,
the Company has agreed to provide each Purchaser with certain rights with
respect to the registration of the Shares under the Securities Act of 1933;
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in the Stock
Purchase Agreement and this Registration Rights Agreement, the Company and
the Purchasers agree as follows:
1. CERTAIN DEFINITIONS. As used in this Registration Rights
Agreement, the following terms shall have the following respective meanings.
Other terms used herein which are defined in the Stock Purchase Agreement,
shall have the same meanings herein as they do in the Stock Purchase
Agreement.
"Commission" or "SEC" shall mean the Securities and Exchange
Commission, or any other Federal agency at the time administering the
Securities Act.
"Holder" shall include each of the Purchasers and any transferee of
Preferred Stock, Warrants, Shares or Registrable Securities which have not
been sold to the public, to whom the registration rights covered by this
Registration Rights Agreement have been transferred in compliance with
Section 12 of this Registration Rights Agreement.
<PAGE>
"Registrable Securities" shall mean: (i) the shares of Common Stock
issued or issuable upon conversion of the Preferred Stock, (ii) the shares of
Common Stock issued pursuant to the Stock Purchase Agreement, (iii) the
shares of Common Stock issued or issuable upon exercise of the Warrants,
(iv) any shares of Common Stock, and any other securities, acquired by the
Purchasers pursuant to Section 4.8 of the Stock Purchase Agreement, and
(v) and any other shares of Common Stock issued in respect of such shares
(because of stock splits, stock dividends, reclassifications,
recapitalizations, or similar events). Wherever reference is made in this
Registration Rights Agreement to a request or consent of holders of a certain
percentage of Registrable Securities, the determination of such percentage
shall include shares of Common Stock issuable upon conversion or exercise of
the Preferred Stock and the Warrant, if then exercisable, even if such
conversion or exercise has not yet been effected.
The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement with
the Commission in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness
of such registration statement.
"Registration Expenses" shall mean all expenses to be incurred by the
Company in connection with each of the Purchaser's exercise of its
registration rights under this Registration Rights Agreement, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, blue sky fees and expenses and
the expenses of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
"Registration Statement" shall mean a registration statement filed by
the Company with the Commission for a public offering and sale of Common
Stock (other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any
registration statement covering only securities proposed to be issued in
exchange for securities or assets of another corporation).
"Regulation D" shall mean Regulation D as promulgated pursuant to the
Securities Act, and as subsequently amended.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions, if any, applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for the Holder not included within
"Registration Expenses."
2. THE REGISTRATION REQUIREMENTS. If and when requested by the
Holders holding in the aggregate at least 30% of the Registrable Securities
then held by the Holders, but not before October 31, 1998, the Company shall
file, and use its reasonable best efforts to cause to become
2
<PAGE>
effective, as promptly as possible and in no event later than 60 days after
the date of such request, one or more Registration Statements covering the
resale of the Registrable Securities and shall take all action necessary to
qualify the Registrable Securities under state "blue sky" laws as hereinafter
provided; PROVIDED, HOWEVER, that the Company shall not be required to effect
such registrations on more than two separate occasions. The Company shall
use its reasonable best efforts to effect the registration contemplated by
the foregoing (including, without limitation, the execution of an undertaking
to file amendments and post-effective amendments, appropriate qualification
under and compliance with applicable blue sky or other state securities laws
and appropriate compliance with applicable regulations issued under the
Securities Act) and as would permit or facilitate the sale and distribution
of all the Registrable Securities in all states reasonably requested by the
Holder for purposes of maximizing the proceeds realizable by the Holder from
such sale and distribution. Such reasonable best efforts by the Company
shall include, without limitation, the following:
(a) The Company shall file (i) Registration Statements with the
Commission under the Securities Act registering the Registrable
Securities for public sale and shall use its reasonable best efforts to
cause such Registration Statements to become and remain effective for
the period of time set forth in Section 6 hereof, subject to the
provisions of Section 7 hereof; (ii) such blue sky filings as shall be
reasonably requested to permit such sales PROVIDED, HOWEVER, that the
Company shall not be required to register the Registrable Securities in
any jurisdiction that would subject it to general service of process in
any such jurisdiction where it is not then so subject or subject the
Company to any tax in any such jurisdiction where it is not then so
subject or require the Company to qualify to do business in any
jurisdiction where it is not then so qualified; and (iii) any required
filings with the National Association of Securities Dealers, Inc.
("NASD") or exchange where the Registrable Securities are traded; all
as soon as practicable after demand is made pursuant to this Section 2.
The Company shall use its reasonable best efforts to have the
Registration Statements and other filings declared effective as soon
thereafter as may be practicable.
(b) The Company shall enter into such customary agreements (including
a customary underwriting agreement with the underwriter or
underwriters, if any) and take all such other reasonable actions in
connection therewith in order to expedite or facilitate the disposition
of such Registrable Securities and in such connection, if the
Registrable Securities are to be sold in an underwritten offering, the
Company shall:
(i) make such representations and warranties to the
Holder and the underwriter or underwriters in form and substance
and scope as are customarily made by issuers to underwriters in
secondary underwritten offerings;
(ii) cause to be delivered to the sellers of Registrable
Securities and the underwriter or underwriters opinions of
general counsel to the Company, dated the effective day (or in
the case of an underwritten offering, dated the date of
3
<PAGE>
delivery of any Registrable Securities sold pursuant thereto) of
the applicable Registration Statement, which counsel and opinions
(in form, scope and substance), shall be reasonably satisfactory
to the managing underwriter or underwriters and the appointed
representative or counsel of the Holder, addressed to the Holder
and each underwriter covering the matters customarily covered in
opinions requested in secondary underwritten offerings and such
other matters as may be reasonably requested by the Holder;
(iii) cause to be delivered, immediately prior to the
effectiveness of the applicable Registration Statement (and at
the time of delivery of any Registrable Securities sold pursuant
thereto), letters from the Company's independent certified public
accountants addressed to the Holder and each underwriter stating
that such accountants are independent public accountants within
the meaning of the Securities Act and the applicable published
rules and regulations thereunder, and otherwise in customary form
and covering such financial and accounting matters as are
customarily covered by letters of the independent certified
public accountants delivered in connection with secondary
underwritten public offerings;
(iv) if an underwriting agreement is entered into, use
its best efforts to cause the same to set forth indemnification
and contribution provisions and procedures which are no less
favorable to the Holder and the Company than those contemplated
by Sections 8 and 9 of this Registration Rights Agreement with
respect to all parties to be indemnified pursuant to such
sections; and
(v) deliver such documents and certificates as may be
reasonably requested by the Holder of the Registrable Securities
being sold or the managing underwriter or underwriters to
evidence compliance with clause (i) above and with any customary
conditions contained in the underwriting agreement, if any, or
other agreement entered into by the Company;
the foregoing in this Section 2(b) shall be done at each closing under
any such underwriting or similar agreement or as to the extent required
thereunder.
(c) The Company shall make available for inspection and review by the
Holder, a representative or representatives of the Holder, any
underwriter participating in any disposition pursuant to a Registration
Statement, and any attorney or accountant retained by such Holder or
underwriter, any such Registration Statement or amendment or supplement
or any blue sky, NASD or other filing, all financial and other records,
pertinent corporate documents and properties of the Company, as they
may reasonably request for the purpose, and cause the Company's
officers, directors and employees to supply all information reasonably
requested by any such representative, underwriter, attorney or
accountant in connection with such Registration Statement; PROVIDED,
HOWEVER, that the Holder shall first agree in writing with the Company
that any
4
<PAGE>
information that is reasonably and in good faith designated by the
Company in writing as confidential at the time of delivery of such
information shall be kept confidential by the Holder and that the
Holder will use reasonable efforts to cause its representatives and
such other persons so to keep such information confidential, unless
(i) disclosure of such information is required by court or administrative
order or is necessary to respond to inquiries of regulatory
authorities, (ii) disclosure of such information is required by law
(including any disclosure requirements pursuant to Federal securities
laws in connection with the filing of any Registration Statement or the
use of any prospectus referred to in this Registration Rights
Agreement), (iii) such information becomes generally available to the
public, other than as a result of a disclosure or failure to safeguard
by any such person, (iv) such information becomes available to any such
person from a source other than the Company and such source, to the
knowledge of such persons, is not bound by a confidentiality agreement
with the Company, or (v) such information was known to or is developed
by such persons without reference to such confidential information of
the Company.
3. UNDERWRITTEN DISTRIBUTION. If the Holder intends to distribute
the Registrable Securities covered by a Registration Statement by means of an
underwriting, the Holder shall so advise the Company and, subject to the
provisions of Section 7 hereof, within 30 days of the date thereof and
without limiting the generality of the other provisions hereof, the Company
will prepare and file such amendment or amendments to the Registration
Statement and make such other filings as may be necessary or appropriate to
effect any such underwritten distribution.
4. MULTIPLE HOLDERS. Except as specifically provided herein, if
there is more than one Holder, such Holders shall act with respect to their
rights under this Agreement according to the vote of a majority-in-interest.
5. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
this Registration Rights Agreement shall be borne by the Company, and all
Selling Expenses shall be borne by the Holder.
6. REGISTRATION PROCEDURES. In the case of each registration
effected by the Company pursuant to this Registration Rights Agreement, the
Company will keep the Holder advised in writing as to initiation of each
registration and as to the completion thereof. At its expense, the Company
will use its reasonable best efforts to:
(a) Keep such registration effective for the period ending (i) sixty
(60) months after the Registration Statement is declared effective by
the Commission; or (ii) when the Holders have completed the
distribution of the Registrable Securities described in the
Registration Statement relating thereto, whichever first occurs; and
(b) Furnish such number of prospectuses and other documents incident
thereto as the Holder from time to time may reasonably request.
5
<PAGE>
7. SUSPENSION OF USE OF REGISTRATION STATEMENT. The Holder agrees
that, upon receipt of any notice from the Company of (A) the happening of any
event which makes any statements made in the Registration Statement(s) or
related prospectus(es) filed pursuant to this Registration Rights Agreement,
or any document incorporated or deemed to be incorporated therein by
reference, untrue in any material respect or which requires the making of any
changes in such Registration Statement(s) or prospectus(es) so that, in the
case of such Registration Statement(s), it will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstance under which they were made, not misleading or (B) that, in
the judgment of the Company's Board of Directors, it is advisable to suspend
use of the prospectus(es) for a discrete period of time due to pending
corporate developments which are or may be material to the Company but have
not been disclosed in the Registration Statement(s) or in relevant public
filings with the SEC, or (C) the SEC has issued a stop order suspending the
effectiveness of the Registration Statement(s), the Holder will forthwith
discontinue disposition of such Shares covered by such Registration
Statement(s) or prospectus(es) until it is advised in writing by the Company
that use of the applicable prospectus may be resumed, and has received copies
of any additional or supplemented filings that are incorporated or deemed to
be incorporated by reference in such prospectus(es). The Company shall use
all reasonable best efforts to insure that the use of the prospectus(es) may
be resumed as soon as practicable, and in any event shall not be entitled to
require the Holder to suspend use of the prospectus(es) for more than thirty
(30) consecutive days on any one occasion, more than forty-five (45)
consecutive days in the aggregate on two occasions which are not at least
ninety (90) days apart or more than an aggregate of sixty (60) days in any
twelve month period.
8. INDEMNIFICATION.
(a) COMPANY INDEMNITY. The Company will indemnify each of the
Holders, each of their respective officers, directors, trustees and partners,
and each person controlling any Holder within the meaning of Section 15 of
the Securities Act and the rules and regulations thereunder, with respect to
which registration, qualification or compliance has been effected pursuant to
this Registration Rights Agreement, and each underwriter, if any, and each
person who controls, within the meaning of Section 15 of the Securities Act
and the rules and regulations thereunder, any underwriter, against all
claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement)
of a material fact contained in any prospectus, offering circular or other
document (including any related Registration Statement, notification or the
like) incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of the Securities Act or any
state securities law or in either case, any rule or regulation thereunder
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or
compliance, and will reimburse each Holder, each of their respective
officers, directors, trustees and partners, and each person controlling any
Holder, each such underwriter and each person who controls any
6
<PAGE>
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission (or alleged
untrue statement or omission) based upon written information furnished to the
Company by the Holder or the underwriter and stated to be specifically for
use therein. The indemnity contained in this Section 8(a) shall not apply to
amounts paid by the Holders in settlement of any such loss, claim, damage,
liability or action if such settlement if effected without the consent of the
Company (which consent will not be unreasonably withheld).
(b) HOLDER INDEMNITY. The Holders will, if Registrable Securities
held by it are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors, officers, partners, and each underwriter, if any, of the
Company's securities covered by such a registration statement, each person
who controls the Company or such underwriter within the meaning of Section 15
of the Securities Act and the rules and regulations thereunder, against all
claims, losses, damages and liabilities (or actions in respect thereof
arising out of or based on any untrue statement (or alleged untrue statement)
of a material fact contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statement therein not misleading, and will reimburse the Company and
its directors, officers and partners, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action,
in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such Registration Statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information
furnished to the Company by the Holders and stated to be specifically for use
therein; provided, however, that (i) the obligations of a Holder shall not
apply to amounts paid in settlement of any such claims, losses, damages or
liabilities if such settlement is effected without the consent of such Holder
(which consent shall not be unreasonably withheld) and (ii) the obligation
each selling Holder shall be limited to an amount equal to the proceeds to
such Holder from the Registrable Securities sold in connection with such
registration.
(c) PROCEDURE. Each party entitled to indemnification under this
Section 8 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claims as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense
of any such claim in any obligation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense of such
claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld), and
the Indemnified Party may participate in such defense at such party's
expense, and provided further that the Indemnifying Party shall pay such
expense if representation of such Indemnified Party by the counsel retained
by the Indemnifying Party would be inappropriate due
7
<PAGE>
to actual or potential differing interests between the Indemnified Party and
any other party represented by such counsel in such proceeding. The failure
of any Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Section 8 except to the
extent that the Indemnifying Party is actually prejudiced by such failure to
provide notice. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified party, consent
to entry of any judgment or enter into any settlement which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to
such Indemnified Party of a release form all liability in respect to such
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself of the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom.
9. CONTRIBUTION. If the indemnification provided for in Section 8 of
this Registration Rights Agreement is unavailable to the Indemnified Parties
in respect of any losses, claims, damages or liabilities referred to herein,
then each such Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such losses, claims, damages or liabilities (i) as
between the Company on the one hand and the Indemnified Parties on the other,
in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Indemnified Parties, as the
case may be, on the other from the offering of the Registrable Securities, or
(ii) if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the Company on the one hand and of the Indemnified
Parties, as the case may be, on the other, in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities,
as well as any other relevant equitable considerations.
In no event shall the obligation of any Indemnifying Party to
contribute under this Section 9 exceed the amount that such Indemnifying
Party would have been obligated to pay by way of indemnification if the
Indemnification provided for under Section 8(a) or 8(b) of this Registration
Rights Agreement had been available under the circumstances.
The Company and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro
rata allocation (even if the Indemnified Parties were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraphs. The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraphs shall be deemed to include, subject to the
eliminations set forth above, any legal or other expenses reasonably incurred
by such Indemnified Party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 9, no
Indemnified Party shall be required to contribute any amount in excess of the
amount by which (i) in the case of the Holder, the net proceeds received by
the Holder from the sale of Registrable Securities or (ii) in the case of an
8
<PAGE>
underwriter, the total price at which the Registrable Securities purchased by
it and distributed to the public were offered to the public exceeds, in any
such case, the amount of any damages that the Holder or underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
10. SURVIVAL. The indemnity and contribution agreements contained in
Sections 8 and 9 of this Registration Rights Agreement and the
representations and warranties of the Company referred to in Section 2(b)(i)
of this Registration Rights Agreement shall remain operative and in full
force and effect regardless of (i) any termination of this Registration
Rights Agreement or any underwriting agreement, (ii) any investigation made
by or on behalf of the Company, and (iii) the consummation of the sale or
successive resales of the Registrable Securities.
11. INFORMATION BY THE HOLDER AND ANY UNDERWRITERS. The Holders and
the underwriters, if any, shall furnish to the Company, within twenty (20)
business days of the Company's request therefor, such information regarding
such Holder or underwriters, as the case may be, and the distribution
proposed by such Holder or underwriters, as the Company may reasonably
request in writing as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Registration
Rights Agreement.
12. TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. This Registration
Rights Agreement, and the rights and obligations of a Holder hereunder, may
be assigned by such Holder to any person or entity to which Shares are
transferred by such Holder, and such transferee shall be deemed a "Holder"
for purposes of this Registration Rights Agreement; provided that the
transferee provides written notice of such assignment to the Company.
13. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Registration Rights Agreement contains the
entire understanding and agreement of the parties with respect to the subject
matter hereof, and may not be amended, modified or terminated except by a
written agreement signed by both parties.
(b) NOTICES. Any notice or other communication given or permitted
under this Registration Rights 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;
9
<PAGE>
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; or
If to a Holder other than a Purchaser, at such address or addresses as
may have been furnished to the Company in writing by such Holder.
(c) GENDER OF TERMS. All terms used herein shall be deemed to include
the feminine and the neuter, and the singular and the plural, as the context
required.
(d) GOVERNING LAW; CONSENT OF JURISDICTION. This Registration Rights
Agreement and the validity and performance of the terms hereof shall be
governed by and construed in accordance with the laws of the State of
California, except to the extent that the law of the State of Delaware
regulates the Company's issuance of securities. The parties hereto hereby
consent to, and waive any objection to the exercise of, personal jurisdiction
in the State of California with respect to any action or proceeding arising
out of this Registration Rights Agreement.
(e) TITLE. The titles used in this Registration Rights Agreement are
used for convenience only and are not be to considered in construing or
interpreting this Registration Rights Agreement.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed as of the date first above written.
GATEFIELD CORPORATION
ATTEST By: /s/ JAMES R. FIEBIGER
-----------------------------
James R. Fiebiger
Its President and Chief Executive Officer
/s/ DOUGLAS E. KLINT
- -------------------------------
Douglas E. Klint
Vice President, General Counsel
and Corporate Secretary
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
<PAGE>
EXHIBIT A
LIST OF PURCHASERS
Idanta Partners Ltd.
4660 La Jolla Village Drive, Suite 850
San Diego, California 91222
Attn: David J. Dunn
Facsimile No.: (619) 452-2013
Dunn Family Trust
4660 La Jolla Village Drive, Suite 850
San Diego, California 91222
Attn: David J. Dunn, Trustee
Facsimile No.: (619) 452-2013
Perscilla Faily Trust
4660 La Jolla Village Drive, Suite 850
San Diego, California 91222
Attn: Perscilla Faily, Trustee
Facsimile No.: (619) 452-2013
12
<PAGE>
INDUSTRIAL SPACE LEASE
(SINGLE TENANT NET)
THIS LEASE, DATED MARCH 6, 1992, for reference purposes only, is made by
and between RENCO EQUITIES IV, A GENERAL PARTNERSHIP ("Landlord"), and ZYCAD
CORPORATION, A DELAWARE CORPORATION ("Tenant"), to be effective and binding
upon the parties as of the date the last of the designated signatories to
this Lease shall have executed this Lease (the "Effective Date of this Lease")
ARTICLE 1
REFERENCES
1.1 REFERENCES: All references in this Lease (subject to any further
clarifications contained in this Lease) to the following terms shall have
the following meaning or refer to the respective address, person, date,
time period, amount, percentage, calendar year or fiscal year as below set
forth:
A. Tenant's Address for Notices: Zycad Corporation
47100 Bayside Parkway
Fremont, Ca 94538
B. Tenant's Representative: Douglas Klint
Phone Number: 510-623-4400
----------------------------
C. Landlord's Address for Notices: Renco Equities IV
1285 Oakmead Parkway
Sunnyvale, Ca. 94086
D. Landlord's Representative: Jerry Hodnefield
Phone Number: (408) 730-5500
E. Intended Commencement Date: August 1, 1992
F. Intended Term: Seven (7) Years
<PAGE>
G. Lease Expiration Date: July 31, 1999
H. Tenant's Punchlist Period: 30 days
I. Fifth Month's Prepaid Rent: $48,426
J. Late Month's Prepaid Rent: 0
K. Tenant's Security Deposit: $46,090
L. Late Charge Amount: 3% of late amount
M. Tenant's Required Liability Coverage: 3 million dollar single limit
N. Brokers: Wayne Mascia Associates
O. Property or Project: That certain real property, situated in the
City of FREMONT, COUNTY of ALAMEDA, State of California, is presently
improved with one building, which real proper is shown on the Site Plan
attached hereto as Exhibit "A" and is commonly known as or otherwise
described as follows:
47100 Bayside Parkway
P. Building: That certain Building within the Property in which the
Leased Premises are located, which Building is shown outlined in red on
Exhibit "A" hereto.
Q. Outside Areas: The "Outside Areas" shall mean all areas within the
Property which are located outside the buildings, such as pedestrian
walkways, parking areas, landscaped areas, open areas and enclosed trash
disposal areas.
R. Leased Premises: All tile interior space within the Building,
consisting of approximately 61,454 square feet and, for purposes of this
Lease, agreed to contain said number of square feet. The Leased Premises are
commonly known as or otherwise described as follows:
<PAGE>
Assessor's Parcel Number 519-1005-82
S. Base Monthly Rent: The term "Base Monthly Rent" shall mean the
following:
No Base Monthly Rent during he first four (4) months of the Lease Term.
A Base Monthly Rent of Forty Eight Thousand Four Hundred Twenty Six ($48,426)
Dollars for each month of the final eighty months of the Lease Term as
modified by the terms of Article #2 of the Exhibit C "Tenant Improvement
Agreement".
T. Permitted Use: The term "Permitted Use" shall mean the following:
Light manufacturing, office, distribution, sales and related functions,
and research and development.
U. Exhibits: The term "Exhibits" shall mean the Exhibits to this Lease
which are described as follows:
Exhibit "A"-Site Plan showing the Property and delineating the
Building in which the Leased Premises are located.
Exhibit "B"-Floor Plan outlining the Leased Premise
Exhibit "C"-Tenant Improvement Agreement
Exhibit "D"-Acceptance Agreement
V. Addenda: The term "Addenda" shall mean the Addendum (of Addenda) to
this Lease which is (or are) described as follows:
ARTICLE 2:
LEASED PREMISES, TERM AND POSSESSION
2.1 DEMISE OF LEASED PREMISES: Landlord hereby leases to Tenant and
Tenant hereby leases from Landlord for Tenant's own use in the conduct Of
Tenant's business and not for purposes of speculating in real estate, for the
Lease Term and upon the terms and subject to the conditions of this Lease,
that certain interior space described in Article I as the Leased Premises,
reserving and excepting to Landlord the exclusive right to all profits to be
derived from any assignments or sublettings by Tenant during the Lease Term
by reason of the appreciation in the fair market rental value of the Leased
Premises. Tenant's lease
<PAGE>
of the Leased Premises, together with the appurtenant right to use the
Outside Areas as described in Article 2.2 below, shall be conditioned upon
and be subject to the continuing compliance by Tenant with (i) all die terms
and conditions of this Lease, (ii) all Laws governing the use of the Leased
Premises and the Property, (iii) all Private Restrictions, casements and
other matters now of public record respecting the use of the Leased Premises
and the Property, and (iv) all reasonable rules and regulations from time to
time established by Landlord.
2.2 RIGHT TO USE OUTSIDE AREAS: As an appurtenant right to Tenant's
right to the use and occupancy of the Leased Premises, Tenant shall have the
exclusive right to use the Outside Areas in conjunction with its use of the
Leased Premises solely for the purposes for which they were designed and
intended and for no other purposes whatsoever. Tenant's right to so use the
Outside Areas shall be subject to the limitations on such use as set forth in
Article 4 and shall terminate concurrently with any termination of this Lease.
2.3 LEASE COMMENCEMENT DATE AND LEASE TERM: The term of this Lease
shall begin, and the Lease Commencement Date shall be deemed to have
occurred, on the Intended Commencement Date (as set forth in Article 1)
unless either (i) Landlord is unable to deliver possession of the Leased
Premises to Tenant on the Intended Commencement Date, in which case the Lease
Commencement Date shall be as determined pursuant to Article 2.4 below or
(ii) Tenant enters into possession of the Leased Premises prior to the
Intended Commencement Date, except as provided elsewhere herein in which case
the Lease Commencement Date shall be as determined pursuant to Article 2.7
below (the "Lease Commencement Date"). The term of the Lease shall end on
the Lease Expiration Date (as set forth in Article I), irrespective of
whatever date the Lease Commencement Date is determined to be pursuant to the
foregoing sentence. The Lease Term shall be that period of time commencing on
the Lease Commencement Date and ending on the Lease Expiration Date (the
"Lease Term").
2.4 DELIVERY OF POSSESSION: Landlord shall deliver to Tenant
possession of the Leased Premises on or before the Intended Commencement Date
(as set forth in Article 1) in their presently existing condition, broom
clean, unless Landlord shall have agreed, as a condition to Tenant's
obligation to accept possession of the Leased Premises pursuant to a written
Exhibit or Addenda attached to and made a part of this Lease, to modify
existing interior improvements or to make, construct and/or install
additional specified improvements within the Leased Premises or to the
Outside Areas, in which case Landlord shall deliver to
<PAGE>
Tenant possession of the Leased Premises on or before the Intended
Commencement Date as so modified and/or improved. If Landlord is unable to so
deliver possession of the Leased Premises to Tenant in the agreed condition
on or before the Intended Commencement Date, for whatever reason, Landlord
shall not be in default under this Lease, nor shall this Lease be void,
voidable or cancellable by Tenant until the lapse of sixty (60) days after
the Intended Commencement Date (the "delivery grace period"); however, the
Lease Commencement Date shall not be deemed to have occurred until such date
as Landlord notifies Tenant that the Leased Premises are in the agreed
condition and are Ready for Occupancy. Additionally, the delivery grace
period above set forth shall be extended for thirty (30) additional days as
Landlord may be delayed in making the agreed improvements and/or delivering
possession of the Leased Premises to Tenant by reason of Force Majerue or the
actions of Tenant. If Landlord is unable to deliver possession of the Leased
Premises in the agreed condition to Tenant within the described delivery
grace period (including any extensions thereof by reason of Force Majeure or
the actions of Tenant), then Tenant's sole remedy shall be to cancel and
terminate this Lease and in no event shall Landlord be liable in damages to
Tenant for such delay. Tenant may not cancel this Lease at any time after the
date Landlord notifies Tenant that the Leased Premises have been put into the
agreed condition and are Ready for Occupancy.
2.5 ACCEPTANCE OF POSSESSION: Tenant acknowledges that it has
inspected the Leased Premises and is willing to accept them in their existing
condition, broom clean, unless Landlord shall have agreed as a condition to
Tenant's obligation to accept possession of the Leased Premises pursuant to a
written Exhibit or Addenda attached to and made a part of the Lease, to
modify existing interior improvements or to make, construct an/or install
specified improvements within the Leased Premises, in which case Tenant
agrees to accept possession of the Leased Premises when Landlord has
substantially completed such modification or improvements and the Leased
Premises are Ready for Occupancy with final inspection and approval having
been completed. If Landlord shall have so modified existing improvements or
constructed additional improvements within the Leased Premises for Tenant,
Tenant shall, within Tenant's Punchlist Period (as set froth in Article I)
which shall commence on the date that Landlord notifies Tenant that the
agreed improvements have been completed and the Leased Premises are Ready for
occupancy, submit to landlord a signed copy of the Acceptance Agreement
attached hereto as Exhibit "D" together with a punchlist of all incomplete
an/or improper work performed by Landlord. Upon the expiration of Tenant's
Pucnhlist Period, Tenant shall be conclusively deemed to have accepted
<PAGE>
the Leased Premises in their then-exitisting condition as so delivered by
Landlord to Tenant, except as to those items reasonably set forth in the
punchlist submitted to Landlord prior to the expiration of said period.
Landlord agrees to correct all items reasonably set forth in Tenant's
punchlist, provided that such punchlist was submitted to Landlord within
Tenant's Punchlist Period. Additionally, Landlord agrees to place in good
working order all existing plumbing, lighting, heating, ventilating and air
conditioning systems and elevator systems within the Leased Premises and all
man doors and roll-up truck doors serving the Leased Premises to the extent
that such systems an/or items are not in good operating condition as of the
date Tenant accepts possession of the Leased Premises; provided that, and
only if, Tenant notifies Landlord in writing of such failures or deficiencies
within thirty (30) business days from the date Tenant so accepts possession
of the Leased Premises.
2.6 SURRENDER OF POSSESSION: Immediately prior to the expiration or
upon the sooner termination of this Lease, Tenant shall remove all of
Tenant's signs from the exterior of the Building and shall remove all of
Tenant's equipment, trade fixtures, furniture, supplies, wall decorations and
other personal property from the Leased Premises, and shall vacate and
surrender the Leased Premises to Landlord in the same condition, broom clean,
as existed at the Lease Commencement Date. Return of Premises to Landlord
shall be subject to normal wear and tear, except that all systems shall be in
good operating condition. Tenant shall repair all damage to the Leased
Premises caused by Tenant's removal of Tenant's property and all damage to
the exterior of the Building caused by Tenant's removal of Tenant's removal
of Tenant's property and all damage to the exterior of the building caused by
Tenant's removal of Tenant's signs. Tenant shall patch and refinish, to
Landlord's reasonable satisfaction, all penetrations made by Tenant or its
employees to the floor, walls, or ceiling of the Leased Premises, whether
such penetrations were made with Landlord's approval or not. Tenant shall
clean, repair or replace all stained or damaged ceiling tiles, wall coverings
and clean or replace as may be required floor coverings to the reasonable
satisfaction of Landlord. Tenant shall replace all burned out light bulbs and
damaged light lenses, and clean and all painted walls. Tenant at its sole
cost shall retain a mechanical contractor acceptable to Landlord to service
all heating, ventilating, and air-conditioning equipment and restore (or
replace as required) said equipment to good working order. Tenant shall pay
the cost of restoring or replacing all trees, shrubs, plants, lawn and ground
cover, and repair (or replace as required) all paved surfaces of the
Property, and otherwise satisfy all requirements to repair any damage or
excessive wear to the Leased Premises, Building, Outside Areas, and/or
Property. Tenant
<PAGE>
shall repair all damage caused by Tenant to the exterior surface of the
Building and the paved surfaces of the outside areas adjoining the Leased
Premises and, where necessary, replace or resurface same. Additionally,
Tenant shall, prior to the expiration or sooner termination of this Lease,
remove any improvements constructed or installed by Tenant which Landlord
requests be so removed by Tenant and repair all damage caused by such
removal. If the Leased Premises are not surrendered to Landlord in the
condition required by this Article at the expiration or sooner termination of
this Lease, Landlord may, at Tenant's expense, so remove Tenant's signs,
property and/or improvements not so removed and make such repairs and
replacements not so made or hire, at Tenant's expense, independent
contractors to perform such work. Tenant shall be liable to Landlord for all
costs incurred by Landlord in returning the Leased Premises to the required
condition, plus interest on all costs incurred from the date paid by Landlord
at die then maximum rate of interest not prohibited by Law unfit paid,
payable by Tenant to Landlord within ten days after receipt of a statement
therefore from Landlord, and Tenant shall be deemed to have impermissibly
held over until such time as such required work is completed, and Tenant
shall pay Base Monthly Rent and Additional Rent in accordance with the terms
of Section 13,2 (Holding Over) until such work is completed. Tenant shall
indemnify Landlord against loss or liability resulting from delay by Tenant
in so surrendering the Leased Premises, including, without limitation, any
claims made by any succeeding tenant or any losses to Landlord due to lost
opportunities to lease to succeeding tenants.
2.7 EARLY OCCUPANCY: If Tenant enters into possession of the Lease
Premises prior to the Intended Commencement Date (or permits its contractors
to enter the Leased Premise prior to the Intended Commencement Date), unless
otherwise agreed in writing by Landlord, the Lease Commencement Date shall be
deemed to have occurred on such sooner date, and Tenant shall be obligated to
perform all its obligations under this Lease, including the obligation to pay
rent, from that sooner date, except as otherwise provided herein.
ARTICLE 3:
RENT, LATE CHARGES AND SECURITY DEPOSITS
3.1 BASE MONTHLY RENT: Commencing on the Lease Commencement Date (as
determined pursuant to Article 2.3 above) and continuing throughout the Lease
Term, Tenant shall pay to Landlord, without prior demand therefore, advance on
the first day of each calendar month, as base monthly rent, the amount set forth
as "Base Monthly Rent" in Article 1 (the "Base Monthly Rent").
<PAGE>
3.2 ADDITIONAL RENT: Commencing on the Lease Commencement Date (as
determined pursuant to Article 2.3 above) and continuing throughout the Lease
Term, in addition to the Base Monthly Rent, Tenant shall pay to Landlord as
additional rent (the "Additional Rent") the following amounts:
An amount equal to all Property Operating Expenses (as defined in
article 13) incurred by Landlord. Payment shall be made by whichever of the
following methods (or combination of methods) is (are) from time to time
designated by Landlord:
Landlord may bill to Tenant, on a periodic basis not more
frequently than monthly, the amount of such expenses (or group of expenses)
as paid or incurred by Landlord, and Tenant shall pay to Landlord the amount
of such expenses within fifteen (15) days after receipt of a written bill
therefore form Landlord; and/or
Landlord may deliver to Tenant Landlord's reasonable estimate
of any given expense (such as Landlord's Insurance Costs or Real Property
Taxes), or group of expenses, which it anticipates will be paid or incurred
for the ensuing calendar or fiscal year, a Landlord may determine, and Tenant
shall pay to Landlord an amount of equal to the estimated amount of such
expenses for such year in equal monthly, installments during such year with
the installments of Base Monthly Rent.
Landlord reserves the right to change from time to time the
methods of billing Tenant for any given expense or group of expenses or the
periodic basis on which such expenses are billed, subject to generally
accepted accounting practices.
Landlord's share of the consideration received by Tenant upon
certain assignments and sublettings as required by Article 7;
Any reasonable legal fees and costs that Tenant is obligated
to pay or reimburse to Landlord pursuant to Article 13; and
Any other charges or reimbursements due Landlord from Tenant
pursuant to the terms of this Lease other than late charges and interest on
defaulted rent. Tenant shall not be required to pay more than one (1) month
in advance for any expense except for insurance and taxes.
3.3 YEAR-END ADJUSTMENTS: If Landlord shall have elected to bill
Tenant for the Property Operating Expenses (or any group of such expenses) on
an estimated basis in accordance with the provisions of Article 3.2A(2)
above, landlord shall furnish to Tenant within three months following the end
of the applicable calendar or fiscal year, as the case may be, a statement
setting forth (i) the amount of such expenses paid or incurred during the
just ended calendar or fiscal year, as appropriate, and (ii) the amount that
Tenant has paid to Landlord for credit against such expenses for such period.
If Tenant shall have paid more than its obligation for such expenses for the
stated
<PAGE>
period, Landlord shall, at its election, either (i) credit the amount of such
overpayment toward the next ensuing payment or payments of Additional Rent
that would otherwise be due or (ii) refund in cash to Tenant the amount of
such overpayment. If such year-end statement shall show that Tenant did not
pay it's obligation for such expenses in full, then Tenant shall pay to
Landlord the amount of such under payment within fifteen (15) days from
Landlord's billing (Tenant shall have the right to audit all billed expenses)
of same to Tenant. The provisions of this Article shall survive the
expiration sooner termination of this Lease.
3.4 LATE CHARGE AND INTEREST ON RENT IN DEFAULT: Tenant acknowledges
that the late payment by Tenant of any monthly installment of Base Monthly
Rent or any Additional Rent will cause Landlord to incur certain costs and
expense not contemplated under this Lease, the exact amounts of which are
extremely difficult or impractical to fix. Such costs and expenses will
include, without limitation, administration and collection costs and
processing and accounting expenses. Therefore, if any installment of Base
Monthly Rent is not received by Landlord form Tenant within six calendar days
after the same becomes due, Tenant shall immediately pay to Landlord a late
charge in an amount equal to the amount set forth in Article 1 as the "Late
Charge Amount", and if any Additional Rent is not received by Landlord within
fifteen (15) calendar days after same becomes due, Tenant shall immediately
pay to Landlord a late charge in an amount equal to three (3%) percent of the
Additional Rent not so paid. Landlord and Tenant agree that this late charge
represents a reasonable estimate of such costs and expenses and is fair
compensation to Landlord for the anticipated loss Landlord would suffer by
reason of Tenant's failure to make timely payment. In no event shall this
provision for a late charge be deemed to grant to Tenant a grace period or
extension of time within to pay any rental installment or prevent Landlord
from exercising any right or remedy available to Landlord upon Tenant's
failure to pay each rental installment due under this Lease when due,
including the right to terminate this Lease. If any rent remains delinquent
for a period in excess of six calendar days, then, in addition to such late
charge, Tenant shall pay to Landlord interest on any rent that is not so paid
from said sixth day at the then maximum rate of interest not prohibited or
made usurious by Law until paid, not to exceed twelve percent (12%).
3.5 PAYMENT RENT: All rent shall be paid in lawful money of the United
States, without any abatement, reduction or offset for any reason whatsoever,
to Landlord at such address as Landlord may designate from time to time.
Tenant's obligation to pay Base Monthly Rent and all Additional Rent shall be
appropriately prorated at the commencement and expiration of the Lease Term.
The failure by Tenant to pay any Additional Rent as required pursuant to this
Lease when due shall be treated the same as a failure by Tenant to pay Base
Monthly Rent when due, and Landlord shall have the same rights and remedies
against Tenant as Landlord would have if Tenant failed to pay the Base
Monthly Rent when due.
3.6 PREPAID RENT: Concurrent with the execution of this Lease, Tenant
shall pay to Landlord the amount set forth in Article I as Fifth "Month's
Prepaid Rent" as prepayment of rent for credit against the fifth
installment(s) of Base Monthly Rent due hereunder. Additionally, Tenant has
paid to Landlord the amount set forth in Article as prepayment of rent for
credit against the fifth installment(s) of Base Monthly Rent due hereunder,
subject, however, to the provisions of Article 3.7 below.
<PAGE>
3.7 SECURITY DEPOSIT: Concurrent with the execution of this Lease,
Tenant shall deposit with Landlord the amount set forth in Article I as the
"Security Deposit" as security for the performance by Tenant of the terms of
this Lease to be performed by Tenant, and not as prepayment of rent. Landlord
may apply such portion or portions of the Security Deposit as are reasonably
necessary for the following purposes: (i) to remedy any default by Tenant in
the payment of Base Monthly Rent or Additional Rent or a late charge or
interest on defaulted rent; (ii) to repair damage to the Leased Premises, the
Building or the Outside Areas caused by Tenant; (iii) to clean and repair the
Leased Premises, the Building or the Outside Areas following their surrender
to Landlord if not surrendered in the condition required pursuant to the
provisions of Article 2; and (iv) to remedy any other default of Tenant to
the extent permitted by Law including, without limitations paying in full on
Tenant's behalf any sums claimed by materialmen or contractors of Tenant to
be owing to them by Tenant for work done or improvements made at Tenant's
request to the Leased Premises. In this regard, Tenant hereby waives any
restriction on the uses to which the Security Deposit may be applied as
contained in Section 1950.7(c) of the California Civil Code and/or any
successor statute. In the event the Security Deposit or any portion thereof'
is so used, Tenant shall pay to Landlord, promptly upon demand, an amount in
cash sufficient to restore the Security Deposit to the full original sum. If
Tenant fails to promptly restore the Security Deposit and if Tenant shall
have paid to Landlord any sums as "Last Month's Prepaid Rent", Landlord may,
in addition to any other remedy Landlord may have under this Lease, reduce
the amount of Tenants Last Month's Prepaid Rent by transferring all or
portions of such Last Month's Prepaid Rent to Tenant's Security Deposit until
such Security Deposit is restored to the amount set forth in Article 1.
Landlord shall not be deemed a trustee of the Security Deposit. Landlord may
use the Security Deposit in Landlord's ordinary business and shall not be
required to segregate it from its general accounts, Tenant shall not be
entitled to any interest on the Security Deposit. If Landlord transfers the
Building or the Property during the Lease Term, Landlord shall pay the
Security Deposit to any subsequent owner in conformity with the provisions of
Section 1950.7 of the California Civil Code and/or any successor statute, in
which event the transferring landlord shall be released from all liability
for the return of the Security Deposit. Tenant specifically grants to
Landlord (and Tenant hereby waives the provisions of California Civil Code
Section 1950.7 to the contrary) a period of sixty days following a surrender
of the Leased Premises by Tenant to Landlord within which to return the
Security Deposit (less permitted deductions) to Tenant, it being agreed
between Landlord and Tenant that sixty days is a reasonable period of time
within which to inspect the Leased Premises, make required repairs, receive
and verify workmen's billings therefore, and prepare a final accounting with
respect to such deposit, In no event shall the Security Deposit, or any
portion thereof, be considered prepaid rent.
ARTICLE 4:
USE OF LEASED PREMISES AND OUTSIDE AREA
4.1 PERMITTED USE: Tenant shall be entitled to use the Leased Premises
solely for the "Permitted Use" as set forth in Article 1 and for no other
purpose whatsoever. Tenant shall continuously and without interruption use
the leased Premises for such purpose for the entire Lease Term. Any
discontinuance of such use for a period of thirty, except in the case of a
Landlord approved Sublease, consecutive calendar days shall be, at Landlord's
election, a default
<PAGE>
by, Tenant under the terms of this Lease. Tenant shall have the right to use
the Outside Areas in conjunction with its Permitted Use of the Leased
Premises solely for the purposes for which they were designed and intended
and for no other purposes whatsoever.
4.2 GENERAL LIMITAITONS ON USE: Tenant shall not do or permit anything
to be done in or about the Leased Premises, the Building, the Outside Areas
or the Property which does or could (i) jeopardize the structural integrity
of the Building or (ii) cause damage to any part of the Leased Premises, the
Building, the Outside Areas or the Property. Tenant shall not operate any
equipment within the Leased Premises which does or could (i) injure, vibrate
or shake the Leased Premises or the Building, (ii) damage, overload, corrode,
or impair the efficient operation of any electrical, plumbing, sewer,
heating, ventilating or air conditioning systems within or servicing the
Leased premises or the Building or (iii) damage or impair the efficient
operation of the sprinkler system (if any) within or servicing the Leased
Premises or the Building. Tenant shall not install any equipment or antennas
on or make any penetrations of the exterior walls or roof of the Building
without Landlord's approval. Tenant shall not affix any equipment to or make
any penetrations or cuts in the floor, ceiling or walls of the Leased
Premises without Landlord's approval. Tenant shall not place any loads upon
the floors, walls, ceiling or roof systems which could endanger the
structural integrity of the Building or damage its floors, foundation or
supporting structural components. Tenant shall not place any explosive,
flammable or harmful fluids or other waste materials including Hazardous
Materials in the drainage systems of the Leased Premises, the Building, the
Outside areas or the Property. Tenant shall not drain or discharge any fluids
in the landscaped areas or across the paved areas of the Property. Tenant
shall not use any of the Outside Areas for the storage of its materials,
supplies, inventory or equipment, and all such materials, supplies, inventory
or equipment shall at all times be stored within the Leased Premises. Tenant
shall not commit nor permit to committed any waste in or about the Leased
Premises, the Building, the Outside Areas or the Property.
4.3 NOISE AND EMMISSIONS: All noise generated by Tenant in its use of
the Leased Premises shall be confined or muffled so that it does not
interfere with the businesses of or annoy occupants and/or users of adjacent
properties. All Dust, fumes, odors and other emissions generated by Tenant's
use of the Leased Premises shall be sufficiently dissipated in accordance
with sound environmental practices and exhausted from the Leased Premises in
such a manner so as not to interfere with the businesses of or annoy the
occupants and/or users of adjacent properties, or cause any damage to the
Leased Premises, the Building, the Outside Areas or the Property or any
component part thereof or the property of adjacent property owners.
4.4 TRASH DISPOSAL: Tenant shall provide trash bins (or other adequate
garbage disposal facilities) within the trash enclosure areas provided or
permitted by Landlord outside the Leased Premises sufficient for the interim
disposal of all of its trash, garbage and waste. All such trash, garbage and
waste temporarily stored in such areas shall be stored in such a manner so
that it is not visible from outside of such areas and Tenant shall cause such
trash, garbage and waste to be regularly
<PAGE>
removed from the Property at Tenant's sole cost. Tenant shall at all times
keep the Leased Premises, the Building, the Outside Areas and the Property in
a clean, safe and neat condition free and clear of all trash, garbage, waste
and/or boxes, pallets and containers containing same at all times.
4.5 PARKING: Tenant shall not, any time park or permit to be parked
any recreational vehicles, inoperative vehicles or equipment in the Outside
Areas or on any portion of the Property. Tenant agrees to assume
responsibility for compliance by its employees and invitees with the parking
provisions contained herein. If Tenant or its employees park any vehicle
within the Property in violation of these provisions, then Landlord may, in
addition to any other remedies Landlord may have under his Lease, charge
Tenant, as Additional Rent, and Tenant agrees to pay, as Additional Rent,
Fifty Dollars per day for each day or partial day that each such vehicle is
so parked within the Property. Landlord shall mark twenty (20) visitor spaces
near the front of the Leased Premises.
4.6 SIGNS: Other than one business identification sign which is first
approved by Landlord in accordance with this Article, Tenant shall not place
or install on or within on or within any portion of the Leased Premises the
exterior of the Building, the Outside Areas or the Property any sign,
advertisement, banner, placard, or picture which is visible from the exterior
of the Leased Premises without consent of Landlord. Tenant shall not place or
install on or within any portion of the Leased Premises, the exterior of the
Building, the Outside Areas or the Property any business identification-
identification sign which is visible from the exterior of the Leased Premises
until Landlord shall have first approved in writing the location, size,
content, design, method of attachment and material to be used in the making
of such sign. Any sign, once approved by Landlord, shall be installed only in
strict compliance with Landlord's approval, at Tenant's expense, using a
person first approved by Landlord to install same. Landlord may remove any
signs (which have not been first approved in writing by Landlord),
advertisements, banners, placards or pictures so placed by Tenant on or
within the Leased premises, the exterior of the Building, the Outside Areas
or the Property and charge to Tenant the cost of such removal, together with
any costs incurred by Landlord to repair any damage caused thereby, including
any cost incurred to restore the surface upon which such sign was so affixed
to its original condition. Tenant shall remove all of Tenant's signs, repair
any damage caused thereby, and restore the surface upon which the sign was
affixed to its original condition, all to Landlord's reasonable satisfaction,
upon the termination of this Lease.
4.7 COMPLIANCE WITH LAWS AND PRIVATE RESTRICTIONS: Tenant shall
abide by and shall promptly observe and comply with, at its sole cost and
expense, all Laws and Private Restrictions respecting the use and occupancy of
the Leased premises, the Building, the Outside Areas or the Property
including, without limitation, all Laws governing the use and/or disposal of
hazardous materials, and shall defend with competent counsel, indemnify and
hold Landlord harmless from any claims, damages or liability resulting from
Tenant's failure to do so. The indemnity provision of
<PAGE>
this Article shall survive the expiration or sooner termination of this
Lease, with respect to any activities of Tenant occurring on or about the
Property while Tenant was in possession of the Leased Premises.
4.8 COMPLIANCE WITH INSURANCE REQUIREMENTS: With respect to any
insurance policies required or permitted to be carried by Landlord in
accordance with the provisions of this Lease, Tenant shall not conduct (or
permit any other person to conduct) any activities nor keep, store or use (or
allow any other person to keep, store or use) any item or thing within the
Leased premises, the Building, the Outside Areas or the Property which (i) is
prohibited under the terms of any of such policies, (ii) could result in the
termination of the coverage afforded under any of such policies, (iii) could
give to the insurance carrier the right to cancel any of such policies, or
(iv) could cause an increase in the rates (over standard rates) charged for
the coverage afforded under any of such policies. Tenant shall comply with
all requirements of any insurance company, insurance underwriter, or Board of
Fire Underwriters which are necessary to maintain, at standard rates, the
insurance coverages carried by either Landlord or Tenant pursuant to this
Lease.
4.9 LANDLORD'S RIGHT TO ENTER: Landlord and its agent shall have the
right to enter the Leased Premises during normal business hours after giving
Tenant reasonable notice and subject to Tenant's reasonable security measures
for the purpose of (i) inspecting the same; (ii) showing the Leased Premises
to prospective purchasers, mortgagees or tenants; (iii) making necessary
alterations, additions or repairs; (iv) performing any of Tenant's
obligations when Tenant has failed to do so. Landlord shall have the right to
enter the Leased Premises during normal business hours (or as otherwise
agreed), subject to Tenant's reasonable security measures, for purposes of
supplying any maintenance or services agreed to be supplied by Landlord.
Landlord shall have the right to enter the Outside Areas during normal
business hours for purposes of (i) inspecting the exterior of the Building
and the Outside Areas, (ii) posting notices of non-responsibility, for "For
Lease" (one hundred twenty (120) days from Lease expiration date) of "For
Sale" signs, and (iii) supplying any services to be provided by landlord. Any
entry into the Leased Premises or the Outside Area obtained by Landlord in
accordance with this Article shall not under any circumstances be construed
or deemed to be a forcible or unlawful entry into, or a detainer of, the
Leased Premises, or an eviction, actual or constructive of Tenant from the
Leased Premises or any portion thereof.
4.10 USE OF OUTSIDE AREAS: Tenant, in its use of the Outside Areas,
shall at all times keep the Outside Areas in a safe condition free and clear
of all material, equipment, debris, trash (except within existing enclosed
trash areas), inoperable vehicles, and other items which are not specifically
permitted by Landlord to be stored or located thereon by Tenant. If, in the
opinion of Landlord, unauthorized or consent of Tenant, then Tenant, upon
demand of Landlord shall restrain, to the fullest extent then allowed by Law,
such unauthorized use, and shall initiate such appropriate proceedings as may
be required to so restrain such use.
<PAGE>
4.11 RULES AND REGULATIONS: Landlord shall have the right from time to
time to establish reasonable rules and regulations and/or amendments or
additions thereto resulting the use of the Leased Premises and the Outside
Areas for the care and orderly management of the Property. Upon delivery to
Tenant of a copy of such rules and regulations or any amendments or additions
thereto, Tenant shall comply with such rules and regulations. A violation by
Tenant of any of such rules and regulations shall constitute a default by
Tenant under this Lease. If there is a conflict between the rules and
regulations and any of the provisions of this Lease, the provisions of this
Lease shall prevail. Landlord shall not be responsible or liable to Tenant
for the violation of such rules and regulations by any other tenant of the
Property.
4.12 ENVIORNMENTAL PROTECTION: Landlord may voluntarily cooperate in a
reasonable manner with the efforts of all governmental agencies in reducing
actual or potential environmental damage. Tenant shall not be entitled to
terminate this Lease or to any reduction in or abatement of rent by reason of
such compliance or cooperation. Tenant agrees at all times to cooperate fully
with Landlord and to abide by all rules and regulations and requirements
which Landlord may reasonably prescribe in order to comply with the
requirements and recommendations of governmental agencies regulating, or
otherwise involved in, the protection of the environment.
4.13 OUTSIDE AREAS: No materials, pallets, supplies, tanks or
containers whether above or below ground level, equipment, finished products
or semifinished products, raw materials, inoperable vehicles or articles of
any nature shall be stored upon or permitted to remain outside of the Leased
Premises except in fully fenced and screened areas outside the Building which
have been designed for such purpose and have been approved in writing by
Landlord for such use by Tenant.
4.14 HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with
respect to the existence or use of Hazardous Materials on the Property:
Any handling, transportation, storage, treatment, disposal or use
of Hazardous Materials by Tenant, Tenant's Agents, or any other party after
the Effective Date of this Lease in or about the Property shall strictly
comply with all applicable Hazardous Materials Laws. Tenant shall indemnify,
defend upon demand with counsel reasonably acceptable to Landlord, and hold
harmless Landlord from and against any and all liabilities, losses, claims,
damages, lost profits, consequential damages, interest, penalties, fines,
court costs, remediation costs, investigation costs, and other expenses which
result from or arise in any manner whatsoever out of the use, storage,
treatment, transportation, release, or disposal of Hazardous Materials on or
about the Property by Tenant, Tenant's Agents, Permittees, or Invites after
the Effective Date.
B. If the presence of Hazardous Materials on the Property caused
or permitted by Tenant, Tenant's Agents, Permittees, or Invites after the
Effective Date of this Lease results in a contamination or deterioration of
water or soil or any other part of the Property, then Tenant shall promptly
take any and all action necessary to investigate and remediate such
contamination. Tenant shall further be solely responsible for, and shall
defend,
<PAGE>
indemnify and hold Landlord and its agents harmless from and against, all
claims, costs and liabilities, including attorney's fees and costs, arising
out of or in connection with any investigation and remediation (including
investigative analysis removal, cleanup, and/or restoration work) required
hereunder to return the Leased Premises, Building, Common Areas, Outside
Areas, and/or Property and any other property of whatever nature to their
condition existing prior to the appearance of such Hazardous Materials.
C. Landlord and Tenant shall each give written notice to the other
as soon as reasonable practicable of (i) any communication received from any
governmental authority concerning Hazardous Materials which relates to the
Property, and (ii) any contamination of the Property by Hazardous Materials
which constitutes a violation of any Hazardous Material Law. Tenant
acknowledges that Landlord, as the owner of the Property, at the Landlord's
election, shall have the sole right at Tenant's expense to negotiate, defend,
approve, and/or appeal any action taken or order issued with regard to
Hazardous Materials by any applicable governmental authority. Tenant may use
small quantities of household chemicals such as adhesives, lubricants, and
cleaning fluids in order to conduct its business at the Premises and such
other Hazardous Materials as are necessary to the operation of Tenant's
business of which Landlord receives notice prior to such Hazardous Materials
being brought onto the Property (or any portion thereof) and which Landlord
consents in writing may be brought onto the property. In granting Landlord's
consent, Landlord may specify the location and manner or use, storage, or
handling of any Hazardous Material. Landlord's consent shall in no way
relieve Tenant from any of its obligations as contained herein. Tenant shall
notify Landlord in writing at least ten (10) days prior to the first
appearance of any Hazardous Material on the Leased Premises, Building, Common
Areas, Outside Areas, and/or Property. Tenant shall provide Landlord with a
list of all Hazardous Materials and the quantities of each Hazardous Material
to be stored on any portion of the Property, and upon Landlord's request
Tenant shall provide Landlord with the copies of any and all Hazardous
Materials Management Plans, Material Safety Data Sheets, Hazardous Waste
Manifests, and other documentation maintained or received by Tenant
pertaining to the Hazardous Materials used, stored, or transported or to be
used, stored, or transported on any portion of the Property. At any time
during the Lease Term, Tenant shall, within five days after written request
therefore received from Landlord, disclose in writing all Hazardous Materials
that are being used by Tenant on the Property (or have been used n the
Property), the nature of such use and the manner of storage and disposal.
D. Landlord may cause testing wells to be installed on the
Property and may cause the ground water to be tested to detect the presence
of Hazardous Material by the use of such tests as are then customarily used
for such purposes. If Tenant so requests, Landlord shall supply Tenant with
copies of such test results. The cost of such tests and of the installation,
maintenance, repair and replacement of such wells shall be paid by Tenant if
such tests disclose the existence of facts which gibe rise to liability of
Tenant pursuant to its indemnity given in A and or B above. Landlord may
retain consultants to inspect the Property, conduct periodic environmental
audits, and review any information provided by Tenant. Tenant shall pay the
reasonable cost for fees
<PAGE>
charged by landlord an/or Landlord's consultant's as a Property Maintenance
Cost.
E. Upon the expiration or earlier termination of the Lease,
Tenant, at its sole cost, shall remove all Hazardous Materials from the
Property and shall provide a certificate to landlord from a registered
consultant satisfactory to Landlord certifying that Tenant has caused no
contamination of building (s), soil or groundwater in or about the Leased
Premises, Building, Common Areas, or Property. If Tenant fails to so
surrender the Property, Tenant shall indemnify and hold Landlord harmless
from all damages resulting form Tenant's failure to surrender the Property as
required by this Subsection, including, without limitation, damages
occasioned by the inability to release the Property (or any portion thereof)
or a reduction in the fair market and/or rental value of the Property,
Building, Common Areas, Outside Areas, and/or Property by reason of the
existence of any Hazardous Materials in or around the Leased Premises,
Building, Common Areas, Outside Areas, and/or Property. If any action is
required to be taken by a governmental authority to test, monitor, and/or
clean up Hazardous Materials from the Leased Premises, Building, Common
Areas, Outside Areas, and/or Property and such action is not completed prior
to the expiration or earlier termination of the Lease, Tenant shall pay Base
Monthly Rent and Additional Rent in accordance with the terns of Section 13.2
(Holding Over). In addition, Landlord shall be entitled to all damages
directly or indirectly incurred in connection with such holding over,
including without limitation, damages occasioned by the inability to release
the Property or a reduction of the fair market and/or rental value of the
Leased Premises, Building, Common Areas, Outside Areas, and/or Property.
F. As used herein, the term "Hazardous Material(s)" means any
hazardous or toxic substance, material or waste, which is or becomes
regulated by any federal, state, regional or local governmental authority
because it is in any way hazardous, toxic, carcinogenic, mutagenic or
otherwise adversely affects any part of the environment or creates risks of
any such hazards or effects, including, but not limited to, petroleum;
asbestos, and polychlorinated bipheyls and any material, substance, or waste
(a) defined as a "hazardous waste," "extremely hazardous waste" or
"restricted hazardous waste" under Sections 25115, 25117 or 25122.7, or
listed pursuant to Section 25140 of the California Health and Safety Code,
Division 20, Chapter 6.5 (Hazardous Waste Control Law); (b) defined as a
"hazardous substance" under Section 25316 of the California Health and Safety
Code, Division 20, Chapter 6.8 (Carpenter-Presley Tanner Hazardous Substance
Account Act); (c) defined as a "hazardous material," "hazardous substance" or
"hazardous waste" under Section 25501 of the California Health and Safety
Code, Division 20, Chapter 6.95 (Hazardous Materials Release Response Plans
and inventory); (d) defined as a "hazardous substance" under Section 25281 of
the California Health and Safety Code, Division 20, Chapter 6.7 (Underground
Storage of Hazardous Substances); (e) defined as a "hazardous substance"
pursuant to section 311 of the Clean Water Act, 33 United States Code
Sections 1251 et seq., (33 U.S.C/ 1321) or listed pursuant to Section 307 of
the Clean Water Act(33 U.S.C. 1317; (f) defined as a "hazardous substance"
pursuant to Section 1004 of the Resource Conservation and Recovery Act, 42
United States Code Sections 6901 et seq. (42 U.S.C. 6903); or (g) defined as
a "hazardous substance" pursuant to Section 101 of the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 United
<PAGE>
States Code Section 9601 et seq. (42 U.S.C.9601) or (h) defined as a
"hazardous substance" pursuant to Section 311 of the Federal Water Pollution
Control Act, 33 U.S.C. 1251 et seq. or (I) listed pursuant to Section 307 of
the Federal Water Pollution Control Act (33 U.S.C. 1317) or (j) regulated
under the Toxic Substances Control Act (15 U.S.C. 2601 et seq.) or (k)
defined as a "hazardous material" under Section 66680 or 66084 of Title 22 of
the California Code of Regulations (Administrative Code) (l) listed in the
United States Department of Transportation Hazardous Material Table (49
C.F.R. 172.101 or (m) listed by the Environmental Protection Agency as
"hazardous substances" (40 C.F.R. Part 302) and amendments thereto. The term
"Hazardous Material Laws" shall mean (I) all of the foregoing laws as amended
from time to time and (ii) any other federal, state, or local law, ordinance,
regulation, or order regulating Hazardous Materials.
G. Tenant's failure to comply with any of the requirements of this
Section regarding the storage, use, disposal, or transportation of Hazardous
Materials, or the, appearance of any Hazardous Materials on the Leased
Premises, Building, Common Area, Outside Area, and/or the Property without
Landlord's consent shall be an Event of Default as defined in this Lease. The
obligations of Landlord and Tenant under this Section shall survive the
expiration or earlier termination of the Lease Term. The rights and
obligations of Landlord and Tenant within respect to issues relating to
Hazardous Materials are exclusively established by this section. In the event
of any inconsistency between any other part of this Lease and this Section,
the terms of this Section shall control.
ARTICLE 5
REPAIRS, MAINTENANCE, SERVICES AND UTILITIES
5.1 REPAIR AND MAINTENANCE: Except in the case of damage to or
destruction of the Leased Premises, the Building, the Outside Areas or the
Property caused by an Act of God or other peril, in which case the provisions
of Article 10 shall control, the parties shall have the following obligations
and responsibilities with respect to the repair and maintenance of the Leased
Premises, the Building and the Outside Areas.
A. TENANT'S OBLIGATION: Tenant shall, at all times during the
Lease Term and at its sole cost and expense, regularly clean and continuously
keep and maintain in good order, condition and repair the Leased Premises and
every part thereof including, without limiting the generality of the
foregoing, (i) all interior walls, floors and ceilings, (ii) all windows,
doors and skylights, (iii) all electrical wiring, conduits, connectors and
fixtures, (iv) all plumbing, pipes, sinks, toilets, faucets and drains, (v)
all lighting fixtures, bulbs and lamps, (vi) all healing, ventilating and air
conditioning equipment, and (vii) all entranceways to the Leased Premises.
Tenant, if requested to do so by Landlord shall hire, at Tenant's sole cost
and expense, a licensed heating, ventilating and air conditioning contractor
to regularly and periodically (not less frequently than every three months)
inspect and perform required maintenance on the heating, ventilating and air
conditioning equipment and systems serving the Leased Premises, or
alternatively, Landlord may, at its election, contract in its own name for
such regular and periodic
<PAGE>
inspections of and maintenance on such heating, ventilating and air
conditioning equipment and systems and charge to Tenant, as Additional Rent,
the cost thereof. Tenant shall, at all times during the Lease Term, keep in a
clean and safe condition the Outside Areas. Tenant shall regularly and
periodically sweep and clean the driveways and parking areas. Tenant shall,
at its sole cost and expense, repair all damage to the Leased Premises, the
Building, the Outside Areas or the Property caused by the activities of
Tenant, its employees, invitees or contractors promptly following written
notice from Landlord to so repair such damage. If Tenant shall fail to
perform the required maintenance or fail to make repairs required of it
pursuant to this Article within a reasonable period of time following notice
from Landlord to do so, then Landlord may, at its election and without
waiving any other remedy it may otherwise have under this Lease or at Law,
perform such maintenance or make such repairs and charge to Tenant, as
Additional Rent, the costs so incurred by, Landlord for same. All glass
within or a part of the Leased Premises, both interior and exterior, is at
the sole risk of Tenant and any broken glass shall promptly be replaced by
Tenant at Tenant's expense with glass of the same kind, size and quality.
B. LANDLORD'S OBLIGATION: Landlord shall, at all times during the
Lease Term, maintain in good condition and repair: (i) the exterior and
structural parts of the Building (including the foundation, subflooring,
load-bearing and exterior walls, and roof); and (ii) the landscaped areas
located outside the Building and any common areas. The provisions of this
Subarticle B shall in no way limit the right of Landlord to charge to Tenant,
as Additional Rent pursuant to Article 3 (to the extent permitted pursuant to
Article 3), the costs incurred by Landlord in performing such maintenance
and/or making such repairs.
5.2 UTILITIES: Tenant shall arrange, at its sole cost and expense and
in its own name, for the supply of gas and electricity to the Leased
Premises. In the event that such services are not separately metered, Tenant
shall, at its sole expense, cause such meters to be installed. Landlord shall
maintain the water meter(s) in its own name; provided, however, that if at
any time during the Lease Term Landlord shall require Tenant to put the water
service in Tenant's name, Tenant shall do so at Tenant's sole cost. Tenant
shall be responsible for determining if the local supplier of water, gas and
electricity can supply the needs of Tenant and whether or not the existing
water, gas and electrical distribution systems within the Building and the
Leased Premises are adequate for Tenant's needs. Tenant shall be responsible
for determining if the existing sanitary and storm sewer systems now
servicing the Leased Premises and the Property are adequate for Tenant's
needs, Tenant shall pay all charges for water, gas, electricity, and storm
and sanitary sewer services as so supplied to the Leased Premises,
irrespective of whether or not the services are maintained in Landlord's or
Tenant's name.
5.3 SECURITY: Tenant acknowledges that Landlord has not undertaken any
duty whatsoever to provide security for the Leased Premises, the Building,
the Outside Areas or the Property and, accordingly, Landlord is not
responsible for the security of same or the protection of Tenant's property
or Tenant's employees, invitees or
<PAGE>
contractors. To the extent Tenant determines that such security or protection
services are advisable or necessary, Tenant shall arrange for and pay the
costs of providing same.
5.4 ENERGY AND RESOURCE CONSUMPTION: Landlord may voluntarily
cooperate in a reasonable manner with the efforts of governmental agencies
and/or utility suppliers in reducing energy or other resource consumption
within the Property, so long as such action does not materially interfere
with Tenant's business. Tenant shall not be entitled to terminate this Lease
or to any reduction in or abatement of rent by reason of such compliance or
cooperation. Tenant agrees at all times to cooperate fully with Landlord and
to abide by all reasonable rules established by Landlord (i) in order to
maximize the efficient operation of the electrical, heating, ventilating and
air conditioning systems, and all other energy or other resource consumption
systems within the Property and/or (ii) in order to comply with the
requirements and recommendations of utility suppliers and governmental
agencies regulating the consumption of energy and/or other resources.
5.5 LIMITATION OF LANDLORD'S LIABILITY: Landlord shall not be liable
to Tenant for injury to Tenant, its employees, agents, invitees or
contractors, damage to Tenant's property or loss of Tenant's business or
profits, nor shall Tenant be entitled to terminate this Lease or to any
reduction in or abatement of rent by reason of (i) Landlord's failure to
provide security services or systems within the Property for the protection
of the Leased Premises, the Building or the Outside Areas, or the protection
of Tenant's property or Tenant's employees, invitees, agents or contractors,
or (ii) Landlord's failure to perform any maintenance or repairs to the
Leased Premises, the Building, the Outside Areas or the Property until Tenant
shall have first notified Landlord, in writing, of the need for such
maintenance or repairs, and then only after Landlord shall have had a
reasonable period of time following its receipt of such notice within which
to perform such maintenance or repairs, or (iii) any failure, interruption,
rationing or other curtailment in the supply of water, electric current, gas
or other utility service to the Leased Premises, the Building, the Outside
Areas or the Property from whatever cause (other than Landlord's negligence
or willful misconduct), or (iv) the unauthorized intrusion or entry into the
Leased Premises by third parties (other than Landlord).
ARTICLE 6:
ALTERATIONS AND IMPROVEMENTS
6.1 BY TENANT: Tenant shall not make any alterations to or
modifications of the Leased Premises or construct any improvements within the
Leased Premises until Landlord shall have first approved, in writing, the
plans and specifications therefore, which approval shall not be unreasonably
withheld. All such modifications, alterations or improvements, once so
approved, shall be made, constructed or installed by Tenant at Tenant's
expense (including all permit fees and governmental charges related thereto),
using a licensed contractor first approved by Landlord, in substantial
compliance with the Landlord approved plans and specifications therefore. All
work
<PAGE>
undertaken by Tenant shall be done in accordance with all Laws and in a good
and workmanlike manner using new materials of good quality. Tenant shall not
commence the ranking of any such modifications or alterations or the
construction of any such improvements until (i) all required governmental
approvals and permits shall have been obtained, (ii) all requirements
regarding insurance imposed by this Lease have been satisfied, (iii) Tenant
shall have given Landlord at least five business days prior written notice of
its intention to commence such work so that Landlord may post and file
notices of non-responsibility, and (iv) if requested by Landlord, Tenant
shall have obtained contingent liability and broad form builder's risk
insurance in an amount satisfactory to Landlord to cover any perils relating
to the proposed work not covered by insurance carried by Tenant pursuant to
Article 9. In no event shall Tenant make any modifications, alterations or
improvements whatsoever to the Outside Areas or the exterior or structural
components of the Building including, without limitation, any cuts or
penetrations in the floor, roof or exterior walls of the Leased Premises
without Landord's consent. As used in this Article, the term "modifications,
alterations and/or improvements" shall include, without limitation, the
installation of additional electrical outlets, overhead lighting fixtures,
drains, sinks, partitions, doorways, or the like.
6.2 OWNERSHIP OF IMPROVEMENT'S: All modifications, alterations or
improvements made or added to the Leased Premises by Tenant (other than
Tenant's inventory, equipment, movable furniture, wall decorations and trade
fixtures) shall be deemed real property and a part of the Leased Premises,
but shall remain the property of Tenant during the Lease Term. Any such
modifications, alterations or improvements, once completed, shall not be
altered or removed from the Leased Premises during the Lease Term without
Landlord's written approval first obtained in accordance with the provisions
of Article 6.1 above. At the expiration or sooner termination of this Lease,
all such modifications, alterations and improvements (other than Tenant's
inventory, equipment, movable furniture, wall decorations and trade fixtures)
shall automatically become the property of Landlord and shall be surrendered
to Landlord as a part of the Leased Premises as required pursuant to Article
2, unless Landlord shall require Tenant to remove any of such modifications,
alterations or improvements in accordance with the provisions of Article 2,
in which case Tenant shall so remove same. Landlord shall have no obligation
to reimburse to Tenant all or any portion of the cost or value of any such
modifications, alterations or improvements so surrendered to Landlord. All
modifications, alterations or improvements which ire installed or constructed
on or attached to the Leased Premises by Landlord at Landlord's expense shall
be deemed real property and a part of the Leased Premises and shall be the
property of Landlord. All lighting, plumbing, electrical, heating,
ventilating and air conditioning fixtures, partitioning, window coverings,
wall coverings and floor coverings installed by Tenant shall be deemed
improvements to the Leased Premises and not trade fixtures of Tenant.
6.3 ALTERATIONS: Tenant shall, at its sole cost make all
modifications, alterations and improvements to the Leased Premises that are
required by any Law because of (i) Tenant's use or occupancy of the Leased
Premises, the Building, the Outside Areas, or the Property, (ii) Tenant's
application for any permit or governmental approval, or (iii)
<PAGE>
Tenant's making of any modifications, alterations or improvements to or
within the Leased Premises. If Landlord shall, at any time during the Lease
Term, (i) be required by any governmental authority to make any
modifications, alterations or improvements to the Building or the Project,
(ii) modify the existing (or construct additional) capital improvements or
provide building service equipment for the purpose of reducing the
consumption of utility services or project maintenance costs for the
property, the cost incurred by Landlord in making such modifications,
alterations or improvements, including a one and one-half percent (1-1/2%)
over Wall Street Journal Prime rate percent per annum cost of money factor,
shall be amortized by Landlord over the useful life of such modifications,
alterations or improvements, as determined in accordance with generally
accepted accounting standards, and the monthly amortized cost of such
modifications, alterations and improvements as so amortized shall be
considered a Property Maintenance Cost.
6.4 LIENS: Tenant shall keep the Property and every part therefore
from any liens and shall pay when due all bills arising out of any work
performed, materials furnished, or obligations incurred by Tenant, its
agents, employees or contractors relating to the Property. If any such claim
of lien is recorded against Tenant's interest in this Lease, the Property or
any part thereof, Tenant shall bond against, discharge or otherwise cause
such lien to be entirely released within ten days after the same has been so
recorded. Tenant's failure to do so shall be conclusively deemed a material
default under the terms of this Lease.
ARTICLE 7:
ASSIGNMENT AND SUBLETTING BY TENANT
7.1 BY TENANT: Tenant shall not sublet the Leased Premises (or any
portion thereof) or assign or encumber its interest in this Lease, whether
voluntarily or by operation of Law, without Landlord's prior written consent
first obtained in accordance with the provisions of this Article 7. Any
attempted subletting, assignment or encumbrance without Landlord's prior
written consent, at Landlord's election, shall constitute a default by Tenant
under the terms of the Lease. The acceptance of rent by Landlord from any
person or entity other than Tenant, or the acceptance of rent by Landlord
from Tenant with knowledge of a violation of the provisions of this Article,
shall not be deemed to be a waiver by Landlord of any provision of this
Article or this Lease or to be a consent to any subletting by Tenant or any
assignment or encumbrance of Tenant's interest in this Lease.
7.2 MERGER OR REORGANIZATION: If Tenant is a corporation, any
dissolution, merger, consolidation or other reorganization of Tenant, or the
sale or other transfer in the aggregate over the Lease Term of a controlling
percentage of the capital stock of Tenant, shall be deemed a voluntary
assignment of Tenant's interest in this Lease. The phrase "controlling
percentage" means the ownership of and the right to vote stock possessing
more than fifty percent of the total combined voting power of all classes of
Tenant's capital stock issued, outstanding and entitled to vote for the
election of
<PAGE>
directors. If Tenant is a partnership, a withdrawal or change, whether
voluntary, involuntary or by operation of Law, of any general partner, or the
dissolution of the partnership, shall be deemed a voluntary assignment of
Tenant's interest in this Lease.
7.3 LANDLORD'S ELECTION: If Tenant shall desire to assign its interest
under this Lease or to sublet the Leased Premises, Tenant must first notify
Landlord, in writing, of its intent to so assign or sublet, at least thirty
(30) days in advance of the date it intends to so assign its interest in this
Lease or sublet the Leased Premises but not sooner than one hundred eighty
days in advance of such date, specifying in detail the terms of such proposed
assignment or subletting, including the name of the proposed assignee or
subleases, the proposed assignee's or subleasee's, intended use of the Leased
Premises, a current financial statement of such proposed assignee or
subleasee and the form of documents to be used in effectuating such
assignment or subletting. Landlord shall have a period of seven (7) days
following receipt of such notice within which to do one of the following: (a)
terminate this Lease or, in the case of a sublease of less than all of the
Leased Premises, terminate this Lease as to that part of the Leased Premises
proposed to be so sublet, either (i) on the condition that the proposed
Transferee immediately enter into a direct lease of the Leased Premises with
Landlord (or, in the case of a partial sublease, a lease for the portion
proposed to be so sublet) on the same terms and conditions contained in
Tenant's notice, or (ii) so that Landlord is thereafter free to lease the
Leased Premises (or, in the case of a partial sublease, the portion proposed
to be so sublet) to whomever it pleases on whatever terms are acceptable to
Landlord. In the event Landlord elects to so terminate this Lease, then (i)
if such termination is conditioned upon the execution of a lease between
Landlord and the proposed Transferee, Tenant's obligations under this Lease
shall not be terminated until such Transferee executes a new lease with
Landlord, enters into possession, and commences the payment of rent, and (ii)
if Landlord elects simply to terminate this Lease (or, in the case of a
partial sublease, terminate this Lease as to the portion to be so sublet),
the Lease shall so terminate in its entirety (or as to the space to be so
sublet) fifteen (15) days after Landlord has notified Tenant in writing of
such election. In the case of a partial termination of the Lease, the Base
Monthly Rent and Tenant's proportionate share shall be reduced to an amount
which bears the same relationship to the original amount thereof as the area
of that part of the Leased Premises which remains subject to the Lease bears
to the original are of the Leased Premises. Landlord and Tenant shall execute
a cancellation agreement with respect to the Lease to effect such termination
or partial termination, or (b) if Landlord shall not have elected to cancel
and terminate this Lease, to either (i) consent to such requested assignment
or subletting subject to Tenant's compliance with the conditions set forth in
Article 7.4 below or (ii) refuse to so consent to such requested assignment
or subletting, provided that such consent shall not be unreasonably refused.
It shall not be unreasonable for Landlord to withhold its consent to any
proposed assignment or subletting if (i) the proposed assignee's or
subtenant's anticipated use of the Premises involves the storage, use or
disposal of a Hazardous Material; (ii) if the proposed assignee or subtenant
has been required by any prior landlord, lender or governmental authority to
clean up Hazardous Materials unlawfully discharged by the proposed assignee
or subtenant; or (iii) if the proposed assignee or subtenant is subject to
investigation or en-
<PAGE>
forcement order or proceeding by any governmental authority in connection
with the use, disposal or storage of a Hazardous Material. During said seven
(7) period, Tenant covenants and agrees to supply to Landlord, upon request,
all necessary or relevant information which Landlord may reasonably request
respecting such proposed assignment or subletting and/or the proposed
assignee or subleasee.
7.4 CONDITIONS TO LANDLORD'S CONSENT: If Landlord elects to consent,
or shall have been ordered to so consent by a court of competent
jurisdiction, to such requested assignment, subletting or encumbrance, such
consent shall be expressly conditioned upon the occurrence of each of the
conditions below set forth, and any purported assignment, subletting or
encumbrance made or ordered prior to the full and complete satisfaction of
each of the following conditions shall be void and, at the election of
Landlord, which election may be exercised at any time following such a
purported assignment, subletting or encumbrance but prior to the satisfaction
of each of the stated conditions, shall constitute a material default by
Tenant under this Lease until cured by satisfying in full each such condition
by the assignee, subleases or encumbrancer, The conditions are as follows:
Landlord having approval in form and substance the assignment or
sublease agreement (or the encumbrance agreement), which approval shall not
be unreasonably withheld by Landlord if the requirements of this Article 7
are otherwise complied with.
B. Each such sublease or assignee having agreed, in writing
satisfactory to Landlord and its counsel and for the benefit of Landlord, to
assume, to be bound by, and to perform the obligations of this Lease to be
performed by Tenant (or, in the case of an encumbrance, each such encumbrance
having similarly agreed to assume, be bound by and to perform Tenant's
obligation upon a foreclosure or transfer in lieu thereof).
C. Tenant having fully and completely performed all of its
obligations under the terms of this Lease through and including the date of
such assignment or subletting.
D. Tenant having reimbursed to Landlord all reasonable costs and
attorneys' fees incurred by Landlord in conjunction with the processing and
documentation of any such requested, assignment or encimbrance.
E. Tenant having delivered to Landlord a complete and
fully-executed duplicate original of such sublease agreement, assignment
agreement or encumbrance (as applicable) and all related agreements.
F. Tenant having paid, or having agreed in writing to pay as to
future payments, to Landlord one hundred percent of all assignment
consideration or excess rentals to be paid to Tenant or to any other on
Tenant's behalf or for Tenant's benefit for such assignment or subletting as
follows:
If Tenant assigns its interest under this Lease and if all or a
portion of the consideration for such assignment is to be paid by the
assignee at the time of the assignment, that Tenant shall have paid to
Landlord and Landlord shall have received an amount equal to one hundred
percent of the
<PAGE>
assignment consideration so paid or to be paid (whichever is the greater) at
the time of the assignment by the assignee; or
If Tenant assigns its interest under this Lease and if Tenant
is to receive all or a portion of the consideration for such assignment in
future installments, that Tenant and Tenant's assignee shall have entered
into a written agreement with and for the benefit of Landlord satisfactory to
Landlord and its counsel whereby Tenant and Tenant's assignee jointly agree
to pay to Landlord an amount equal to one hundred percent of all such future
assignment consideration installments to be paid by such assignee as and when
such assignment consideration is so paid.
(3) If Tenant subleases the Leased Premises, that Tenant and
Tenant's subleases shall have entered into a written agreement with and for
the benefit of Landlord satisfactory to Landlord and its counsel whereby
Tenant and Tenant's subleases jointly agree to pay Landlord fifty (50)
percent of all excess rentals to be paid by such subleases as and when such
excess rentals are to be paid.
7.5 ASSIGNMENT CONSIDERATION AND EXCESS RENTALS DEFINED: For purposes
of the Article, the term "assignment Consideration" shall mean all
consideration to be paid by the assignee to Tenant or to any other on
Tenant's behalf or for Tenant's benefit as consideration for such assignment,
less any commissions paid by Tenant to a licensed real estate broker for
arranging such, assignment (not to exceed then standard rates), and the term
"excess rentals" shall mean all consideration to be paid by the subleases to
Tenant or to any other on Tenant's behalf or for Tenant's benefit for the
sublease of the Leased Premises in excess of the rent due to Landlord under
the terms of this Lease for the same period, less any commissions paid by
Tenant to a licensed real estate broker for arranging such sublease (not to
exceed then standard rates), and any unamortized cost of Tenant's costs for
interior improvements. Tenant agrees that the portion of any assignment
consideration and/or excess rentals arising from any assignment or subletting
by Tenant which is to be paid to Landlord pursuant to this Article now is and
shall then be the property of Landlord and not the property of Tenant.
7.6 PAYMENTS: All payments required by this Article to be made to
Landlord shall be made in cash in full as and when they become due. At the
time Tenant, Tenant's assignee or subleases makes each such payment to
Landlord, Tenant or Tenant's assignee or subleases, as the case may be, shall
deliver to Landlord an itemized statement in reasonable detail showing the
method by which the amount due Landlord was calculated and certified by the
party making such payment as true and correct.
7.7 GOOD FAITH: The rights granted to Tenant by this Article are
granted in consideration of tenant's express covenant that all pertinent
allocations which are made by Tenant between the rental value of the Leased
Premises and the value of any of Tenant's personal property which may be
conveyed or leased generally concurrently with and which may reasonably be
considered a part of the same transaction as the permitted assignment or
subletting shall be made fairly, honestly and in good faith. If Tenant shall
breach this Covenant of Good Faith, Landlord may immediately declare Tenant
to be in default under the terms of this Lease and terminate this Lease
and/or exercise any other rights and remedies Landlord would have under the
terms of this Lease in the case of a material default by Tenant under this
Lease.
<PAGE>
7.8 EFFECT OF LANDLORD'S CONSENT: No subletting, assignment or
encumbrance, even with the consent of Landlord, shall relieve Tenant of its
personal and primary obligation to pay rent and to perform all of the
obligations to be performed by Tenant hereunder. Consent by Landlord to one
or more assignments or encumbrances of Tenant's interest in this Lease or to
one or more subletting of the Leased Premises shall not be deemed to be a
consent to any subsequent assignment, encumbrance or subletting. If Landlord
shall have been ordered by a court of competent jurisdiction to consent to a
requested assignment or subletting, or such an assignment or subletting shall
have been ordered over the objection of Landlord, such assignment or
subletting shall not be binding between the assignee (or subleases) and
Landlord unfit such time as all conditions set forth in Article 7.4 above
have been fully satisfied (to the extent not then satisfied) by tile assignee
or subleases, including, without limitation, the payment to Landlord of all
agreed assignment considerations and/or excess rentals then due Landlord.
ARTICLE 8:
LIMITATIION ON LANDLORD'S LIABILITY AND INDEMNITY
8.1 LIMITATION ON LANDLORD'S LIABILITY AND RELEASE: Landlord shall not
be liable to Tenant for, and Tenant hereby releases Landlord and its
partners, principals, officers, agents and employees from, any and all
liability, whether in contract, tort or on any other basis, for any injury to
or any damage sustained by Tenant, Tenant's agents, employees, contractors or
invitees; any damage to Tenant's property; or any loss to Tenant's business,
loss of Tenant's profits or other financial loss of Tenant resulting from or
attributable to the condition of the management of, the repair or maintenance
of, the protection of, the supply of services or utilities to, the damage to
or destruction of the Leased Premises, the Building, the Project or the
Common Areas, including without limitation (i) the failure, interruption,
rationing or other curtailment or cessation in the supply of electricity,
water, gas or other utility service to the Project, the Building or the
Leased Premises; (ii) the vandalism or forcible entry into the Building or
the Leased Premises; (iii) the penetration of water into or onto any portion
of the Leased Premises through roof leaks or otherwise; (iv) the failure to
provide security and/or adequate lighting in or about the Project, the
Building or the leased Premises; (v) the existence of any design or
construction defects within the Project, the Building or the Leased Premises;
(vi) the failure of any mechanical systems to function properly (such as the
HVAC systems); or (vii) the blockage of access to any portion of the Project,
the Building or the Leased Premises, except that Tenant does not so release
Landlord from such liability to the extent such damage was proximately caused
by Landlord's negligence, willful misconduct, or Landlord's failure to
perform an obligation expressly undertaken pursuant to this Lease (after a
reasonable period) of time not to exceed forty-five (45) days shall have
lapsed following receipt of written notice from Tenant to so perform such
obligation. In this regard, Tenant acknowledges that it is fully apprised of
the provisions of Law relating to releases, and particularly to those
provisions contained in Section 1542 of the California Civil Code which reads
as follows:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must
<PAGE>
have materially affected his settlement with the debtor.
Notwithstanding such statutory provision, and for the purpose of
implementing a full and complete release and discharge, Tenant hereby (i)
waives the benefit of such statutory provision and (ii) acknowledges that,
subject to the exceptions specifically set forth herein, the release and
discharge set forth in this Article is a full and complete settlement and
release and discharge of all claims and is intended to include in its effect,
without limitation, all claims and is intended to include in its effect,
without limitation, al claims which Tenant, as of the date hereof, does not
know of or suspect to exist in its favor.
8.2 TENANT'S INDEMNIFACTION OF LANDLORD: Tenant shall defend with
competent counsel satisfactory to Landlord any claims made or legal actions
filed or threatened against Landlord based upon negligence or willful
misconduct with respect to the violation of any law, or the death, bodily
injury, personal injury, property damage, or interference with contractual or
property rights suffered by any third party (including other tenants within
the Project) occurring within the Leased Premises or resulting from Tenant's
use or occupancy of the Leased Premises, the Building or the Outside Areas,
or resulting from Tenant's negligent activities based upon negligence or
willful misconduct in or about the Leased premises, the Building, the Outside
Areas or the Property, and Tenant shall indemnify and hold Landlord,
Landlord's principals, employees, agents and contractors harmless from any
loss, liability, penalties, or expense whatsoever (including any loss
attributable to vacant space which otherwise would have been leased, but for
such activities) resulting therefrom, except to the extent proximately caused
by the negligence or willful misconduct of Landlord. This indemnity agreement
shall survive until the latter to occur of (i) the date of the expiration, or
sooner termination, of this Lease, or (ii) the date Tenant actually vacates
the Leased Premises.
ARTICLE 9
INSURANCE
9.1 TENANT'S INSURANCE: Tenant shall maintain insurance complying with
all of the following:
Tenant shall procure, pay for and keep in full force and effect. At
all times during the Lease Term, the following:
Commercial General Liability insurance insuring Tenant against
liability for bodily injury, death, property damage and personal injury
occurring at the Leased Premises, or resulting from Tenant's use or occupancy
of the Leased Premises or the Building, Outside Areas, Property, or Common
Area or resulting from Tenant's activities in or about the Leased Premises.
Such insurance shall be on an occurrence basis with a combined single limit
of liability of not less than the amount of Tenant's Required Liability
Coverage (as set forth in Article 1). The policy or policies shall be
endorsed to name Landlord and such others as re designated by Landlord as
additional insureds in the form equivalent to CG20111185 or successor and
shall contain the
<PAGE>
following additional endorsement: "The insurance afforded to the additional
insureds is primary insurance. If the additional insureds have other
insurance which is applicable to the loss on a contributing, excess or
contingent basis, the amount of this insurance company's liability under this
policy shall not be reduced by the existence of such other insurance. Any
insurance carried by the additional insureds shall be excess and
noncontributing with the insurance provided by the tenant." The policy shall
not be cancelled or reduced without at least 30 days written notice to
additional insureds. If the policy insures more than once location, it shall
be endorsed to show that the limits and aggregate apply per location using
endorsement CG25041185 or successor. Tenant's policy shall also contain the
severability of interest and cross-liability endorsement or clauses.
Fire and property damage insurance in so-called Special
Form plus earth quake and flood insuring Tenant against loss from physical
damage to Tenant's personal property, inventory, stock, trade fixtures and
improvements within the Leased Premises with coverage for the full actual
replacement cost thereof;
Plate-glass insurance, at actual replacement cost;
Boiler and machinery insurance, if applicable;
(5) Product Liability insurance (including without
limitation Liquor Liability insurance for liability arising out of the
distribution, sale, or consumption of food an/or beverages including
alcoholic beverages at the Leased Premises for not less than the Tenant's
Required Liability Coverage as set forth in Article 1;
(6) Worker's compensation insurance and any other employee
benefit insurance sufficient to comply with all Laws which policy shall be
endorsed to provide thirty (30) days written notice of cancellation to
Landlord;
(7) With respect to making of alterations to or the
construction of improvements or the like undertaken by Tenant, contingent
liability and builder's risk insurance, in an amount and with coverage
satisfactory to Landlord;
(8) Business Income Insurance at a minimum of 50%
coinsurance including coverage for loss of business income due to damage to
equipment from perils covered under the so called Special Form plus perils of
earth quake and flood; and
(9) Comprehensive Auto Liability insurance with a combined
single limit coverage of not less than the amount of Tenant's Required
Liability Coverage (as set forth in Article I) for bodily injury and/or
property damage liability for: a) Owned autos b) Hired or Borrowed autos c)
Non-owned autos d) Auto blanket contractual form CA0029. The policy shall be
endorsed to provide 30 days written notice of cancellation to Landlord.
Each policy of liability insurance required to be carried by
Tenant pursuant to this Article or actually carried by Tenant with respect to
the Leased Premises or the Property (i) shall be in a form satisfactory to
Landlord, (ii) Shall be provided by carriers admitted to do business in the
state of California, with a Best rating of "A/VI" or better and/or acceptable
to Landlord. Property insurance shall contain a waiver an/or a permission to
waive by the insurer any right of subrogation against Landlord, its
principal, employees, agents and contractors which might arise by reason of
any payment under such policy or by reason of any act or omission of
Landlord, its principals, employees, agents or contractors.
Prior to the time Tenant or any of its contractors enters the
Leased Premises, Tenant shall deliver to the Landlord with respect to each
policy of insurance required to be carried by Tenant
<PAGE>
pursuant to this article, a certificate of the insurer certifying, in a form
satisfactory to the Landlord, that the policy has been issued and premium
paid providing the coverage required by this Article an containing the
provisions herein. Attached to such certificate shall be endorsements naming
Landlord as additional insured, and including the wording under primary
insurance above. With respect to each renewal or replacement of any such
insurance, the requirements of this Article must be complied with no less
that 30 days prior to the expiration or cancellation of the policy being
renewed or replaced. Landlord may at any time and from time-to time inspect
and/or copy any and all insurance policies required to be carried by Tenant
pursuant to this article. If Landlord's lender, insurance broker or advisor
or counsel reasonably determines at any time that the form or amount of
coverage set forth in Article 9.1. (A) for any policy of insurance Tenant is
required to carry pursuant to this Article is not adequate, then Tenant shall
increase the amount of coverage for such insurance to such greater amount or
change the form as Landlord's lender, insurance broker or advisor or counsel
reasonably deems adequate (provided however such increase level of coverage
may not exceed the level of coverage for such insurance commonly carried by
comparable businesses similarly situated and operating under similar
circumstances).
The Commercial General Liability insurance carried by Tenant
shall specifically insure performance by Tenant of the Indemnification
provisions set forth in Article 8.2 except as revised herein of this lease
provided, however, nothing contained in this Article 9 shall be construed to
limit the liability of Tenant under the Indemnification provisions set forth
in said Article 8.2.
9.2 LANDLORD'S INSURANCE: With respect to insurance maintained by
Landlord: Landlord shall maintain, as the minimum coverage required of it by
this Lease, property insurance in called "Special" form insuring Landlord
(and such others as Landlord may designate) against loss from physical damage
to the Building with coverage of not less than one hundred percent of the
full actual replacement cost thereof and against loss of rents for a period
of not less than twelve months. Such property damage insurance, at Landlord's
election but without any requirement on Landlord's behalf to do so, (i) may
be written in so-called Special Form, excluding only those perils commonly
excluded from such coverage by Landlord's then property damage insurer; (ii)
may provide coverage for physical damage to the improvements so insured for
up to the entire full actual replacement cost thereof; (iii) may be endorsed
to include or separate policies may be carried to cover loss or damage caused
by any additional perils against which Landlord may elect to insure,
including earthquake and/ore flood; (iv) may provide coverage for loss of
rents for a period of up to twelve month; and/or (v) may contain "deductible"
per occurrence in an amount reasonably acceptable to Landlord. Landlord shall
not be required to cause such insurance to cover any of Tenant's personal
property, inventory and trade fixtures, or any modifications, alterations or
improvements made or constructed by Tenant to or within the Leased Premises.
Landlord shall maintain Commercial General Liability insurance insuring
Landlord (and such others as are designated by Landlord) against liability
for personal injury, bodily injury, death, and damage to property occurring
in, on or about, or resulting from the use or occupancy of the Property, or
any portion thereof, with combined single limit coverage of at least Two
Million Dollars. Landlord may carry such greater coverage as Landlord or
Landlord's Lender, insurance broker or advisor or counsel may from time to
time determine is reasonably necessary for the adequate protection of
Landlord and the Property.
Landlord may maintain any other insurance which in the opinion of its
insurance broker or advisor or legal counsel is prudent to carry under the
given circumstances.
<PAGE>
9.3 MUTUAL WAIVER OF SUBROGATION: Landlord hereby releases Tenant, and
Tenant hereby releases Landlord and its respective principals, officers,
agents, employees and servants, from any and all liability for loss except
for retentions or deductibles damage or injury to the property of the other
in or about the Leased Premises or the Property which is caused by or results
from a peril or event or happening which would be covered by insurance
required to be carried by the party sustaining such loss under the terms of
this Lease, or is covered by insurance actually carried and in force at the
time of the loss, by the party sustaining such loss; provided, however, that
such waiver shall be effective only to the extent permitted by the insurance
covering such loss and to the extent such insurance is not prejudiced thereby.
ARTICLE 10:
DAMAGE TO LEASED PREMISES
10.1 LANDLORD'S DUTY TO RESTORE: If the Leased Premises, the Building
or the Outside Areas are damaged by any peril after the Effective Date of
this Lease, Landlord shall restore the same, as and when required by this
Article, unless this Lease is terminated by Landlord pursuant to Article 10.3
or by Tenant pursuant to Article 10.4. If this Lease is not so terminated,
then upon availability, of the insurance proceeds to landlord (if the loss is
covered by insurance) and the issuance of all necessary governmental permits,
landlord shall commence and diligently prosecute to completion the
restoration of the Leased Premises, the Building or the Outside Areas, as the
case may be, to the extent then allowed by Law, to substantially the same
condition in which it existed as of the Lease Commencement Date. Landlord's
obligation to restore shall be limited the improvements constructed by
Landlord. Landlord shall have no obligation to restore any improvements made
by Tenant to the Leased Premises or any of Tenant's personal property,
inventory or trade fixtures except as caused by Landlord's negligence or
willful misconduct. Upon completion of the restoration by Landlord, Tenant
shall forthwith replace or fully repair substantially all of Tenant's
personal property, inventory, trade fixtures and other improvements
constructed by Tenant to like or similar condition as existed at the time of
such damage or destruction.
10.2 INSURANE PROCEEDS: All insurance proceeds available from the fire
and property damage insurance carried by Landlord shall be paid to and become
the property of Landlord. If this Lease is terminated pursuant to either
Article 10.3 or 10.4, all insurance proceeds available from insurance carried
by Tenant which cover loss of property that is Landlord's property or would
become Landlord's property on termination of this Lease shall be paid to and
become the property of Landlord, and remainder of such proceeds shall be paid
to and become the property of Tenant. If this Lease is not terminated
pursuant to either Article 10.3 or 10.4, all insurance proceeds available
from insurance carried by Tenant which cover loss to property that is
Landlord's property shall be paid to and become the property of Landlord, and
all proceeds available from such insurance which cover loss to property which
would only become the property of Landlord upon the termination of this Lease
shall be paid to and remain the property of Tenant.
10.3 LANDLORD'S RIGHT TO TERMINATE: Landlord shall have the option to
terminate this Lease in the event of the following occurs, which option may
be exercised only
<PAGE>
by delivery to Tenant of a written notice of election to terminate within
thirty days after the date of such damage or destruction:
The Building is damaged by any peril covered by valid and
collectible insurance actually carried by landlord and in force at the time
of such damage or destruction (an "insured peril") to such an extent that the
estimated cost to restore the Building exceeds the lesser of (i) the
insurance proceeds available from insurance actually carried by Landlord, or
(ii) seventy five percent of the then actual replacement cost thereof;
The Building is damaged by an uninsured peril, which peril landlord
was required to insure against pursuant to the provisions of Article 9 of
this Lease, to such an extent that the estimated cost to restore the Building
exceeds the lesser of (i) the insurance proceeds which would have been
available had Landlord carried such required insurance, or (ii) seventy-five
percent of the then actual replacement thereof;
The Building is damaged by an uninsured peril, which peril Landlord
was not required to insure against pursuant to the provisions of Article 9 of
this Lease, to any extent.
The Building is damaged by any peril and, because of the Laws then
in force, the Building (i) can not be restored at reasonable cost or (ii) if
restored, can not be used for the same use being made thereof before such
damage.
10.4 TENANT'S RIGHT TO TERMINATE: If the Leased Premises, the Building
or the Outside Areas are damaged by any peril and Landlord does not elect to
terminate this Lease or is not entitled to terminate this Lease Pursuant to
this Article, then as soon as reasonably practicable no to exceed thirty (30)
days Landlord shall furnish Tenant with the written opinion of Landlord's
architect or construction consultant as to when the restoration work required
of Landlord may be complete. Tenant shall have the option to terminate this
Lease in the event any of the following occurs, which option may be exercised
in the case of A or B below only by delivery to Landlord of a written notice
of election to terminate within seven days after Tenant receives form
Landlord the estimate of the time needed to complete such restoration:
The Leased Premises are damaged by any peril and, in the reasonable
opinion of Landlord's architect or construction consultant, the restoration
of the Leased Premises cannot be substantially completed within six (6)
months after the date of such notice from Landlord; or
The Leased Premises are damaged by any peril within twelve (12)
months of the last day of the Lease Term and, in the reasonable opinion of
Landlord's architect or construction consultant, the restoration of the
Leased Premises cannot be substantially completed within ninety days after
the date such restoration is commenced.
10.5 TENANT'S WAIVER: Landlord and Tenant agree that the provisions of
Article 10.4 above, captioned "Tenant's Right to Terminate", are intended to
supersede and replace the provisions contained in California Civil Code,
Section 1932, Subdivision 2, and California Civil Code, Section 1934, and
accordingly, Tenant hereby waives the provisions of said Civil Code Sections
and the provisions of any successor Code Sections or similar laws hereinafter
enacted.
10.6 ABATEMENT OF RENT: In the event of damage to the Leased Premises
which does not result in the termination of this Lease, the Base Monthly Rent
(and any Additional Rent) shall be temporarily abated during the period of
restoration in proportion to the degree to which Tenant's use of the Leased
Premises is impaired by such damage.
<PAGE>
ARTICLE 11
CONDEMNATION
11.1 TENANT'S RIGHT TO TERMINATE: Except as otherwise provided in
Article 11.4 below regarding temporary takings, Tenant shall have the option
to terminate this Lease if, as a result of any taking, (i) all of the Leased
Premises is taken, (ii) twenty-five (25%) percent or more of the Leased
Premises is taken and the part of the Leased Premises that remains cannot,
within a reasonable period of time, be made reasonably suitable for the
continued operation of Tenant's business, or (iii) there is a taking of a
portion of the Outside Areas and, as a result of such taking, Landlord cannot
provide parking spaces within the Property (or within a reasonable walking
distance therefrom) equal in number to at least sixty-six and two-thirds
percent of the number of parking spaces existing within the Outside Areas
immediately prior to such taking, whether by rearrangement of the remaining
parking areas in the Outside Areas (including, if Landlord elects,
construction of multi-deck parking structures or restriping for compact cars
where permitted by Law). Tenant must exercise such option within a reasonable
period of time, to be effective on the later to occur of (i) the date that
possession of that portion of the Leased Premises or the Outside Areas that
is condemned is taken by the condemnor or (ii) the date Tenant vacated the
Leased Premises.
11.2 LANDLORD'S RIGHT TO TERMINATE: Except as otherwise provided in
Article 11.4 below regarding temporary takings, Landlord shall have the
option to terminate this Lease if, as a result of any taking, (i) all or a
substantial part of the Leased Premises is taken, (ii) more than thirty-three
and one-third percent of the Outside Areas is taken, or (iii) because of the
Laws then in force, the Leased Premises may not be used for the same use
being made thereof before such taking, whether or not restored as required by
Article 11.3 below. Any, such option to terminate by Landlord must be
exercisable within a reasonable period of time, to be effective as of the
date possession is taken by the condemnor.
11.3 RESTORATION: If any part of the Leased Premises, the Building or
the Outside Areas is taken and this Lease is not terminated, then Landlord
shall repair any damage occasioned thereby to the remainder thereof to a
condition reasonably suitable for Tenant's continued operations and
otherwise, to the extent practicable, in the manner and to the extent
provided in Article 10.1.
11.4 TEMPORARY TAKING: If any portion of the Leased Premises is
temporarily taken for a period of thirty (30) days or less and such period
does not extend beyond the Lease Expiration Date, this Lease shall remain in
effect. If any portion of the Leased Premises is temporarily taken for a
period which either exceeds thirty (30) days or which extends beyond the
Lease Expiration Date, then Landlord and Tenant shall each independently have
the option to terminate this Lease, effective on the date possession is taken
by the condemnor.
11.5 DIVISION OF CONDEMNATION AWARD: Any award made for any taking of
the Property, the Building, the Outside Areas or the Leased Premises, or any
portion thereof, shall belong to and be paid to Landlord, and Tenant hereby
assigns to Landlord all of its right, title and interest in any such award;
provided, however, that Tenant shall be entitled to receive any portion of
the award that is made specifically (i) for the taking of personal property,
inventory or trade
<PAGE>
fixtures belong to Tenant, (ii) for the interruption of Tenant's business or
its moving costs, (iii) for loss of Tenant's goodwill, or (iv) for any
temporary taking where this Lease is not terminated as a result of such
taking, and fifty percent (50%) of premium rent award, so long as Lender's
security is not adversely affected thereby. The rights of Landlord and Tenant
regarding any condemnation shall be determined as provided in this Article,
and each party hereby waives the provisions of Section 1265.130 of the
California Code of Civil Procedure, and the provision of any similar law
hereinafter enacted, allowing either party to petition the Superior Court to
terminate this Lease and/or otherwise allocate condemnation awards between
Landlord and Tenant in the event of a taking of the Leased Premises.
11.6 ABATEMENT OF RENT: In the event of a taking of the Leased
Premises which does not result in a termination of this Lease (other than a
temporary taking), then, as of the date possession is taken by the
condemnation authority, the Base Monthly Rent shall be reduced in the same
proportion that the area of that part of the Leased Premises so taken (less
any addition to the area of the Leased Premises by reason of any
reconstruction) bears to the area of the Leased Premises immediately prior to
such taking.
11.7 TAKING DEFINED: The term "taking" or "taken' as used in this
Article 11 shall mean any transfer or conveyance of all or any portion of the
Property to a public or quasi-public agency, or any other entity having the
power of eminent domain pursuant to or as a result of the exercise of such
power by such an agency, including any inverse condemnation and/or any sale
or transfer by Landlord of all or any portion of the Property to such an
agency under threat of condemnation or the exercise of such power.
ARTICLE 12:
DEFAULT AND REMEDIES
12.1 EVENTS OF TENANT'S DEFAULT: Tenant shall be in default of its
obligations under this Lease if any of the following events occur:
Tenant shall have failed to pay Base Monthly Rent or any
Additional Rent when due; or
Tenant shall have done or permitted to have been done any act, use
or thing in its use, occupancy or possession of the Leased Premises or the
Building or the Outside Areas which is prohibited by the terms of this Lease;
or
Tenant shall have failed to perform any term, covenant or
condition of this Lease, except those requiring the payment of Base Monthly
Rent or Additional Rent, within thirty (30) days after written notice from
Landlord to Tenant specifying the nature of such failure and requesting
Tenant to perform same.
Tenant shall have sublet the Leased Premises or assigned or
encumbered its interest in this Lease on violation of the provisions
contained in Article 7, whether voluntarily or by operation of Law; or
Tenant shall have failed to continuously occupy the Leased
Premises for a period of thirty
<PAGE>
(30) consecutive days; or excluding and sublease approved by the Landlord.
Tenant or any Guarantor of this Lease shall have permitted or
suffered the sequestration or attachment of, or execution on, or the
appointment of a custodian or receiver with respect to, all or any
substantial part of the property or assets of Tenant (or such Guarantor) or
any property or asset essential to the conduct of Tenant's (or such
Guarantors) business, and Tenant (or such Guarantor) shall have failed to
obtain a return or release of the same within thirty days thereafter, or
prior to sale pursuant to such sequestration, attachment or levy, whichever
is earlier; or
Tenant of any Guarantor of this Lease shall have made a general
assignment of all or a substantial part of its assets for the benefit of its
creditors; or
Tenant or any Guarantor of this Lease shall have allowed (or
sought) to have entered against it a decree or order which: (i) grants or
constitutes an order for relief, appointment or a trustee, or confirmation or
a reorganization plan under the bankruptcy laws of the United States; (ii)
approves as properly filed a petition seeking liquidation or reorganization
under said bankruptcy laws or any other debtor's relief law or similar
statute of the United States or any state thereof; or (iii) otherwise directs
the winding up or liquidation of Tenant; provided, however, if any decree or
order was entered without Tenant's consent or over Tenant's objection,
Landlord may not terminate this Lease pursuant to this Subarticle if such
decree or order is rescinded or reversed within ninety (90) days so long as
payment of rent is uninterrupted after its original entry.
Tenant or any Guarantor of this Lease shall have availed itself of
the protection of any debtor's relief law, moratorium law or other similar
Law which does not require the prior entry of a decree or order.
12.2 LANDLORD'S REMEDIES: In the event of any default by Tenant, and
without limiting Landlord's right to indemnification as provided in Article
8.2, Landlord shall have the following remedies in addition to all other
rights and remedies provided by Law or otherwise provided in this Lease, to
which Landlord may resort cumulatively, or in the alternative:
Landlord may, at Landlord's election, keep this Lease in effect
and enforce, by an action at law or in equity, all of its rights and remedies
under this Lease including, without limitation, (i) the right to recover the
rent and other sums as they become due by appropriate legal action, (ii) the
right to make payments required by Tenant, or perform Tenant's obligations
and be reimbursed by Tenant for the cost thereof with interest at the then
maximum rate of interest not prohibited by Law from the date the sum is paid
by Landlord until Landlord is reimbursed by Tenant, and (iii) the remedies of
injunctive relief and specific performance to prevent Tenant form violating
the terms of this Lease and/or to compel Tenant to perform its obligations
under this Lease, as the case may be.
Landlord may, at Landlord's election, terminate this Lease by
giving Tenant written notice of termination, in which event this Lease shall
terminate on the date set forth for termination in such notice. Any
termination under this Subarticle shall not relieve Tenant form its
obligation to pay to Landlord all Base Monthly Rent and Additional Rent then
or thereafter due, or any other sums due or thereafter accruing to Landlord,
or from any claim against Tenant for damages previously accrued or then or
thereafter accruing. In no event shall any one or more of the following
actions
<PAGE>
by Landlord, in the absence of a written election by Landlord to terminate
the Lease, constitute a termination of the Lease:
Appointment of a receiver or keeper in order to protect Landlord's
interest hereunder;
Consent to any subletting of the Leased Premises or assignment of
this Lease by Tenant, whether pursuant to the provisions hereof or otherwise;
or
Any other action by Landlord or Landlord's agents intended to
mitigate the adverse effects of any breach of this Lease by Tenant,
including, without limitation, any action taken to maintain and preserve the
Leased Premises or any action taken to relet the Leased Premises, or any
portion thereof, for the account of Tenant and in the name of Tenant.
In the event Tenant breaches this Lease and abandons the Leased
Premises, Landlord may terminate this Lease, but this Lease shall not
terminate unless Landlord gives Tenant written notice of termination. If
landlord does not terminate this Lease by giving written notice of
termination, Landlord may enforce all its rights and remedies under this
Lease, including the right to recover as it becomes due under this Lease as
provided in California Civil Code Section 1951.4, as in effect on the
Effective Date of this Lease.
In the event Landlord terminates this Lease, Landlord shall be
entitled, at Landlord's election, to damages in an amount as set forth in
California Civil Code Section 1951.2, as in effect on the Effective Date of
this Lease. For purposes of computing damages pursuant to Section 1951.2, an
interest rate equal not to exceed twelve percent (12%) rate of interest then
not prohibited by Law shall be used where permitted. Such damages shall
include, without limitation:
The worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount
of such rental loss that Tenant proves could be reasonably avoided, computed
by discounting such amount at the discount rate of the Federal Reserve Bank
of San Francisco, at the time of award plus one percent; less any offset due
to rental received during the period of default; and
Any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's
obligations under this Lease, or which in the ordinary course of things would
be likely to result therefrom, including without limitation, the following:
(i) expenses for cleaning, repairing or restoring the Leased Premises; (ii)
expenses for altering, remodeling or otherwise improving the Leased Premises
for the purposes of reletting, including removal of existing leasehold
improvements and/or installation of additional leasehold improvements
(regardless of how the same is funded, including reduction of rent, a direct
payment or allowance to a new tenant, or otherwise); (iii) broker's fees,
advertising costs and other expenses of reletting the Leased Premises; (iv)
costs of carrying and maintaining the Leased Premises which costs would have
been billed to Tenant as Additional Rent had Tenant not defaulted and which
include but are not limited to taxes, insurance premiums, utility charges,
landscape maintenance costs, costs of maintaining electrical, plumbing and
HVAC equipment and costs for providing security; (v) expenses incurred in
removing, disposing of and/or storing any of Tenant's personal property,
inventory or trade fixtures remaining therein; (vi) attorneys' fees, expert
witness fees, court costs and other reasonable expenses incurred by Landlord
but not limited to taxable costs in retaking possession of the Leased
Premises, establishing damages hereunder, and re-leasing the
<PAGE>
Leased Premises; and (vii) any other expenses, costs or damages other wise
incurred or suffered as a result of Tenant's default.
12.3 LANDLORD'S DEFAULT AND TENANT'S REMEDIES: In the event Landlord
fails to perform any of its obligations under this Lease, Landlord shall
nevertheless not be in default under the terms of this Lease until such time
as Tenant shall have first given Landlord written notice specifying the
nature of such failure t perform its obligations, and then only after
Landlord shall have had a reasonable period of thirty (30) days, unless cure
is started within said thirty (30) day period and is therefore diligently
prosecuted to a conclusion reasonably following its receipt of such notice
within which to perform such obligations. In the event of Landlord's default
as above set forth, then, and only then, Tenant shall have the following
remedies only:
Tenant may then proceed in equity or at law to compel Landlord to
perform its obligations and/or to recover damages proximately caused by such
failure to perform (except as and to the extent Tenant has waived its right
to damages as provided in this Lease).
Tenant, at its option, may then cure any default of Landlord at
Landlord's cost. If, pursuant to this Subarticle, Tenant reasonably pays any
sum to any third party or does any act that requires the payment of any sum
to any third part at any time by reason of Landlord's default, the sum paid
by, Tenant shall be immediately due from landlord to Tenant at the time
Tenant supplies Landlord with an invoice therefore (provided such invoice
sets forth and is accompanied by a written statement of Tenant setting forth
in reasonable detail the amount paid, the party to whom it was paid, the date
it was paid, and the reasons giving rise to such payment), together with
interest at twelve percent per annum from the date if such invoice until
Tenant is reimbursed by Landlord, Tenant may not offset such sums against any
installment of rent due Landlord under the terms of this Lease.
12.4 LIMITATION ON TENANT'S RECOURSE: If Landlord is a corporation,
trust, partnership, joint venture, unincorporated association, or other form
of business entity, Tenant agrees that (i) the obligations of Landlord under
this Lease shall not constitute personal obligation of the officers,
directors, trustees, partners, joint ventures, members, owners, stockholders,
or other principals of such business entity and (ii) Tenant shall have
recourse only to the assets of such business entity for the satisfaction of
such obligations and not against the assets of such officers directors,
trustees, partners, joint ventures, members, owners, stockholders or other
principals (other than to the extent of their interest in the assets owned by
such business entity). Additionally, if Landlord is a partnership, then
Tenant covenants and agrees:
No partner of the Landlord shall be sued or named as a party in
any suit or action brought by Tenant with result to any alleged breach of
this Lease (except to the extent necessary to secure jurisdiction over the
partnership and then only for that sole purpose);
No service of process shall be made against any partner of
Landlord except for the sole purpose of securing jurisdiction over the
partnership; and
No writ of execution will ever be levied against the assets of any
partner of Landlord other than to the extent of his interest in the assets of
the partnership.
Tenant further agrees that each of the foregoing covenants and
agreements shall be enforceable by
<PAGE>
Landlord and by any partner of Landlord and shall be applicable to any actual
or alleged misrepresentation or nondisclosure made respecting this Lease or
the Leased Premises or any factual or alleged failure, default or breach of
any covenant or agreement either expressly or implicitly contained in this
Lease or imposed by statute or at common law.
12.5 TENANT'S WAIVER: Landlord and Tenant agree that the provision of
Article 12.3 above are intended to supersede and replace the provisions of
California Civil Code Sections 1932(1), 1941 and 1942, and accordingly,
Tenant hereby waives the provisions of California Civil Code Sections
1932(1), 1941 and 1942 and/or any similar or successor Law regarding Tenant's
right to terminate this Lease or to make repairs and deduct the expenses of
such repairs from the rent due under this Lease. Tenant hereby waives any
right of redemption or relief from forfeiture under the Laws of the State of
California, or under any other present or future Law, in the event Tenant is
evicted or Landlord takes possession of the Leased Premises by reason of any
default by Tenant.
ARTICLE 13
GENERAL PROVISIONS
13.1 TAXES ON TENANT'S PROPERTY: Tenant shall pay before delinquency
any and all taxes, assessments, license fees, use fees, permit fees and
public charges of whatever nature or description levied, assessed or imposed
against Tenant or Landlord by a governmental agency arising out of, caused by
reason of or based upon Tenant's estate in this Lease, Tenant's ownership of
property, improvements made by Tenant to the Leased Premises or the Outside
Areas, Tenant's use (or estimated use) of public facilities or services or
Tenant's consumption (or estimated consumption) of public utilities, energy,
water or other resources. Upon demand by Landlord, Tenant shall furnish
Landlord with satisfactory evidence of these payments. If any such taxes,
assessments, fees or public charges are levied against Landlord, Landlord's
property, the Building or the Property, or if the assessed value of the
Building or the Property is increased by the inclusion therein of a value
placed upon same, then Landlord, after giving written notice to Tenant, shall
have the right, regardless of the validity thereof, to pay such taxes,
assessment, fee or public charge and bill Tenant. as Additional Rent, the
amount of such taxes, assessment, fee or public charge so paid on Tenant's
behalf. Tenant shall, within fifteen (15) days from the date it receives an
invoice from Landlord setting forth the amount of such taxes, assessment, fee
or public charge so levied, pay to Landlord, as Additional Rent, the amount
set forth in said invoice. Failure by Tenant to pay the amount so invoiced
within said fifteen (15) day period shall be conclusively deemed a default by
Tenant under this Lease. Tenant shall have the right, and the Landlord's full
cooperation if Tenant is not then in default under the terms of this Lease,
to bring suit in any court of competent jurisdiction to recover from the
taxing authority the amount of any such taxes, assessment, fee or public
charge so paid.
13.2 HOLDING OVER: This Lease shall terminate without further notice
on the Lease Expiration Date (as set forth in Article 1). Any holding over by
Tenant after expiration of the Lease Term shall neither constitute a renewal
nor extension of this Lease nor give Tenant any rights in or to the Leased
Premises except as expressly provided in this Article. Any such holding over
shall be deemed an unlawful detainer of the Leased Premises unless Landlord
has consented to same. Any such holding over to which Landlord has consented
shall be construed to be a tenancy from month
<PAGE>
to month, on the same terms and conditions herein specified insofar as
applicable, except that the Base Monthly Rent shall be increased to an amount
equal to one hundred fifty percent of the Base Monthly Rent payable during
the last full month immediately preceding such holding over.
13.3 SUBORDINATION TO MORTGAGES: This Lease is subject to and
subordinate to all underlying ground leases, mortgages and deeds of trust
which affect the Building or the Property and which are of public record as
of the Effective Date of this Lease, and to all renewals, modifications,
consolidations, replacements and extensions thereof. However, if the lessor
under any such ground lease or any lender holding any such mortgage or deed
of trust shall advise Landlord that it desires or requires this Lease to be
made prior and superior thereto, then, upon written request of Landlord to
Tenant, Tenant shall promptly execute, acknowledge and deliver any and all
documents or instruments which Landlord and such lessor or lender deem
necessary or desirable to make this Lease prior thereto. Tenant hereby
consents to Landlord's ground leasing the land underlying the Building or the
Property and/or encumbering the Building or the Property as security for
future loans on such terms as Landlord shall desire, all of which future
ground leases, mortgages or deeds of trust shall be subject to and
subordinate to this Lease. However, if any lessor under any such future
ground lease or any lender holding such future mortgage or deed of trust
shall desire or require that this Lease be made subject to and subordinate to
such future ground lease, mortgage or deed of trust, then Tenant agrees,
within ten days after Landlord's written request therefor, to execute,
acknowledge and deliver to Landlord any and all documents or instruments
requested by Landlord or by such lessor or lender as may be necessary or
proper to assure the subordination of this Lease to such future ground lease,
mortgage or deed of trust, but only if such lessor or lender agrees to
recognize Tenant's rights under this Lease and agrees not to disturb Tenant's
quiet possession of the Leased Premises so long as Tenant is not in default
under this Lease.
13.4 TENANT'S ATTORNMENT UPON FORECLOSURE: Tenant shall, upon request,
attorn (i) to any purchaser of the Building or the Property at any
foreclosure sale or private sale conducted pursuant to any security
instrument encumbering the Building or the Property, (ii) to any grantee or
transferee designated in any deed given in lieu of foreclosure of any
security interest encumbering the Building or the Property, or (iii) to the
lessor under any underlying ground lease of the land underlying the Building
or the Property should such ground lease be terminated; provided that such
purchaser, grantee or lessor recognizes Tenant's rights under this Lease.
13.5 MORTGAGE PROTECTION: In the event of any default on the part of
Landlord, Tenant will give notice by registered mail to any Lender or lessor
under any underlying ground lease who shall have requested, in writing, to
Tenant that it be provided with such notice, and Tenant shall offer such
Lender or lessor a reasonable opportunity to cure the default, including time
to obtain possession of the Leased Premises by power of sale or judicial
foreclosure or other appropriate legal proceedings if reasonably necessary to
effect a cure.
13.6 ESTOPPEL CERTIFICATES: Tenant will, following any request by
Landlord, promptly execute and deliver to Landlord an estoppel certificate
(i) certifying that his Lease is unmodified and in full force and effect, or,
if modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect, (ii) stating the date to
which the rent and other charges are paid in advance, if any, (iii)
acknowledging that there are not, to Tenant's
<PAGE>
knowledge, any uncured defaults on the part of Landlord hereunder, or
specifying such defaults if any are claimed, and (iv) certifying such other
information about this Lease as may be reasonably requested by Landlord, its
Lender or prospective lenders, investor or purchaser of the Building or the
Property. Tenant's failure to execute and deliver such estoppel certificate
within ten days after Landlord's request therefore shall be material default
by Tenant under this Lease, and Landlord shall have all of the rights and
remedies available to Landlord as Landlord would otherwise have in the case
of any other material default by Tenant, including the right to terminate
this Lease and sue for damages proximately caused thereby, it being agreed
and understood by Tenant that Tenant's failure to do so deliver such estoppel
certificate in a timely manner could result in Landlord being unable to
perform committed obligation to other third parities which were made by
Landlord in reliance upon this covenant of Tenant. Landlord and Tenant intend
that any statement delivered pursuant to this article may be relied upon by
any Lender or purchaser or prospective Lender or purchaser of the Building,
the Property, or any interest herein.
13.7 TENANT'S FINANCIAL INFORMATION: Tenant shall, within ten business
days after Landlord's request therefore deliver to Landlord a copy of a
current financial statement including an income statement for the most recent
twelve month period and a balance sheet and any such other information
reasonably requested by Landlord regarding Tenant's financial condition.
Landlord shall be entitled to disclose such financial statements or other
information to its Lender, to any present or prospective principal of
investor in Landlord, or to any prospective Lender or purchaser of the
Building, the Property or any portion thereof or interest therein. Any such
financial statement or other information which is marked "confidential" or
company secrets" (or is otherwise similarly marked by Tenant) shall be
confidential and shall not be disclosed by Landlord to any third party except
as specifically provided in this Article, unless the same becomes a part of
the public domain without the fault of Landlord.
13.8 TRANSFER BY LANDLORD: Landlord and its successors in interest
shall have the right to transfer their interest in the Building, the
Property, or any portion thereof at any time and to any person or entity. In
the event of any such transfer, the Landlord originally named herein (and in
the case of any subsequent transfer, the transferor), from the date of such
transfer, (i) shall be automatically relieved, without any further act by any
person or entity, of all liability for the performance of the obligations of
the Landlord hereunder which may accrue after the date of such transfer and
(ii) shall be relieved of all liability for the performance of the
obligations of the Landlord hereunder which have accrued before the date of
transfer if its transferee agrees to assume and perform all such prior
obligations of the Landlord hereunder. Tenant shall attorn to any such
transferee. After the date of any such transfer, the term "Landlord" as used
herein shall mean the transferee of such interest in the Building or the
Property.
13.9 FORCE MAJEURE: The obligations of each of the parties under this
Lease (other than the obligations to pay money) shall be temporarily excused
if such party is prevented or delayed in performing such obligation by reason
of any strikes, lockouts or labor disputes; inability to obtain labor,
material, fuels or reasonable substitutes therefore; governmental
restrictions, regulations, controls, action or inaction; civil commotion;
inclement weather, fire or other acts of God; or other causes (except
financial inability) beyond the reasonable control of the party obligated to
perform (including acts or omissions of the other party) for a period equal
to the period of any such prevention, delay or stoppage.
<PAGE>
13.10 NOTICES: Any notice required or desired to be given by a party
regarding this Lease shall be in writing and shall be personally served, or
in lieu of personal service may be given by depositing such notice in the
United States mail, registered or certified, postage prepaid, addressed to
the other party as follows:
If addressed to Landlord, to Landlord at its Address for Notices
(as set forth in Article 1).
If addressed to Tenant, to Tenant at its Address for Notices (as
set froth in Article 1). Any notice given by registered mail shall be deemed
to have been given on the third business day after its deposit in the United
States mail.
Any notice given by certified mail shall be deemed given on the
date receipt was acknowledged to the postal authorities. Any notice given by
mail other than registered or certified mail shall be deemed given only if
received by the other party, and then on the date of receipt. Each party may,
by written notice to the other in the manner aforesaid, change the address to
which notices addressed to it shall thereafter be mailed.
13.11 ATTORNEY'S FEES: In the event any party shall bring any action,
arbitration proceeding or legal proceeding alleging a breach of any provision
of this Lease, to recover rent, to terminate this Lease, or to enforce,
protect, determine or establish any term or covenant of this Lease or rights
or duties hereunder of either party, the prevailing party shall be entitled
to recover from the non-prevailing party as a part of such action or
proceeding, or in a separate action for that purpose brought within one year
from the determination of such proceeding, reasonable attorneys' fees, expert
witness fees, court costs and other reasonable expenses incurred by the
prevailing party. In the event that Landlord shall be required to retain
counsel to enforce any provision of this Lease, and if Tenant shall
thereafter cure (or desire to cure) such default, Landlord shall be
conclusively deemed the prevailing party and Tenant shall pay to Landlord all
attorney's fees, expert witness fees, court costs and other reasonable
expenses so incurred by Landlord promptly upon demand. Landlord may enforce
this provision by either (i) requiring Tenant to pay such fees and costs as a
condition to curing its default or (ii) bringing a separate action to enforce
such payment, it being agreed by and between Landlord and Tenant that
Tenant's failure to pay such fees and costs upon demand shall constitute a
breech of this Lease in the same manner as a failure by Tenant to pay the
Base Monthly Rent, giving Landlord the same rights and remedies as if Tenant
failed to pay the Base Monthly Rent.
13.12 DEFINITIONS: Any term that is given a special meaning by any
provision in this Lease shall, unless otherwise specifically stated, have
such meaning whenever used in this Lease or in any Addenda or amendment
hereto. In addition to the terms defined in Article 1, the following terms
shall have the following meanings:
A. REAL PROPERTY TAXES: The term "Real Property Tax" or "Real
Property Taxes" shall each mean (i) all taxes, assessments, levies and other
charges of any kind or nature whatsoever, general and special, foreseen and
unforeseen (including all installments of principal and interest required to
pay any general or special assessments for public improvements and any
increase resulting from reassessments caused by any change in ownership or
new construction),
<PAGE>
now or hereafter imposed by any governmental or quasi-governmental authority
or special district having the direct or indirect power or tax or levy
assessments, which are levied or assessed for whatever reason against the
Project or any portion thereof, or Landlord's interest herein, or the
fixtures, equipment and other property of Landlord that is an integral part
of the Project and located thereon, or Landlord's business of owning, leasing
or managing the Project or the gross receipts, income or rentals from the
Project; (ii) all charges, levies or fees imposed by any governmental
authority against Landlord by reason or based upon the use of or based upon
the use of or number of parking spaces within the Project, the amount of
public services or public utilities used or consumed (e.g. water, gas
electricity, sewage or surface water disposal) at the Project, the number of
persons employed by ten ants of the Project, the size (whether measured in
area, volume, number of tenants or whatever) or the value of the Project, or
the type of use or uses conducted within the Project; and (iii) all costs and
fees (including attorneys' fees) incurred by Landlord in contesting any Real
Property Tax and in negotiating with public authorities as to any Real
Property Tax. If, at any time during the Lease Term, the taxation or
assessment of the Project prevailing as of the Effective Date of this Lease
shall be altered so that in lieu of or in addition to any Real Property Tax
described above there shall be levied, or imposed (whether by reason of a
change in the method of taxation or assessment, creation of a new tax or
charge, or any other cause) an alternate, substitute, or additional tax or
charge (i) on the value, size, use or occupancy of the Project or Landlord's
interest therein or (ii) on or measured by the gross receipts, income or
rentals from the Project, or on Landlord's business of owing, leasing or
managing the Project or (iii) computed in any manner with respect to the
operation of the Project, then any such tax or charge, however designated,
shall be included within the meaning of the terms "Real Property Tax" or
"Real Property Taxes" for purposes of this Lease. If any Real Property Tax is
partly based upon property or rents unrelated to the Project, then only that
part of such Real Property Tax that is fairly allocable to the Project shall
be included within the meaning of the terms "Real Property Tax" or "Real
Property Taxes". Notwithstanding the foregoing, the terms "Real Property Tax"
or "Real Property Taxes" shall not include estate, inheritance, transfer,
gift or franchise taxes of Landlord or the federal or state income tax
imposed on Landlord's income from all sources.
B. LANDLORD'S INSURANCE COSTS: The term "Landlord's Insurance
Costs" shall mean the costs to Landlord to carry and maintain the policies of
fire and property damage insurance including earth quake and flood for the
Building and the Property and general liability insurance required, or
permitted, to be carried by Landlord pursuant to Article 9, together with any
deductible amounts paid by Landlord upon the occurrence of any insured
casualty or loss.
C. PROPERTY MAINTENANCE COSTS: The term "Property Maintenance
Costs" shall mean all costs expenses (except Landlord's Insurance Costs and
Real Property Taxes) paid or incurred by Landlord in protecting, operating,
maintaining, repairing and preserving the Property and all parts thereof,
including without limitation, (i) professional management fees (equal to
three percent of the Property's scheduled gross rental income), (ii) the
amortizing portion of any costs incurred by Landlord in the making of any
modifications, alterations or improvements as set forth in Article 6, which
are so amortized during the Lease Term, (iii) costs of complying with
governmental regulations governing Tenant's use of Hazardous Materials, and
Landlord's costs of monitoring Tenant's use of Hazardous Materials including
fees charged by Landlord's consultants
<PAGE>
to periodically inspect the Premises and the Property, and (iv) such other
costs as may be paid or incurred with respect to operating, maintaining and
preserving the Property, such as repairing and resurfacing the exterior
surfaces of the buildings (including roofs), repairing, replacing, and
resurfacing paved areas, repairing structural parts of the buildings, and
maintaining, repairing or replacing, when necessary electrical, plumbing,
sewer, drainage, heating, ventilating and air conditioning systems serving
the buildings, providing utilities to the common areas, maintenance, repair,
replacement or installation of lighting fixtures, directional or other signs
and signals, irrigation or drainage systems, trees, shrubs, materials,
maintenance of all landscaped areas, and depreciation and financing costs on
maintenance and operating machinery and equipment (if owned) and rental paid
for such machinery and equipment (if leased).
D. READY FOR OCCUPANCEY: The term "Ready for Occupancy" shall mean
the date upon which (i) the Leased Premises are available for Tenant's
occupancy in a broom clean condition and (ii) the improvements, if any, to be
made to the Leased Premises by Landlord as a condition to Tenant's obligation
to accept possession of the Leased Premises have been substantially completed
and the appropriate governmental building department (i.e. the City building
department, if the Property is located within a City, or otherwise the County
building department) shall have approved the construction of such
improvements as substantially complete or is willing to so approve the
construction of the improvements as substantially complete subject only to
compliance with specified conditions which are the responsibility of Tenant
to satisfy or is willing to allow Tenant to occupy subject to its receiving
assurances that specified work will be completed.
PROPERTY OPERATING EXPENSES: The term "Property Operating Expenses"
shall mean and include the all Real Property Taxes, plus all Landlord's
Insurance Costs, plus the all Property Maintenance Costs, plus an accounting
fee equal to five percent of all such costs.
LAW: The term "Law" shall mean any judicial decision and any statue,
constitution, ordinance, resolution, regulation, rule, administrative order,
or other requirement of any municipal, county, state, federal, or other
governmental agency or authority having jurisdiction over the parties to this
Lease, the Leased Premises, the Building or the Property, or any of them in
effect either at the Effective Date of this Lease or at any time during the
Lease Term, including, without limitation, any regulation, order, or policy
of any quasi-official entity or body (e.g. a board of fire examiners or a
public utility or special district).
LENDER: The term "Lender" shall mean the holder of any Note or other
evidence of indebtedness secured by the Property or any portion thereof.
PRIVATE RESTRICIONS: The term "Private Restrictions" shall mean all
recorded covenants, conditions and restrictions, private agreements,
easements, and any other recorded instruments affecting the use of the
Property, as they may exist from time to time.
RENT: The term "rent" shall mean collectively Base Monthly Rent and
all Additional Rent.
13.13 GENERAL WAIVERS: One party's consent to or approval of any act
by the other party
<PAGE>
requiring the first party's consent or approval shall not be deemed to waive
or render unnecessary the first party's consent to or approval of any
subsequent similar act by the other party. No waiver of any provision hereof
or any breach of any provision hereof shall be effective unless in writing
and signed by the waiving party. The receipt by Landlord of any rent or
payment with or without knowledge of the breach of any other provision hereof
shall not be deemed a waiver of any such breach. No waiver of any provision
of this Lease shall be deemed a continuing waiver unless such waiver
specifically states so in writing and is signed by both Landlord an Tenant.
No delay omission in the exercise of any right or remedy accruing to either
party upon any breach by the other party under this Lease shall impair such
right or remedy or be construed as a waiver of any such breach theretofore or
thereafter occurring. The waiver by either party of any breach of any
provision of this Lease shall not be deemed to be a waiver of any subsequent
breach of the same or any other provisions herein contained.
13.14 MISCELLANEOUS: Should any provision of this Lease prove to be
invalid or illegal, such invalidity or illegality shall in no way affect,
impair or invalidate any other provision hereof, and such remaining
provisions shall remain in full force and effect. Time is of the essence with
respect to the performance of every provision of this Lease in which time of
performance is a factor. Any copy of this Lease which is executed by the
parties shall be deemed an original for all purposes. This Lease shall,
subject to the provisions regarding assignment, apply to and bind the
respective heirs, successors, executors, administrators and assigns of
Landlord and Tenant. The term "party" shall meant Landlord or Tenant as the
context implies. If Tenant consists of more that one person or entity, then
all members of Tenant shall be jointly and severally liable hereunder. This
Lease shall be construed and enforced in accordance with the Laws of the
State which the Leased premises are located. The language in all parts of
this Lease shall in all cases be construed as a whole according to its fair
meaning, and not strictly for or against either Landlord or Tenant. The
captions used in this Lease are for convenience only and shall not be
considered in the construction or interpretation of any provision hereof.
When the context of this Lease requires, the neuter gender includes the
masculine, the feminine, a partnership or corporation or joint venture, and
the singular includes the plural. The terms "must, shall, will", and "agree"
are mandatory. The term "may" is permissive. When a party is required to do
something by this Lease, it shall do so at its sole cost and expense without
right of reimbursement from the other party unless specific provision is made
therefore. Where Tenant is obligated not to perform any act or is not
permitted to perform any act, Tenant is also obligated to restrain any others
reasonably within its control, including agents, invitees, contractors,
subcontractors and employees, from performing said act. Landlord shall not
become or be deemed a partner or a join venturer with Tenant by reason of any
of the provisions of this Lease.
ARTICLE 14
CORPORATE AUTHORITY,
BROKERS AND ENTIRE AGREEMENT
14.1 CORPORATE AUTHORITY: If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants
that Tenant is validly formed and duly authorized and existing, that Tenant
is qualified to do business in the State in which the Leased premises are
locate, that Tenant has the full right and legal authority to enter into this
<PAGE>
Lease, that he or she is duly authorized to execute and deliver this Lease on
behalf of Tenant in accordance with the bylaws and/or a board of directors'
resolution of Tenant, and that this Lease is binding upon Tenant in
accordance with its terms. Tenant shall, within thirty days after execution
of this Lease, deliver to Landlord a certified copy of the resolution of its
board of directors authorizing or ratifying the execution of this Lease, and
if Tenant fails to do so. Landlord at its sole election may elect to (i)
extend the Intended Commencement Date by such number of days that Tenant
shall have delayed in so delivering such corporate resolution to Landlord or
(ii) terminate this Lease.
14.2 BROKERAGE COMMISSIONS: Tenant warrants that it has not had any
dealings with any real estate broker(s), leasing agent(s), finder(s) or
salesman, other than the Brokers (as named in Article I) with respect to the
lease by it of the Leased Premises pursuant to this Lease, and that it will
indemnify, defend with competent counsel, and hold Landlord harmless from any
liability for the payment of any real estate brokerage commissions, leasing
commissions or finder's fees claimed by any other real estate broker(s),
leasing agent(s), finder(s), or salesmen to be earned or due and payable by
reason of Tenant's agreement or promise implied or otherwise) to pay (or to
have Landlord pay) such a commission or finder's fee by reason of its leasing
the Leased Premises pursuant to this Lease.
14.3 ENTIRE AGREEMENT: This Lease, the Exhibits (as described in
Article 1) and the Addenda (as described in Article 1), which Exhibits and
Addenda are by this reference incorporated herein, constitute the entire
agreement between the parties, and there are no other agreements,
understandings or representations between the parties relating to the lease
by Landlord of the Leased Premises to Tenant, except as expressed herein. No
subsequent changes, modifications or additions to this lease shall be binding
upon the parties unless in writing and signed by both Landlord and Tenant.
14.4 LANDLORD'S REPRESENTATIONS: Tenant acknowledges that neither
Landlord nor any of its agents made any representation or warranties
respecting the Project, the Building or the Leased Premises, upon which
Tenant relied in entering into this Lease, which are not expressly set forth
in this Lease. Tenant further acknowledges that neither Landlord nor any of
its agents made any representations as to (i) whether the Leased Premises may
be used for Tenant's intended use under existing Law, or (ii) the suitability
of the Leased Premises for the conduct of Tenant's business, or (iii) the
exact square footage of the Leased Premises, and that Tenant relied solely
upon its own investigations respecting said matters. Tenant expressly waives
any and all claims for damage by reason of any state-management,
representation, warranty, promise or other agreement of Landlord or
Landlord's agent(s), if any, not contained in this Lease or in any Addenda
hereto.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the respective dates below set forth with the intent to be legally bound
thereby as of the Effective Date first above set forth.
AS LANDLORD: AS TENANT:
RENCO EQUITIES IV ZYCAD CORPORATION
A general partnership a Delaware corporation
By: /s/ Donald E. Vermeil By: /s/ Phillips W. Smith
-------------------------- --------------------------
Title: General Partner Title: President and CEO
----------------------- -----------------------
By: /s/ Gerald Hodnefield By: /s/ Peter J. Cassidy
-------------------------- --------------------------
Title: General Partner Title: Executive VP and CFO
----------------------- -----------------------
Dated: March 20, 1996 Date: March 20, 1996
----------------------- -----------------------
If Tenant is a CORPORATION, the authorized officers must sign on behalf
of the corporation and indicate the capacity in which they are signing. This
Lease must be executed by the chairman of the board, president or
vice-president, and the secretary, assistant secretary, the chief financial
officer or assistant treasurer, unless the bylaws or a resolution of the
board of directors shall otherwise provide, in which event a certified copy,
of the bylaws or a certified copy of the resolution, as the case my be, must
be attached to this Lease.
<PAGE>
Exhibit 10.17
SUBLEASE
1. PARTIES. This Sublease, dated for the reference purposes only, October
27, 1997, is made by and between Zycad Corporation, a Delaware Corporation
(herein called "Sublessor") and Mattson Technology, Inc., a Delaware
Corporation (herein called "Sublessee").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the
County of Alameda, State of California, commonly known as 47100 Bayside
Parkway, Fremont, California 94538 and described as approximately 30,231
square feet (as shown on Exhibit "A" attached hereto), a portion of a 61,454
[plus-minus sign] square foot, free-standing, research and development
building. Said real property, including the land and all improvements
thereon, is hereinafter called the "Premises".
3. TERM.
3.1 TERM. The term of this Sublease shall be for (See Addendum) unless
sooner terminated pursuant to any provision hereof.
3.2 DELAY IN COMMENCEMENT. Notwithstanding said commencement date, if for
any reason Sublessor cannot deliver possession of the Premises to Sublessee
on said date, Sublessor shall not be subject to any liability therefore, nor
shall such failure affect the validity of this Lease or the obligations of
Sublessee hereunder or extend the term hereof, but in such case Sublessee
shall not be obligated to pay rent until possession of the Premises is
tendered to Sublessee, provided, however, that if Sublessor shall not have
delivered possession of the Premises within sixty (60) days from said
commencement date. Sublessee may, at Sublessee's option, by notice in writing
to Sublessor within ten (10) days thereafter, cancel this Sublease, in which
event the parties shall be discharged from all obligations thereunder. If
Sublessee occupies the Premises prior to said commencement date, such
occupancy shall be subject to all provisions hereof, such occupancy shall not
advance the termination date and Sublessee shall pay rent for such period at
the initial monthly rates set forth below.
4. RENT. Sublessee shall pay to Sublessor as rent for the Premises equal
monthly payments of (See Addendum) in advance, on the 1st day of each month
of the term hereof. Sublessee shall pay Sublessor upon the execution hereof
(See Addendum) as rent for (See Addendum). Rent for any period during the
term hereof which is for less than one month shall be a prorata portion of
the monthly installment. Rent shall be payable in lawful money of the United
States to Sublessor at the address stated herein or to such other persons or
at such other places as Sublessor may designate in writing.
5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution
hereof $39,300.00 as security for Sublessee's faithful performance of
Sublessee's obligations hereunder. If Sublessee fails to pay rent or other
charges due hereunder, or otherwise defaults with respect to any provision of
this Sublease, Sublessor may use, apply or retain all or any portion of said
deposit for the payment of any rent or other charge in default or for the
payment of any other sum to which Sublessor may become obligated by reason of
Sublessee's default, or to compensate Sublessor for any loss or damage which
Sublessor may suffer thereby. If Sublessor so uses or applies all or any
portion of said deposit, Sublessee shall within ten (10) days after written
demand therefore deposit cash with Sublessor in an amount sufficient to
restore said deposit to the full amount hereinabove stated and Sublessee's
failure to do so shall be a material breach of this Sublease. Sublessor shall
not be required to keep said deposit separate from its general accounts. If
Sublessee performs all of Sublessee's obligations hereunder, said deposit, or
so much thereof as has not theretofore been applied by Sublessor, shall be
returned, without payment of interest or other increment for its use to
Sublessee (or at Sublessor's option to the last assignee, if any, of
Sublessee's interest hereunder) at the expiration of the term hereof, and
after Sublessee has vacated the Premises. No trust relationship is created
herein between Sublessor and Sublessee with respect to said Security Deposit.
<PAGE>
6. USE.
6.1 USE. The Premises shall be used and occupied only for light
manufacturing, office, distribution, sales and related functions, and
research and development and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Sublessor warrants to Sublessee that the Premises in its existing state
but without regard to the use for which Sublessee will use the Premises does
not violate any applicable building code regulation or ordinance at the time
that this Sublease is executed. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of the Sublessor,
after written notice from Sublessee, to promptly, at Sublessor's sole cost
and expense rectify any such violation. In the event that Sublessee does not
give to Sublessor written notice of the violation of this warranty within 1
year from the commencement of the term of this Sublease, it shall be
conclusively deemed that such violation did not exist and the correction of
the same shall be the obligation of the Sublessee.
(b) Except as provided in the attached Addendum paragraph 6.2(a), Sublessee
shall, at Sublessee's expense, comply promptly with all applicable statutes,
ordinances, rules, regulations, orders, restrictions of record, and
requirements in effect during the term or any part of the term hereof
regulating the use by Sublessee of the Premises. Sublessee shall not use or
permit the use of the Premises in any manner that will tend to create waste
or a nuisance or if there shall be more than one tenant of the building
containing the Premises, which shall tend to disturb such other tenants.
6.3 CONDITION OF PREMISES. Except as provided in paragraph 6.2(a) Sublessee
hereby accept the Premises in their condition existing as of the date of the
execution hereof subject to all applicable zoning, municipal, county and
state laws, ordinances, and regulations governing and regulating the use of
the Premises, and accept this Sublease subject thereto and to all matters
disclosed hereby and by any exhibits attached hereto. Sublessee acknowledges
that neither Sublessor nor Sublessor's agents have made any representation or
warranty as to the suitability of the Premises for the conduct of Sublessee's
business.
7. MASTER LEASE.
7.1. Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter referred to as the "Master Lease", a copy of which is attached
hereto marked Exhibit 1 dated March 6, 1992, wherein Renco Equities IV, a
general partnership is the lessor hereinafter referred to as the "Master
Lessor".
7.2. This Sublease is and shall be at all times subject and subordinate to
the Master Lease.
7.3. The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions
of the Master Lease except for those provisions of the Master Lease which are
directly contradicted by this Sublease in which event the terms of this
Sublease document shall control over the Master Lease. Therefore, for the
purposes of this Sublease, wherever in the Master Lease the word "Lessor" is
used it shall be deemed to mean the Sublessor herein and wherever in the
Master Lease the word "Lessee" is used it shall be deemed to mean the
Sublessee herein.
7.4. During the term of this Sublease and for periods subsequent for
obligations which have arisen prior to the termination of this Sublease,
Sublessee does hereby expressly assume and agree to perform and comply with,
for the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease except for the following paragraphs which
are excluded therefrom Article 1.1E, 1.1F, 1.1G, 1.1I, 1.1K, 1.1N, 1.1S. 2.7,
13.2, 13.10, 14.2, First Addendum to Lease Paragraphs 1, 2, 8, 13, Exhibit
"C", Exhibit "D", Option to Renew Lease.
7.5. The obligations that Sublessee has assumed under paragraph 7.4 hereof
are hereinafter referred to as the "Sublessee's Assumed Obligations". The
obligations that Sublessee has NOT assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations."
<PAGE>
7.6. Sublessee shall hold Sublessor free and harmless of and from all
liability, judgments, costs, damages, claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.
7.7. Sublessor agrees to maintain the Master Lease during the entire term of
this Sublease, subject, however, to any earlier termination of the Master
Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless of
and from all liability, judgments, costs, damages, claims or demands arising
out of Sublessor's failure to comply with or perform Sublessor's Remaining
Obligations.
7.8. Sublessor represents to Sublessee that the Master Lease is in full
force and effect and that no default exists on the part of any party to the
Master Lease.
8. ASSIGNMENT OF SUBLEASE AND DEFAULT.
8.1. Sublessor hereby assigns and transfers to Master Lessor the Sublessor's
interest in this Sublease and all rentals and income arising therefrom,
subject however to terms of Paragraph 8.2 hereof.
8.2. Master Lessor, by executing this document, agrees that until a default
shall occur in the performance of Sublessor's Obligations under the Master
Lease, that Sublessor may receive, collect and enjoy the rents accruing under
this Sublease. However, if Sublessor shall default in the performance of its
obligations to Master Lessor then Master Lessor may, at its option, receive
and collect, directly from Sublessee, all rent owing and to be owned under
this Sublease. Master Lessor shall not, by reason of this assignment of the
Sublease nor by reason of the collection of the rents from the Sublessee, be
deemed liable to Sublessee for any failure of the Sublessor to perform and
comply with Sublessor's Remaining Obligations.
8.3. Sublessor hereby irrevocably authorizes and directs Sublessee, upon
receipt of any written notice from the Master Lessor stating that a default
exists in the performance of Sublessor's obligations under the Master Lease,
to pay to Master Lessor the rents due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from the Master Lessor and that Sublessee shall pay
such rents to Master Lessor without any obligation or right to inquire as to
whether such default exists and notwithstanding any notice from or claim from
Sublessor to the contrary and Sublessor shall have no right or claim against
Sublessee for any such rents so paid by Sublessee.
8.4. No changes or modifications shall be made to this Sublease without the
consent of Master Lessor.
9. CONSENT OF MASTER LESSOR.
9.1. In the event that the Master Lease requires that Sublessor obtain the
consent of Master Lessor to any subletting by Sublessor then this Sublease
shall not be effective unless within 30 days of the date hereof. Master
Lessor signs this Sublease thereby giving its consent to this Subletting.
9.2. In the event that the obligations of the Sublessor under the Master
Lease have been guaranteed by third parties then this Sublease, nor the
Master Lessor's consent, shall not be effective unless, within 10 days of the
date hereof, said guarantors sign this Sublease thereby giving guarantors
consent to this Sublease and the terms thereof.
9.3. In the event that Master Lessor does give such consent then
(a) Such consent with not release Sublessor of its obligations or after the
primary liability of Sublessor to pay the rent and perform and comply with
all of the obligations of Sublessor to be performed under the Master Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or any one else
liable under
<PAGE>
the Master Lease shall not be deemed a waiver by Master Lessor of any
provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent to any
subsequent subletting or assignment.
(d) In the event of any default of Sublessor under the Master Lease, Master
Lessor may proceed directly against Sublessor, any guarantors or any one else
liable under the Master Lease or this Sublease without first exhausting
Master Lessor's remedies against any other person or entity liable thereon to
Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and assignments of
the Master Lease or this Sublease or any amendments or modifications thereto
without notifying Sublessor nor any one else liable under the Master Lease
and without obtaining their consent and such action shall not relieve such
persons from liability.
(f) In the event that Sublessor shall default in its obligations under the
Master Lease, then Master Lessor, at its option and without being obligated
to do so, may require Sublessee to attorn to Master Lessor in which event
Master Lessor shall undertake the obligations of Sublessor under this
Sublease from the time of the exercise of said option to termination of this
Sublease but Master Lessor shall not be liable for any prepaid rents nor any
security deposit paid by Sublessee, nor shall Master Lessor be liable for any
other defaults of the Sublessor under the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of Sublessor at
the end of this document shall constitute their consent to the terms of this
Sublease.
9.5. Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no default presently exists under the Master Lease of obligations
to be performed by Sublessor and that the Master Lease is in full force and
effect.
9.6. In the event that Sublessor defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to
deliver to Sublessee a copy of any such notice of default. Sublessee shall
have the right to cure any default of Sublessor described in any notice of
default within 10 days after service of such notice of default on Sublessee.
If such default is cured by Sublessee then Sublessee shall have the right of
reimbursement and offset from and against Sublessor.
10. BROKERS FEE.
10.1. Upon execution hereof by all parties, Sublessor shall pay to Colliers
Parrish International, a licensed real estate broker, (herein called
"Broker"), a fee as set forth in a separate agreement between Sublessor and
Broker, or in the event there is no separate agreement between Sublessor and
Broker, the sum of $n/a for brokerage services rendered by Broker to
Sublessor in this transaction.
10.2. Sublessor agrees that if Sublessee exercises any option or right of
first refusal granted by Sublessor herein, or any option or right
substantially similar thereto, either to extend the terms of this Sublease,
to renew this Sublease, to purchase the Premises, or to lease or purchase
adjacent property which Sublessor may own or in which Sublessor has an
interest, or if Broker is the procuring cause of any lease, sublease, or sale
pertaining to the Premises or any adjacent property which Sublessor may own
or in which Sublessor has an interest, then as to any of said
<PAGE>
transactions Sublessor shall pay to Brokers a fee, in cash, in accordance
with the schedule of Broker in effect at the time of the execution of this
Sublease. Notwithstanding the foregoing, Sublessor's obligation under this
Paragraph 10.2 is limited to a transaction in which Sublessor is acting as a
sublessor, lessor, or seller.
10.3 Master Lessor agrees, by it consent to this Sublease, that if Sublessee
shall exercise any option or right of first refusal granted to Sublessee by
Master Lessor in connection with this Sublease, or any option or right
substantially similar thereto, either to extend the Master Lease, to renew
the Master Lease, to purchase the Premises or any part thereof, or to lease
or purchase adjacent property which Master Lessor may own or in which Master
Lessor has an interest, or if Broker is the procuring cause of any other
lease or sale entered into between Sublessee and Master Lessor pertaining to
the Premises, any part thereof, or any adjacent property which Master Lessor
owns or in which it has an interest, then as to any of said transactions
Master Lessor shall pay to Broker a fee, in cash, in accordance with the
schedule of Broker in effect at the time of its consent to this Sublease.
10.4. Any fee due from Sublessor or Master Lessor hereunder shall be due and
payable upon the exercise of any option to extend or renew, as to any
extension or renewal, upon the execution of any new lease, as to a new lease
transaction or the exercise of a right of first refusal to lease, or at the
close of escrow, as to the exercise of any option to purchase or other sale
transaction.
10.5. Any transferee of Sublessor's interest in this Sublease, or of Master
Lessor's interest in the Master Lease, by accepting an assignment thereof,
shall be deemed to have assumed the respective obligations of Sublessor or
Master Lessor under this Paragraph 10. Broker shall be deemed to be a
third-party beneficiary of this paragraph 10.
11. ATTORNEY'S FEES. If any party or the Broker named herein brings an
action to enforce the terms hereof or to declare right hereunder, the
prevailing party in any such action, on trial and appeal, shall be entitled
to his reasonable attorney's fees to be paid by the losing party as fixed by
the Court. The provision of this paragraph shall inure to the benefit of the
Broker named herein who seeks to enforce a right hereunder.
12. ADDITIONAL PROVISIONS. [If there are no additional provisions draw a line
from this point to the next printed word after the space left here. If there
are additional provisions place the same here].
13. ADDENDUM. Attached hereto and made a part hereof.
IF THIS SUBLEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE
BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR THE
TRANSACTION RELATING THERETO.
ZYCAD CORPORATION, A DELAWARE CORPORATION
By: /s/ DOUGLAS E. KLINT
--------------------------------------------
By: DOUGLAS E. KLINT, VP, SEC. & GENERAL COUNSEL
--------------------------------------------
(print name and title)
<PAGE>
"Sublessor" (Corporate Seal)
MATTSON TECHNOLOGY, INC., A DELAWARE CORPORATION
By: /s/ JOE PLOSNAY
--------------------------------------------
By: JOE PLOSNAY - Director, Ops.
--------------------------------------------
(print name and title)
"Sublessee" (Corporate Seal)
RENCO EQUITIES IV, A GENERAL PARTNERSHIP
By: /s/ Donald E. Vermeil
--------------------------------------------
By: Donald E. Vermeil - General Partner
--------------------------------------------
(print name and title)
"Master Lessor" (Corporate Seal)
<PAGE>
Exhibit 10.24
AGREEMENT
THIS AGREEMENT is entered into this 31st day of October, 1997 between
GateField Corporation, a Delaware Corporation, ("GATEFIELD"); and Zycad Japan
(GateField) KK, ("Zycad Japan") and Zycad TSS Corporation, a California
Corporation ("ZYCAD TSS").
WHEREAS, GateField desires to assign and transfer to Zycad TSS GateField's
LightSpeed and XP/PXP maintenance and support contracts and the right to
provide maintenance support services to GateField's installed LightSpeed and
XP/PXP customer base; and
WHEREAS, GateField desires to provide Zycad TSS with a source code license
to certain Software for the purpose of providing LightSpeed and XP/PXP
Maintenance Services; and
WHEREAS, Zycad TSS desires to perform the above LightSpeed and XP/PXP
Services;
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS
1.1 LIGHTSPEED AND XP/PXP MAINTENANCE CUSTOMERS shall mean all GateField
customers as specified on Exhibit A who have current maintenance contracts
for LightSpeed, XP or PXP Products installed at a customer site as of the
Effective Date of this Agreement as specified on Exhibit A or who purchase
PXP Products from GateField after the Effective Date through November 30,
1997. GateField agrees to provide Zycad TSS with customer site information
in a format similar to Exhibit A for all PXP Products sold by GateField after
the Effective Date.
1.2 LIGHTSPEED AND XP/PXP CUSTOMERS shall mean those customers as
specified on Exhibit B who have purchased LightSpeed, XP or PXP Products,
whether they are currently on maintenance or not.
1.3 LIGHTSPEED AND XP/PXP PRODUCTS shall mean those products set forth in
Exhibit C, including hardware, microcode and software.
1.4 LIGHTSPEED AND XP/PXP SERVICE INVENTORY shall mean all LightSpeed, XP
and PXP modules, cabinets and components currently owned by GateField for
field spares as specified on Exhibit D.
1.5 LIGHTSPEED AND XP/PXP PRODUCTION INVENTORY shall mean all LightSpeed,
XP and PXP modules, cabinets and components currently owned by GateField for
production inventory as specified on Exhibit E.
1.6 LIGHTSPEED AND XP/PXP MAINTENANCE REVENUE shall mean the actual gross
revenue collected from customer purchase orders for maintenance service for
LightSpeed and XP/PXP Products net of any reasonable and customary sales
commission paid.
1.7 LIGHTSPEED AND XP/PXP MAINTENANCE SERVICES shall mean maintenance
services for LightSpeed and XP/PXP Products as specified in GateField's
standard maintenance agreement, a copy of which is attached as Exhibit F.
1.8 LIGHTSPEED AND XP/PXP WARRANTY SERVICES shall mean warranty services
for XP/PXP Products sold by Gatefield on or before November 30, 1997 pursuant
to Zycad's standard warranty provisions, a copy of which is specified in
Exhibit G.
1.9 MAINTENANCE RELATED EQUIPMENT shall mean the equipment specified in
Exhibit H.
<PAGE>
1.10 SOFTWARE shall mean the software specified in Exhibit I.
1.11 EFFECTIVE DATE. The Effective Date of this Agreement shall be October 1,
1997.
2. LIGHTSPEED AND XP/PXP MAINTENANCE
2.1 ASSIGNMENT OF RIGHT. GateField assigns to Zycad TSS for a period of five
(5) years from August 18, 1997 all of its right, title and interest in and to
the LightSpeed and XP/PXP Maintenance Contracts as well as the exclusive right
to provide LightSpeed and XP/PXP Maintenance Service to LightSpeed and XP/PXP
Maintenance Customers and to the LightSpeed and XP/PXP Install Base. Zycad TSS
agrees to provide LightSpeed and XP/PXP Maintenance Service to all LightSpeed
and XP/PXP Maintenance Customers pursuant to the provisions of GateField
standard maintenance terms and conditions, a copy of which is attached hereto as
Exhibit F. This obligation of Zycad TSS to provide maintenance service shall
cease on a customer by customer basis when the LightSpeed and XP/PXP maintenance
contract for each customer expires and is not renewed.
2.2 MAINTENANCE RENEWALS. Zycad TSS shall be solely responsible for
getting LightSpeed and XP/PXP Customers to sign new maintenance contracts or
renew maintenance contracts for PXP Products after current purchase orders
for maintenance and support expire. Zycad TSS shall do all contract
negotiation, invoicing and collecting for all LightSpeed and XP/PXP
Maintenance Revenue, except for Japan.
2.3 TERMINATION OF RIGHT. All rights to provide LightSpeed and XP/PXP
Maintenance Services under this Agreement shall terminate on August 17, 2002
unless mutually extended by Zycad TSS, GateField and IKOS.
3.0 LightSpeed and XP/PXP Maintenance Revenue Sharing
3.1 For a period of 24 months after the Effective Date or until Gatefield
has received $1,800,000 worldwide in revenue sharing, GateField and Zycad TSS
agree to share LightSpeed and XP/PXP Maintenance Revenue at a rate of 30% to
GateField and 70% to Zycad TSS, except in Japan.
3.2 For a period of 25 months after the effective date through 36 months
after the Effective Date, Gatefield and Zycad TSS agree to share LightSpeed
and XP/PXP Maintenance Revenue at a rate of 10% to Gatefield and 90% to Zycad
TSS, except in Japan.
3.3 For a period of 12 months after the Effective Date through 60 months
after the Effective Date, GateField and Zycad TSS agree to share LightSpeed
and XP/PXP Maintenance Revenue in Japan at the rate of 40% to Gatefield and
60% to Zycad TSS provided that Gatefield Japan does all billing, invoicing,
collections, local customer support and reasonable sales support to renew
customers contracts for LightSpeed and XP/PXP customers in Japan. If
Gatefield Japan ceases these activities GateField agrees to provide ninety
(90) days prior written notice and LightSpeed and XP/PXP Maintenance Revenue
in Japan will be shared 30% to GateField and 70% to Zycad TSS until Gatefield
has received $1,800,000 worldwide in revenue at which time the maintenance
split will be 10% to GateField and 90% to Zycad TSS.
3.4 Prepaid Maintenance. GateField agrees to pay to Zycad TSS the sum of
$455,000 for LightSpeed and XP/PXP Maintenance Services to be performed by
Zycad TSS for which GateField has collected the LightSpeed and XP/PXP
Maintenance revenue. Payment will be made within thirty (30) days of the date
of the Agreement. Final figures to be reconciled by November 10, 1997.
3.5 GateField will pay Zycad TSS the actual operating expenses incurred by
Zycad TSS and facility use expenses for the period of time between the
Effective Date and GateField's payment of Maintenance Revenue defined in
Paragraph 3.4 above. Gatefield will deduct these expense payments from the
sum due Zycad TSS under paragraph 3.4 above.
3.6 GateField will collect current receivables invoiced by GateField prior
to Effective Date. GateField will deduct
<PAGE>
its proportionate share from receivables and pass the balance onto Zycad TSS
payable net fifteen (15) days from the date collected.
3.7 In Japan, GateField KK will invoice and collect all receivables from
customer as long as GateField KK is providing service as specified in
paragraph 3.3 above. GateField will forward to Zycad TSS 60% of the
receivables collected.
4. MAINTENANCE RELATED EQUIPMENT AND INVENTORY
4.1 EQUIPMENT AND SERVICE INVENTORY. GateField agrees to transfer the
Maintenance Related Equipment and LightSpeed and XP/PXP Service Inventory to
Zycad TSS by Bill of Sale at Closing.
4.2 PRODUCTION INVENTORY. GateField agrees to consign the LightSpeed and
XP/PXP Production Inventory to Zycad TSS for the purpose of selling such
inventory to LightSpeed and XP/PXP Customers solely for replacement and
repair. For all such inventory sold, Zycad TSS shall pay GateField the
standard costs for such inventory as specified in Exhibit E plus ten percent
(10%), payable net thirty (30) days after the month during which such
inventory was sold.
4.3 FINAL INVENTORY LISTS. A final List of Service Inventory and
Production Inventory shall be compiled and attached to this Agreement by
December 10, 1997. Zycad TSS agrees to provide GateField with quarterly
reports of inventory transactions.
5. INVENTORY RESTRICTIONS
Zycad TSS may only use the LightSpeed and XP/PXP Product Inventory for
Board or component replacement and not for upgrades, add-ons or capacity
expansion.
6. MAINTENANCE BILLING AND ACCOUNT TRANSITION.
6.1 MAINTENANCE BILLING. GateField will bill and collect all LightSpeed
and XP/PXP Maintenance Revenue which are outstanding as of the Effective Date.
6.2 ACCOUNT TRANSITION. LightSpeed and XP/PXP maintenance contracts and
billing would be transitioned to Zycad TSS upon the Effective Date so that
new maintenance PO's would issue to Zycad TSS, the maintenance contract would
be between Zycad TSS and the Customer, and Zycad TSS would invoice and
collect PXP Maintenance Revenue except in Japan where the maintenance
contracts will remain between GateField Japan KK and the customer. In Japan
GateField KK will do all maintenance billing, invoicing and collections from
customers in Japan as long as GateField KK is providing maintenance services
in Japan as specified in paragraph 3.3 above. GateField KK will collect from
the customers and transfer to Zycad TSS 60% of the revenue collected. Monthly
revenue due Zycad TSS will be in accordance with Exhibit K.
6.3 WARRANTY SERVICES. GateField and Zycad TSS agree that Zycad TSS shall
perform all LightSpeed and PXP Warranty Services for PXP Products and PXP
Products sold by GateField on a time and material basis. Zycad TSS' time and
material expenses for PXP Warranty Services shall be invoiced to Gatefield
and shall be setoff against maintenance revenue sharing due hereunder.
7. SOURCE CODE LICENSE
7.1 GateField grants Zycad TSS a worldwide, non-revocable, royalty free
Source Code license for the Software specified in Exhibit I for the purposes
of providing LightSpeed and XP/PXP Maintenance Services to LightSpeed and
XP/PXP Customers for a period of five (5) years from August 18, 1997. IKOS
owns all modifications, including enhancements and derivative Software, but
grants to Zycad TSS a non-exclusive, non-transferable, worldwide source code
license for all modifications, enhancements and derivative Software as stated
above.
<PAGE>
7.2 GateField assigns to Zycad TSS all of its interest in the Software
License Agreement dated August 18, 1997 between Zycad Corporation and Provis
Corporation, except for the provisions of Sections 4 and 5.
8. EMPLOYMENT MATTERS
8.1 EMPLOYEE SOLICITATION BY ZYCAD TSS Zycad TSS shall have the right, but
not the obligation, to offer employment to any of GateField's employees
listed on Exhibit J ("Employees") at the salary levels and on other terms and
conditions to be determined in Zycad TSS' sole discretion effective as of
the Effective Date. Zycad TSS shall have no liability for accrued wages
(including salaries and commissions), severance pay, sick leave or other
benefits, or employee plans of any type or nature on account of GateField's
employment of or termination of such employees', and GateField shall
indemnify Zycad TSS and hold Zycad TSS harmless against any liability arising
out of any claims for such pay or benefits or any other claims arising from
GateField's employment of or termination of employment of such employees.
Employees shall continue to be employed by GateField through the date that
Zycad TSS is incorporated and has workers compensation and health insurance
in place and GateField shall continue in force all current salaries and
benefits through such date.
8.2 EMPLOYEE PLANS. Zycad TSS is not assuming any of the employee plans of
GateField and Zycad TSS shall have no liability whatsoever to employees of
GateField with respect to accrued or future benefits under any such employee
plans, whether or not any of such employees are offered employment by, or
become employees of, Zycad TSS, and GateField shall defend, indemnify and
hold Zycad TSS harmless against any claims that it has liability under such
employee plans.
8.3 NONSOLICITATION. Zycad TSS agrees not to solicit the employment of any
individual who is a GateField employee as of the date of this Agreement
(other than an Employee) for a period of one year after the Effective Date.
GateField agrees not to solicit the employment of any individual who is an
employee of Zycad TSS as of the date of this Agreement for a period of one
year after the Effective Date.
8.4 STOCK OPTIONS
8.4.1 VESTED OPTIONS. Those Employees with vested stock options have
ninety (90) days after the date of employment with Zycad TSS to exercise
these options, plus an additional two months for every full month employed by
Zycad TSS after the Effective Date, up to a maximum of an additional six (6)
months.
8.4.2 UNVESTED OPTIONS. Those Employees with unvested options will
have their options vested 100% on the date they become employees of Zycad
TSS, but these options are not exercisable unless the employee has been
continuously employed by Zycad TSS for a period of one (1) year after the
date of employment with Zycad TSS. Employees have ninety (90) days after this
one (1) year period to exercise their stock options.
8.4.3 VESTED AND UNVESTED OPTIONS. Those Employees with both vested
and unvested options would apply the rules for both vested and unvested
options respectively as described in the previous paragraph.
9. TERM AND TERMINATION
9.1 TERM. The term of this Agreement shall be for a period of five (5)
years from August 18, 1997 at which time this Agreement shall automatically
terminate.
9.2 FINANCIAL DIFFICULTIES. Either party may terminate this Agreement
effective immediately upon written notice to the other party if the other
party files a voluntary petition in bankruptcy or otherwise seeks protection
under any law for the protection of debtors; has a proceeding instituted
against it under any provision of the bankruptcy laws which is not dismissed
within sixty (60) days; is adjudged a bankrupt; has a court assume
jurisdiction of its assets under a reorganization act; has a trustee or
receiver appointed by a court for all or a substantial portion of its assets;
suspends or ceases to do business; makes an assignment of all or a
substantial portion of its assets for the benefit of credits; or
<PAGE>
admits in writing its inability to pay its debts as they become due.
9.3 MATERIAL BREACH. Except as otherwise provided in this Agreement,
either party may terminate this Agreement if the other party breaches any
material term or condition of this Agreement and fails to cure that breach
within thirty (30) days after receiving written notice of the breach.
9.4 EFFECT OF TERMINATION. Upon termination of this Agreement, except as
expressly provided herein, (a) the rights granted to Zycad TSS by GateField
pursuant to this Agreement automatically terminate; (b) Zycad TSS shall,
within thirty (30) days, ship to GateField any inventory or source code
acquired from GateField and any documented GateField Proprietary Information
it has in its possession; (c) all outstanding invoices for amounts owed to
GateField shall become due and payable on the effective date of termination;
and (d) all obligations of Zycad TSS to perform services or other obligations
under this Agreement shall automatically and immediately terminate.
10. GENERAL
10.1 EXPORT. Zycad TSS agrees that it will not, directly or indirectly,
export or re-export or knowingly permit the export or re-export of LightSpeed
and XP/PXP Products or GateField Proprietary Information to any country for
which the U.S. Export Administration Act, any regulation thereunder, or any
similar U.S. law or regulation requires an export license or other United
States government approval unless the appropriate export license or approval
has been obtained.
10.2 TRADEMARKS. GateField has the right to grant to Zycad TSS the right
to use its LightSpeed and XP/PXP Product logo and trademarks during the term
of this Agreement for the purposes set forth in this Agreement. Any use of
trademarks shall contain a statement identifying said trademarks as being
trademarks of IKOS.
10.3 ARBITRATION. Any unresolved dispute arising pursuant to this Agreement
shall be settled by arbitration before one (1) arbitrator for disputes under
$100,000, otherwise before three (3) arbitrators, provided that nothing in
this Section shall restrict either party from applying for emergency relief
pending final determination of a claim by arbitration or restrict either
party from bringing action against the other for infringement of any of their
respective intellectual property rights or for breach of any of the
obligations hereunder relating to confidentiality and protection of
proprietary information. All arbitration shall be conducted in Santa Clara,
California in accordance with the rules and regulations of the American
Arbitration Association. The expenses associated with such arbitration,
including the expenses of the neutral arbitrator(s) shall be made a part of
the Arbitration Award. The judgment of the arbitrators shall be binding and
entered in any court having jurisdiction thereof. Each party shall be
responsible for their own Attorney's fees.
10.4 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when received, or when
sent by certified or registered mail-return receipt requested, or by prepaid
telex or telegram, as follows:
A. If to GateField:
GateField Corporation
47100 Bayside Parkway
Fremont, California 94538
Attention: James R. Fiebiger
Title: President and CEO
Copy to General Counsel
B. If to Zycad TSS Corporation:
Zycad TSS
47100 Bayside Parkway, Fremont, CA 94538
Attn: John R. Walsh
Title: President
<PAGE>
C. If to Zycad Japan KK
Toshin 24 Shin-Yokohama
Bldg. B-8F
2-3-8 Shin-Yokohama, Kohoku-ku
Yokohama, 222 Japan
Attention: Manager, Director
or to such other addresses as shall be designated by any of such parties to the
other by such a notice.
10.5 EXCLUSIVE AGREEMENT. This Agreement including the attached
Exhibits is the complete and exclusive statement of the agreement between the
parties and supersedes all prior agreements and communications with respect
to the subject matter. All modifications shall be in writing and signed by
authorized representatives of each party.
10.6 ASSIGNMENT PROHIBITION. Neither this Agreement nor individual rights
or transactions under it shall be assigned by Zycad TSS without the prior
written consent of GateField.
10.7 GOVERNING LAW. This Agreement and all transactions under it shall be
governed by the laws of the State of California, excluding its conflict of
law rules. Any item or service furnished by GateField or the Zycad TSS in
furtherance of this Agreement, although not specifically identified in it,
shall nevertheless be covered by this Agreement unless specifically covered
by some other written agreement executed by GateField and an authorized
representative of Zycad TSS GateField agrees that Zycad TSS may use
GateField's name in lists of representatives Zycad TSS Customers.
10.8 HEADINGS. The headings used in this Agreement are only for
convenience, and are not to be used in interpreting it.
10.9 NO AGENT. Neither party shall not be deemed an agent of the other and
both parties agree not to make any representations on behalf of the other.
In Witness whereof, the parties have signed this Agreement as indicated below.
<TABLE>
<CAPTION>
<S> <C>
GATEFIELD CORPORATION ZYCAD TSS CORPORATION
By: /s/ JAMES R. FIEBIGER By: /s/ JOHN R. WALSH
Name: JAMES R. FIEBIGER Name: JOHN R. WALSH
Title: President & CEO Title: PRESIDENT
By: /s/ Stephen Flory ZYCAD JAPAN KK
Name: Stephen Flory
Title: CFO By: /s/ Stephen Flory
Name: Stephen Flory
Title: CFO
By: /s/ DOUGLAS E. KLINT
Name: Douglas E. Klint
Title: VP, Secretary & General Counsel
</TABLE>
<PAGE>
Exhibit 10.25
SEVERANCE AGREEMENT
AND GENERAL RELEASE OF ALL CLAIMS
The intent of this Agreement and Release is to mutually, amicably and
finally resolve and compromise all issues and claims surrounding the
employment of PHILLIPS W. SMITH, (the "Employee") by ZYCAD CORPORATION, (the
"Company") and the termination thereof. The execution of this Agreement
shall not in any way be considered an admission of any liability on the part
of the Company.
1. The Employee has notified the Company that he is retiring and that his
employment with the Company is being voluntarily terminated effective
SEPTEMBER 30, 1997. In exchange for the Release described below, the Company
agrees to pay Employee the severance package as described in Section 2 below.
This amount includes money which is not due to him now, or in the future, and
which is valuable consideration for the promises and undertakings set forth
herein.
2. SEVERANCE PAY:
The Company will pay Employee Severance Pay consisting of the following:
<TABLE>
<S> <C>
6 months base salary $120,000
Cash in lieu of 7,500 warrants $ 10,000
--------
Sub-Total $130,000
</TABLE>
3. BONUSES
<TABLE>
<S> <C>
Bonus under Stock Option Bonus Plan $ 47,000
Bonus for IKOS settlement $ 73,000
--------
Sub-Total $120,000
Grand Total $250,000
</TABLE>
4. PAYMENT SCHEDULE:
The Company will pay Employee the Severance Pay and Bonuses specified
above over a period of twenty-four (24) months beginning OCTOBER 1, 1997 and
continuing through SEPTEMBER 30, 1999 (the "Severance Period") at the rate of
$10,416.67 per month payable on the 15th and last day of each month during
which time Employee shall be deemed an inactive employee. Severance payments
do not include FSA, car plan payments, bonuses, or any other monies.
5. GROUP INSURANCE:
Employee's group coverage for medical, dental, life and AD&D will remain
in effect through SEPTEMBER 30, 1999 at which time you may elect continuation
coverage through COBRA. The Company will cease paying the premiums for any
supplemental life insurance on September 30, 1997.
6. 401(k) PLAN:
Employee's participation in Zycad's 401(k) Plan will cease upon
termination of Severance Pay as stated above. The Company will not be liable
for matching contributions after SEPTEMBER 30, 1997. Employee may receive a
lump sum distribution for the amount of Employee's vested account balance
within approximately 90 days after ceasing participation in the Plan. If
Employee's vested account balance is greater than $3,500, Employee may elect
to leave his money in the Plan.
7. STOCK OPTIONS:
Employee has exercised all his stock options and there are no stock
options outstanding.
<PAGE>
8. DEATH:
In the event Employee dies during the Severance Period, any unpaid
Severance Pay and Bonuses shall be paid to the Phillips W. Smith Family Trust.
9. CONFIDENTIALITY:
Employee agrees that the terms and conditions of this Agreement are
strictly confidential and shall not be disclosed to any other persons except
his counsel, immediate family, financial advisor or as required by applicable
law.
10. RELEASE:
In consideration for the payment and undertakings described above
Employee, his representatives, successors, and assigns, do hereby completely
release and forever discharge, the Company, its parent, affiliated and
subsidiary corporations, and its shareholders, officers and all other
representatives, agents, directors, employees, successors and assigns, from
all claims, rights, demands, actions, obligations, and causes of action of
any and every kind, nature and character, know or unknown, which Employee may
now have, or has ever had, against them arising from or in any way connected
with the employment relationship between the parties, any actions during the
relationship, or the termination thereof, including but not limited to all
"wrongful discharge" claims; and all claims relating to any contracts of
employment, express or implied; any tort of nature; any federal, state, or
municipal statute or ordinance; any claims under the California Fair
Employment and Housing Act, Title VII of the Civil Rights Act of 1964, the
Age Discrimination in Employment Act of 1967, 42 U.S.C. Section 1981 and any
other laws and regulations relating to employment discrimination any and all
claims for attorney's fees and costs.
11. STATUTORY NOTICE
Employee has read Section 1542 of the Civil Code of the State of
California, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW
OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH
IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
Employee understands that Section 1542 gives him the right not to
release existing claims of which he is not now aware, unless he voluntarily
chooses to waive this right. Having been so apprised, he nevertheless
hereby voluntarily elects to, and does, waive the rights described in Section
1542, and elects to assume all risks for claims that now exist in his favor,
KNOWN or UNKNOWN, from the subject of this Agreement.
12. ENTIRE UNDERSTANDING:
This Agreement constitutes the entire understanding of the parties on
the subjects covered. Employee expressly warrants that he has read and fully
understands this Agreement; that he has had the opportunity to consult with
legal counsel of his own choosing and to have the terms of the Agreement
fully explained to him; that he is not executing this Release in reliance on
any promises, representations or inducements other than those contained
herein; and that he is executing this Release voluntarily, free of any duress
or coercion.
ZYCAD CORPORATION
<TABLE>
<S> <C>
September 30, 1997 By: /s/ JAMES R. FIEBIGER
- ---------------------------- -----------------------------
President & CEO
EMPLOYEE
September 30, 1997 By: /s/ PHILLIPS W. SMITH
- ---------------------------- ------------------------------
</TABLE>
<PAGE>
EXHIBIT 13.1
GATEFIELD CORPORATION
CORPORATE OVERVIEW
GateField Corporation (the "Company" or "GateField"), designs, develops and
markets high density, high performance programmable logic solutions and related
development system software. The Company also offers design services including
rapid system prototyping, reconfigurable computing, and design conversions for
applications using GateField's programmable logic. During 1997 the Company
(formerly Zycad Corporation) completed its transition from a provider of high
performance verification products to a provider of products based on its
ProASIC-TM- technology.
GateField is the inventor and a leading supplier of flash technology FPGAs
(Field Programmable Gate Array), trademarked as programmable ASICs
(ProASIC-TM-), that are based on two proprietary technologies: the GateField
flash-based switching element and the very fine-grained, gate array like,
Sea-of-Tiles-TM- ProASIC architecture. The principal advantage over alternative
SRAM based and antifuse programmable devices are smaller chip sizes combined
with reprogrammability, non-volatility and the ability to use a standard
Electronic Design Automation (EDA) ASIC design flow. The smaller size of the
flash based switching element allows GateField to make denser programmable
circuits that are smaller, and hence less costly, than circuits of comparable
performance and capacity made under comparable design rules using alternative
switch technologies. Similarly, the flash-based switch facilitates the design of
circuits with a greater number of programming elements, which tends to enhance
flexibility and/or performance. In addition, GateField's flash-based ProASIC
architecture is better suited for the industry standard EDA high-level design
tools generally employed to design higher capacity devices than existing FPGAs.
The advantages of GateField's solution will become more evident in higher
capacity devices. According to market analyst companies e.g. Dataquest, the
demand for higher capacity devices will increase faster than that for
programmable logic devices as a whole over the next five years.
GateField's products are designed to provide high integration and fast
time-to-market for electronic equipment manufacturers in the networking,
telecommunications, computer, peripheral, industrial control, instrumentation
and consumer markets.
GateField concentrates its business activities in three areas
- PROGRAMMABLE ASIC PRODUCTS for ASIC prototyping, for functional block
("IP"--Intellectual Property) verification, secure distribution and
evaluation as well as for low volume applications.
- DESIGN SERVICES to provide rapid prototyping solutions and to assist
customers' systems designs utilizing GateField's ProAICSs. These help
customers to meet time-to-market goals and to optimize product life cycle
costs.
- TECHNOLOGY LICENSING of the Company's ProASIC technology to semiconductor
companies to establish this technology as the industry standard for
embedded re-programmability and reconfigurability in System Level
Integration ICs.
GateField's corporate office is located in Fremont, California. Sales and
support offices are located throughout the United States, Japan and Europe.
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SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues (a) (e)......................................... $ 15,792 $ 33,577 $ 51,117 $ 50,051 $ 41,478
Gross profit............................................. $ 4,889 $ 16,569 $ 33,624 $ 30,094 $ 24,769
Operating income (loss).................................. $ (16,715) $ (18,435) $ 2,550 $ (9,511) $ (8,565)
Net income (loss) (b) (c)................................ $ (15,076) $ (21,376) $ 1,957 $ (9,748) $ (4,480)
Diluted net income (loss) per share...................... $ (0.50) $ (1.03) $ 0.09 $ (0.52) $ (0.26)
Weighted average common shares and common share
equivalents outstanding................................. 30,303 20,655 20,904 18,598 16,908
YEAR END FINANCIAL DATA:
Working capital (deficit)................................ $ (47) $ (1,240) $ 6,741 $ 1,621 $ 6,030
Total assets (d)......................................... $ 11,256 $ 29,527 $ 28,980 $ 29,825 $ 28,606
Long-term debt........................................... $ 58 $ 8,061 $ 1,207 $ 1,874 $ 81
</TABLE>
- ------------------------
(a) Revenues, net income or loss and net income or loss per share for 1995 and
1994 included amounts related to a technology distributed by GateField and
owned by a U.K. Company. Effective January 1, 1996, a joint venture was
formed by the two companies. Consequently, specific revenues and costs
related to this product will no longer be consolidated in GateField's
financial statements (see Note 3 of Notes to Consolidated Financial
Statements).
(b) The net loss in 1994 included a charge for asset write-downs and staff
reductions of $6,800,000, primarily related to the Company's decision to
discontinue selling the Paradigm ViP-TM- (VHDL instruction processor)
product.
(c) The net loss in 1993 included $2,900,000 of staff reduction costs and asset
write-downs and $3,900,000 of gain related to the sale of another company's
common stock.
(d) Total assets included a reduction of the purchase price of Attest Software,
Inc. in the quarter ended June 1996 of $345,000 relating to the value
ascribed to GateField restricted stock issued to Attest shareholders.
(e) Revenues decreased in 1997 due to the sale of several families (see Note 3
of Notes to Consolidated Financial Statements).
2
<PAGE>
GATEFIELD CORPORATION
MANAGEMENT'S DISCUSSION AND ANANLYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE DISCUSSION IN THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS REPORT THAT
ARE NOT PURELY HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED INCLUDING STATEMENTS REGARDING THE
COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS OR STRATEGIES REGARDING THE FUTURE.
ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED ON
INFORMATION AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE COMPANY ASSUMES
NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED IN "FACTORS AFFECTING FUTURE RESULTS" AS WELL AS THOSE DISCUSSED
IN THIS SECTION AND ELSEWHERE IN THIS REPORT, AND THE RISKS DISCUSSED IN THE
COMPANY'S SECURITIES AND EXCHANGE COMMISSION FILINGS.
RESULTS OF OPERATIONS
OVERVIEW
The net loss for 1997 was $15.1 million, compared to net loss in 1996 of
$21.4 million. Total revenues for 1997 were $15.8 million, down $17.8 million
from $33.6 million in 1996. The reduction in revenue resulted in a decreased
gross margin: $4.9 million for 1997 compared to $16.6 million in 1996. The loss
in 1997 was primarily due to decreased revenues resulting from the disposition
of several product families.
These dispositions included the sale of the LightSpeed product family on
April 15, 1997 for approximately $5.0 million, the sale of the Company's
ownership interest in QSS Inc. on May 12, 1997 for $3.5 million, the sale of the
Company's XP and PXP hardware fault simulation business on August 21, 1997 for
$2.2 million, and the sale of the Company's software fault and test products
also on August 21, 1997 for $2.3 million (see Note 3 of Notes to Consolidated
Financial Statements).
Operating expenses decreased by $13.4 million in 1997 to $21.6 million. This
decrease was mainly due to the cost-saving measures implemented by the Company
and reduced spending levels resulting from the dispositions mentioned above.
REVENUES
Total revenues decreased 53% to $15.8 million in 1997 from $33.6 million in
1996 and 34% in 1996 from $51.1 million in 1995. Product revenues decreased to
$5.4 million in 1997 compared to $18.2 million in 1996, a decrease of 70%. The
decrease in product revenues in 1997 as compared to 1996 was primarily
attributable to reduced shipments of the Company's accelerator products as well
as the disposition of several product lines. Product revenues decreased to $18.2
million in 1996 compared to $28.4 million in 1995, a decrease of 36%. This
decrease was primarily due to decreased shipments of the Company's accelerator
products and delays in shipments of the next generation LightSpeed accelerator
product family.
Service revenues were $10.4 million, $15.3 million and $22.7 million in
1997, 1996 and 1995, respectively. The decrease in 1997 versus 1996 was
attributable to reduced maintenance revenues relating to older generation
accelerator products and the transfer of the Company's LightSpeed and XP/PXP
maintenance and support business to Zycad TTS on October 31, 1997. The decrease
in service revenues from 1996 as compared to 1995 was mainly due to the
exclusion (i.e. non-consolidation) of revenue relating to the DOORS technology
from revenue amounts in 1996, as well as reduced maintenance revenues related to
older generation accelerator products and price reductions related to government
contracts (see Note 3 of Notes to Consolidated Financial Statements).
5
<PAGE>
GROSS PROFIT
Gross profit is affected by many factors, including but not limited to
pricing strategies, product mix and increased costs incurred in the introduction
of new products. Gross profit was $4.9 million, $16.6 million and $33.6 million
in 1997, 1996 and 1995, respectively. Gross profit as a percentage of total
revenues was 31%, 49% and 66% for the same years ended December 31, 1997, 1996
and 1995, respectively.
Gross margin from product revenues was $(1.0) million, or (19)% of product
sales in 1997. Gross profit from product revenues in 1996 was $9.8 million, or
54% of product sales compared to $22.0 million, or 77% of product sales in 1995.
The decrease in 1997 over 1996 was primarily due to decreased product revenues
that are necessary to support fixed overhead expenses during the period. The
decrease in 1996 versus 1995, both in dollars and as a percentage of product
revenues was primarily due to decreased product revenues as well as certain
one-time charges of approximately $1.8 million related to the write down of
inventories in 1996. Other factors contributing to the decrease in gross profit
in 1996 were product mix and higher discounts offered for older generation
products.
Gross profit from service revenues was $5.9 million, $6.8 million and $11.6
million in 1997, 1996 and 1995, respectively. Gross profit as a percentage of
service revenues was 57%, 44% and 51% for the years ended December 31, 1997,
1996 and 1995, respectively. This decrease in gross profit was primarily due to
decreased maintenance revenues in 1997 and 1996 and the exclusion of DOORS
revenues in 1996, which generally had a higher profit margin.
OPERATING EXPENSES
SALES AND MARKETING
Sales and marketing expenses were $9.7 million, or 61% of total revenues,
$14.3 million, or 43% of total revenues and $16.9 million, or 33% of total
revenues in 1997, 1996 and 1995, respectively. In 1997, sales and marketing
expenses decreased 33%, or $4.7 million, compared to 1996, primarily due to
reduced staffing levels resulting from the dispositions of product lines in
1997, but up as a percent of revenue as a result of efforts to support the
introduction of several new products in our ProASIC-TM- product family. The
decrease in actual expenses for 1996 compared to 1995 was primarily due to the
inclusion of DOORS expenses of $2.1 million in 1995. The increase in sales and
marketing expenses as a percentage of total revenues for 1996 as compared to
1995 was attributable to reduced revenues as well as higher marketing expenses
in 1996 related to the introduction of the LightSpeed product.
RESEARCH AND DEVELOPMENT
The Company's research and development expense was $7.9 million, $15.8
million and $11.3 million in 1997, 1996 and 1995, respectively. The 50% decrease
in 1997 over 1996 was principally due to reduced staffing levels resulting from
the completion of the LightSpeed Simulation Server and from the transition of
several high-density Programmable ASIC products from development to production.
The increase in research and development expense in 1996 compared to 1995
was mainly due to additional staffing levels and higher levels of engineering
project activity associated with the introduction of both the LightSpeed and the
high-density programmable ASICs product lines.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $4.1 million, $4.9 million and $2.9
million in 1997, 1996 and 1995, respectively. The decrease in general and
administrative expenses in 1997 as compared to 1996 was primarily related to
decreased staffing levels and cost-savings measures.
The increase in general and administrative expenses for 1996 was primarily
due to $1.0 million of bad debt expense for potential uncollectable accounts
receivable. An additional $0.8 million of expense in the second half of 1996 was
attributable to the Company's decision to restructure the organization in order
to
6
<PAGE>
seek profitability and growth. These expenses included severance and other
fringe benefits related to a reduction in force.
OTHER INCOME AND EXPENSE
Net interest expense was $1.4 million in 1997 compared to $3.2 million in
1996 and $0.3 million in 1995. The decrease in 1997 was primarily due to a
decrease of interest expense related to the Subordinated Convertible Debentures
that were converted to common stock in 1997.
The increase in 1996 over 1995 was primarily due to a $2.5 million discount
expense, higher borrowing and higher interest rates related to the Company's
Subordinated Convertible Debenture Notes (see Note 4 of Notes to Consolidated
Financial Statements).
Other income was $3.0 million in 1997 compared to $0.2 million in 1996. This
increase was mainly attributable to proceeds on the sale of the verification and
LightSpeed product families and the sale of the Company's interest in QSS. (see
Note 3 of Notes to Consolidated Financial Statements)
INCOME TAXES
The Company did not record income tax expense (benefit) in 1997, 1996 and
1995 due to the availability of net operating loss carryforwards (see Note 7 of
Notes to Consolidated Financial Statements).
NET INCOME (LOSS)
The net loss for 1997 was $15.1 million, compared to net loss in 1996 of
$21.4 million and a net income in 1995 of $2.0 million. A significant reduction
in revenues and the resulting decrease in gross margin were partially offset by
a gain on the sales of certain product families as discussed in "Other Income
and Expense".
The loss in 1996 was significantly impacted by one-time charges to cost of
sales of $1.8 million, discussed above in "Gross Profit", an additional $1.8
million of bad debt and restructuring charges as discussed in "General and
Administrative" and $2.5 million of amortization expense related to debenture
discounts as discussed in "Other Income and Expense".
The Company's net income of $2.0 million in 1995 was comprised of $5.4
million in profit attributable to revenues from its accelerator business
activity, $1.6 million in profit related to marketing and distribution of the
DOORS technology, offset by $5.0 million of expenses related to the development
of the GateField Programmable ASICs.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically used internally generated funds, private
offerings of convertible debt and convertible preferred stock, public and
private offerings of common stock, sale and leaseback arrangements and bank
financing and credit lines to finance its business. Cash used in operations was
$11.1 million in 1997 compared to $12.6 million in 1996. The decrease in cash
used in operations in 1997 was primarily due to the net effect of change between
accounts receivable and accounts payable and accrued expenses decreasing from
the prior year. Cash used in operations in 1996 principally reflect the net loss
generated by operations, net sales under capital leases and a growth in
inventories, partially offset by a growth in accounts payable and accrued
liabilities. Net cash provided by investing activities was $11.2 million in
1997, compared to cash used of $3.5 million in 1996. This increase is primarily
due to cash receipts from the disposition of product families. Net cash
generated by financing activities was $2.8 million in 1997, compared to $13.9
million generated in 1996. The decrease in net cash provided by financing
activities in 1997 as compared to 1996 was primarily due to decreased levels of
debenture offerings in 1997 as well as reduced levels of bank debt and financing
obligations in 1997, partially offset by the sale of $4.6 million in Convertible
Preferred Stock (see Note 9 of Notes to Consolidated Financial Statements). Cash
generated by financing activities in 1996 was primarily attributable to a $10.0
million subordinated
7
<PAGE>
convertible debenture notes offering, $3.2 million in bank borrowings, and $0.7
million provided by the issuance of the Company's Common Stock.
At December 31, 1997 the Company had cash and cash equivalents of $4.2
million and working capital deficit of $(47,000) at December 31, 1997
compared to working a capital deficit of $(1.2) million at December 31, 1996.
The Company has a $5.0 million revolving credit facility that expires on
January 31, 1999 and bears interest at the bank's prime rate plus 2.25%. The
line of credit carries a borrowing limit of up to 80% of the Company's
eligible accounts receivable. As of December 31, 1997 the Company was not in
compliance with a covenant in the Agreement (see Note 4 of Notes to
Consolidated Financial Statements). The Company continues to work with
certain vendors to facilitate extended trade terms, thus reducing the
Company's immediate cash requirements to meet established payments and other
normal, recurring period expenses.
The Company's operating and product development activities have required
significant cash. In anticipation of meeting the Company's 1998 cash
requirements, in November 1997 the Company entered into a two-phase private
placement of equity. Under the terms of the Agreement the Company sold $4.6
million of its Series B Convertible Preferred Stock and agreed to sell $4.6
million of the Company's Common Stock pending stockholder approval of certain
management proposals at the Company's Annual Meeting. Those proposals were
approved and the sale was completed on January 14, 1998. (see Note 10 of Notes
to Consolidated Financial Statements).
At December 31, 1997, the Company was not in compliance with the requirement
of the Nasdaq National Market (a distinct tier of the Nasdaq Stock Market) to
maintain minimum net tangible assets (as defined) of $4,000,000. However, with
the sale of Common Stock in January 1998 the Company met the compliance
requirements. The Company believes that if its stock were delisted from the
Nasdaq National Market, it would be eligible for listing in the Nasdaq SmallCap
Market, which is another tier of the Nasdaq Stock Market, however, no assurances
can be given.
The Company expects to meet short-term liquidity needs by increasing 1998
revenue relative to expenses and by relying on other sources of additional
liquidity such as private or public offerings and equipment lease lines. Should
additional funding be required, however, there can be no assurance that such
funding will be available on acceptable terms as and when required by the
Company.
FACTORS AFFECTING FUTURE RESULTS
The Company operates in a rapidly changing environment that involves a
number of risks, many of which are beyond the Company's control. The following
discussion highlights some of these risks. The Company's actual results could
differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in this section and elsewhere in this Report, and the risks discussed in the
Company's other United States Securities and Exchange Commission Filings.
FUTURE OPERATING RESULTS
The Company's quarterly operating results have varied significantly in the
past and are likely to vary significantly in the future. For example, the
Company has recently experienced quarterly losses and experienced a loss for
fiscal 1997 and 1996. The Company's results depend on factors such as changes in
programmable logic solutions technologies, price and product competition, usage
of computer chips, developments and changes in chip markets, the demand for the
Company's products, changes in pricing policies by the Company or its
competitors, changes in the mix of products sold by the Company and change in
total gross margin, raw material costs, write-offs of obsolete inventory,
customer order deferrals in anticipation of enhancements to the Company's or
competitors' products or deferrals for budgetary or other reasons, disruption in
sources of supply, product life cycles, product quality problems, personnel
changes, changes in the Company's strategy, changes in the level of operating
expenses, the timing of research and development expenditures, the level of the
Company's international revenues, fluctuations in
8
<PAGE>
foreign currency exchange rates, general economic conditions, both in the United
States and abroad, and economic conditions specific to the industries in which
the Company competes among others.
The Company's revenues during 1995 through 1997 consisted principally of its
Paradigm PXP and TDX products utilizing its verification technology, its
LightSpeed products utilizing its simulation technology, and the distribution
operations of its DOORS technology. Revenue for these products declined during
the three-year period and ultimately resulted in the sale of these businesses
during 1997. The Company's plans to offset this historic trend are principally
dependent on the successful introduction of its GateField high-density
reprogrammable ASICs. GateField's strategy is to become a leading supplier of
flash programmable ASIC and related software development tool solutions by
developing and offering products which enable its customers to quickly bring
their own products to market and immediately ramp up volume production. However,
there can be no assurance that the Company will be successful in its efforts.
The Company's limited operating history with its high-density Programmable
ASIC products and the dynamic market environment in which the Company competes
makes the prediction of future operating results difficult, if not impossible.
In the future, the Company's operating results may be impacted by a number of
factors, including those listed above among others. Historically, a significant
portion of the Company's shipments has been made in the last month of each
quarter. As a result, a shortfall in revenue compared to expectation may not
evidence itself until late in, or even after the close of a particular quarter.
In addition, significant volume at the end of a quarter may be exposed to delays
caused by shipping halts or other factors beyond the Company's control. The
Company's business has also experienced seasonally in the past, largely due to
customer buying patterns such as budgeting cycles and foreign holidays or
economic slow downs. There can be no assurances that the Company's operating
results will not be affected by such factors or that they will occur in a manner
consistent with prior periods.
Additionally, the timing of expenditures for research and development
activities and sales and marketing programs, as well as the timing of orders by
major customers, may cause operating results to fluctuate between quarters and
between years. The Company's expense levels are based in large part on
expectations as to future revenues and as a result are relatively fixed in the
short term. If revenues are below expectations in any given quarter or period,
net income or loss is likely to be disproportionately affected. Due to all of
the foregoing factors, and other factors discussed herein, revenues and net
income or loss for any future period are not predictable with any significant
degree of certainty. Accordingly, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. There can be no
assurance that the Company's business strategies will be successful or that the
Company will be able to return to or sustain profitability on a quarterly or
annual basis in the future. It is likely that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would likely be materially and adversely affected.
MANAGEMENT OF CHANGING BUSINESS
The Company has shifted its business strategy from a provider of high
performance verification products to a provider of high density, high
performance programmable logic solutions, related development system software,
and design services. This transition represents a significant challenge for the
Company and its administrative, operational and financial resources and places
increased demand on its systems and controls. The Company's ability to manage
the continuing development of its programmable logic solutions business will
require the Company to continue to change, expand and improve its operational,
management and financial systems and controls and to expand its third party
manufacturing capabilities. This transition has resulted in a continuing
increase in the level of responsibility for both existing and new management
personnel. The Company anticipates any growth in its programmable logic products
and design services businesses will require it to recruit and hire new
engineering, sales and marketing, customer service, administrative and
managerial personnel. There can be no assurances that the Company will be
successful in hiring or retaining these personnel, when and if needed. In
addition,
9
<PAGE>
certain aspects of the Company's business require volume sales to achieve
profitability. If the Company is unable to achieve such volumes or to manage the
transition effectively, the Company's business, operating results and financial
condition will be materially and adversely affected.
VOLATILITY OF STOCK PRICE
The market price of the shares of the Company's Common Stock is highly
volatile and may be significantly affected by factors such as actual or
anticipated fluctuations in the Company's results of operations, announcements
of technological innovations, introduction of new products by the Company or its
competitors, developments with respect to patents, copyrights or proprietary
rights, conditions and trends in the ASIC industry and other industries, changes
in or failure by the Company to meet securities analysts' expectations,
continued listing on Nasdaq, general market conditions and other factors. In
addition, the stock market has from time to time experienced significant price
and volume fluctuations that have particularly affected the market prices for
the common stocks of technology companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock. In the past,
following periods of volatility in the market price of a particular company's
securities, securities class action litigation has often been brought against
that company. There can be no assurance that such litigation will not occur in
the future with respect to the Company. Such litigation could result in
substantial costs and a diversion of management's attention and resources, which
could have a material adverse effect upon the Company's business, operating
results and financial condition.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily through cash flow
from operations, the private sale of equity securities and public offerings of
the Company's Common Stock. If its existing cash, cash equivalents and
short-term investments plus cash generated from operations are insufficient to
satisfy the Company's liquidity requirements, the Company may seek additional
equity or convertible debt securities or obtain additional credit facilities.
The sale of additional equity or convertible debt securities could result in
additional dilution to the Company's stockholders. There can be no assurance
that the Company would be successful in obtaining these funds when and if needed
or that the sale of such equity or convertible debt securities will not
substantially dilute the Company's existing stockholders' interest.
YEAR 2000 ISSUES
The Company is in the process of conducting assessments of its computer
information systems and will take the necessary steps to determine the nature
and extent of the work required to make its systems Year 2000 compliant, where
necessary. These steps may require the Company to modify, upgrade or replace
some of its internal financial and operational systems. The cost of bringing all
internal systems, equipment and operations into Year 2000 compliance has not yet
been determined. While these efforts may involve additional costs, the Company
believes, based upon currently available information, that these costs will not
have a material adverse effect on the business, financial condition or results
of operations of the Company. However, if these efforts are not completed on
time, the Year 2000 issue could have a material adverse impact on the business,
financial condition or results of operations of the Company. To address these
issues the Company has enlisted the aid of outside consultants and has
evaluated, purchased, installed and implemented a year 2000 compliant financial
information system and discontinued operation of its non-compliant accounting
system.
The Company also intends to determine the extent to which it may be
vulnerable to any failures by its major partners, customers and service
providers to remedy their own Year 2000 issues, and is in the process of
initiating formal communications with these parties. At this time the Company is
unable to estimate the nature or extent of any potential adverse impact
resulting from the failure of third parties to achieve Year 2000 compliance;
however, there can be no assurance that these third parties will not experience
Year 2000 problems or that any problems would not have a material effect on the
Company's business, financial condition or results of operations.
10
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................................................... $ 4,189 $ 1,703
Short-term investments.................................................................. 98 100
Accounts receivable, less allowance for doubtful accounts of $528 in 1997 and $1,337 in
1996.................................................................................. 2,763 12,088
Inventories............................................................................. 735 2,664
Other current assets.................................................................... 524 956
---------- ----------
Total current assets.................................................................. 8,309 17,511
Property and equipment, net............................................................... 2,660 5,101
Purchased technology...................................................................... -- 2,776
Other assets.............................................................................. 287 4,139
---------- ----------
Total assets.......................................................................... $ 11,256 $ 29,527
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank financing.......................................................................... $ -- $ 3,203
Current portion of long-term obligations................................................ 516 1,958
Accounts payable........................................................................ 3,741 5,715
Accrued expenses........................................................................ 3,118 5,345
Deferred revenues....................................................................... 981 2,530
---------- ----------
Total current liabilities............................................................. 8,356 18,751
Subordinated convertible debenture notes.................................................. -- 7,342
Long-term obligations..................................................................... 58 719
Other long-term liabilities............................................................... 13 146
---------- ----------
Total liabilities..................................................................... 8,427 26,958
Commitments and contingencies (Note 5)
Stockholders' equity
Preferred stock
$0.10 par value; 2,000,000 shares authorized; shares issued and outstanding: 1,000,000
in 1997 and none in 1996.............................................................. 100 --
Additional paid-in capital, preferred stock............................................. 4,494 --
Common stock
$0.10 par value; 65,000,000 shares authorized; shares issued and outstanding:
36,222,326 in 1997 and 23,226,444 in 1996............................................. 3,622 2,323
Additional paid-in capital, common stock................................................ 66,776 55,784
Accumulated translation adjustments..................................................... (544) (48)
Accumulated deficit..................................................................... (71,619) (55,490)
---------- ----------
Total stockholders' equity............................................................ 2,829 2,569
---------- ----------
Total liabilities and stockholders' equity............................................ $ 11,256 $ 29,527
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
11
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
---------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues
Product...................................................................... $ 5,385 $ 18,232 $ 28,422
Service...................................................................... 10,407 15,345 22,695
---------- ---------- ---------
Total revenues............................................................. 15,792 33,577 51,117
---------- ---------- ---------
Cost of revenues
Product...................................................................... 6,421 8,439 6,407
Service...................................................................... 4,482 8,569 11,086
---------- ---------- ---------
Total cost of revenues..................................................... 10,903 17,008 17,493
---------- ---------- ---------
Gross profit............................................................... 4,889 16,569 33,624
---------- ---------- ---------
Operating expenses
Sales and marketing.......................................................... 9,664 14,325 16,911
Research and development..................................................... 7,854 15,783 11,263
General and administrative................................................... 4,086 4,896 2,900
---------- ---------- ---------
Total operating expenses................................................... 21,604 35,004 31,074
---------- ---------- ---------
Operating income (loss)........................................................ (16,715) (18,435) 2,550
---------- ---------- ---------
Other income (expense)
Interest expense, net........................................................ (1,360) (3,184) (343)
Other income (expense), net.................................................. 2,999 243 (250)
---------- ---------- ---------
Total other income (expense)............................................... 1,639 (2,941) (593)
---------- ---------- ---------
Net income (loss).............................................................. $ (15,076) $ (21,376) $ 1,957
---------- ---------- ---------
---------- ---------- ---------
Basic net income (loss) per share.............................................. $ (0.50) $ (1.03) $ 0.10
---------- ---------- ---------
---------- ---------- ---------
Diluted net income (loss) per share............................................ $ (0.50) $ (1.03) $ 0.09
---------- ---------- ---------
---------- ---------- ---------
Basic weighted average shares outstanding...................................... 30,303 20,655 19,395
---------- ---------- ---------
---------- ---------- ---------
Diluted weighted average shares outstanding.................................... 30,303 20,655 20,904
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
12
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------------------------- -------------------------------------
ADDITIONAL ADDITIONAL
PAID-IN PAID-IN NOTES
SHARES AMOUNT CAPITAL SHARES AMOUNT CAPITAL RECEIVABLE
----------- ----------- ----------- ----------- ----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1995....... -- $ -- $ -- 19,034 $ 1,903 $ 46,739 $ (900)
Exercise of common stock
options....................... -- -- -- 636 64 877 --
Sale of common stock to
employees..................... -- -- -- 28 3 38 --
Issuance of common stock by
exercise of warrants, net..... -- -- -- 54 5 183 --
Collection of note receivable
from stockholder.............. -- -- -- -- -- -- 900
Current translation
adjustment.................... -- -- -- -- -- -- --
Net income...................... -- -- -- --
----- ----------- ----------- ----------- ----------- ----------- ------
Balances, December 31, 1995..... -- -- -- 19,752 1,975 47,837 --
Exercise of common stock
options....................... -- -- -- 370 37 609 --
Common stock to employees....... -- -- -- 26 3 75 --
Issuance of common stock for
purchase of Attest, net....... -- -- -- 387 39 2,101 --
Issuance of common stock for
debentures, net............... -- -- -- 2,691 269 5,162 --
Current translation
adjustment.................... -- -- -- -- -- -- --
Net loss........................ -- -- -- -- -- -- --
----- ----------- ----------- ----------- ----------- ----------- ------
Balances, December 31, 1996..... -- -- -- 23,226 2,323 55,784 --
Exercise of common stock
options....................... -- -- -- 278 28 225 --
Compensation for accelerated
vesting of stock options...... -- -- -- -- -- 47 --
Sale of common stock to
employees..................... -- -- -- 93 9 70 --
Issuance of common stock to
nonemployees for services..... -- -- -- 55 5 65 --
Issuance of common stock for
debentures, net............... -- -- -- 7,418 742 6,681 --
Issuance of preferred stock for
debentures, net............... 100 10 3,927 -- -- -- --
Accrued dividends on preferred
stock......................... -- -- 1,053 -- -- -- --
Conversion of preferred stock to
common stock.................. (52) (5) (3,147) 4,547 454 2,698 --
Repurchase of preferred stock... (48) (5) (1,822) -- -- -- --
Issuance of common stock by
exercise of warrants.......... -- -- -- 105 11 45 --
Issuance of preferred stock..... 1,000 100 4,483 -- -- -- --
Subscribed common stock......... -- -- -- 500 50 711 --
Issuance of warrants............ -- -- -- -- -- 450 --
Current translation
adjustment.................... -- -- -- -- -- -- --
Net Loss........................ -- -- -- -- -- -- --
Balances, December 31, 1997..... 1,000 $ 100 $ 4,494 36,222 $ 3,622 $ 66,776 $ --
----- ----------- ----------- ----------- ----------- ----------- -----
----- ----------- ----------- ----------- ----------- ----------- -----
<CAPTION>
ACCUMULATED
TRANSLATION ACCUMULATED
ADJUSTMENTS DEFICIT TOTAL
--------------- ------------ ---------
<S> <C> <C> <C>
Balances, January 1, 1995....... $ (156) $ (36,071) $ 11,515
Exercise of common stock
options....................... -- -- 941
Sale of common stock to
employees..................... -- -- 41
Issuance of common stock by
exercise of warrants, net..... -- -- 188
Collection of note receivable
from stockholder.............. -- -- 900
Current translation
adjustment.................... 137 -- 137
Net income...................... -- 1,957 1,957
----- ------------ ---------
Balances, December 31, 1995..... (19) (34,114) 15,679
Exercise of common stock
options....................... -- -- 646
Common stock to employees....... -- -- 78
Issuance of common stock for
purchase of Attest, net....... -- -- 2,140
Issuance of common stock for
debentures, net............... -- -- 5,431
Current translation
adjustment.................... (29) -- (29)
Net loss........................ -- (21,376) (21,376)
----- ------------ ---------
Balances, December 31, 1996..... (48) (55,490) 2,569
Exercise of common stock
options....................... -- -- 253
Compensation for accelerated
vesting of stock options...... -- -- 47
Sale of common stock to
employees..................... -- -- 79
Issuance of common stock to
nonemployees for services..... -- -- 70
Issuance of common stock for
debentures, net............... -- -- 7,423
Issuance of preferred stock for
debentures, net............... -- -- 3,937
Accrued dividends on preferred
stock......................... -- (1,053) --
Conversion of preferred stock to
common stock.................. -- -- --
Repurchase of preferred stock... -- -- (1,827)
Issuance of common stock by
exercise of warrants.......... -- -- 56
Issuance of preferred stock..... -- -- 4,583
Subscribed common stock......... -- -- 761
Issuance of warrants............ -- -- 450
Current translation
adjustment.................... (496) -- (496)
Net Loss........................ -- (15,076) (15,076)
Balances, December 31, 1997..... $ (544) $ (71,619) $ 2,829
----- ------------ ---------
----- ------------ ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
13
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities
Net income (loss).................................................................. $ (15,076) $ (21,376) $ 1,957
Reconciliation to net cash provided by (used in) operating activities
Depreciation and amortization.................................................... 3,124 4,307 4,732
Noncash subordinated convertible debt interest................................... 678 2,773 --
Asset write-downs and staff reductions........................................... -- -- 233
Loss on disposition of property and equipment.................................... 722 -- 226
Gain on sale of assets, net...................................................... (2,741) -- --
Stock compensation expense....................................................... 9 -- --
Sales under capital leases....................................................... (606) (1,420) (854)
Collections under capital leases................................................. 620 459 209
Changes in assets and liabilities
Accounts receivable............................................................ 9,543 724 845
Inventories.................................................................... 143 (876) (840)
Other assets................................................................... 31 (90) 382
Accounts payable and accrued expenses.......................................... (5,951) 3,174 (966)
Deferred revenues.............................................................. (1,549) (292) (527)
--------- --------- ---------
Net cash provided by (used in) in operating activities....................... (11,053) (12,617) 5,397
--------- --------- ---------
Investing activities
Property and equipment purchases, net.............................................. (1,568) (1,773) (1,775)
Proceeds from sale of assets....................................................... 12,750 -- --
Capitalized software............................................................... -- (1,698) (1,683)
Collection of notes receivable..................................................... -- -- 1,500
--------- --------- ---------
Net cash provided by investing activities.................................... 11,182 (3,471) (1,958)
--------- --------- ---------
Financing activities
Proceeds from issuance of convertible debenture notes, net......................... 3,500 10,000 --
Proceeds from issuance of common stock............................................. 458 724 1,170
Proceeds from issuance of preferred stock.......................................... 4,583 -- --
Repurchase of preferred stock...................................................... (1,827) -- --
Proceeds from subscribed stock..................................................... 761 -- --
Proceeds from warrants............................................................. 450 -- --
Bank financing, net................................................................ (3,203) 3,203 (2,897)
Borrowings under debt obligations.................................................. 199 882 217
Repayments of debt obligations..................................................... (2,161) (930) (1,084)
--------- --------- ---------
Net cash provided by (used in) financing activities.......................... 2,760 13,879 (2,594)
--------- --------- ---------
Effect of exchange rate changes on cash and cash equivalents......................... (403) 190 16
--------- --------- ---------
Net change in cash and cash equivalents.............................................. 2,486 (2,019) 861
Cash and cash equivalents, beginning of year......................................... 1,703 3,722 2,861
--------- --------- ---------
Cash and cash equivalents, end of year............................................... $ 4,189 $ 1,703 $ 3,722
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure of cash flow information
Noncash activities
Common stock issued for convertible debentures................................... $ 7,423 $ 5,431 $ --
Preferred stock issued for convertible debentures................................ $ 3,937 $ -- $ --
Accrued dividends on preferred stock............................................. $ 1,053 $ -- $ --
Common stock issued for preferred stock.......................................... $ 3,152 $ -- $ --
Common stock issued for the acquisition of all the outstanding shares of Attest
Software, Inc................................................................... $ -- $ 2,140 $ --
Promissory notes issued in exchange for reduction of accounts payable............ $ -- $ 901 $ --
Equipment acquired under capital leases.......................................... $ 19 $ 490 $ 229
Cash activities
Cash paid during the year for interest........................................... $ 363 $ 471 $ 562
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
14
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
GateField Corporation, formerly Zycad Corporation, (the Company), based in
Fremont, California, designs, develops and markets logic solutions in
high-density reprogrammable ASIC technology (ProASIC-TM-) with related
development system software. During 1997, the Company disposed of its
verification and simulation businesses (see Note 3). The Company also provides
system engineering services and custom solutions to military, aerospace and
commercial companies, primarily in the U.S., Asia and Europe.
The Company incurred a loss of $15,076,000 in 1997 and had working capital
deficit of $47,000 as of year-end. Management's plan to sustain operations in
1998 includes an increase level of revenue relative to expenses and obtaining
additional financing. In January 1998, the Company sold $4,583,000 of its Common
Stock as part of this plan (See Note 10).
At December 31, 1997, the Company was not in compliance with the requirement
of the Nasdaq National Market (a distinct tier of the Nasdaq Stock Market) to
maintain minimum net tangible assets (as defined) of $4,000,000. However, with
the sale of Common Stock in January 1998 the Company met the compliance
requirements.
PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. The functional currency of
the Company's foreign subsidiaries is the local currency.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Such estimates include allowances for potentially uncollectible accounts
receivable, inventory valuation reserves, warranty costs, sales returns and a
valuation allowance for deferred tax assets. Actual results could differ from
those estimates.
CASH EQUIVALENTS
Cash and cash equivalents consist of cash on deposit with banks and money
market instruments with original maturities of three months or less.
SHORT-TERM INVESTMENTS
Short-term investments consist of Certificates of Deposit, stated at cost
plus accrued interest, which approximates market.
15
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash and cash equivalents, short-term
investments and trade accounts receivable. The Company invests only in high
credit quality short-term debt investments and limits the amount of credit
exposure to any one entity. The majority of the Company's trade accounts
receivables are derived from sales to manufacturers in the semiconductor,
computer, military and aerospace industries. The Company performs ongoing credit
evaluations of its customers' financial condition and limits the amount of
credit extended when deemed necessary, but generally requires no collateral. The
Company maintains reserves for estimated potential credit losses.
INVENTORIES
Inventories are stated at the lower of standard cost, which approximates
actual cost on a first-in, first-out basis, or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Equipment acquired under capital
lease obligations is stated at the lower of fair value or the present value of
future minimum lease payments at the inception of the lease. Depreciation and
amortization is provided over the estimated useful lives of the assets or over
the life of the lease, as applicable, using the straight-line method. The
Company has adopted Statement of Financial Accounting Standards No. 121 (SFAS
No. 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". The adoption of this standard had no effect on the
Company's financial condition or results of operations.
CAPITALIZED SOFTWARE
The Company capitalizes software development costs in accordance with
Statement of Financial Accounting Standards No. 86 (SFAS No. 86), "Accounting
for the Costs of Computer Software to be Sold, Leased or otherwise Marketed".
Amortization of capitalized software development costs begins upon initial
product shipment. Software development costs are amortized (a) over the
estimated life of the related product, generally thirty-six months, using the
straight-line method, or (b) based on the ratio of current revenues from the
related products to total estimated revenues for such products, whichever is
greater.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with Accounting Principles Board No. 25 (APB No. 25),
"Accounting for Stock Issued to Employees". The Company has presented the pro
forma disclosures of compensation expense under the fair value provisions of
Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting
for Stock-Based Compensation" in Note 9.
16
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company generally recognizes product revenues at the time of shipment,
but may delay revenue recognition until products are installed or accepted,
depending on the particular product and contract terms. Design and verification
service revenues are recognized as the services are performed. Revenues from the
sale of maintenance contracts are recognized over the term of the respective
contract.
INCOME TAXES
The Company follows Statement of Financial Accounting Standards No. 109
(SFAS No. 109), "Accounting for Income Taxes," which requires an asset and
liability approach to account for income taxes and requires recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between the financial statement carrying amounts and the
tax basis of assets and liabilities and net operating loss and tax credit
carryforwards.
NET INCOME (LOSS) PER SHARE
In the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings
Per Share" which requires a dual presentation of basic and diluted earnings per
share ("EPS"). Basic EPS excludes dilution and is computed by dividing net
income attributable to common stockholders by the weighted average of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock
(convertible preferred stock, warrants to purchase common stock and common stock
options using the treasury stock method) were exercised or converted into common
stock. Potential common shares in the diluted EPS computation are excluded in
net loss periods as their effect would be antidilutive. EPS for all periods have
been computed in accordance with SFAS No. 128.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which requires an enterprise to report, by
major components and as a single total, the change in net assets during the
period from nonowner sources; and SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes annual and interim
reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major customers.
In October 1997, the American Institute of Certified Public Accountants issued
Statement of Position 97-2, "Software Revenue Recognition" which requires
revenue earned on software arrangements involving multiple elements to be
allocated to each element based on the relative fair values of the elements.
Adoption of these statements will not impact the Company's financial position,
results of operations or cash flows.
NOTE 2: PURCHASED TECHNOLOGY
In June 1996, the Company acquired Attest Software, Inc. (Attest), located
in Santa Clara, California, in exchange for approximately 387,000 shares of the
Company's Common Stock, valued at approximately $2,140,000, for all the
outstanding Common Stock of Attest. This transaction was accounted for as a
17
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 2: PURCHASED TECHNOLOGY (CONTINUED)
purchase; accordingly, the operations of Attest have been included in the
consolidated results of the Company since the day of acquisition. The operating
results of Attest prior to the acquisition were not significant. As part of this
transaction, the technology purchased, used for fault simulation and automatic
test pattern generation tools, was valued at $2,055,000 which is being amortized
over seven years. Accumulated amortization was $165,000 at December 31, 1996. In
August 1997, the Company sold these assets related to the TDX product line (see
Note 3).
NOTE 3: SALE OF ASSETS
DISPOSITION OF THE VERIFICATION PRODUCT FAMILY
In August 1997, the Company sold its assets relating to its verification
business, excluding the maintenance and support business, for a total of
$4,450,000, of which $4,250,000 was received as of December 31, 1997. As defined
in the purchase agreement, all of the rights, title and interest to the
intangible assets of the XP and PXP hardware fault simulation product business
were sold for $2,200,000. In a separate agreement, all of the assets of the
Attest business were sold for $2,250,000. The product family sold represented
approximately 93% of 1997 revenues. See table below for details of the
transaction.
DISPOSITION OF THE LIGHTSPEED PRODUCT FAMILY
In April 1997, the Company sold its software and hardware simulation
technology relating to its LightSpeed product family for $5,000,000. Revenues in
1997 were nominal. See table below for details of the transaction.
SALE OF QUALITY SYSTEMS SOFTWARE, INC.
The 1995 financial statements of the Company include service revenues of
$5,400,000 with a gross profit of $3,700,000 and operating income of $1,600,000
for the activities related to the distribution of third party owned technology,
DOORS. In January 1996, the Company and Quality Systems Software, Ltd. (QSS
Ltd.), an U.K. company and owner of the DOORS technology, established a joint
venture, QSS Inc., to continue the distribution operations of the DOORS
technology and other products in the North American market. In January 1997, QSS
Inc. was restructured such that QSS Ltd. became a subsidiary of QSS Inc. in
which the Company owned a 22% interest. In May 1997, the Company sold its
interest in QSS Inc. for $3,500,000.
The details of these transactions are as follows (in thousands):
<TABLE>
<CAPTION>
VERIFICATION LIGHTSPEED QSS
----------- ----------- ---------
<S> <C> <C> <C>
Sales price................................................ $ 4,450 $ 5,000 $ 3,500
Assets disposed............................................ 5,130 3,201 179
Liabilities incurred....................................... 245 1,454 --
----------- ----------- ---------
Gain (loss) on sale...................................... $ (925) $ 345 $ 3,321
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
18
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 3: SALE OF ASSETS (CONTINUED)
When the Company sold its rights, title, and interest in the assets of the
XP and PXP hardware fault simulation product, the related maintenance contracts
were transferred to Zycad TSS Corporation in October 1997 for future royalties.
Zycad TSS is a company formed by former employees of the Company to perform
maintenance services. The agreement with Zycad TSS entitles the Company to
receive 30% of all domestic XP/PXP maintenance revenue in the first two years
and 10% in the third year. In addition, the Company is generally entitled to
receive 40% of Japanese revenues for the first five years up to a $1.8 million
and then 10% thereafter.
NOTE 4: BANK FINANCING AND LONG-TERM DEBT
LOAN AGREEMENT
In January 1997 the Company entered into a loan and security agreement for
working capital purposes. The Company may borrow up to $5,000,000 against its
accounts receivable, based on 80% of eligible receivables. The Agreement earns
interest at the bank's prime rate plus 2.25% and matures in January 1999. The
Company is not currently in compliance with certain covenants as required in the
agreement. There is no outstanding balance under the Agreement as of December
31, 1997. The Company has received a waiver from the Bank through March 31,
1998.
TERM LOANS
In 1995 and 1996, the Company entered into long-term loan agreements
totaling $2,179,000 that bear interest rates of 10.66% to 15.33% and mature over
36 months. These loans are secured by specific capital assets. At December 31,
1997, the balance outstanding under these loans was $96,000 due in 1998. In
1996, the Company obtained promissory notes totaling $901,000 from key vendors
that bear interest rates from 12% to 18%. In 1997, an additional note of
$194,000 was obtained which bears interest at 18%, and $972,000 was repaid on
the outstanding notes. At December 31, 1997, $124,000 remains payable.
SUBORDINATED CONVERTIBLE DEBENTURE NOTES
In May 1996, the Company sold a total of $10,000,000 of subordinated
convertible debenture notes (the Notes) to institutional investors as part of a
private placement. The Notes accrue interest at an annual rate of 6%, beginning
on the date of issue, with the principal due and payable three years from the
date of issue if and to the extent that the Notes are not previously converted.
The Notes are convertible at the option of the noteholders (subject to the
maximum share limitations set forth below) into Common Stock at a price equal to
80% to 85% of the average closing bid price for the Common Stock on the Nasdaq
National Market for the five trading days prior to the date of conversion. At
December 31, 1997 there was no outstanding balance on the Notes and
approximately 10,109,000 shares of Common Stock had been converted.
The conversion of the Notes at 80% to 85% of the average closing bid price
of the Company's Common Stock results in the Notes being issued at a 15% to 20%
discount (the Conversion Discount). The Conversion Discount of $2,500,000 was
recognized during 1996 by the Company as non-cash interest expense from the date
of issuance through the date the security was most favorably convertible to the
noteholders, with a corresponding increase to the original principal amount of
the Notes. In addition, the
19
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 4: BANK FINANCING AND LONG-TERM DEBT (CONTINUED)
stated 6% annual interest is being recognized ratably over the term of the
Notes. During the year ended December 31, 1997, a total of $240,000 was recorded
as interest expense relating to the Notes.
As required as part of the Notes agreement in 1996, the Company issued
2 1/2-year warrants to purchase 59,500 shares of Common Stock at an exercise
price of $10 per share. The warrants are redeemable by the Company for $0.01 for
each 10,000-share warrant if the Company's stock price is above $12. No value
was assigned to the warrants as the value was deemed to be nominal. During 1997,
an aggregate of $7,414,000 ($5,700,000 of the original principal of the Notes
and $1,714,000 of accrued interest) had been converted into 7,418,000 shares of
Common Stock. During 1996, an aggregate of $5,431,000 ($4,300,000 of the
original principal of the Notes and $1,131,000 of accrued interest) had been
converted into 2,691,000 shares of Common Stock.
In February 1997, the Company completed a $3,500,000 private placement with
investors whereby the Company issued 6% Subordinated Convertible Debenture (the
Debentures) with warrants to purchase 500,000 shares of Common Stock at $2.25
per share. The Debentures accrue interest at an annual rate of 6%, beginning on
the date of issue, with principal due and payable three years from the date of
issue, if and to the extent that the Debentures are not previously converted.
The Debentures are convertible at the option of the holder into the Company's
Common Stock at a discount up to 20% from market price (the Conversion
Discount). In May 1997, the Debentures were converted into 100,000 shares of the
Company's Series A Convertible Preferred Stock having an aggregate stated value
of $3,500,000. The conversion terms of the Preferred Stock were effectively the
same as the conversion terms of the original Debentures. During the year ended
December 31, 1997, a total of $438,000 was recorded as interest expense relating
to the Debentures and $438,000 was recorded as accrued dividends on the Series A
Convertible Preferred Stock. The interest expense and dividend principally
include a charge for the Conversion Discount. During 1997, 51,972 shares of the
Series A Preferred Stock had been converted to 4,546,928 shares of the Company's
Common Stock. In August 1997, the Company redeemed all of the remaining
outstanding shares of the Company's Convertible Series A Preferred Stock for
$1,827,000 and all of the outstanding warrants were exchanged for 350,000
warrants for the Company's Common Stock at an exercise price of $0.53 per share.
In September 1997, 105,000 of the warrants were exercised for $56,000.
NOTE 5: LEASES AND COMMITMENTS
The Company leases its facilities and other equipment under operating lease
agreements, which expire at various dates through 2002. The Company also leases
certain manufacturing equipment under
20
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 5: LEASES AND COMMITMENTS (CONTINUED)
capital leases that expire in 1999. Approximate future minimum lease payments
under these leases are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
- ------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1998..................................................................... $ 346 $ 966
1999..................................................................... 58 551
2000..................................................................... 2 131
2001..................................................................... -- 136
2002..................................................................... -- 140
Thereafter............................................................... -- 12
----- -----------
406 $ 1,936
-----------
-----------
Less amount representing imputed interest................................ 52
-----
354
Less current portion..................................................... 296
-----
$ 58
-----
-----
</TABLE>
Total operating lease expense was approximately $1,280,000 in 1997,
$1,954,000 in 1996 and $1,638,000 in 1995. Accumulated depreciation of equipment
under capital leases totaled $620,000 and $561,000 at December 31, 1997 and
1996, respectively. Depreciation expense on equipment under capital leases was
$203,000 in 1997, $264,000 in 1996 and $204,000 in 1995.
The Company leases office facilities under operating leases. Rent expense of
$1,582,000, $1,732,000 and $1,602,000 was incurred in 1997, 1996, and 1995,
respectively.
NOTE 6: SELECTED BALANCE SHEET INFORMATION
Selected Balance Sheet information is summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
--------- ----------
<S> <C> <C>
Accounts receivable
Accounts receivable................................................... $ 3,170 $ 12,344
Current portion lease receivables..................................... 121 1,081
Less allowance for doubtful accounts.................................. (528) (1,337)
--------- ----------
$ 2,763 $ 12,088
--------- ----------
--------- ----------
Inventories
Raw materials and supplies............................................ $ 306 $ 2,045
Finished goods........................................................ 429 619
--------- ----------
$ 735 $ 2,664
--------- ----------
--------- ----------
</TABLE>
21
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 6: SELECTED BALANCE SHEET INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
--------- ----------
<S> <C> <C>
Property and equipment
Engineering, manufacturing, and general office equipment.............. $ 4,260 $ 18,842
Leasehold improvements................................................ 1,539 1,559
Equipment under capital lease......................................... 1,085 1,714
--------- ----------
6,884 22,115
Less accumulated depreciation and amortization........................ (4,224) (17,014)
--------- ----------
$ 2,660 $ 5,101
--------- ----------
--------- ----------
Other Long-Term Assets
Capitalized software.................................................. $ -- $ 6,208
Accumulated amortization.............................................. -- (2,799)
--------- ----------
-- 3,409
Long-term portion of employee loans................................... 9 25
Long-term portion of lease receivables................................ -- 348
Other assets.......................................................... 278 357
--------- ----------
$ 287 $ 4,139
--------- ----------
--------- ----------
Accrued expenses
Salaries and commissions.............................................. $ 1,023 $ 1,771
Warranty expense...................................................... 151 550
Other accrued expenses................................................ 1,944 3,024
--------- ----------
$ 3,118 $ 5,345
--------- ----------
--------- ----------
</TABLE>
Included in accounts payable at December 31, 1997 is $1,667,000 due to a
supplier which is in dispute. During 1998, the Company has paid $500,000 and
intends to renegotiate the balance.
22
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 7: INCOME TAXES
The provision (benefit) for income taxes reconciles to the amount computed
by applying the statutory federal rate to income or loss before taxes as follows
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Provision (benefit) at statutory rate......................... $ (4,667) $ (7,482) $ 757
Foreign losses not currently utilizable....................... 33 217 21
Increase (decrease) in valuation allowance for reversing
temporary differences....................................... (326) -- (1,056)
Domestic losses not currently utilizable...................... 4,700 6,986 164
Other......................................................... 260 279 114
--------- --------- ---------
$ -- $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company was not required to pay income taxes in 1997, 1996 or 1995 due
to its net operating loss carryforwards.
Significant components of the Company's deferred tax asset are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax asset
Net operating loss carryforwards........................................................ $ 21,362 $ 18,112
Tax credit carryforwards................................................................ 3,422 3,114
Capitalized software and other research and development................................. 893 (933)
Tax basis depreciation.................................................................. 1,391 1,411
Accruals and reserves recognized in different periods................................... 1,108 2,340
Other................................................................................... 7 80
Valuation allowance..................................................................... (28,183) (24,124)
---------- ----------
$ -- $ --
---------- ----------
---------- ----------
</TABLE>
The valuation allowance was established due to uncertainty regarding the
utilization of the net operating loss carryforwards. The net change in valuation
allowance was an increase of $4,059,000, an increase of $8,804,000 and a
decrease of $991,000 in 1997, 1996 and 1995, respectively.
Net pretax foreign income (losses) were ($93,000), ($620,000) and $185,000
in 1997, 1996 and 1995, respectively. The Company intends to indefinitely
reinvest the unremitted earnings of its foreign subsidiaries. The Company has
net operating loss carryforwards of approximately $58,000,000 for federal tax
purposes that will begin to expire in 2005. State operating loss carryforwards
expires as follows: $335,000 in 1998, $30,000 in 1999, $94,000 in 2000,
$6,113,000 in 2001 and $3,672,000 in the year 2002. The Company's tax credit
carryforwards of $2,872,000 and $550,000 available to reduce future federal and
California income taxes, respectively. These credits will expire beginning in
1999. The Company also has foreign net
23
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 7: INCOME TAXES (CONTINUED)
operating loss carryforwards of approximately $3,600,000 that may be used to
offset future foreign taxable income.
The Tax Reform Act of 1986 and California Conformity Act of 1987 impose
substantial restrictions on the utilization of net operating losses and tax
credit carryforwards in the event of an "ownership change" as defined by the
Internal Revenue Code. If there should be such a change, the Company's ability
to utilize the stated carryforwards could be significantly limited.
NOTE 8: GEOGRAPHIC SEGMENT INFORMATION
Information concerning the Company's operations by geographic area is as
follows:
Net revenues to unaffiliated customers by geographic region (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
United States................................................ $ 9,854 $ 25,396 $ 42,107
Europe....................................................... 1,556 2,307 4,355
Japan........................................................ 4,382 5,874 4,655
--------- --------- ---------
$ 15,792 $ 33,577 $ 51,117
--------- --------- ---------
--------- --------- ---------
</TABLE>
The amounts reported for Europe and Japan reflect amounts sold by foreign
subsidiaries. Included in the domestic revenue amounts are sales directly to
Japan and other Asian countries amounting to $1,648,000 in 1997, $2,116,000 in
1996 and $6,100,000 in 1995. Outside the United States, the Company operates
three subsidiaries in Europe, one subsidiary in Japan and also supports a branch
office in Taiwan. For the years ended December 31, 1997, 1996 and 1995, export
sales (including sales by foreign subsidiaries), principally to Europe and
Japan, comprised approximately 38%, 31% and 30% of consolidated revenues,
respectively. During 1997, 1996 and 1995, one customer accounted for 16%, 10%
and 17% of consolidated revenues, respectively.
Operating results and identifiable assets by geographic location are as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Net income (loss)
United States............................................ $ (14,750) $ (17,338) $ 2,836
Europe................................................... (243) (861) (383)
Japan.................................................... (83) (236) 97
---------- ---------- ---------
$ (15,076) $ (18,435) $ 2,550
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
24
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 8: GEOGRAPHIC SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Identifiable assets
United States............................................ $ 7,886 $ 25,324 $ 25,040
Europe................................................... 1,344 2,171 2,785
Japan.................................................... 2,026 2,032 2,155
---------- ---------- ---------
$ 11,256 $ 29,527 $ 29,980
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
NOTE 9: STOCKHOLDERS' EQUITY
PREFERRED STOCK
On November 10, 1997 the Board of Directors authorized the designation of
1,000,000 shares of series preferred stock, par value $0.10 per share, as
Series B Convertible Preferred Stock ("Series B Preferred Stock"). In
November 1997, the Company issued 1,000,000 shares of Series B Convertible
Preferred Stock for $4.583 million. Each share is convertible into 4.5825
shares of Common Stock at the discretion of the holder. Additionally, under
terms of the Stock Purchase Agreement, the Company is committed to issue
4,582,500 shares of Common Stock (see Note 10).
COMMON STOCK
The Company's Certificate of Incorporation was duly amended by a proposal by
the Board of Directors on November 10, 1997 and by vote of the stockholders at
the Annual Meeting of Stockholders on December 15, 1997, to increase the
Company's Common Stock from 40,000,000 shares to 65,000,000 shares of Common
Stock authorized at $0.10 par value. At December 31, 1997 there were 36,222,326
shares of the Company's Common Stock outstanding including 500,000 unissued
shares of subscribed stock.
In October 1997, the Company entered into a $3,250,000 Strategic Partnership
Agreement which principal terms included the delivery of technology, software,
equipment, engineering services, a warrant to purchase Common Stock and 500,000
shares of Common Stock. The Company has valued the Common Stock at $761,000 and
the warrant to purchase common stock at $450,000 (see Warrants). At December 31,
1997, subscribed stock represents cash received for this Common Stock, which has
not been issued as of that date. The remaining approximate $750,000 under the
agreement will be recognized in 1998 as the Company completes the terms of the
agreement.
STOCK COMPENSATION PLANS
The 1984 Stock Option Plan (the "1984 Plan"), as amended, provides for
4,000,000 shares of Common Stock to be issued under the 1984 Plan. The 1984 Plan
terminated in March 1994 and no further options may be granted under this plan.
The 1993 Stock Option Plan (the "1993 Plan"), as amended, provides for
3,000,000 shares of Common Stock to be issued under the 1993 Plan.
25
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 9: STOCKHOLDERS' EQUITY (CONTINUED)
The 1996 Stock Option Plan (the "1996 Plan"), as amended, provides for
750,000 shares of Common Stock to be issued under the 1996 Plan.
Under the Company's stock option Plans, incentive stock options granted 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 Board of Directors. Dependent upon the Plan, options
generally vest at specific intervals over a three to four year period and expire
eight to ten years after the grant date. In the event of termination, the
Company has the right to cancel any vested options not exercised within 90 days
of termination.
During 1995, stockholders approved a Non-Employee Directors' stock option
plan (the "Director Option Plan") whereby 200,000 shares of Common Stock have
been reserved for issuance. Under the Company's Director Option Plan, each
non-employee director initially elected to the Board of Directors in the future
will be granted an option, upon his or her initial election as a director, to
purchase 15,000 shares of Common Stock. Each non-employee director is also
entitled to receive an option for 7,500 shares on the date of each Annual
Meeting of Stockholders. All options granted under the Director Option Plan have
or will have an exercise price equal to the fair market value of the Common
Stock on the date of grant, will vest over a two-year period, provided the
option holder continues to serve as a director of the Company, and will expire
ten years from the date of grant (subject to earlier termination in the event
the optionee ceases to serve as a director of the Company). The Company granted
22,500 options to purchase Common Stock at $1.50 per share to Directors in 1997.
In July 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. In
return, participating employees who chose to exchange their options agreed to
accept stock options which will vest on a quarterly basis upon achievement of
certain management goals to be established quarterly for each such employee, or
in any event, in July 1999, should the employee still be employed by the
Company. Options covering a total of 1,744,099 shares were exchanged under this
program. The effect of such exchange reduced the weighted average exercise price
of the outstanding options from $1.79 to $.80 per share.
In October 1996, the Company agreed to exchange outstanding options to
purchase the Company's Common Stock held by all employees for an equal number of
options with an exercise price of $1.63, the then-current fair market value of
the Company's Common Stock. In return, participating employees who chose to
exchange their options agreed to accept stock options which will vest on a
quarterly basis upon achievement of certain management goals to be established
quarterly for each such employee, or in any event, in October 2000, should the
employee still be employed by the Company. Options covering a total of 1,040,100
shares were exchanged under this program. The effect of such exchange reduced
the weighted average exercise price of the outstanding options from $3.24 to
$1.90 per share. The effects of these exchanges in 1997 and 1996 have been
included in the accompanying table as options granted and cancelled.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, which establishes financial accounting and reporting standards for
stock-based employee compensation plans. This statement defines a fair value
based method of accounting for an employee stock option of similar equity
26
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 9: STOCKHOLDERS' EQUITY (CONTINUED)
instrument. Under this method, compensation costs are measured at the grant date
based on the value of the award and are recognized over the service period,
which is the vesting period.
The Company continues to account for its stock-based awards using the
intrinsic value method in accordance with APB No. 25 and its related
interpretations. Had compensation cost for the Company's various stock option
plans been determined consistent with SFAS No. 123, the Company's net income or
loss and diluted net income or loss per share would have been changed to the pro
forma amounts indicated below (in thousands, except net income or loss per share
amounts):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Net income (loss)
As reported............................................... $ (15,076) $ (21,376) $ 1,957
Pro forma................................................. $ (15,913) $ (22,280) $ 1,793
Diluted income (loss) per share
As reported............................................... $ (0.50) $ (1.03) $ 0.09
Pro forma................................................. $ (0.53) $ (1.08) $ 0.09
</TABLE>
The fair value of each option grant is estimated on the date of grant using
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1997, 1996 and 1995 respectively; expected
volatility of 145% for 1997, 90% for 1996 and 84% for 1995, risk-free interest
rates of 5.91%, 6.07%, and 6.16% for 1997, 1996, and 1995 respectively, and
expected lives of 3.5 years from the grant date for 1997, 1996 and 1995.
27
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 9: STOCKHOLDERS' EQUITY (CONTINUED)
Options under the employee stock option plans have been granted, exercised
and cancelled as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------
WEIGHTED-
SHARES AVERAGE
AVAILABLE EXERCISE
FOR GRANT SHARES PRICE
----------- ----------- -----------
<S> <C> <C> <C>
Balance, January 1, 1995............................... 917,650 2,398,323 $ 1.868
Additional shares authorized........................... 1,500,000 -- --
Granted................................................ (1,538,826) 1,538,826 4.347
Exercised.............................................. -- (634,983) 1.472
Cancelled.............................................. 221,190 (428,262) 2.060
----------- ----------- -----------
Balance, December 31, 1995............................. 1,100,014 2,873,904 3.254
Additional shares authorized........................... 750,000 -- --
Granted................................................ (2,311,120) 2,311,120 2.353
Exercised.............................................. -- (369,877) 1.531
Cancelled.............................................. 1,517,026 (1,517,026) 5.286
----------- ----------- -----------
Balance, December 31, 1996............................. 1,055,920 3,298,121 1.881
Additional shares authorized........................... -- -- --
Granted................................................ (3,743,196) 3,743,196 0.417
Exercised.............................................. -- (278,002) 1.365
Cancelled.............................................. 3,360,346 (3,360,346) 1.659
----------- ----------- -----------
Balance, December 31, 1997............................. 673,070 3,402,969 $ 0.678
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The weighted average per share fair value of the stock options granted in
1997, 1996 and 1995 was $0.42, $1.54 and $2.68, respectively. At December 31,
1997, 1996 and 1995, outstanding options under the employees stock option plans
were exercisable for 1,423,209, 1,065,835 and 1,067,024 shares respectively. All
outstanding options are nonqualified options.
The following tables summarize information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------
WEIGHTED-AVG
EXERCISE PRICE NUMBER REMAINING WEIGHTED-AVG
- -------------------- OUTSTANDING CONTRACTUAL EXERCISE
FROM TO AT 12/31/97 LIFE PRICE
- --------- --------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
$ 0.47 $ 1.00 3,040,519 6.90 $ 0.520
$ 1.31 $ 1.50 48,500 9.91 1.430
$ 1.56 $ 2.06 263,950 4.81 1.960
$ 2.38 $ 3.50 50,000 5.42 2.630
- --------- --------- ----------- --- ------
$ 0.47 $ 3.50 3,402,969 6.76 $ 0.678
- --------- --------- ----------- --- ------
- --------- --------- ----------- --- ------
</TABLE>
28
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 9: STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
--------------------------
EXERCISE PRICE NUMBER WEIGHTED-AVG
- -------------------- OUTSTANDING EXERCISE
FROM TO AT 12/31/97 PRICE
- --------- --------- ----------- -------------
<S> <C> <C> <C>
$ 0.47 $ 1.00 1,175,926 $ 0.610
$ 1.31 $ 1.50 -- --
$ 1.56 $ 2.06 213,950 2.060
$ 2.38 $ 3.50 33,333 2.630
- --------- --------- ----------- ------
$ 0.47 $ 3.50 1,423,209 $ 0.870
- --------- --------- ----------- ------
- --------- --------- ----------- ------
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
Through the Company's Employee Stock Purchase Plan, eligible employees of
the Company may purchase Common Stock at the fair market value of the stock
at the beginning or end of each offering period (calendar quarters),
whichever is lower. Each participant may contribute from 3% to 10% of total
compensation, up to a limit of $25,000 annually. Additionally, each
participant is prohibited from owning more than 5% of the Company's Common
Stock. In December 1995, an additional 200,000 shares of Common Stock were
made available for purchase under this plan, of which 105,635 shares were
issued at December 31, 1997. During 1997, 92,747 shares were purchased for
prices ranging from $0.56 to $1.66 with an average price of $1.04 per share
and 13,025 shares were issued in January 1998 related to 1997 purchases. At
December 31, 1997, 94,365 shares were reserved for future issuance under the
Purchase Plan. The fair value of the 1997 awards was not considered
significant.
EMPLOYEE 401(K) PLAN
Through the Company's elective 401(k) savings plan, eligible U.S. employees
of the Company may contribute up to 17.6% of their pre-tax earnings, subject to
current IRS restrictions. Under the plan, the Company may make discretionary
matching contributions up to $1,500 of 25% of an employee's contributions. The
participants vest in the Company's contribution over five years. Company
contributions to this plan were $161,000 in 1997, $200,000 in 1996 and $198,000
in 1995.
WARRANTS
At December 31, 1997, total warrants outstanding were 4,535,584. Purchase
price of the securities subject to these warrants range from $.47 to $10.00 and
they expire at various dates through July 2005.
In connection with the Series B Preferred Stock financing pursuant to the
November 1997 Stock Purchase Agreement, the Company agreed to issue warrants to
purchase 997,751 shares of common stock at $1.00 per share. The warrants will
terminate upon the approval by the stockholders of an increase in the Company's
authorized common stock and the closing of the common stock financing
contemplated by the agreement. Both these conditions were satisfied by January
1998, accordingly these warrants expired at that date.
During October 1997, the Company entered into a licensing agreement under
which the Company granted a stock warrant to purchase 9.9% of its outstanding
shares of Common Stock to a strategic partner
29
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE 9: STOCKHOLDERS' EQUITY (CONTINUED)
for an exercise price equal to 80% of the Market Price of the Company's Common
Stock on the trading day immediately prior to the date of exercise, subject to a
minimum exercise price of $1.00 per share. Market Price is defined as the last
trade price for common stock as reported on Nasdaq. In the event that the
strategic partner's interest is decreased to less than 9.9% by future equity
offerings, they will have the right to increase the stock warrant for additional
shares at the same conditions as the equity offering such to maintain its 9.9%
interest in the Company. The term of this warrant is for five years and is
exercisable as follows: the first 1/3 shares after 6 months, an additional 1/3
shares after 12 months, and the final 1/3 after 18 months.
In July 1997, the Board of Directors approved the exchange of Common Stock
warrants and nonqualifying stock options held by certain directors for new
Common Stock warrants to purchase 202,595 shares of Common Stock at an exercise
price of $0.47 per shares, the fair market value of the common stock on that
date of exchange. The effect of such exchange reduced the weighted average
exercise price of the warrants and nonqualifying options from $1.97 to $0.47 per
share. In November 1997, a director was issued warrants to purchase 7,500 shares
of Common Stock at an exercise price of $1.44 per share. In February 1998,
certain directors exercised their warrants for 137,595 shares of Common Stock.
During 1996, 59,500 warrants were issued relating to the subordinated
convertible debenture note. No warrants were exercised or cancelled in 1996.
In 1995, warrants for 53,860 shares were exercised and warrants for 32,058
issued in prior years were cancelled.
NOTE 10: SUBSEQUENT EVENTS
SALE OF COMMON STOCK
In January 1998, the Company issued 4,582,500 shares of Common Stock to
an outside investor for an aggregate purchase price of $4.583 million
pursuant to a Stock Purchase Agreement entered into in November 1997. The
issuance of Common Stock completes the second and final phase of the private
placement of securities contemplated by the Agreement.
30
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
GateField Corporation:
We have audited the accompanying consolidated balance sheets of GateField
Corporation (formerly Zycad Corporation) and its subsidiaries at December 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of GateField Corporation and its
subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
April 8, 1998
31
<PAGE>
Exhibit 21.1
GATEFIELD CORPORATION AND SUBSIDIARIES
Set forth below are the subsidiaries of the Registrant:
GateField G.m.b.H.
Bahnhofstrasse 19a
85737 Ismaning
Germany
GateField Japan KK
Toshin 24 Shin-Yokohama Bldg. B-8F
2-3-8, Shin Yokohama, Kohoku-ku
Yokohama, 222 Japan
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements No.
2-93079 and No. 333-42363 of GateField Corporation on Form S-8 and No.
33-12170, No. 33-36124, No. 333-08089 and No. 333-27283 on Form S-3 of our
reports dated April 8, 1998 appearing in and incorporated by reference in the
Annual Report of Form 10-K of GateField Corporation for the year ended
December 31, 1997.
DELOITTE & TOUCHE LLP
San Jose, California
April 14, 1998
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THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM GATEFIELD
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THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM GATEFIELD
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<RESTATED>
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<PERIOD-TYPE> YEAR YEAR
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