<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 OR
/ / 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
(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 and zip code)
Registrant's telephone number, including area code: (510) 623-4400
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Title of Each Class Outstanding at August 13, 1998
- --------------------------------------- ------------------------------
Common stock, par value $0.10 per share 40,971,495
<PAGE>
GATEFIELD CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997 2
Condensed Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 1998 and June 30, 1997 3
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 and June 30, 1997 4
Notes to Condensed Consolidated Financial Statements, June 30, 1998 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURE 14
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,851 $ 4,189
Short-term investments 113 98
Accounts receivable, less allowance for doubtful
accounts of $483 in 1998 and $528 in 1997 1,874 2,763
Inventories 669 735
Other current assets 546 524
-------- --------
Total current assets 6,053 8,309
Property and equipment, net 3,107 2,660
Other assets 254 287
-------- --------
Total assets $ 9,414 $ 11,256
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 617 $ 516
Accounts payable 2,778 3,741
Accrued expenses 2,434 3,118
Deferred revenues 692 981
-------- --------
Total current liabilities 6,521 8,356
Other long-term liabilities 420 71
-------- --------
Total liabilities 6,941 8,427
-------- --------
Stockholders' equity:
Preferred stock:
$0.10 par value; 2,000,000 shares authorized;
shares issued and outstanding: 1,000,000 in 1998 and 1997 100 100
Additional paid-in capital, preferred stock 4,563 4,494
Common stock:
$0.10 par value; 65,000,000 shares authorized; shares issued
and outstanding: 41,421,706 in 1998 and 36,222,326 in 1997 4,142 3,622
Additional paid-in capital, common stock 71,183 66,776
Accumulated translation adjustments (543) (544)
Accumulated deficit (76,972) (71,619)
-------- --------
Total stockholders' equity 2,473 2,829
-------- --------
Total liabilities and stockholders' equity $ 9,414 $ 11,256
-------- --------
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2.
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Product $ 1,359 $ 1,016 $ 1,999 $ 2,176
Service 2,109 2,800 3,318 5,724
------- ------- ------- --------
Total revenues 3,468 3,816 5,317 7,900
------- ------- ------- --------
Cost of revenues:
Product 1,486 1,864 2,536 3,247
Service 605 1,456 1,365 3,274
------- ------- ------- --------
Total cost of revenues 2,091 3,320 3,901 6,521
------- ------- ------- --------
Gross profit 1,377 496 1,416 1,379
------- ------- ------- --------
Operating expenses:
Sales and marketing 1,359 2,991 2,274 6,244
Research and development 1,399 2,133 2,696 4,799
General and administrative 785 443 1,550 950
------- ------- ------- --------
Total operating expenses 3,543 5,567 6,520 11,993
------- ------- ------- --------
Operating loss (2,166) (5,071) (5,104) (10,614)
------- ------- ------- --------
Other income (expense), net (154) 3,197 (179) 3,129
------- ------- ------- --------
Net loss $(2,320) $(1,874) $(5,283) $ (7,485)
------- ------- ------- --------
------- ------- ------- --------
Basic and diluted net loss per share $ (0.06) $ (0.07) $ (0.13) $ (0.29)
------- ------- ------- --------
------- ------- ------- --------
Basic and diluted weighted average shares outstanding 41,350 27,041 40,840 26,148
------- ------- ------- --------
------- ------- ------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3.
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
(IN THOUSANDS) 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net loss $(5,283) $(7,485)
Reconciliation to net cash used in operating activities:
Depreciation and amortization 640 2,398
Subordinated convertible debt interest capitalized - 438
Gain on sale of LightSpeed - (314)
Gain on sale of QSS - (3,321)
Changes in assets and liabilities:
Accounts receivable 849 7,575
Inventories 64 (244)
Other assets (10) 400
Accounts payable and accrued expenses (1,565) (4,081)
Deferred revenues (326) (538)
------- -------
Net cash used in operating activities (5,631) (5,172)
------- -------
Investing activities:
Purchases of marketable securities (15) -
Property and equipment purchases, net (627) (1,205)
Capitalized software - (150)
Proceeds from sale of LightSpeed - 5,000
Proceeds from sale of QSS - 3,500
------- -------
Net cash provided by (used in) investing activities (642) 7,145
------- -------
Financing activities:
Proceeds from issuance of convertible debenture notes, net - 3,500
Proceeds from issuance of common stock 4,926 104
Bank financing, net - (3,039)
Repayments of debt obligations - (1,967)
------- -------
Net cash provided by (used in) financing activities 4,926 (1,402)
------- -------
Effect of exchange rate changes on cash and cash equivalents 9 (28)
------- -------
Net change in cash and cash equivalents (1,338) 543
Cash and cash equivalents, beginning of period 4,189 1,703
------- -------
Cash and cash equivalents, end of period $ 2,851 $ 2,246
------- -------
------- -------
Supplemental disclosure of cash flow information:
Noncash activities:
Equipment acquired under capital leases $ 465 $ -
Common stock exchanges for convertible debentures $ - $ 6,217
Preferred stock exchanges for convertible debentures $ - $ 3,917
Common stock exchanges for preferred stock $ - $ 289
Cash activities:
Cash paid during the year for interest $ 186 $ 417
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4.
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
contain all adjustments of a normal recurring nature that are, in the opinion
of management, necessary to present fairly the financial position and results
of operations of GateField Corporation, formerly known as Zycad Corporation,
(the "Company"). Interim results of operations are not necessarily
indicative of the results to be expected for the full year. The Company's
interim fiscal quarter ended on June 30, 1998 and 1997, respectively. The
condensed consolidated financial statements should be read in conjunction
with the financial statements and the notes thereto for the year ended
December 31, 1997, included in the Company's 1997 Annual Report on Form 10-K.
2. COMPREHENSIVE INCOME
In January 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, REPORTING COMPREHENSIVE INCOME, which requires reporting
by major components and as a single total, the change in its net assets
during the period from nonowner sources. For the six months ended June 30,
1998 and 1997, the change in net assets from nonowner sources was an increase
of $1,000 and a decrease of $230,000, respectively, for the change in the
accumulated translation adjustment, and comprehensive loss was $5,282,000 and
$7,715,000.
3. NET EARNINGS (LOSS) PER SHARE
In 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 stock holders by the weighted average of common stock
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 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.
4. INVENTORIES
<TABLE>
<CAPTION>
June 30, December 31,
(IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies $223 $306
Finished goods 446 429
---- ----
$669 $735
---- ----
---- ----
</TABLE>
5. 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 $4,582,500 pursuant to a
Stock Purchase Agreement entered into on November 10, 1997. The issuance of
common stock completes the second and final phase of the private placement of
securities contemplated by such Stock Purchase Agreement, dated November 10,
1997.
5.
<PAGE>
6. SELECTED BALANCE SHEET INFORMATION
Included in accounts payable at June 30, 1998 is $930,000 and at December 31,
1997 is $1,667,000 due to a supplier that was in dispute. In April and May
1998, the Company resolved and paid $737,000 of the outstanding balance. The
remaining balance was paid in August 1998.
7. SUBSEQUENT EVENTS
SALE OF THE DESIGN SERVICES BUSINESS ASSETS
Pursuant to that certain Asset Purchase Agreement dated as of August 14, 1998
(the "Asset Purchase Agreement"), GateField Corporation (the "Company") sold
certain of the assets relating to its Design Service Business Unit, which is
engaged in the business of providing prototyping design services and
verification services for electronic systems, integrated circuits and other
electronic components, located in Mt. Arlington, New Jersey (the "Design
Services Business") to Actel Corporation ("Actel"). The purchase price for
such assets was (i) $5.4 million plus (ii) contingent payments to be paid
over a three-year period on a quarterly basis based on the Design Services
Business achieving certain profitability levels which payments shall not
exceed $1.0 million in the aggregate.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
Pursuant to that certain Series C Preferred Stock Purchase Agreement dated as
of August 14, 1998, Actel purchased, and the Company issued to Actel, 300,000
shares of the Company's Series C Convertible Preferred Stock, par value
$0.10, for an aggregate purchase price of $3,000,000 (the "Shares"). The
Shares are initially convertible into 2,000,000 shares of the Company's
common stock and are entitled to certain liquidation and redemption rights.
Actel is entitled to certain registration rights and shall have a right of
first refusal to purchase its pro rata share of certain new securities the
Company may issue.
PRODUCT MARKETING AGREEMENT
On August 14, 1998, GateField Corporation and Actel entered into a Product
Marketing Agreement (the "Marketing Agreement"). Under the terms of the
Marketing Agreement, Actel received exclusive, worldwide distribution rights
to the Company's standard ProASIC FPGA products below .35 micron, including
FPGA products that are integrated with SRAM or Flash memory and all resulting
next generation reduced process geometry ProASIC FPGA products. For these
rights, Actel agreed to pay the Company an initial fee of $1.0 million and a
$1.0 million fee upon qualification of the initial .25 micron product.
ACTEL LICENSE AGREEMENT
On August 14, 1998 GateField Corporation and Actel entered into a license
agreement pursuant to which the Company granted to Actel a fully paid,
non-exclusive, non-transferable license to sell and upon certain release
events, make, have made, import and use the Company's standard ProASIC FPGA
products below .35 micron and all resulting next generation reduced process
geometry ProASIC FPGA products (the "Actel License Agreement"). Actel agreed
to pay the Company a $1.0 million fee for such license.
ROHM LICENSE AGREEMENT
On July 31, 1998, GateField Corporation and Rohm Co., Ltd. ("Rohm") entered
into a license agreement (the "Rohm License Agreement"). Pursuant to the
Rohm License Agreement, the Company granted to Rohm a worldwide, nonexclusive
and royalty-free license of the Company's ProASIC Technology for Standard
ProASIC and embedded products down to 0.35 micron with no limitation on
density and a license for 0.25 micron and below embedded products with a per
unit royalty for a license fee of $2.5 million.
6.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 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 (the
"Securities Act"), 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 as of the date hereof.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
REVENUE
Total revenue for the quarter ended June 30, 1998 was $3.5 million compared
to $3.8 million for the quarter ended June 30, 1997, a decrease of 9%. The
decrease in revenue is the result of competitive price and performance
pressure for the Company's current product lines. Product revenue for the
quarter ended June 30, 1998 was $1.4 million compared to $1.0 million for the
quarter ended June 30, 1997, an increase of 34%. The product revenue figure
for the current quarter includes a $1.0 million sales transaction related to
the delivery of certain equipment, documentation and software tools under a
Strategic Partnership Agreement (the "Strategic Partnership Agreement").
Service revenue for the quarter ended June 30, 1998 was $2.1 million as
compared to $2.8 million for the quarter ended June 30, 1997, a decrease of
25%. The decrease in service revenue primarily reflects the discontinuation
of sales of several product families in 1997, off-set by a ramp up of sales
in the Company's new reprogrammable ASIC products and related services.
Total revenue for the six months ended June 30, 1998 was $5.3 million, a
decrease of $2.6 million from $7.9 million for the same period in 1997.
Product revenue for the first half of 1998 was $2.0 million, compared to $2.2
million for the comparable period in 1997. Service revenue was $3.3 million
for the six months ended June 30, 1998; a decrease of $2.4 million from $5.7
million for the six months ended June 30, 1997. This decrease primarily
reflects the sale of the Company's LightSpeed and XP/PXP maintenance and
support business to Zycad TSS on October 31, 1997 (the "Transfer Agreement").
The Transfer Agreement and the Strategic Partnership Agreement are more fully
described in the Company's Annual Report on Form 10K for the year ended
December 31, 1997.
GROSS PROFIT
Total gross profit was $1.4 million, or 40% of total revenue, for the three
months ended June 30, 1998 compared to $496,000, or 13% of total revenue, for
the three months ended June 30, 1997. The loss from product revenues at the
gross margin level was $127,000 for the quarter ended June 30, 1998, as
compared to a loss of $848,000 for the quarter ended June 30, 1997. The
improvement in the loss at the gross margin level in 1998 was primarily due
to the $1.0 million sale pursuant to the Strategic Partnership Agreement.
The equipment, documentation and software tools sold pursuant to the
Strategic Partnership Agreement had minimal cost of goods sold associated
with their production. Gross profit from service revenue was $1.5 million, or
71% of the total revenues, for the three months ended June 30, 1998 compared
to $1.3 million, or 48% of the total revenues, for the three months ended
June 30, 1997. This increase in gross profit from service revenues in 1998
as compared to 1997 was partly due to the dispositions pursuant to the
Strategic Partnership Agreement mentioned above and the reduction of certain
operating expenses in the Design Services Business of the Company.
Total gross profit was $1.4 million for both six-month periods ended June 30,
1998 and 1997 or 27% and 17% of total revenue for the six months ended June
30, 1998 and 1997, respectively. The loss from product revenues at the gross
margin level was $537,000 for the six month period ended June 30, 1998 as
compared to a loss of $1.1 million for the quarter ended June 30, 1997.
Gross profit from service revenues was $2.0 million, or 59%, for the six
months ended June 30, 1998 compared to $2.5 million, or 43%, for the six
months ended June 30, 1997.
7.
<PAGE>
OPERATING EXPENSES
SALES AND MARKETING
Sales and marketing expenses were $1.4 million for the quarter ended June 30,
1998 and $3.0 million for the quarter ended June 30, 1997, which represents
39% of total revenues in 1998 and 78% of total revenues in 1997. Sales and
marketing expenses for the six months ended June 30, 1998 and June 30, 1997
were $2.3 million and $6.2 million respectively. The decrease in sales and
marketing expenses for both periods is largely the result of reduced staffing
levels resulting from the sale of the verification, test and maintenance
businesses in 1997, pursuant to the Transfer Agreement.
RESEARCH AND DEVELOPMENT
Research and development expenses decreased to $1.4 million for the three
months ended June 30, 1998 compared to $2.1 million for the three months
ended June 30, 1997 and $2.7 million for the six months ended June 30, 1998
compared to $4.8 million for the same period in 1997. This decrease in 1998
as compared to 1997 expenses is mainly due to reduced headcount.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended June 30, 1998
and 1997 were $785,000 and $443,000, respectively and $1.6 million and $1.0
million for the six months ended June 30, 1998 and 1997, respectively. The
increase in expenses for 1998 was primarily related to a change in the way
the Company allocated facilities expenses between departments.
OTHER INCOME AND EXPENSES
Other expenses for the quarter ended June 30, 1998 were $154,000 as compared
to $3.2 million in other income for the quarter ended June 30, 1997. Other
expenses for the six months ended June 30, 1998 was $179,000 compared to $3.1
million for the six months ended June 30, 1997. The differences between the
periods were primarily due to a $3.2 million gain the Company had on the sale
of its ownership interest in QSS, Inc. in May of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically used internally generated funds, public and
private offerings of common and preferred stock, sale and leaseback
arrangements, bank financing and credit lines to finance its business. Cash
used in operations was $5.6 million in the first six months of 1998 compared
to $5.2 million for the first six months of 1997. This increase in cash used
in operations in 1998 compared to 1997 was primarily due to a reduction in
depreciation expense associated with the dispositions assets in 1997 and to
smaller reductions in the accounts receivable and accounts payable balances
in the first six months of 1998 as compared to the reductions experienced in
those balances for the same period of 1997. Net cash used in investing
activities during the six-month period ended June 30, 1998 was $642,000 as
compared to $7.1 million in net cash provided by investment operations during
the same period ended June 30, 1997. This decrease in net cash provided by
investment operations is primarily due to $8.5 million in proceeds from the
sale of certain businesses in 1997. Net cash provided by financing
activities was $4.9 million in the first six months of 1998, compared to net
cash used by financing activities in the amount of $1.4 million for the same
six-month period in 1997. This increase in cash provided by financing
activities in 1998 as compared to 1997 is primarily due to the sale of $4.6
million of the Company's common stock in the first quarter of 1998 and the
repayment of approximately $5.0 in debt obligations in the first six-months
of 1997.
At June 30, 1998, the Company had $2.9 million of cash and cash equivalents
and negative working capital of $468,000. The Company has a $5.0 million
revolving credit facility, which expires on January 31, 1999 and bears
interest at the lender's prime rate plus 2.25% (the "Credit Facility").
Pursuant to the Credit Facility, the Company may borrow up to 80% of its
outstanding eligible accounts receivable. There is no outstanding balance
under the Credit Facility as of June 30, 1998. The Company is not currently
in compliance with certain covenants in the Credit Facility. The Company
continues to work with certain vendors to facilitate extended trade terms,
thus
8.
<PAGE>
reducing the Company's immediate cash requirements to meet established
payments and other normal, recurring period expenses.
At June 30, 1998, the Company was not in compliance with the requirement of
The Nasdaq Stock Market, Inc. for listing on The Nasdaq National Market (a
distinct tier of The Nasdaq Stock Market, Inc.) that issuers must maintain
minimum net tangible assets of $4.0 million (the "Minimum"). Such Minimum
must be maintained in order for the Company to be listed on The Nasdaq
National Market ("NMS"), pursuant to the National Association of Securities
Dealers, Inc. ("NASD") Marketplace Rule 4420. On July 16, 1998, the Nasdaq
Listings Qualification Panel (the "Panel") granted the Company's common stock
listing on The Nasdaq SmallCap Market (the "Exchange"), which is another tier
of The Nasdaq Stock Market, Inc. The Panel granted the Company listing
pursuant to that Exchange's maintenance requirements pursuant to NASD
Marketplace Rule 4450 with the exception that the Company make a public
filing with the Securities and Exchange Commission on or before August 14,
1998, evidencing a minimum of $6.0 million in net tangible assets (the
"Public Filing"). At such time, the Company must also demonstrate that it
meets the continued listing requirements of NASD Marketplace Rule 4450 (the
"Continued Listing Requirements"). One of the criteria for continued listing
on the Exchange is that the Company's minimum bid price exceed $1.00 per
share for an unspecified period of time. As of August 13, 1998, the
Company's shares of common stock were trading below $1.00 per share. The
Company must meet both the Public Filing requirement and the Continued
Listing Requirements of the Exchange in order for its securities to continue
to be traded on the Exchange. If the Company is unable to meet one of the
aforementioned requirements for listing, the Company's shares may be delisted
by the Exchange or further action may be required by the Panel. There can be
no assurance that the Company will remain eligible for listing on the
Exchange or on a like exchange in the future. If at some future date the
Company's securities should cease to be listed on the Exchange, the shares
may continue to be listed in the OTC-Bulletin Board.
On August 14, 1998, the Company entered into an agreement to sell its
ownership interest in the assets relating to its Design Services Business to
Actel for a purchase price of $5.4 million plus contingent payments to be
paid over a three-year period on a quarterly basis based on the Design
Services Business achieving certain profitability levels which payments shall
not exceed $1.0 million in the aggregate. In addition, on that date, Actel
purchased 300,000 shares of the Company's Series C Convertible Preferred
Stock, par value $0.10, for an aggregate purchase price of $3,000,000,
entered into a Product Marketing Agreement with the Company in which the
Company sold certain distribution rights to Actel for an initial fee of $1.0
million and entered into a license agreement with the Company, pursuant to
which the Company received, and Actel paid, a $1.0 million fee for such
license. Finally, on July 31, 1998, the Company entered into a license
agreement with Rohm Co., Ltd. for a fee of $2.5 million. The effect of these
transactions was to increase the Company's net tangible assets as of June 30,
1998 on a pro forma basis to $10.4 million. The above mentioned transactions
and resulting pro forma statements are more fully described in the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission
on August 14, 1998.
The Company believes that the above mentioned agreements will provide
sufficient cash to meet its short-term liquidity needs. Should additional
funding be required, however, there can be no assurance that such funding
will be available on acceptable terms when and as 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 Securities and Exchange Commission filings made as
of the date hereof.
FUTURE OPERATING RESULTS UNCERTAIN
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. The Company continues to seek improvement in operating results
primarily through the introduction of new products and marketing and sales
efforts to increase revenue from existing FPGA products. In addition, the
9.
<PAGE>
Company is continuing its efforts to control the costs of operations and
administration. However, there can be no assurance that the Company will be
successful in its efforts. In the future, the Company's operating results
may be impacted by a number of factors, including cancellation or delays in
new product introductions, lack of market acceptance of new or existing
products, cancellation or delays of customer orders, interruptions or delays
in the supply of key components, changes in yields from manufacturing
processes, changes in customer base or product mix, seasonal patterns of
capital spending by customers, new product announcements by the Company or
its competitors, pricing pressures and changes in general economic conditions
in domestic or international markets. Historically, a significant portion of
the Company's shipments have 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 the quarter. 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 substantially between quarters and between years.
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. There can be no assurance that
the Company will be successful in its efforts to accomplish these changes and
effect these improvements.
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,
manufacturing processes, 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, 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 stock 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.
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
on acceptable terms when and if needed or that the sale of such equity or
convertible debt securities will not substantially dilute the Company's
existing stockholders' interests.
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
10.
<PAGE>
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 adverse effect on the Company's business, financial condition or
results of operations.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
3.1 Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 to the Company's Annual Report 10-K for the year ended
December 31, 1997).
3.2 Certificate of Designations of Preferred Stock of
GateField Corporation to be Designated Series B Convertible Preferred Stock of
the Company (incorporated by reference to Exhibit 3.3 to the Company's Annual
Report 10-K for the year ended December 31, 1997).
3.3 Certificate of Designations of Preferred Stock of
GateField Corporation to be Designated Series C Convertible Preferred Stock of
the Company.
3.4 Bylaws of the Company, as amended.
4.1 See Exhibit 3.1 referenced above.
4.2 See Exhibit 3.2 referenced above.
4.3 See Exhibit 3.3 referenced above.
4.4 See Exhibit 3.4 referenced above.
10.1 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).
10.2 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 July 31, 1998).
10.3 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).
</TABLE>
11.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.4 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 July 31, 1998).
10.5 Employment, Confidential Information and Invention and
Assignment Agreement, between the Company and Douglas E. Klint, as amended on
June 5, 1997 (incorporated by reference to Exhibit 10.6 to the Company's
Annual Report 10-K for the year ended December 31, 1997).
10.6 Employment, Confidential Information and Invention and
Assignment Agreement, between the Company and Stephen A. Flory, as amended on
June 5, 1997 (incorporated by reference to Exhibit 10.7 to the Company's
Annual Report 10-K for the year ended December 31, 1997).
10.7 Warrant Certificate for the purchase of 50,000 shares
of Common Stock, dated July 28, 1997, issued to James R. Fiebiger
(incorporated by reference to Exhibit 10.8 to the Company's Annual Report
10-K for the year ended December 31, 1997).
10.8 Warrant Certificate for the purchase of 7,500 shares of
Common Stock, dated November 25, 1997, issued to Benjamin Huberman
(incorporated by reference to Exhibit 10.9 to the Company's Annual Report
10-K for the year ended December 31, 1997).
10.9 Common Stock Purchase Warrant, dated August 21, 1997,
issued to Halifax Fund L.P. (incorporated by reference to Exhibit 10.10 to
the Company's Annual Report 10-K for the year ended December 31, 1997).
10.10 Common Stock Purchase Warrant, dated August 21, 1997,
issued to Capital Ventures International (incorporated by reference to
Exhibit 10.11 to the Company's Annual Report 10-K for the year ended December
31, 1997).
10.11 Form of Registration Rights Agreement, dated February
13, 1997 between the Company and each of Halifax Fund L.P. and Capital
Ventures International (incorporated by reference to Exhibit 4.19 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997).
10.12 Stock Purchase Agreement, dated November 10, 1997,
between the Company, Idanta Partners Ltd., Dunn Family Trust and Perscilla
Faily Trust (incorporated by reference to Exhibit 10.13 to the Company's
Annual Report 10-K for the year ended December 31, 1997).
10.13 Registration Rights Agreement, dated November 10, 1997,
between the Company, Idanta Partners Ltd., Dunn Family Trust and Perscilla
Faily Trust (incorporated by reference to Exhibit 10.14 to the Company's
Annual Report 10-K for the year ended December 31, 1997).
10.14 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).
10.15 Lease, dated March 6, 1992, between the Company and
Renco Equities IV, relating to the premises at 47100 Bayside Parkway,
Fremont, California (incorporated by reference to Exhibit 10.16 to the
Company's Annual Report 10-K for the year ended December 31, 1997).
10.16 Sub-Lease Agreement, dated October 27, 1997, between
the Company and Mattson Technology, relating to the premises at 47100 Bayside
Parkway, Fremont, California (incorporated by reference to Exhibit 10.17 to
the Company's Annual Report 10-K for the year ended December 31, 1997).
10.17 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, 1997).
</TABLE>
12.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.18 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).
10.19 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).
10.20 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 8-K, dated September 5, 1997).
10.21 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).
10.22 Purchase Agreement, dated October 31, 1997, between the
Company, Zycad Japan (GateField) KK and Zycad TSS Inc., regarding the
purchase of the maintenance business (incorporated by reference to Exhibit
10.24 to the Company's Annual Report 10-K for the year ended December 31,
1997).
10.23 Severance Agreement and General Release of All Claims,
dated September 30, 1997, between the Company and Phillips W. Smith
(incorporated by reference to Exhibit 10.25 to the Company's Annual Report
10-K for the year ended December 31, 1997).
Exhibit 27.1 Article 5 of Regulation S-X, Financial Data Schedule
for GateField Corporation for the quarter ended June 30, 1998.
</TABLE>
13.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GATEFIELD CORPORATION
/s/ Timothy Saxe
-------------------------------------
Timothy Saxe
President and Chief Operating Officer
/s/ James B. Boyd
-------------------------------------
James B. Boyd
Controller
Dated: August 14, 1998
14.
<PAGE>
CERTIFICATE OF DESIGNATIONS OF THE PREFERRED STOCK
OF
GATEFIELD CORPORATION
TO BE DESIGNATED
SERIES C 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 300,000 shares, to be
designated "Series C Convertible Preferred Stock" (hereinafter "Series C
Preferred Stock"); that the Board of Directors be and hereby is authorized to
issue such shares of Series C 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 C Preferred Stock shall be as
follows:
1. DIVIDENDS.
(a) The holders of shares of Series C Preferred Stock shall be entitled to
receive dividends of $0.30 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 only when, as
and if declared by the Board of Directors. Such dividends shall not be
cumulative and no right to such dividends shall accrue to the holders of
shares of Series C Preferred Stock unless declared by the Board of Directors.
(b) The Corporation shall not declare or pay any distributions (as defined
below) on shares of Common Stock unless the Corporation has paid or set apart
dividends with respect to the Series C Preferred Stock equal in the aggregate
to not less than the total amount of dividends which would have been payable
with respect to the shares of Series C Preferred Stock from their respective
dates of issuance if dividends under paragraph (a) of this Section 1 were
mandatory and cumulative.
(c) For purposes of this Section 1, unless the context requires otherwise,
"distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the
<PAGE>
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 C Preferred Stock
then outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders, after and subject
to the payment in full of all amounts required to be distributed to the
holders of Series B Convertible Preferred Stock (the "Series B Preferred
Stock") and the holders of any other class or series of stock of the
Corporation ranking on liquidation prior and in preference to the Series C
Preferred Stock, but 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 C 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) $10.00 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 declared and unpaid dividends, 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 C Preferred Stock the full amount to which they shall be
entitled, the holders of shares of Series C Preferred Stock and any class or
series of stock ranking on liquidation on a parity with the Series C
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, the holders of any other class or
series of stock of the Corporation ranking on liquidation on a parity with
the Series B Preferred Stock, the holders of Series C Preferred Stock and the
holders of any other class or series of stock of the Corporation ranking on
liquidation on a parity with the Series C Preferred Stock, upon the
dissolution, liquidation or winding up of the
- -2-
<PAGE>
Corporation, the holders of shares of Junior Stock then outstanding shall be
entitled to receive the remaining assets and funds of the Corporation
available for distribution to its stockholders.
(c) In the event of any merger or consolidation of the Corporation into or
with another corporation (except one in which the holders of capital stock of
the Corporation immediately prior to such merger or consolidation continue to
hold at least 80% by voting power of the capital stock of the surviving
corporation), or the sale of all or substantially all the assets of the
Corporation, if the holders of at least 51% of the then outstanding shares of
Series B Preferred Stock so elect by giving written notice thereof to the
Corporation at least three days before the effective date of such event, then
such merger, consolidation or asset sale shall be deemed to be a liquidation
of the Corporation, and all consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or all consideration
payable to the Corporation, together with all other available assets of the
Corporation (in the case of an asset sale), shall be distributed to the
holders of capital stock of the Corporation in accordance with Subsections
2(a) and 2(b) above. The Corporation shall promptly provide to the holders
of shares of Series C 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 C
Preferred Stock. 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 C 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 b 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 C 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 C 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 C Preferred Stock and of any
other outstanding series of Preferred Stock shall vote together with the
holders of Common Stock as a single class.
- -3-
<PAGE>
(b) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of the Series C Preferred Stock so as to
affect adversely the Series C Preferred Stock without the written consent or
affirmative vote of the holders of a majority of the then outstanding shares
of Series C Preferred Stock given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, without limiting the generality of the foregoing, the authorization
of any shares of capital stock on a parity with, or with priority or
preference over, the Series C 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
C Preferred Stock.
4. OPTIONAL CONVERSION. The holders of the Series C Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series C 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 $10.00 by the Conversion Price (as defined
below) in effect at the time of conversion. The "Conversion Price" shall
initially be $1.50 per share. Such initial Conversion Price, and the rate at
which shares of Series C Preferred Stock may be converted into shares of
Common Stock, shall be subject to adjustment as provided below. In addition,
any declared and unpaid dividends in respect of shares of Series C 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 declared and unpaid dividends by
the Conversion Price.
In the event of a notice of redemption of any shares of Series C 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
C Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of the Series C 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.
- -4-
<PAGE>
(c) MECHANICS OF CONVERSION.
(i) In order for a holder of Series C Preferred Stock to convert shares of
Series C Preferred Stock into shares of Common Stock, such holder shall
surrender the certificate or certificates for such shares of Series C
Preferred Stock, at the office of the transfer agent for the Series C
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 C Preferred Stock represented by such certificate or certificates.
Such notice shall state such holder's name or the names of the nominees in
which such holder wishes the certificate or certificates for shares of Common
Stock to be issued. If required by the Corporation, certificates surrendered
for conversion shall be endorsed or accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly
executed by the registered holder or his or its attorney duly authorized in
writing. The date of receipt of such certificates and notice by the transfer
agent (or by the Corporation if the Corporation serves as its own transfer
agent) shall be the conversion date ("Conversion Date"). The Corporation
shall, as soon as practicable after the Conversion Date, issue and deliver at
such office to such holder of Series C 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 C 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 C
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 C 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 C 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) Subject to Subsection 4(a) above, upon any such conversion, all
declared and unpaid dividends on the shares of Series C Preferred Stock
surrendered for conversion shall be paid to the holders thereof.
(iv) All shares of Series C 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 C Preferred
Stock so converted shall be retired and canceled and shall not be
- -5-
<PAGE>
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 C 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 C 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 C Preferred Stock so converted were registered, and no such
issuance or delivery shall be made unless and until the person or entity
requesting such issuance has paid to the Corporation the amount of any such
tax or has established, to the satisfaction of the Corporation, that such tax
has been paid.
(d) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Corporation
shall at any time or from time to time after the date on which a share of
Series C 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 C 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 C 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;
- -6-
<PAGE>
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 C Preferred Stock
shall be recomputed accordingly as of the close of business on such record
date and thereafter the Conversion Price for the Series C 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 C 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 C 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 C Preferred Stock shall make or issue, or fix a record date
for the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in securities of the Corporation other
than shares of Common Stock, then and in each such event provision shall be
made so that the holders of the Series C 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 C 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 C
Preferred Stock; and provided further, however, that no such adjustment shall
be made if the holders of Series C 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 C 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 C 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 or in Subsection 2(c) hereof), then and in
each such event the holder of each such share of Series C Preferred Stock
shall have the right thereafter to convert each 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 C Preferred
Stock might have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as provided
herein.
- -7-
<PAGE>
(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 C 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 C
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 C 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 C Preferred Stock.
(i) NO IMPAIRMENT. Without the consent of the holders of a majority of
the outstanding shares of Series C Preferred Stock, 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 C 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 C 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 C 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 C
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
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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 C Preferred Stock, and shall
cause to be mailed to the holders of the Series C Preferred Stock at their
last addresses as shown on the records of the Corporation or such transfer
agent, at least ten days prior to the date specified in (A) below or twenty
days before the date specified in (B) below, a notice stating
(A) the record date of such dividend, distribution, subdivision or
combination, or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be determined, or
(B) the date on which such reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up is expected to become effective, and
the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reclassification, consolidation, merger,
sale, dissolution or winding up.
5. REDEMPTION IN EVENT OF SERIES B PREFERRED STOCK REDEMPTION.
(a) In the event that all of the shares of the Company's Series B
Preferred Stock are redeemed by the Company pursuant to Section 5 of the
Certificate of Designations of the Series B Convertible Preferred Stock of
the Company, the holders of at least 51% of the then outstanding shares of
Series C Preferred Stock may elect to either cause the Company to redeem the
shares of Series C Preferred Stock, in whole or in part, at a redemption
price equal to $10.00 per share plus declared 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 C Preferred Stock then redeemed (the "Redemption Price"), PROVIDED,
HOWEVER, that the holders of shares of Series C Preferred Stock shall not be
entitled to cause the Company to redeem the shares of Series C Preferred
Stock until all the holders of shares of Series B Preferred Stock have
received their full redemption price for the shares redeemed.
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(b) At least fifteen (15) days prior to the date fixed by holders electing
to redeem their shares of Series C Preferred Stock ("Redeeming Holders"), for
any redemption of Series C 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 canceled. 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 C Preferred Stock
designated for redemption in the Redemption Notice as holders of Series C
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.
[This space left blank intentionally.]
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GateField Corporation has caused this Certificate of Designations to be
signed by James R. Fiebiger, its authorized officer, this 13th day of August,
1998.
By: /s/ James R. Fiebiger
---------------------
James R. Fiebiger
Chief Executive Officer
<PAGE>
[LOGO]
GATEFIELD CORPORATION
BY-LAWS
(AS AMENDED THROUGH JULY 23, 1998)
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
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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 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
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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 Ill
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.
(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.
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(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 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.
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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 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
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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
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shall deem necessary 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 or vice-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
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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 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,
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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 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
9
<PAGE>
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 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.
10
<PAGE>
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,
11
<PAGE>
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.
SPECIAL NOTE REGARDING BY-LAW PROVISIONS:
Pursuant to Section 4.10 of the Stock Purchase Agreement, dated
November 10, 1997, among the Company and Idanta Partners Ltd., Dunn Family
Trust and Perscilla Faily Trust, the Company agreed that an increase in the
number of directors which shall constitute the whole board to a number of
directors greater than four shall require the affirmative vote of
three-fourths of the members of the board then in office. The Company also
agreed that the affirmative vote of three-fourths of the members of the board
then in office shall be required to amend, repeal or to adopt any provision
inconsistent therewith.
12
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