<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 SEPTEMBER 30, 1998
/ / 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) (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 November 12, 1998
------------------- --------------------------------
Common stock, par value $0.10 per share 41,303,178
<PAGE>
GATEFIELD CORPORATION
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997 (Restated) 3
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements,
September 30, 1998 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
(a) Exhibits
(b) Reports on Form 8-K:
SIGNATURE 15
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Restated)
Current assets:
Cash and cash equivalents $ 11,342 $ 4,189
Short-term investments 118 98
Accounts receivable, less allowance for doubtful
accounts of $274 in 1998 and $528 in 1997 806 2,763
Inventories 172 735
Other current assets 348 524
--------------- --------------
Total current assets 12,786 8,309
Property and equipment, net 2,707 2,660
Other assets 214 287
--------------- --------------
Total assets $ 15,707 $ 11,256
--------------- --------------
--------------- --------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term obligations $ 511 $ 516
Accounts payable 1,490 3,741
Accrued expenses 3,189 3,118
Deferred revenues 4,716 981
--------------- --------------
Total current liabilities 9,906 8,356
Other long-term liabilities 430 71
Redeemable preferred stock (deficit):
$0.10 par value; 2,000,000 shares authorized;
shares issued and outstanding: 1,300,000 in 1998 and
1,000,000 in 1997 -- at redemption value 7,697 4,594
Stockholders' deficit:
Common stock:
$0.10 par value; 65,000,000 shares authorized; shares issued
and outstanding: 41,745,108 in 1998 and 36,222,326 in 1997 4,174 3,622
Additional paid-in capital 77,189 72,642
Accumulated translation adjustments (530) (544)
Accumulated deficit (83,159) (77,485)
--------------- --------------
Total stockholders' deficit (2,326) (1,765)
--------------- --------------
Total liabilities and stockholders' deficit $ 15,707 $ 11,256
--------------- --------------
--------------- --------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Product $ 379 $ 1,844 $ 2,456 $ 4,020
Service 629 2,573 3,869 8,297
--------- --------- --------- ---------
Total revenues 1,008 4,417 6,325 12,317
--------- --------- --------- ---------
Cost of revenues:
Product 1,040 2,782 1,717 6,029
Service 351 1,659 3,576 4,933
--------- --------- --------- ---------
Total cost of revenues 1,391 4,441 5,293 10,962
--------- --------- --------- ---------
Gross margin (383) (24) 1,032 1,355
--------- --------- --------- ---------
Operating expenses:
Sales and marketing 1,603 648 3,877 6,892
Research and development 1,321 1,751 4,017 6,550
General and administrative 1,276 1,800 2,826 2,750
--------- --------- --------- ---------
Total operating expenses 4,200 4,199 10,720 16,192
--------- --------- --------- ---------
Operating loss (4,583) (4,223) (9,688) (14,837)
--------- --------- --------- ---------
Other income (expense), net 4,295 (122) 4,117 3,007
--------- --------- --------- ---------
Net loss $ (288) $ (4,345) $ (5,571) $ (11,830)
--------- --------- --------- ---------
--------- --------- --------- ---------
Loss attributable to common
stockholders $ (322) $ (4,627) $ (5,674) $ (12,892)
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic and diluted net loss
per share $ (0.01) $ (0.14) $ (0.14) $ (0.45)
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic and diluted weighted average
shares outstanding 41,503 32,884 41,053 28,460
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying Notes To Condensed Consolidated Financial Statements.
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
(IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net loss $ (5,571) $ (11,830)
Reconciliation to net cash used in operating activities:
Depreciation and amortization 375 3,435
Subordinated convertible debt interest capitalized - 438
Sales under capital leases - 1,143
Gain on sale of Design Service Business (4,462) -
Gain on sale of LightSpeed - (445)
Gain on sale of QSS - (3,321)
Loss on sale of EDA - 504
Changes in assets and liabilities:
Accounts receivable 1,081 5,373
Inventories 562 (384)
Other assets 180 1,009
Accounts payable and accrued expenses (2,200) (4,744)
Deferred revenues 3,763 (693)
--------- ---------
Net cash used in operating activities (6,272) (9,515)
--------- ---------
Investing activities:
Property and equipment purchases (1,404)
Capitalized software - (150)
Proceeds from sale of Design Service Business 5,444 -
Proceeds from sale of LightSpeed - 5,000
Proceeds from sale of QSS - 3,500
Proceeds from sale of EDA - 4,450
--------- ---------
Net cash provided by investing activities 5,444 11,396
--------- ---------
Financing activities:
Proceeds from issuance of convertible debenture notes, net - 3,500
Proceeds from issuance of common stock 5,099 170
Proceeds from issuance of preferred stock 3,000 -
Bank financing, net - (3,114)
Repayments of debt obligations (158) (2,196)
--------- ---------
Net cash provided by (used in) financing activities 7,941 (1,640)
--------- ---------
Effect of exchange rate changes on cash and cash equivalents 40 159
--------- ---------
Net change in cash and cash equivalents 7,153 400
Cash and cash equivalents, beginning of period 4,189 1,703
--------- ---------
Cash and cash equivalents, end of period $ 11,342 $ 2,103
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information:
Noncash activities:
Equipment acquired under capital leases $525 $ -
Common stock exchanges for convertible debentures $ - $ 7,342
Preferred stock exchanges for convertible debentures $ - $ 3,917
Common stock exchanges for preferred stock $ - $ 1,207
Cash activities:
Cash paid during the year for interest $300 $454
</TABLE>
See accompanying Notes To Condensed Consolidated Financial Statements.
<PAGE>
GATEFIELD CORPORATION
(FORMERLY ZYCAD CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 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 September 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/A.
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 nine months ended September 30, 1998 and 1997,
the change in net assets from nonowner sources was an increase of $14,000 and a
decrease of $114,000 respectively, for the change in the accumulated translation
adjustment, and comprehensive loss was $5,557,000 and $11,944,000.
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 stockholders 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. In the computation of
loss per share, loss attributable to common stockholders includes the accrual
of dividends on outstanding shares of preferred stock of $34,000 and $103,000
for the three and nine months ended September 30, 1998, respectively, and
$282,000 and $1,042,000 for the three and nine months ended September 30,
1997, respectively. EPS for all periods have been computed in accordance with
SFAS No. 128.
4. INVENTORIES
<TABLE>
<CAPTION>
September 30, December 31,
(IN THOUSANDS) 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies $ 107 $ 306
Finished goods 65 429
------------ ------------
$ 172 $ 735
------------ ------------
------------ ------------
</TABLE>
<PAGE>
5. SALE OF THE DESIGN SERVICES BUSINESS ASSETS
Pursuant to the Asset Purchase Agreement dated as of August 14, 1998 (the "Asset
Purchase Agreement"), 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.
6. SALE OF PREFERRED STOCK
Pursuant to the 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.
In the event that all the Company's outstanding shares of Series B Preferred
Stock are redeemed, Actel shall be entitled to redeem its Series C Shares,
subject to applicable law. 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.
7. STRATEGIC ALLIANCES
PRODUCT MARKETING AGREEMENT
In August 1998, the Company 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 utilizing less than .35 micron
geometries, 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. Revenue recognition of the $1.0 million initial fee has
been deferred until delivery to Actel of products below .35 micron.
ACTEL LICENSE AGREEMENT
In August 1998, the Company 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 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. The $1.0 million initial fee received has
been deferred until delivery of products below .35 micron.
ROHM LICENSE AGREEMENT
In July 1998, the Company 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 for a license fee of $2.5 million: (i)
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 (ii) a license for 0.25 micron and below
embedded products with a per unit royalty for a license fee of $2.5 million.
The $2.5 million license fee has been deferred until certain contract terms
have been completed.
8. STOCK MARKET LISTING
Effective September 17, 1998 the Company's stock was delisted from the Nasdaq
SmallCap Market for failure to meet the on-going minimum bid price
requirement. Since that time, the Company's stock has traded on the OTC
Bulletin Board. As a result of the delisting, the Company's 1,000,000 shares
of Series B Preferred Stock became redeemable at the option of the holders
thereof, to the extent permitted by applicable law. In October 1998, the
Company was notified by the Series B stockholders of their desire to redeem
981,997 of the 1,000,000 outstanding shares of the Series B Preferred Stock
for approximately $4.6 million. A special subcommittee of the Board of
Directors has been appointed and is currently assessing whether, or to what
extent, the redemption is permitted by applicable law. If the above Series B
redemption is permitted and if the holders of the remaining 18,003 shares of
Series B elect to redeem all of their shares, then the holders of the
Company's Series C Preferred Stock would have the right to redeem their
shares for a total of $3.0 million, to the extent permitted by applicable law.
<PAGE>
9. RESTATEMENT
Subsequent to the issuance of the Company's 1997 consolidated financial
statements, the Company determined that the application of a technical
accounting treatment required that the 1997 net loss per share calculation to
include $5,866,000 for the accretion of the assumed beneficial conversion
feature of the Series B Preferred Stock issued in November 1997 and
$1,053,000 for preferred stock dividends. The effect of the accretion is a
non-cash charge to stockholders' deficit and does not impact the previously
reported net loss for the year ended December 31, 1997 nor does it result in
a net change to stockholders' deficit. The effect of the restatement was to
increase net loss per share by $0.23 to $0.73 for the year ended December 31,
1997.
In addition, the Certificate of Designation of the Series B Convertible
Preferred Stock requires the Company to maintain a listing on a public market
(as defined in the agreement). As discussed in Note 8, the Company is not in
compliance with this provision and accordingly the Series B Preferred Stock
is now redeemable at the option of the holders or convertible at 6.11 shares
of Common Stock if the redemption is not possible or not permitted by
applicable law. If the Series B Preferred Stock is fully redeemed, the Series
C preferred stockholders may elect to cause the redemption of the Series C
Preferred Stock for $10.00 per share, to the extent permitted by applicable
Delaware and California law. Accordingly, the Series B and Series C
Convertible Redeemable Preferred Stock is classified as a mezzanine equity
separate from stockholders' equity (deficit).
<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 1997 Annual Report on Form 10-K/A.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
REVENUE
Total revenue for the quarter ended September 30, 1998 was $1.0 million
compared to $4.4 million for the quarter ended September 30, 1997, a decrease
of 77%. Product revenue for the quarter ended September 30, 1998 was $379,000
compared to $1.8 million for the quarter ended June 30, 1997, a decrease of
79%. Service revenue for the quarter ended June 30, 1998 was $629,000 as
compared to $2.6 million for the quarter ended September 30, 1997, a decrease
of 76%. The decrease in product revenue is the result of the Company's
decision to stop production of its .7 micron product in order to concentrate
on delivering its .25 micron product on time and to transition its sales and
marketing efforts to Actel Corporation (see Strategic Alliance section in
Note 7). The decrease in service revenue reflects the sale of the Design
Service Business to Actel in August 1998, as described in Note 5, and the
sale of the verification product families in 1997.
Total revenue for the nine months ended September 30, 1998 was $6.3 million,
a decrease of $6.0 million from $12.3 million for the same period in 1997.
Product revenue for the first nine months of 1998 was $2.5 million, compared
to $4.0 million for the comparable period in 1997. Service revenue was $3.9
million for the nine months ended September 30, 1998; a decrease of $4.4
million from $8.3 million for the nine months ended September 30, 1997. This
decrease primarily reflects the sale of the Company's LightSpeed and XP/PXP
maintenance and support business to Zycad TSS in October 1997.
GROSS MARGIN
Total gross margin was a loss of $383,000 for the three months ended
September 30, 1998 compared to a loss of $24,000 for the three months ended
September 30, 1997. The loss from product revenues at the gross margin level
was $661,000 for the quarter ended September 30, 1998, as compared to a loss
of $938,000 for the quarter ended September 30, 1997. The loss at the gross
margin level in the current period reflects the poor yields on the .7 micron
product associated with manufacturing difficulties. Gross profit from service
revenue was $278,000, or 44% of service revenue, for the three months ended
September 30, 1998 compared to $914,000, or 36% of the service revenue for
the three months ended September 30, 1997. This increase in gross profit from
service revenues in 1998 as compared to 1997 was partly due to the
dispositions in 1997 mentioned above and the reduction of certain operating
expenses in the Design Services Business in 1998.
Total gross profit was $1.0 million and $1.4 million for the nine month
periods ended September 30, 1998 and 1997, respectively or 16% and 11% of
total revenue. Gross margin from product revenues was $739,000 for the nine
month period ended September 30, 1998 as compared to a loss of $2.0 million
for the period ended September 30, 1997. Gross profit from service revenue
was $293,000, or 8%, for the nine months ended September 30, 1998 compared to
$3.4 million, or 41%, for the nine months ended September 30, 1997.
<PAGE>
OPERATING EXPENSES
SALES AND MARKETING
Sales and marketing expenses were $1.6 million for the quarter ended
September 30, 1998 and $648,000 for the quarter ended September 30, 1997,
which represents 159% of total revenues in 1998 and 15% of total revenues in
1997. Sales and marketing expenses for the nine months ended September 30,
1998 and September 30, 1997 were $3.9 million and $6.9 million, respectively.
The increase in sales and marketing expenses for the current period
represents cost associated with closing sales offices in Germany and Japan.
The relatively high level of sales and marketing expenses as a percent of
total revenue represent the disappointing sales performance of the .7 micron
products versus their forecasts.
RESEARCH AND DEVELOPMENT
Research and development expenses decreased to $1.3 million for the three
months ended September 30, 1998 compared to $1.8 million for the three months
ended September 30, 1997. For the nine months ended September 30, 1998
research and development expense were $4.0 million as compared to $6.6
million for the same period in 1997. This decrease in quarterly expenses is
due to tighter cost control in 1998 while the decrease in the nine month
comparisons primarily reflects reduced headcount as a result of the sale of
product families in 1997.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended September 30,
1998 and 1997 were $1.3 million and $1.8 million, respectively and $2.8 million
for both nine month periods ended September 30, 1998 and 1997. The relatively
high cost of these expenses as a percentage of revenue are primarily due to
lower than expected revenues and high legal expenses associated with the sales
of product families and issuance of stock in these periods.
OTHER INCOME AND EXPENSES
Other income for the quarter ended September 30, 1998 was $4.3 million as
compared to other expenses of $122,000 for the quarter ended September 30,
1997. Other income for the nine months ended September 30, 1998 was $4.1
million compared to $3.0 million for the nine months ended September 30,
1997. The differences between the periods were primarily due to a $3.3
million gain on the sale of the Company's ownership interest in QSS, Inc. in
May 1997 and a $4.5 million gain on the sale of the design services business
in August 1998.
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 $6.3 million in the first nine months of 1998 compared
to $9.5 million for the first nine months of 1997. This decrease in cash used
in operations in 1998 compared to 1997 was primarily due to a reduced loss
and to smaller reductions in the accounts receivable and accounts payable
balances in the first nine months of 1998 as compared to the reductions
experienced in those balances for the same period of 1997. Net cash provided
by investing activities during the nine-month period ended September 30, 1998
was $5.4 million as compared to $11.4 million during the same period ended
September 30, 1997. This decrease in net cash provided by investing
activities is primarily due to $13.0 million in proceeds from the sale of
certain businesses in 1997. Net cash provided by financing activities was
$7.9 million in the first nine months of 1998 compared to net cash used by
financing activities in the amount of $1.6 million for the same nine 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 sale of $3.0
million of Series C preferred stock in the current quarter.
At September 30, 1998, the Company had $11.3 million of cash and cash
equivalents and positive working capital of $2.9 million. 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 September 30, 1998. The Company is not currently in compliance
with certain covenants in the Credit Facility and, therefore, is not
currently able to draw down any amount under the Credit Facility.
<PAGE>
In October 1998 certain holders of the Company's Series B Preferred Stock
notified the Company of their intention to redeem $4.5 million of the Series
B shares. A special subcommittee of the Board of Directors has been appointed
and is currently assessing whether, or to what extent applicable law permits
the redemption. The Company intends to meet its obligation for redemption to
the extent permitted by applicable law. If the above Series B redemption is
permitted and if the holders of the remaining 18,003 shares of Series B elect
to redeem all their shares, then the holders of the Company's Series C
Preferred Stock would have the right to request redemption of their shares
for $3.0 million, again, to the extent permitted by applicable law.
The Company has historically funded its operations 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' interest.
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
1997 Annual Report on Form 10-K/A.
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 Actel's marketing and
sales efforts to grow revenue for these new FPGA products. In addition, the
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 and related development system
software. 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 and improve its operational,
management and financial systems, and controls and 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,
<PAGE>
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. In October 1998 certain holders of the
Company's Series B Preferred Stock notified the Company of their intention to
redeem $4.5 million of the Series B shares. See "Liquidity and Capital
Resources" section for a discussion of the impact of the requested redemption
on the liquidity of the Company.
YEAR 2000 ISSUES
The Company is aware that many existing information technology (IT) systems,
such as computer systems and software products, as well as non-IT systems
that include embedded technology, were not designed to correctly process
dates after December 31, 1999. The Company is currently assessing the impact
of such "Year 2000" issues on its internal IT and non-IT systems, as well as
on its customers, suppliers and service providers. The Company has formed a
"Year 2000 Team" to identify, access and resolve Year 2000 compliance issues.
The Year 2000 Team is testing and evaluating the Company's products and the
Company's IT systems and has recently begun compiling an inventory of all
material Year 2000 issues.
To date, the Company has not identified any significant areas of
non-compliance with respect to its products or IT systems and expects that
the assessment and remedial action for all of its products, IT systems and
non-IT systems will be completed by the end of calendar year 1999. The
Company will take the necessary steps to make its systems Year 2000
compliant. These steps may require the Company to modify, upgrade or replace
some of its internal financial and operational systems. The cost of bringing
all internal systems, equipment and operations into Year 2000 compliance has
not yet been determined. While these efforts may involve additional costs,
the Company believes, based upon currently available information, that these
costs will not have a material adverse effect on the business, financial
condition or results of operations of the Company.
The Company is also compiling a list of significant customers, suppliers and
services providers and intends to initiate discussions with them regarding
their plans to address their Year 2000 issues. Although the Company
anticipates cooperation in these efforts it may be difficult for the Company
to obtain assurances of Year 2000 readiness from such third parties. If any
customers, suppliers or service providers fail to appropriately address their
year 2000 issues, such failure could have a material adverse effect in the
Company's business, financial condition and results of operation. The Year
2000 Team will develop contingency plans in the event any third party that
provides goods or services essential to the Company's business fails to
appropriately address their Year 2000 issues. Even if the Company's
assessments, resolutions and contingency plans are completed and put in place
on time, there can be no assurance that such actions will be sufficient to
address any third party failures or that unresolved or undetected internal
and external Year 2000 issues with third parties will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
Although the Company believes that its Year 2000 Team will identify all of
the Company's material Year 2000 issues, given the pervasiveness of Year 2000
issues and the complex interrelationships among Year 2000 issues both
internal and external to the Company, there can be no assurance that the
Company will be able to identify and accurately evaluate all such issues. As
the process of identifying, accessing and resolving Year 2000 compliance
issues proceeds the Company may identify situations that present material
Year 2000 risks and/or that will require substantial time and material
expense to address. Even if the Company's assessments and resolutions are
completed on time and put in place, there can be no assurance that such plans
will be sufficient to address any failures or that unresolved or undetected
internal and external Year 2000 issues will not have a material adverse
effect on the Company's business, financial condition and results of
operations.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
2.1 Asset Purchase Agreement dated August 14, 1998, regarding
the purchase of GateField Corporation's Design Services
Business by Actel Corporation (incorporated by reference
to Exhibit 2.1 to the Company's Current Report on Form 8-K
filed on August 14, 1998).
3.1 Restated Certificate of Incorporation dated August 28,
1998 (incorporated by reference to Exhibit 4.3 to the
Company's Current Report on Form 8-KA dated August 31,
1998).
3.2 Certificate of Correction of Restated Certificate of
Incorporation of GateField Corporation dated October 20,
1998.
3.3 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).
3.4 Certificate of Designations of Preferred Stock of GateField
Corporation to be Designated Series C Convertible Preferred
Stock of the Company (incorporated by reference to Exhibit
3.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).
3.5 Bylaws of the Company, as amended (incorporated by
reference to Exhibit 3.4 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998).
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.
4.5 See Exhibit 10.24 referenced below.
4.6 See Exhibit 10.25 referenced below.
4.7 Series C Preferred Stock Purchase Agreement dated August
14, 1998 between GateField Corporation and Actel
Corporation (incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-KA dated August 31,
1998).
4.8 Registration Rights Agreement dated August 14, 1998
between GateField Corporation and Actel Corporation
(incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-KA dated August 31, 1998).
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).
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 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
<PAGE>
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).
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
<PAGE>
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).
10.24 Product Marketing Agreement, dated August 14, 1998,
between the Company and Actel Corporation.
10.25 License Agreement, dated August 14, 1998, between the
Company and Actel Corporation.
10.26 License Agreement dated July 31, 1998 between GateField
Corporation and Rohm Co., Ltd. (incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form
8-K filed on August 14, 1998).
10.27 Agreement for Wafer Production and Testing between
GateField Corporation and Siemens Aktiengesellschaft
(incorporated by reference to Exhibit 99.3 to the Company's
Current Report on Form 8-KA dated August 31, 1998).
27.1 Article 5 of Regulation S-X, Financial Data Schedule for
GateField Corporation for the quarter ended September 30,
1998.
99.1 GateField Corporation's press release dated November 3,
1998, regarding redemption notice from Series B
Convertible Preferred Stockholders.
99.2 GateField Corporation's press release dated August 14,
1998 (incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K filed on August 14,
1998).
</TABLE>
(b) Reports on Form 8-K:
During the third quarter of 1998 the Company filed a current report on Form
8-K dated August 14, 1998 and an amendment to that report, a Form 8-K/A,
dated August 31, 1998. The Form 8-K was filed to report the consummation of
certain transactions with Actel Corporation and to report the consummation of
a licensing agreement with Rohm Co., Ltd. dated July 31, 1998. The Form 8-K/A
was filed to report a reorganization of the Company's senior management in
connection with the consummation of the transactions with Actel Corporation.
<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/ James R. Fiebiger
-------------------------------------
James R. Fiebiger
CEO
/s/ James B. Boyd
-------------------------------------
James B. Boyd
Controller
Dated: November 19, 1998
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF CORRECTION OF
RESTATED
CERTIFICATE OF INCORPORATION OF
GATEFIELD CORPORATION
GATEFIELD CORPORATION, a Delaware corporation (the "Corporation"),
certifies pursuant to Section 103(f) of the General Corporation Law of the
State of Delaware that:
1. The name of the corporation filing this certificate is GateField
Corporation and it is a Delaware corporation.
2. The instrument being corrected is entitled "RESTATED CERTIFICATE
OF INCORPORATION OF GATEFIELD CORPORATION" and said instrument was filed in
the office of the Secretary of State of the State of Delaware on August 28,
1998.
3. Article IV, Section E.4.1.(a) of said RESTATED CERTIFICATE OF
INCORPORATION inaccurately set forth that:
"In the event that holders of at least 51% of the Company's Series B
Preferred stock elect to redeem any Series B Preferred Stock pursuant to
Section 5 of the Certificate of Designations of the Series B 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 the holders of shares of Series B Preferred Stock entitled to
cause the Company to redeem the shares of Series B Preferred Stock and
electing to so cause the Company to redeem the shares of Series B Preferred
Stock have received their full redemption price for the shares they have
elected to have redeemed."
Article IV, Section E.4.1.(a) of said RESTATED CERTIFICATE OF
INCORPORATION, as corrected, should read in its entirety as follows:
1.
<PAGE>
"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 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."
IN WITNESS WHEREOF, GATEFIELD CORPORATION has caused this Certificate of
Correction to be signed by its President this 20th day of October 1998.
GATEFIELD CORPORATION
By: /s/ James R. Fiebiger
------------------------------------------
James R. Fiebiger, Chief Executive Officer
2.
<PAGE>
EXHIBIT 10.24
TABLE OF CONTENTS
PAGE
1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 "Actel Patent" . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 "Actel Intellectual Property Right". . . . . . . . . . . . . . 1
1.3 "Affiliate". . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 "Acquired Party" . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 "Acquiring Party". . . . . . . . . . . . . . . . . . . . . . . 1
1.6 "Beneficial Owner" . . . . . . . . . . . . . . . . . . . . . . 2
1.7 "Change in Ownership". . . . . . . . . . . . . . . . . . . . . 2
1.8 "Confidential Information" . . . . . . . . . . . . . . . . . . 2
1.9 "Control," . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.10 "Cost of Sales". . . . . . . . . . . . . . . . . . . . . . . . 3
1.11 "Distribution Products". . . . . . . . . . . . . . . . . . . . 3
1.12 "Distribution Product Patents" . . . . . . . . . . . . . . . . 3
1.13 "Distribution Product Software". . . . . . . . . . . . . . . . 3
1.14 "Embedded Product" . . . . . . . . . . . . . . . . . . . . . . 3
1.15 "End of Life" or "EOL" . . . . . . . . . . . . . . . . . . . . 3
1.16 "GateField Patent" . . . . . . . . . . . . . . . . . . . . . . 3
1.17 "GateField Intellectual Property Right". . . . . . . . . . . . 4
1.18 "Intellectual Property Right". . . . . . . . . . . . . . . . . 4
1.19 "Moral Rights" . . . . . . . . . . . . . . . . . . . . . . . . 4
1.20 "Net Revenues" . . . . . . . . . . . . . . . . . . . . . . . . 4
1.21 "New Product". . . . . . . . . . . . . . . . . . . . . . . . . 4
1.22 "Next Generation". . . . . . . . . . . . . . . . . . . . . . . 4
1.23 "Non-Acquired Party" . . . . . . . . . . . . . . . . . . . . . 4
1.24 "Patent Costs" . . . . . . . . . . . . . . . . . . . . . . . . 4
1.25 "Patent Recoveries". . . . . . . . . . . . . . . . . . . . . . 4
1.26 "Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.27 "Product Qualification". . . . . . . . . . . . . . . . . . . . 5
1.28 "Product Release". . . . . . . . . . . . . . . . . . . . . . . 5
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
1.29 "Revenue Shortfall". . . . . . . . . . . . . . . . . . . . . . 5
1.30 "Standard Product" . . . . . . . . . . . . . . . . . . . . . . 5
1.31 "Total Voting Power" . . . . . . . . . . . . . . . . . . . . . 5
1.32 "Voting Securities". . . . . . . . . . . . . . . . . . . . . . 5
2. GRANTS OF RIGHTS AND LICENSE . . . . . . . . . . . . . . . . . . . . . . 5
2.1 License Grants . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1.1 Distribution Products. . . . . . . . . . . . . . . . 5
2.1.2 Distribution Product Software. . . . . . . . . . . . 5
2.2 Trademarks and Trade Names . . . . . . . . . . . . . . . . . . 6
2.3 GateField Ownership. . . . . . . . . . . . . . . . . . . . . . 6
2.4 Patent Enforcement.. . . . . . . . . . . . . . . . . . . . . . 6
2.5 Actel Ownership. . . . . . . . . . . . . . . . . . . . . . . . 7
2.6 Intellectual Property Development. . . . . . . . . . . . . . . 7
2.7 Manufacturing Rights . . . . . . . . . . . . . . . . . . . . . 7
2.8 Revenue Shortfall EOL. . . . . . . . . . . . . . . . . . . . . 7
3. ESCROW AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.1 Source Code. . . . . . . . . . . . . . . . . . . . . . . . . . 8
4. DISTRIBUTION PAYMENTS AND COSTS. . . . . . . . . . . . . . . . . . . . . 8
4.1 Exclusivity and Commitment Fee . . . . . . . . . . . . . . . . 8
4.2 Product Qualification Fee. . . . . . . . . . . . . . . . . . . 8
4.3 Revenues and Cost Calculation. . . . . . . . . . . . . . . . . 8
5. DELIVERY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Forecasts. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.2 Actel Milestones . . . . . . . . . . . . . . . . . . . . . . . 9
5.3 Performance Obligation . . . . . . . . . . . . . . . . . . . . 10
5.4 Currency.. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.5 Overdue Payments.. . . . . . . . . . . . . . . . . . . . . . . 10
5.6 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6. MANUFACTURING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
6.1 Manufacturing and Distribution Responsibilities. . . . . . . . 10
6.2 GateField Milestones . . . . . . . . . . . . . . . . . . . . . 10
7. COVENANTS NOT TO SUE . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.1 During Term of Agreement . . . . . . . . . . . . . . . . . . . 11
7.1.1 Actel Covenant . . . . . . . . . . . . . . . . . . . 11
7.1.2 GateField Covenant . . . . . . . . . . . . . . . . . 11
7.1.3 Future Applications. . . . . . . . . . . . . . . . . 12
7.1.4 Acquiring Party. . . . . . . . . . . . . . . . . . . 12
7.2 After End of Term. . . . . . . . . . . . . . . . . . . . . . . 12
7.2.1 Actel Covenant . . . . . . . . . . . . . . . . . . . 12
7.2.2 GateField Covenant . . . . . . . . . . . . . . . . . 12
7.2.3 Acquiring Party. . . . . . . . . . . . . . . . . . . 12
8. NON-SOLICITATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.1 Non-Solicitation . . . . . . . . . . . . . . . . . . . . . . . 13
9. DUTIES OF PARTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9.1 Good Faith (GateField) . . . . . . . . . . . . . . . . . . . . 13
9.2 Good Faith (Actel) . . . . . . . . . . . . . . . . . . . . . . 13
9.3 Governmental Approvals . . . . . . . . . . . . . . . . . . . . 13
9.4 Existing License Agreements. . . . . . . . . . . . . . . . . . 13
9.5 Customer Maintenance or Support. . . . . . . . . . . . . . . . 13
9.6 Programmable Logic Devices . . . . . . . . . . . . . . . . . . 13
9.7 Embedded Product License . . . . . . . . . . . . . . . . . . . 13
9.8 Notification of Infringement . . . . . . . . . . . . . . . . . 13
9.9 Documentation. . . . . . . . . . . . . . . . . . . . . . . . . 14
9.10 GateField Quality Assurance Measures.. . . . . . . . . . . . . 14
9.11 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.12 Non-Disparagement. . . . . . . . . . . . . . . . . . . . . . . 14
9.13 Management Meetings. . . . . . . . . . . . . . . . . . . . . . 14
9.14 Board Visitation Rights. . . . . . . . . . . . . . . . . . . . 14
iii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
10. GENERAL REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 15
10.1 General Representations. . . . . . . . . . . . . . . . . . . . 15
10.1.1 Corporate Power. . . . . . . . . . . . . . . . . . . 15
10.1.2 Due Authorization. . . . . . . . . . . . . . . . . . 15
10.1.3 Binding Agreement. . . . . . . . . . . . . . . . . . 15
11. NO WARRANTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.1 DISCLAIMER . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.2 No Warranty Pass Through . . . . . . . . . . . . . . . . . . . 15
12. DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
12.1 Executive Meetings . . . . . . . . . . . . . . . . . . . . . . 15
12.2 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . 16
12.2.1 Failure to Appoint . . . . . . . . . . . . . . . . . 16
12.2.2 Arbitration Proceedings. . . . . . . . . . . . . . . 16
12.2.3 Fees and Expenses. . . . . . . . . . . . . . . . . . 16
12.3 Remedies for Breach of Contract. . . . . . . . . . . . . . . . 17
13. LIMITATION OF LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . . 17
13.1 Limitation of Liability. . . . . . . . . . . . . . . . . . . . 17
14. TERM; TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . 17
14.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
14.2 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 18
14.2.1 Insolvency; Assignment for Creditors; Bankruptcy . . 18
14.3 Automatic Termination Event of GateField . . . . . . . . . . . 18
14.4 Automatic Termination Event of Actel . . . . . . . . . . . . . 18
14.5 Effect of Notice of Termination. . . . . . . . . . . . . . . . 19
14.6 Duties of Actel Upon Termination . . . . . . . . . . . . . . . 20
14.7 Survival.. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
15. CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 20
15.1 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . 20
15.2 Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . 20
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TABLE OF CONTENTS
(CONTINUED)
PAGE
16. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
16.1 Actel Indemnity. . . . . . . . . . . . . . . . . . . . . . . . 21
16.2 GateField Indemnity. . . . . . . . . . . . . . . . . . . . . . 21
16.3 Indemnification Procedures; Sole Remedy. . . . . . . . . . . . 21
17. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
17.1 Records Retention. . . . . . . . . . . . . . . . . . . . . . . 22
17.2 Audit Request. . . . . . . . . . . . . . . . . . . . . . . . . 22
17.3 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
17.4 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
17.5 Export Law Compliance. . . . . . . . . . . . . . . . . . . . . 22
17.6 Foreign Corrupt Practices Act. . . . . . . . . . . . . . . . . 22
17.7 Governing Language . . . . . . . . . . . . . . . . . . . . . . 22
17.8 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
17.9 Relationship of Parties. . . . . . . . . . . . . . . . . . . . 23
17.10 Assignment of Agreement. . . . . . . . . . . . . . . . . . . . 23
17.11 Merger Discussions . . . . . . . . . . . . . . . . . . . . . . 23
17.12 Governing Law; Venue . . . . . . . . . . . . . . . . . . . . . 23
17.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 23
17.14 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 23
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PRODUCT MARKETING AGREEMENT
THIS PRODUCT MARKETING AGREEMENT (the "Agreement") is entered into as of
August 14, 1998 (the "Effective Date"), by and between GATEFIELD CORPORATION,
a Delaware corporation with offices at 47100 Bayside Parkway, Fremont,
California 94538 ("GATEFIELD"), and ACTEL CORPORATION, a California
corporation with offices at 955 East Arques Avenue, Sunnyvale, California
94086 ("ACTEL").
WHEREAS, GateField has developed and owns proprietary designs and
know-how for the production of certain field programmable gate array ("FPGA")
products including, without limitation, the "Distribution Products" (as
defined below) and possesses infrastructure for manufacturing the
Distribution Products;
WHEREAS, Actel desires to market and distribute the Distribution
Products subject to the terms and conditions set forth in this Agreement; and
WHEREAS, GateField desires to appoint Actel as an exclusive, worldwide
distributor of the Distribution Products except as limited by any agreements
or rights of any third parties, subject to the terms and conditions set forth
below.
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants hereinafter set forth, the parties hereto hereby agree as follows:
1. DEFINITIONS. As used herein, capitalized terms will have the
meanings set forth below.
1.1 "ACTEL PATENT" means any patent (i) that Actel or any of
its Affiliates now own or may hereafter own or (ii) under which and to the
extent that Actel or any of its Affiliates have acquired or may hereafter
acquire the right to grant licenses, unless the right to grant said license
requires the payment of a royalty or other consideration to a third party.
1.2 "ACTEL INTELLECTUAL PROPERTY RIGHT" means any
Intellectual Property Right (i) that Actel or any of its Affiliates now own
or may hereafter own or (ii) under which and to the extent that Actel or any
of its Affiliates have acquired or may hereafter acquire the right to grant
licenses, unless the right to grant said license requires the payment of a
royalty or other consideration to a third party.
1.3 "AFFILIATE" means a Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is
under common control with, a specified Person.
1.4 "ACQUIRED PARTY" shall mean a party to this Agreement
following a Change in Ownership of such party.
1.5 "ACQUIRING PARTY" shall mean the Person(s), if any, in
Control of an Acquired Party following a Change in Ownership and the
Affiliates of such Person(s).
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1.6 "BENEFICIAL OWNER" shall be used in this Agreement as
defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended.
1.7 "CHANGE IN OWNERSHIP" shall mean the occurrence of any
one of the following:
Any Person is or shall have the right to become the
Beneficial Owner, directly or indirectly, of Voting Securities of such party
representing 50% or more of the Total Voting Power of such party's Voting
Securities.
The shareholders of a party approving a merger or
consolidation of such party with any other corporation, other than a merger
or consolidation that would result in the Voting Securities of such party
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving corporation) 50% or more of the Total Voting Power represented by
the Voting Securities of such party or such surviving corporation outstanding
immediately after such merger or consolidation.
The shareholders of a party approving a plan of
dissolution or liquidation of such party or an agreement for the sale or
disposition by such party of all or substantially all of such party's assets
in one or a series of transactions.
1.8 "CONFIDENTIAL INFORMATION" means any confidential or
proprietary information, firmware, designs, schematics, plans or any other
information relating to any research project, work in process, future
development, scientific, engineering, manufacturing, marketing or business
plan or financial or personnel matter relating to the disclosing party, its
present or future products, sales, suppliers, customers, employees, investors
or business, and identified by the disclosing party as Confidential
Information, whether in oral, written, graphic or electronic form. If the
information is disclosed in written, graphic or electronic form it must be
marked as confidential or proprietary to be treated as Confidential
Information hereunder. If disclosed in oral form, such information must be
identified as Confidential Information at the time of disclosure and reduced
to writing and marked as confidential or proprietary within thirty (30) days
following disclosure, with a copy of such writing delivered to the receiving
party. Without limiting the foregoing, "Confidential Information" shall
include the terms and conditions of this Agreement.
1.9 "CONTROL," including the terms "controlling," "controlled
by," and "under common control with," shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of Voting Securities,
by contract, or otherwise. A Person's Beneficial Ownership of twenty (20%)
or more of a corporation's outstanding Voting Securities shall create a
rebuttable presumption that such Person has control of such corporation.
Notwithstanding the foregoing, a Person shall not be deemed to have control
of a corporation if such Person holds Voting Securities, in good faith and
not for the purpose of circumventing this Section, as an agent, bank, broker,
nominee, custodian, or trustee for one or more Beneficial Owners who do not
individually or as a group have control of such corporation.
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1.10 "COST OF SALES" means the actual cost of the following
items regarding the Distribution Products: (i) cost of wafers from the
manufacturer, (ii) costs of sorting, including depreciation, labor and
overhead, (iii) costs of assembly, (iv) costs of testing, including
depreciation, labor, and overhead (excluding any engineering support costs),
(v) costs of quality assurance, marking, packing, and shipping, including
depreciation, labor and overhead, (vi) license fees to any third party
licensors related to the Distribution Product Software and Distribution
Products; provided that license fees to third party licensors related to the
Distribution Products shall be mutually agreed upon by Actel and GateField,
(vii) costs of indemnity bonds and any liability insurance the parties
mutually agree to purchase, (viii) costs of defending any product liability
lawsuit where neither party is found to have made a material
misrepresentation, and (ix) Patent Costs.
1.11 "DISTRIBUTION PRODUCT" means any Standard Product with
geometries below .35 micron, any New Products, and any Next Generation
products.
1.12 "DISTRIBUTION PRODUCT PATENTS" means all patents owned
or controlled by GateField during the term of this Agreement which covers any
invention embodied in any Distribution Product or any product embedded
therein.
1.13 "DISTRIBUTION PRODUCT SOFTWARE" means those portions of
the commercially released software known as ASICmaster for which GateField
has the right to license such software.
1.14 "EMBEDDED PRODUCT" means a semiconductor device
integrating (i) a GateField FPGA technology ("GateField FPGA") with (ii) a
gate array, standard cell, full custom, SRAM unrelated to the GateField FPGA,
or Flash memory product which is unrelated to the GateField FPGA (the
"Non-FPGA Product") where the principal use of the product is satisfied by
the non-FPGA functions and the GateField FPGA is principally used to enhance
or support the non-FPGA Product; provided that in any event, where the
GateField FPGA portion of the total chip represents less than or equal to
eighty-five percent (85%) of the area of the whole chip, such chip shall be
deemed an Embedded Product and where the GateField FPGA portion of the total
chip is more than eighty-five percent (85%) of the area of the whole chip,
such chip shall be deemed an Embedded Product upon the mutual agreement of
the parties that the principal use of the chip is satisfied by the non-FPGA
function and that the GateField FPGA is principally used to enhance or
support the non-FPGA Product, and such agreement shall not be unreasonably
withheld.
1.15 "END OF LIFE" OR "EOL" means (i) termination by the
foundry producing the Distribution Product of the manufacturing process used
to produce such Distribution Product, (ii) refusal by such foundry to
continue manufacturing the Distribution Product due to volume, or (iii)
election by GateField to declare a Revenue Shortfall pursuant to SECTION 2.8.
1.16 "GATEFIELD PATENT" means any patent (i) that GateField
or any of its Affiliates now own or may hereafter own or (ii) under which and
to the extent that GateField or any of its Affiliates have acquired or may
hereafter acquire the right to grant licenses, unless the right to grant said
license requires the payment of a royalty or other consideration to a third
party.
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1.17 "GATEFIELD INTELLECTUAL PROPERTY RIGHT" means any
Intellectual Property Right (i) that GateField or any of its Affiliates now
own or may hereafter own or (ii) under which and to the extent that GateField
or any of its Affiliates have acquired or may hereafter acquire the right to
grant licenses, unless the right to grant said license requires the payment
of a royalty or other consideration to a third party.
1.18 "INTELLECTUAL PROPERTY RIGHT" means any patent,
copyright, trade name, trademark, trade secret, know-how, mask work, or any
other intellectual property right, whether now or hereafter recognized, and
whether registered or unregistered.
1.19 "MORAL RIGHTS" means any right to (i) divulge a
copyrighted work to the public, (ii) retract a copyrighted work from the
public, (iii) claim authorship of a copyrighted work, (iv) object to any
distortion, mutilation or other modification of a copyrighted work, or (v)
any and all similar rights, existing under judicial or statutory law of any
country or jurisdiction in the world, or under any treaty regardless of
whether or not such right is called or generally referred to as a moral right.
1.20 "NET REVENUES" means the revenues recognized resulting
from the invoiced price of products sold, distributed or otherwise disposed
of by either party in an arm's length, commercial transactions between
parties which are not in affiliation, less shipping costs, taxes, returns,
setoffs, warranty claims, price adjustments, bad debt adjustments,
distribution inventory returns, and discounts actually paid or allowed, but
not fees or commissions to agents, representatives or others. A product shall
be deemed "sold" for purposes of this definition when billed, delivered,
shipped, transmitted, or mailed to the invoiced OEM party, when first used by
a party, or when recognized as revenues in accordance with Actel's revenue
recognition policy, whichever shall first occur. A product transferred
internally for future sale to a third party shall be deemed to carry a gross
margin mutually agreed upon by Actel and GateField.
1.21 "NEW PRODUCT" means a Standard Product, upon Product
Release, with a product architecture significantly different from the then
current Standard Products. In no event shall Embedded Products be considered
New Products.
1.22 "NEXT GENERATION" means a Standard Product or New
Product, upon Product Release, with a reduced process geometry compared to
that used in the respective Standard Product or New Product. In no event
shall any Embedded Product be considered a Next Generation.
1.23 "NON-ACQUIRED PARTY" shall mean the party to this
Agreement that is not the Acquired Party or an Affiliate of the Acquired
Party following a Change in Ownership.
1.24 "PATENT COSTS" means costs, including legal expenses of
counsel mutually agreed to between the parties (which agreement shall not
unreasonably be withheld), related to the mutually agreed prosecution or
defense of claims or lawsuits related to Distribution Product Patents.
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1.25 "PATENT RECOVERIES" means cash or other property
received, or the value of all licenses or other rights, received by a party
in connection with a claim or lawsuit with respect to the Distribution
Product Patents.
1.26 "PERSON" shall be used in this Agreement as defined
under Sections 3(d) and 14(d) of the Securities Exchange Act of 1934, as
amended.
1.27 "PRODUCT QUALIFICATION" shall have the meaning set forth
in EXHIBIT A ("Product Qualification").
1.28 "PRODUCT RELEASE" for a GateField-developed product
means the earlier of: (i) an agreement between Actel and GateField with
respect to the terms of the product requirements document (the "PRD") for
such product, provided this Agreement is in full force and effect and
provided further that a PRD will be implied as of the date which is seven (7)
months prior to the release to a foundry of a mask work for a product, (ii)
delivery by Actel or GateField to its customers of beta software related to
the product, and (iii) delivery by Actel or GateField to its customers of
sample of such product.
1.29 "REVENUE SHORTFALL" means the Net Revenues during any
three consecutive fiscal-quarters for a Distribution Product which is less
than Four Million and Five Hundred Thousand Dollars ($4,500,000.00).
1.30 "STANDARD PRODUCT" means any standard GateField ProASIC
FPGA, regardless of whether it includes configurable blocks of SRAM or flash
products, but shall not include any GateField FPGA which contains any
non-FPGA Products other than SRAM or Flash products integrated therein.
1.31 "TOTAL VOTING POWER" shall mean the total number of
votes that may be cast in the election of directors at a meeting of the
shareholders of a corporation if all Voting Securities are present and voted
to the fullest extent possible at such meeting.
1.32 "VOTING SECURITIES" shall mean all securities of a
corporation entitled to vote generally in the election of directors.
2. GRANTS OF RIGHTS AND LICENSE.
2.1 LICENSE GRANTS. Subject to the terms and conditions
hereof, including the minimum terms of the hardware and software licenses set
forth in EXHIBIT B ("Minimum Conditions"), and in all events limited by the
pre-existing licenses related to the Distribution Products and Distribution
Products Software listed on EXHIBIT H, GateField hereby grants Actel the
following rights:
2.1.1 DISTRIBUTION PRODUCTS. An exclusive, worldwide
right to distribute and permit its authorized distributors, dealers, and
other third parties used by Actel to distribute and sell the Distribution
Products after Product Release pursuant to the terms of this
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Agreement so long as such third parties are bound by terms no less protective
of GateField's interests as those set forth in EXHIBIT B ("Minimum
Conditions").
2.1.2 DISTRIBUTION PRODUCT SOFTWARE. A limited,
non-exclusive, license under GateField Intellectual Property Rights to
distribute object-code versions of the Distribution Product Software. Actel
will take all steps necessary to protect GateField's proprietary rights in
GateField products and to ensure that each Distribution Product Software will
be accompanied by a localized copy of software license agreement applicable
to such software which will include terms and conditions no less protective
of GateField's interests as those set forth in EXHIBIT B ("Minimum
Conditions").
2.2 TRADEMARKS AND TRADE NAMES. In the marketing,
advertising for, and distribution and support of the Distribution Products or
Distribution Product Software, Actel may (i) indicate to the public that it
is an authorized distributor of Distribution Products or Distribution Product
Software, and (ii) use GateField's trade names and trademarks set forth in
EXHIBIT C ("GateField Trademarks"), which Exhibit GateField may, in its sole
discretion, add to from time to time. For this purpose, GateField grants
Actel a non-exclusive, royalty-free, limited license to use and display the
Trademarks, in the forms as may be prescribed by GateField from time to time.
Actel will market, distribute, and support the Distribution Products and
Distribution Product Software only under the ProASIC Trademark, and not under
any other trademark or logo except an Actel logo which is no more prominent
than the ProASIC Trademark. Actel will not make or permit alteration of the
Distribution Products or Distribution Product Software or removal or
modification of any tags, proprietary notices, copyright notices, labels, or
other identifying marks placed by GateField on the Products or associated
literature. GateField shall have the Distribution Products manufactured with
the trademark and logo agreed upon by the parties in EXHIBIT E (Business
Practices and Procedures).
2.3 GATEFIELD OWNERSHIP. Subject to SECTION 2.6, GateField
shall retain ownership to all GateField Intellectual Property Rights,
including all Intellectual Property Rights in the Distribution Products, all
Embedded Products, all other GateField products, all of GateField's patents
and all GateField products independently developed by GateField during the
term of this Agreement.
2.4 PATENT ENFORCEMENT.
2.4.1 Each party shall inform the other party promptly
in writing of any alleged infringement, of which it may become aware, of any
Distribution Product Patent by a third party and provide to the other party
all available evidence thereof.
2.4.2 During the term of this Agreement, GateField
shall have the right, but shall not be obligated, to prosecute all
infringements of Distribution Product Patents and, in furtherance of such,
the total cost of any such infringement action commenced by and prosecuted by
GateField shall be paid by GateField and all proceeds thereof shall remain
with GateField. Prior to termination of this Agreement, no settlement,
consent judgment or other voluntary final disposition of any such suit may be
entered into by GateField without the prior written approval
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of Actel, which approval shall not unreasonably be withheld. GateField shall
indemnify Actel against any order for costs that may be made against Actel in
such proceedings.
2.4.3 If within three (3) months after having been
notified of any alleged infringement, GateField has been unsuccessful in
persuading the alleged infringer to desist and shall not have brought an
infringement action, or if GateField shall notify Actel at any time prior
thereto of its intention not to bring suit against any alleged infringer,
then Actel shall have the right, but shall not be obligated, to prosecute any
infringement of such patents, and Actel may, for such purposes, use the name
of GateField as party plaintiff; provided that such right to bring such an
infringement action shall remain in effect only for so long as the licenses
granted herein remain exclusive. In furtherance of such, the total costs of
any such infringement action commenced by and prosecuted by Actel shall be
paid by Actel and all proceeds thereof shall remain with Actel. No
settlement, consent judgment or other voluntary final disposition of any such
suit may be entered into by Actel without the prior written approval of
GateField, which approval shall not unreasonably be withheld. Actel shall
indemnify GateField against any order for costs that may be made against
GateField in such proceedings.
2.4.4 Each party shall provide the other party notice
and opportunity to participate in any lawsuit filed by such party related to
the Distribution Products or Distribution Product Software. In the event the
parties mutually agree to bring a lawsuit related to the Distribution Product
or the Distribution Product Software, the costs related to such suit shall be
Patent Costs and the recoveries shall be Patent Recoveries to be shared
equally.
2.5 ACTEL OWNERSHIP. Subject to SECTION 2.6, Actel shall
retain all ownership to the Actel Intellectual Property Rights, all of
Actel's patents and all Actel products independently developed by Actel
during the term of the Agreement.
2.6 INTELLECTUAL PROPERTY DEVELOPMENT. All Intellectual
Property Rights conceived, created, made, or (in the case of copyrights)
first fixed in a tangible medium of expression during the term of the
Agreement shall be as follows: (i) GateField Intellectual Property Rights
when accomplished by GateField personnel; (ii) Actel Intellectual Property
Rights when accomplished by Actel; provided, however, that Intellectual
Property Rights developed with the assistance or collaboration of the other
party shall be owned by the developing party, but such party shall grant and
does hereby grant to the other a perpetual, non-exclusive, royalty-free right
to use, make, have made, sell, offer to sell, import, have imported,
reproduce, modify, distribute or otherwise exploit such Intellectual Property
Right, except that a party's right to such license shall terminate due to a
Bad Faith Breach (as defined in SECTION 12.1.3 below) by such party. Such
license shall not be sublicensable or transferable, except in connection with
a Change in Ownership of such party. For purposes of this Section, a party
shall be deemed to have assisted in the development by the other party of
Intellectual Property Rights that solve a problem presented or issue raised
by the first party.
2.7 MANUFACTURING RIGHTS. Actel shall have no right to
manufacture or independently modify or create derivative versions of the
Distribution Products or Distribution Product Software, except as specified
under SECTION 14.3.2 below. Actel shall not directly or
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indirectly reverse engineer or otherwise disassemble any Distribution Product
Software. Actel shall not directly or indirectly reverse engineer or
otherwise disassemble any GateField products for the purpose of
manufacturing, replicating, or developing similar products.
2.8 REVENUE SHORTFALL EOL. GateField shall have the right
to declare EOL for a Distribution Product upon a Revenue Shortfall which
occurs at any time after three (3) years after Product Qualification. For
purposes of this Section, a Distribution Product means all products of a
particular family at a particular process generation. Actel's right to
receive a Distribution Product for distribution and sale, including any
rights upon termination of the Agreement or an Automatic Termination Event
(as defined in SECTION 14.2.1) below, shall terminate at the EOL for such
Distribution Product. GateField shall provide prompt notice to Actel of any
notice from a foundry of an EOL event and shall notify Actel sixty (60) days
prior to EOL due to Revenue Shortfall, and Actel shall be entitled to a
last-time buy opportunity for such Distribution Product if the foundry agrees
to such order. GateField shall use commercially reasonable efforts to assist
Actel in receiving any reasonable last-time buy of the Distribution Products
from the foundry.
3. ESCROW AGREEMENT.
3.1 SOURCE CODE. GateField agrees to enter into a source
code escrow agreement substantially in the form set forth in EXHIBIT G
("Escrow Agreement") with Actel and an independent escrow agent which shall
provide for access by Actel to the source code and database of the
Distribution Products. Under such source code agreement, GateField will agree
to deposit source code of the Distribution Product Software and related
materials, and periodic updates thereto, into the account maintained by such
escrow agent. Actel agrees to be responsible for any escrow fees payable to
maintain such escrow account.
4. DISTRIBUTION PAYMENTS AND COSTS.
4.1 EXCLUSIVITY AND COMMITMENT FEE. Actel shall pay to
GateField a non-refundable fee of One Million Dollars ($1,000,000) (the
"Initial Fee") upon the Effective Date.
4.2 PRODUCT QUALIFICATION FEE. Actel shall pay to GateField
a non-refundable fee of One Million Dollars ($1,000,000) upon Product
Qualification of the Standard Product.
4.3 REVENUES AND COST CALCULATION. Actel and GateField agree
that all revenues and costs related to the sale or other distribution by
Actel (directly or through its channels of distribution) of the Distribution
Products and Distribution Product Software shall be allocated as follows:
4.3.1 Each party will be entitled to an amount equal
to 50% of: (i) Net Revenues from the sale, license or other distribution of
the Distribution Products and Distribution Product Software, less (ii) Cost
of Sales of such Distribution Products and Distribution Product Software.
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4.3.2 Actel shall be responsible for receiving
payments from customers and paying to GateField on or prior to the twentieth
day of each month, the amounts due under SECTION 4.3.1 above, based on the
prior month's accrued Net Revenues and Cost of Sales. Following calculation
of actual Cost of Sales for such month, Actel shall offset or credit such
difference in the next payment to GateField.
4.3.3 Actel shall make payments to GateField for
wafers within twenty-five (25) days after receipt of invoice from GateField
for wafers ordered by GateField based on mutually agreed forecast, and for
assembly and testing within the time period agreed upon by the parties. Actel
shall bear all costs of obtaining samples or prototypes of the Distribution
Products.
5. DELIVERY.
5.1 FORECASTS. Actel and GateField acknowledge and agree
that lead time notification is required in order to plan for manufacturing
and to manufacture the Distribution Products. Therefore, immediately
following the Effective Date, Actel shall commence regular submission of
forecasts to GateField as follows:
5.1.1 Two-year forecasts by product showing estimates
for each quarter of the forecast horizon. Two year forecasts are to be
updated quarterly.
5.1.2 Six month demand forecasts by product and
package showing estimates for each month within the forecast horizon.
Six-month demand forecasts are to be updated monthly.
The parties shall jointly review and agree to the forecasts which will be
used to issue purchase orders to the foundry. GateField will use commercially
reasonable efforts to effect the delivery of Distribution Products in
accordance with mutually agreed forecasts.
5.2 ACTEL MILESTONES. Actel agrees it will use commercially
reasonable efforts to achieve the quarterly revenues milestones set forth in
EXHIBIT D ("Actel Milestones").
5.2.1 Should Actel not meet the Actel Milestones by
the time specified in EXHIBIT D, Actel shall set up a strategic business unit
("SBU") devoted to the marketing and sale of the Distribution Products. Such
SBU shall, at a minimum, consist of the following Actel resources: (a) one
(1) employee to the marketing of the Distribution Products, (b) one (1)
employee to business development activities, (c) no less than one (1) and no
more than two (2) technical support personnel devoted to providing hot-line
support, and (d) one (1) employee devoted to alpha and beta testing of the
Distribution Products, (e) one (1) employee to marketing communication of the
Distribution Products, and (f) twenty percent (20%) of Actel's marketing
communication budget devoted to the Distribution Products. GateField shall
have the right but not the obligation to manage, control, and direct all
activities of such SBU. GateField shall have reasonable access, but at a
minimum same access as Actel, to the sales force and distribution channels of
Actel. All costs of any employees in addition to those specified in SECTION
5.2.1 which are assigned to the SBU shall constitute Cost of Sales and shall
be accrued and amortized to the extent there are no offsetting Net Revenues
during the period.
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5.2.2 GateField shall have no direct, indirect,
special, incidental, consequential or any other liability to Actel for any
act or omission of GateField related to GateField's rights under SECTION
5.2.1. Actel may prevent GateField from exercising its rights under SECTION
5.2.1. by (a) converting the exclusive right of Actel to distribute the
Distribution Products set forth in SECTION 2.1.1 to a non-exclusive right to
distribute the Distribution Products, or (b) paying to GateField at the
beginning of each quarter an amount equal to One Million Seven Hundred
Thousand Dollars ($1,700,000) less GateField's share of the gross margin for
the previous quarter in accordance with SECTION 4.3.1.
5.2.3 GateField's rights set forth in SECTION 5.2.1
shall terminate upon the earlier of (a) GateField's failure to for two (2)
consecutive quarters to meet the GFIN threshold set forth in EXHIBIT F
(GATEFIELD MILESTONES), and (b) Actel's meeting the Actel Milestones for two
(2) consecutive quarters.
5.2.4 In the event GateField fails to meet the GFIN
threshold as defined in SECTION 6.2 GateField Milestones, then Actel shall be
relieved of its obligation to meet the Actel Milestones.
5.2.5 In the event GateField does not exercise its
rights pursuant to SECTION 5.2.1, such failure shall not be deemed a waiver
of such right; provided that GateField's right to exercise its rights
pursuant to SECTION 5.2.1 shall terminate as set forth in SECTION 5.2.3.
5.3 PERFORMANCE OBLIGATION. Each party agrees that it will
perform all of its obligations under the Agreement without any offset,
deduction or setoff notwithstanding any alleged claim or breach by the other
party and the parties hereby agree that any offset or setoff made by Actel
pursuant to a judgment or order made by an arbitrator shall not exceed the
amount equal to one-third (1/3) of amount payable to GateField under SECTION
4.3.1. Except as set forth in the previous sentence, any attempt by Actel to
offset, deduct or setoff any obligation under the Agreement in any material
amount that is not cured within thirty (30) days after written objection by
GateField shall constitute a Bad Faith Breach.
5.4 CURRENCY. In the event of transactions giving rise to
an obligation to make a payment hereunder with respect to which Actel
receives payment in a currency other than currency which is legal tender in
the United States of America, all payments required to be made by Actel under
this Agreement shall be converted, prior to payment, into United States
Dollars at the applicable rate of exchange published in the Western United
States edition of the Wall Street Journal on the last day of the month in
which such transaction occurred. If Actel is prevented from making any
payment under this Agreement by virtue of the statutes, laws, codes or
governmental regulations of the country from which the payment is to be made,
then such payments may be paid by depositing them in the currency in which
accrued to GateField's account in a bank acceptable to GateField in the
country whose currency is involved.
5.5 OVERDUE PAYMENTS. Payments due GateField under this
Agreement shall, if not paid when due under the terms of this Agreement, bear
simple interest at the lower of 0.8% per month or the highest rate permitted
by law, calculated on the basis of a 360-day year for the number of days
actually elapsed, beginning on the due date and ending on the day prior to
the
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day on which payment is made in full. Interest accruing under this
SECTION 5.5 shall be due to GateField on demand. The accrual or receipt by
GateField of interest under this SECTION 5.5 shall not constitute a waiver by
GateField of any right it may otherwise have to declare a default under this
Agreement or to terminate this Agreement.
5.6 TAXES. Actel shall be responsible for the reporting and
payment of all taxes including all state and local use, sales, personal
property (ad valorem) and similar taxes under this Agreement and shall
indemnify, and hold GateField harmless from and against all taxes and any and
all liabilities, obligations, losses, damages, interests, penalties, claims
actions, and suits resulting therefrom and imposed upon, incurred by or
asserted against GateField.
6. MANUFACTURING.
6.1 MANUFACTURING AND DISTRIBUTION RESPONSIBILITIES. The
responsibilities for coordinating, directing and managing the manufacturing
activities including production control, wafer starts, wafer sort, sending
wafer assembly, finishing and testing, and quality assurance shall be set
forth in EXHIBIT E ("Business Practices and Procedures"), as may be amended
from time in writing to time by mutual agreement. Actel shall package and
ship Distribution Products to customers. Actel shall be responsible for
holding finished goods inventory.
6.2 GATEFIELD MILESTONES. GateField agrees that it will use
commercially reasonable efforts to achieve the milestones set forth in
EXHIBIT F ("GateField Milestones").
6.2.1 Should GateField not meet the ACIN threshold by
the time specified in EXHIBIT F, Actel shall have the right but not the
obligation to manage, control, and direct the activities of the
non-performing department of GateField. All costs of any additional employees
devoted to the management of such department of GateField shall constitute
Cost of Sales and shall be accrued and amortized to the extent there are no
offsetting Net Revenues during the period.
6.2.2 Actel shall have no direct, indirect, special,
incidental, consequential or any other liability to GateField for any act or
omission of Actel related to Actel's rights under SECTION 6.2.1.
6.2.3 Actel's rights set forth in SECTION 6.2.1 shall
terminate upon GateField's achievement of the ACIN threshold for two (2)
consecutive quarters.
6.2.4 In the event Actel does not exercise its rights
pursuant to SECTION 6.2.1, such failure shall not be deemed a waiver of such
right; provided that Actel's right to exercise its rights pursuant to SECTION
6.2.1 shall terminate as set forth in SECTION 6.2.3.
7. COVENANTS NOT TO SUE.
7.1 DURING TERM OF AGREEMENT.
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7.1.1 ACTEL COVENANT. Actel covenants and agrees that
it will not assert against GateField or its Affiliates, directly or
indirectly, any cause of action based, in whole or in part, upon the
purported infringement by GateField or its suppliers or customers, mediate or
immediate, of any Actel Intellectual Property Right as a result of the
manufacture, use, importation, offer for sale, or sale by GateField or its
Affiliates of any product. Actel further covenants and agrees that it will
not assert against any sublicensee of GateField or its Affiliates, directly
or indirectly, any cause of action based, in whole or in part, upon the
purported infringement by the sublicensee or its suppliers or customers,
mediate or immediate, of any Actel Intellectual Property Right as a result of
the manufacture, use, importation, offer for sale, or sale by the sublicensee
of any product, but only to the extent of the technology licensed from
GateField or its Affiliates.
7.1.2 GATEFIELD COVENANT. GateField covenants and
agrees that it will not assert against Actel or its Affiliates, directly or
indirectly, any cause of action based, in whole or in part, upon the
purported infringement by Actel or its suppliers or customers, mediate or
immediate, of any GateField Intellectual Property Right as a result of the
manufacture, use, importation, offer for sale, or sale by Actel or its
Affiliates of any product. GateField further covenants and agrees that it
will not assert against any sublicensee of Actel or its Affiliates, directly
or indirectly, any cause of action based, in whole or in part, upon the
purported infringement by the sublicensee or its suppliers or customers,
mediate or immediate, of any GateField Intellectual Property Right as a
result of the manufacture, use, importation, offer for sale, or sale by the
sublicensee of any product, but only to the extent of the technology licensed
from Actel or its Affiliates.
7.1.3 FUTURE APPLICATIONS. The covenants of SECTIONS
8.1 AND 8.2 above shall not apply to any breaches of this Agreement and shall
terminate upon the termination of this Agreement, except as otherwise
provided in SECTION 14 below, provided that no such suit set forth in such
above Sections may thereafter be brought for any such acts of infringement
occurring prior to such termination.
7.1.4 ACQUIRING PARTY. If, following a Change in
Ownership or in anticipation thereof, an Acquiring Party or its Affiliate
asserts, directly or indirectly, any cause of action based, in whole or in
part, upon the purported infringement by the Non-Acquired Party or its
customers, mediate or immediate, of any Intellectual Property Right as a
result of the manufacture, use, importation, offer for sale, or sale, of
products of the Non-Acquired Party existing at the time of the Change in
Ownership, it shall be conclusively deemed a Bad Faith Breach of this
Agreement by the Acquired Party.
7.2 AFTER TERMINATION. For purposes of this Section,
products supplied by GateField to Actel and sold by Actel pursuant to the
terms of this Agreement shall be considered products sold by GateField.
7.2.1 ACTEL COVENANT. Actel covenants and agrees that
it will not assert against GateField or its Affiliates, directly or
indirectly, any cause of action based, in whole or in part, upon the
purported infringement by GateField or its suppliers or customers, mediate or
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immediate, of any Actel Patent as a result of the manufacture, use,
importation, offer for sale, or sale by GateField or its Affiliates of (i)
any product first offered for sale by GateField on or before the termination
of this Agreement and (ii) future generations of products reflecting the
evolution in the ordinary course of business of GateField's product lines as
they exist on such date.
7.2.2 GATEFIELD COVENANT. GateField covenants and
agrees that it will not assert against Actel or its Affiliates, directly or
indirectly, any cause of action based, in whole or in part, upon the
purported infringement by Actel or its suppliers or customers, mediate or
immediate, of any GateField Patent as a result of the manufacture, use,
importation, offer for sale, or sale by Actel or its Affiliates of (i) any
product first offered for sale by Actel on or before the termination of this
Agreement and (ii) future generations of products reflecting the evolution in
the ordinary course of business of Actel's product lines as they exist on
such date.
7.2.3 ACQUIRING PARTY. If, following a Change in
Ownership or in anticipation thereof, an Acquiring Party or its Affiliate
asserts, directly or indirectly, any cause of action based, in whole or in
part, upon the purported infringement by the Non-Acquired Party or its
customers, mediate or immediate, of any patent as a result of the
manufacture, use, importation, offer for sale, or sale, of (i) products first
offered for sale by the Non-Acquired Party on or before the termination of
this Agreement and (ii) future generations of products reflecting the
evolution in the ordinary course of business of the Non-Acquired Party's
product lines as they exist on such date, it shall be conclusively deemed a
Bad Faith Breach of this Agreement by the Acquired Party.
8. NON-SOLICITATION.
8.1 NON-SOLICITATION. Each party agrees that for a period
of one (1) year following the date of termination or expiration of the
Agreement (except as specified under below), such party shall not solicit for
hire the employees of the other party.
9. DUTIES OF PARTIES.
9.1 GOOD FAITH (GATEFIELD). GateField agrees to act in good
faith in performance of its obligations under this Agreement and not to
unreasonably refuse Actel requests.
9.2 GOOD FAITH (Actel). Actel agrees to act in good faith in
performance of its obligations under this Agreement and not to unreasonably
refuse GateField requests.
9.3 GOVERNMENTAL APPROVALS. Actel shall at its own expense
obtain all required government import approvals or other permits, customs
clearances, or authorizations required for the shipment and sale of
Distribution Products or Distribution Product Software outside the United
States.
9.4 EXISTING LICENSE AGREEMENTS. Actel acknowledges that it
has received copies of the existing license agreements ("Existing License
Agreements") set forth in
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EXHIBIT H. Upon Actel's reasonable request, GateField agrees to use
reasonable efforts to have the Existing License Agreements amended to clarify
the scope of the licenses granted thereunder consistent with this Agreement.
9.5 CUSTOMER MAINTENANCE OR SUPPORT. Actel shall be
responsible for all maintenance and support services to each customer of the
Distribution Products or Distribution Product Software. Actel will have
primary responsibility for support of its customers. GateField shall provide
support for Distribution Product Software as set forth in EXHIBIT E
("Business Practices and Procedures").
9.6 PROGRAMMABLE LOGIC DEVICES. GATEFIELD agrees not to sell
any device containing programmable logic without the prior consent of Actel,
which consent shall not be unreasonably withheld.
9.7 EMBEDDED PRODUCT LICENSE. GateField hereby agrees not to
license the Embedded Products to Altera Corporation, QuickLogic Corporation,
Lattice Corporation or Xilinx Corporation.
9.8 PRODUCT LICENSE. During the term of this Agreement,
GateField agrees not to grant any licenses to sell products containing
programmable logic other than licenses for Embedded Products.
9.9 DOCUMENTATION. Subject to the terms and conditions of
this Agreement, GateField will provide Actel contents for datasheets,
databooks, user manuals and other end user documentation and Actel shall
produce and distribute such documentation for the Distribution Products to
its customers.
9.10 Intentionally Deleted.
9.11 COOPERATION. The parties shall use commercially
reasonable effort to cooperate on an ongoing basis during the term of the
Agreement with respect to production planning, customer support,
manufacturing, marketing, and other operational matters as set forth in
EXHIBIT E ("Business Practices and Procedures") as amended in writing from
time to time by the parties. Each party shall have full access to the other
party's employees, distributors, consultants, and representatives with
respect to the Distribution Product, and the matters covered under this
Agreement.
9.12 NON-DISPARAGEMENT. Each party agrees that it shall not in
any way, directly or indirectly, disparage the other party or any of its
products.
9.13 MANAGEMENT MEETINGS. Each party agrees to appoint a
principal officer, who is either the chief executive officer of the company
or an officer reporting to the chief executive officer ("Designated
Officer"). The Designated Officers and such other employees of each party as
are required shall meet monthly to discuss and update the Business Practices
and Procedures and to review and resolve all operational matters.
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9.14 BOARD VISITATION RIGHTS. Actel and GateField shall have
the right to appoint one representative who shall (i) receive notice of all
meetings (both regular and special) of the board of directors of the other
party (such notice to be delivered or mailed at the same time as notice to
the members of any such Board provided that notice shall be deemed waived if
the members of such Board waive notice); (ii) be entitled to attend (or in
the case of telephone meetings monitor) all such meetings; (iii) receive all
notices (unless waived by the members of such Board), information and reports
which are furnished to the members of any such board at the same time and in
the same manner as the same is furnished to such members; (iv) be entitled to
participate in all discussions conducted at such meeting; and (v) receive as
soon as available copies of the minutes of all such meetings. The
representative may be excluded from certain discussions if necessary in order
to preserve the attorney-client privilege or in connection with other
confidential discussions and the representative shall not be entitled to
receive any related documents or materials. If any action is proposed to be
taken by any such board by written consent in lieu of a meeting, the party
will provide written notice thereof to such representative, which notice
shall describe in reasonable detail the nature and substance of such proposed
action to the extent provided to the members of the Board and shall be
delivered at the same time as notice is given to the members of any such
Board. Such representative shall not constitute a member of any such board
and shall not be entitled to vote on any matters presented at meetings of any
such board or to consent to any matter as to which the consent of any such
board shall have been requested. Each party shall have the right to
designate an alternate to the representative who shall have the rights of the
representative under clauses (ii) and (iv) above in the event that the
representative is unable to attend or monitor a meeting. Each party shall
have the right to replace the representative upon notice to the other party.
The board visitation rights granted under this Section 9.14 shall terminate
upon the earlier of (i) the termination of this Agreement or (ii) the merger
or sale of substantially all the assets of either party.
10. GENERAL REPRESENTATIONS AND WARRANTIES.
10.1 GENERAL REPRESENTATIONS. Each party hereby represents
and warrants:
10.1.1 CORPORATE POWER. Such party is duly organized
and validly existing under the laws of the state of its incorporation and has
full corporate power and authority to enter into this Agreement and to carry
out the provisions hereof.
10.1.2 DUE AUTHORIZATION. Such party is duly authorized
to execute and deliver this Agreement and to perform its obligations
hereunder.
10.1.3 BINDING AGREEMENT. This Agreement is a legal and
valid obligation binding upon it and enforceable in accordance with its terms
except as limited by bankruptcy, insolvency, or similar laws. The execution,
delivery and performance of this Agreement by such party does not conflict
with any agreement, instrument or understanding, oral or written, to which it
is a party or by which it may be bound, nor violate any law or regulation of
any court, governmental body or administrative or other agency having
jurisdiction over it.
10.1.4 LITIGATION. To the best knowledge of GateField,
there is no claim, investigation, litigation, suit, or proceeding,
administrative or judicial pending or threatened
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against GateField Intellectual Property Rights that will be used in the
Distribution Products or Distribution Product Software, at law or in equity,
before any federal, state, local, or foreign court, or regulatory agency or
other governmental authority. GateField has not received any notice of any
such proceeding.
11. WARRANTY.
11.1 Actel and GateField shall mutually agree to a warranty
policy, which shall apply to products sold to third parties and to Actel for
internal use.
12. DISPUTE RESOLUTION.
12.1 EXECUTIVE MEETINGS.
12.1.1 The provisions of this SECTION 12.1 shall not
apply to any breaches related to the protection of Intellectual Property
Rights.
12.1.2 Each party shall provide written notification of
any matter which it believes is a breach of the Agreement. The Designated
Officers of Actel and GateField shall meet and confer in an effort to resolve
such possible breach, and shall prepare a plan to remedy the same within
thirty (30) days of written notification. The Designated Officers shall meet
every (30) days thereafter to review progress to plan. To the extent the
parties agree to a remedy plan, the party against whom a breach is asserted
shall have ninety (90) days to cure such breach. In the event the parties
are unable to agree to a remedy plan within thirty (30) days of notification,
the parties shall appoint a mediator to assist both parties during the ninety
(90) day cure period.
12.1.3 In the event the alleged breach is not cured
within the ninety (90) period provided for above or if a breach cannot be
cured, the parties shall promptly appoint an arbitrator to determine if there
is a material breach of the Agreement. In the event the arbitrator finds that
a material breach has occurred and the arbitrator determines that the
breaching party has not acted in good faith (a "Bad Faith Breach"), the sole
remedy of the non-breaching party shall be as set forth in SECTION 12.3.2 and
SECTION 12.3.3 or 12.3.4, as appropriate. In the event that the arbitrator
determines that the breaching party has acted in good faith and such breach
is not cured within the cure period specified by the aribtrator, the remedy
of the non-breaching party shall be as set forth in SECTION 12.3.2 and, in
the arbitrator's discretion, may include the remedies set forth in SECTION
12.3.3 or 12.3.4, as appropriate. The cure period the arbitrator may provide
shall be no more than ninety (90) days and no less than thirty (30) days.
12.2 ARBITRATION. If the parties submit a matter to
arbitration pursuant to SECTION 12.1.3, any controversy or claim arising out
of or relating to this Agreement, or the existence, validity, breach or
termination hereof, whether during or after its term, will be finally settled
by compulsory arbitration in accordance with the default procedures of
J-A-M-S/Endispute or such other procedures as the parties may agree upon,
using one arbitrator selected by mutual agreement of the parties. The
arbitrator's authority in granting relief is expressly limited by the
principles of substantive law and to terms and conditions of this Agreement,
including any exhibits incorporated into this Agreement by reference.
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12.2.1 FAILURE TO APPOINT. If the parties fail to agree
on an arbitrator within fifteen (15) days of their agreement to arbitrate,
then either party (on behalf of both parties) may request such appointment by
the then President of the San Francisco chapter of J-A-M-S/Endispute (or any
organization successor thereto) or any person or committee designated by such
President. The arbitrator appointed pursuant to this SECTION 12.2.1 need not
be selected from any list of the J-A-M-S/Endispute, but may not be an
employee, affiliate or contractor of either party. Thereafter, the
arbitration shall proceed as further set forth within this SECTION 12.2.
12.2.2 ARBITRATION PROCEEDINGS. The arbitrator shall,
after affording to both parties a reasonable opportunity to undertake
discovery, take depositions and then submit evidence and to otherwise be
heard, make its determination in writing and shall give prompt written notice
thereof concurrently to both parties. The arbitrator or arbitrators shall
have no power to award punitive or consequential damages.
12.2.3 FEES AND EXPENSES. Each party shall bear its own
expenses in arbitration or litigation and the expenses of the arbitrator
shall be borne equally. If either party (hereinafter in this sentence
referred to as the "defaulting party") shall fail to pay its share of any
fees or expenses of the arbitrator, then the other party (hereinafter in this
sentence referred to as the "creditor party") may pay the share of the
defaulting party on behalf of the defaulting party and the defaulting party
shall, upon demand, reimburse the creditor party for such payment together
with interest thereon at the prime rate (as quoted by the Bank of America on
the date the obligation to make payments arises).
12.3 REMEDIES FOR BREACH OF CONTRACT.
12.3.1 The executive meetings and arbitration
procedures set forth in SECTIONS 12.1 and 12.2 above and the provisions below
are the sole remedies for breach; provided that in the event of a violation
by one party of the other's Intellectual Property Rights or the
confidentiality obligations set forth in SECTION 14.5, such party shall have
the right to seek equitable remedies from a court of competent jurisdiction
immediately subject to SECTION 7 Covenant Not to Sue.
12.3.2 If a material breach is found, the effect shall
be the same as if the breaching party had terminated the Agreement or, at the
election of the non-breaching party, had given notice of termination, in
either case as of the date of the arbitrator's decision and the lapse of cure
period, pursuant to SECTION 14.5 unless the non-breaching party waives such
breach in writing and agrees to continue the Agreement as if the breach has
not occurred.
12.3.3 If Actel is found to have committed a Bad Faith
Breach, GateField shall have the rights set forth in SECTION 14.4 and shall
be entitled to liquidated damages in the amount of Three Million Dollars
($3,000,000) (the "Start-Up Costs").
12.3.4 If GateField is found to have committed a Bad
Faith Breach, Actel shall (i) have the rights set forth in SECTION 14.3, (ii)
the rights under SECTION 7 COVENANT NOT TO SUE shall continue perpetually,
and (iii) be entitled to liquidated damages in the amount of the
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Start-Up Costs. If such Bad Faith Breach occurs after the assignment of the
Agreement by GateField in connection with an acquisition of GateField by an
Acquiring Party, then the notice period for termination by GateField shall be
extended to thirty-six (36) months.
13. LIMITATION OF LIABILITY.
13.1 LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY
BE LIABLE TO THE OTHER PARTY FOR ANY LOST PROFITS OR FOR ANY INDIRECT,
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, EVEN IF THE PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. The parties acknowledge that the
foregoing limitations are an essential element of the Agreement between the
parties and that in the absence of such limitations the pricing and other
terms set forth in this Agreement would be substantially different.
14. TERM; TERMINATION OF AGREEMENT.
14.1 TERM. This Agreement becomes effective on the Effective
Date and shall continue in full force and effect until terminated by either
party with not less than eighteen (18) months' written notice prior to the
date of termination, PROVIDED, HOWEVER, that neither party may give notice of
termination before the third anniversary of the Effective Date.
14.2 TERMINATION.
14.2.1 INSOLVENCY; ASSIGNMENT FOR CREDITORS;
BANKRUPTCY. This Agreement shall immediately terminate upon any of the
following events (each, an "Automatic Termination Event"): (i) in the event
of the insolvent party's voluntary or involuntary liquidation or dissolution
pursuant to Chapter 7 of the United States Bankruptcy Code, (ii) in the event
that the insolvent party makes a general assignment for the benefit of
creditors or is declared insolvent or bankrupt by a court of competent
jurisdiction pursuant to Chapter 7 of the United States the Bankruptcy Code
or Section 493.010 of the California Civil Code, (iii) in the event that a
petition shall have been filed against the insolvent party pursuant to
Chapter 7 of the United States Bankruptcy Code or state law liquidation, the
effect of which is to cause the insolvent party to have its business
effectively discontinued, and such petition has not been opposed by the
insolvent party or said opposition has been rejected.
14.3 AUTOMATIC TERMINATION EVENT OF GATEFIELD. In the event
of an Automatic Termination Event with respect to GateField and to the extent
permitted by applicable bankruptcy laws,
14.3.1 Actel shall retain the exclusive right to
distribute and sell the Distribution Products and the Distribution Product
Software granted under SECTION 2.1;
14.3.2 Actel shall receive the non-exclusive right to
manufacture the Distribution Products and GateField will provide to Actel the
database and test tapes and other documentation and materials required to
perform such manufacturing;
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14.3.3 The rights of Actel under SECTION 7 COVENANT NOT
TO SUE continue with respect to any Distribution Products perpetually;
14.3.4 Actel shall have the non-exclusive, internal use
license to the source code for the Distribution Product Software in escrow as
set forth in the Escrow Agreement;
14.3.5 Actel shall have the right to purchase
GateField's inventory with respect to Distribution Products at cost;
14.3.6 Actel shall be released from the
non-solicitation obligation set forth in SECTION 8; and
14.3.7 The Agreement and all payment obligations of
Actel under the Agreement for future distribution shall terminate; provided,
however, Actel shall continue to be liable to GateField for outstanding
amounts payable to GateField.
14.4 AUTOMATIC TERMINATION EVENT OF ACTEL. In the
event of an Automatic Termination Event with respect to Actel, and to the
extent permitted by applicable bankruptcy laws,
14.4.1 GateField shall be granted an exclusive,
royalty-free, perpetual license to use, distribute, sell, and modify the
derivative products, documentation, trademarks, collateral, and any other
materials of Actel related to the Distribution Products;
14.4.2 The rights of GateField under SECTION 7 COVENANT
NOT TO SUE shall continue perpetually;
14.4.3 GateField shall receive Actel's customer list
and copies of contracts;
14.4.4 GateField shall obtain the right to purchase
Actel's inventory of Distribution Products at cost;
14.4.5 GateField shall be released from the
non-solicitation obligation set forth in SECTION 8 AND SECTION 9.8; and
14.4.6 The Agreement and all payment obligations of
GateField under the Agreement shall terminate; provided, however, GateField
shall continue to be liable to Actel for outstanding amounts payable to Actel.
14.5 EFFECT OF NOTICE OF TERMINATION.
14.5.1 If Actel, provides written notice of its intent
to terminate the Agreement,
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14.5.1.1 Actel shall have a non-exclusive
right to continue to sell the current Distribution Products until EOL.
Actel's rights as an exclusive distributor shall terminate immediately upon
written notice by GateField;
14.5.1.2 Actel shall have a non-exclusive
license to distribute the Distribution Products Software until EOL for the
applicable Distribution Products; and
14.5.1.3 Actel shall continue to be
obligated to make payments under the Agreement and the Agreement shall be
binding on Actel until all its obligations have been satisfied in full.
14.5.1.4 GateField agrees to continue to
manufacture Distribution Products and to provide support for such products as
set forth in EXHIBIT E (BUSINESS PRACTICES AND PROCEDURES) until EOL;
14.5.1.5 GateField shall be released from the
licensing restrictions set forth in SECTION 9.8.
14.5.2 If GateField provides written notice of its
intent to terminate the Agreement,
14.5.2.1 Actel shall continue to have an
exclusive right to distribute and sell the Distribution Products until EOL;
14.5.2.2 Actel shall have the license to
distribute the Distribution Product Software until EOL of applicable
Distribution Products;
14.5.2.3 GateField agrees to continue to
manufacture Distribution Products and to provide support for such products as
set forth in EXHIBIT E (BUSINESS PRACTICES AND PROCEDURES) until EOL;
14.5.2.4 Actel shall have a
non-exclusive, non-transferable right to distribute the following products
(until EOL for such products), provided that such products achieve Product
Release within twenty-four (24) months after the termination date: (i) all
Next Generation of the Distribution Products existing as of the termination
date, (ii) the first New Product which achieves Product Release after the
termination date, and (iii) any Next Generation of such New Product. For
purposes of this SECTION 14.5.2.4., the New Product shall include all
families of New Products which achieve Product Release during the seven (7)
month period following the Product Release of the first New Product.
GateField shall supply the Distribution Products to Actel at prices no less
favorable than any other customer purchasing similar volume of the
Distribution Products; and
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14.5.2.5 Actel shall continue to be
obligated to make payments under the Agreement and all provisions of the
Agreement shall be binding on Actel until all obligations of Actel have been
performed in full.
14.6 DUTIES OF ACTEL UPON EXPIRATION OF ACTEL RIGHTS. Upon
the termination of Actel's rights to sell the Distribution Products under
this Agreement, Actel agrees to do the following: (1) refrain thereafter from
representing itself as distributor of the Distribution Products except as
specifically permitted herein; (2) pay any amounts due and payable to
GateField under the Agreement; and (3) cease all distribution of the
Distribution Products except as expressly permitted herein.
14.7 SURVIVAL. SECTIONS 1, 2.3, 2.5, 2.6, 9.11, 12, 13, 14.6,
15, 16, AND 17 shall survive any termination or expiration of the Agreement.
15. CONFIDENTIAL INFORMATION.
15.1 CONFIDENTIALITY. During the term of this Agreement and
for five (5) years thereafter, each party will maintain in confidence all
Confidential Information disclosed to it by the other party. The receiving
party shall not use, disclose or grant use of such Confidential Information
except as expressly authorized by this Agreement. To the extent that
disclosure is authorized by this Agreement, the receiving party will obtain
prior agreement from its employees, agents or consultants to whom disclosure
is to be made to hold in confidence and not make use of such information for
any purpose other than those permitted by this Agreement. The receiving party
will use at least the same standard of care as it uses to protect its own
confidential information of a similar nature to ensure that such employees,
agents or consultants do not disclose or make any unauthorized use of the
Confidential Information. The receiving party will promptly notify the
disclosing party upon discovery of any unauthorized use or disclosure of the
Confidential Information.
15.2 EXCEPTIONS. The obligations of confidentiality contained
in SECTION 15.1 will not apply to the extent that it can be established by
the receiving party competent proof that such Confidential Information:
15.2.1 was already known to the receiving party, other
than under an obligation of confidentiality, at the time of disclosure by the
disclosing party;
15.2.2 was generally available to the public or
otherwise part of the public domain at the time of its disclosure to the
receiving party;
15.2.3 became generally available to the public or
otherwise part of the public domain after its disclosure and other than
through any act or omission of the receiving party in breach of this
Agreement;
15.2.4 was disclosed to the receiving party, other than
under an obligation of confidentiality, by a third party who had no
obligation to the disclosing party not to disclose such information to others.
21
<PAGE>
16. INDEMNIFICATION.
16.1 ACTEL INDEMNITY. Actel agrees to defend, indemnify and
hold GateField harmless from and against any and all liabilities, claims,
suits, proceedings, losses, damages, costs and expenses (including without
limitation reasonable attorneys' fees) made against or incurred by GateField
as a result of (i) any injury or damage to person or property caused by Actel
or any Actel products (but for Distribution Products, costs will be included
in Cost of Sales), (ii) any negligence, misrepresentation, or error or
omission by or on behalf of Actel (but for Distribution Products, costs will
be included in Cost of Sales), and (iii) any claim of infringement or
misappropriation of any third party Intellectual Property Right attributable
to any Actel products (excluding Distribution Products) or any modifications,
enhancements or derivative works related to the Distribution Products not
expressly authorized by GateField.
16.2 GATEFIELD INDEMNITY. GateField agrees to defend,
indemnify and hold Actel harmless from and against any liabilities, claims,
suits, proceedings, losses, damages, costs and expenses (including without
limitation reasonable attorneys' fees) made against or incurred by Actel as a
result of (i) any injury or damage to person or property caused by GateField
or any GateField products (but for Distribution Products, costs will be
included in Cost of Sales), (ii) any third party claim of infringement or
misappropriation of any third party Intellectual Property Right attributable
to the use or sale of the Distribution Products, and (iii) any negligence,
misrepresentation, or error or omission by or on behalf of GateField (but for
Distribution Products, costs will be included in Cost of Sales). The
provisions of the foregoing indemnity shall not apply with respect to any
instances of alleged infringement based upon or arising out of the use of the
Distribution Products: (i) which have been modified by Actel without the
express written authorization of GateField; or (ii) if an alleged
infringement or liability arises from Actel combining the Distribution
Products with any equipment or devices not supplied by GateField, and such
equipment or devices or the combination with the Distribution Products
infringes or misappropriates the Intellectual Property Rights of a third
party or causes injury to a third party, if but for such combining or
allowing combination of such equipment or devices with the Distribution
Products, the infringement or injury would not exist.
16.3 INDEMNIFICATION PROCEDURES; SOLE REMEDY. The party
seeking indemnification ("Indemnitee") must provide the other party
("Indemnitor") (i) prompt written notice of the existence of a claim; (ii)
sole control of the defense or settlement of such claim; and (iii) reasonable
assistance upon Indemnitor's request and at Indemnitor's reasonable expense.
No settlement, consent judgment or other voluntary final disposition of any
suit related to the Distribution Products may be entered into by either
GateField or Actel without the prior written approval of the other party,
which approval shall not unreasonably be withheld. THE FOREGOING INDEMNITY
STATES THE SOLE AND EXCLUSIVE REMEDY OF GATEFIELD AND ACTEL AND THE ENTIRE
LIABILITY AND OBLIGATION OF EACH PARTY WITH RESPECT TO ANY CLAIMS OF
INFRINGEMENT OR MISAPPROPRIATION OF ANY INTELLECTUAL PROPERTY RIGHTS BY THE
DISTRIBUTION PRODUCTS.
22
<PAGE>
17. MISCELLANEOUS.
17.1 RECORDS RETENTION. Each party will keep complete and
accurate records pertaining to the sale of the Distribution Products. Such
records will be maintained for a three-year period following the year in
which any such payments were made hereunder.
17.2 AUDIT REQUEST. Each party will have the right to engage,
at its own expense, an independent, certified public accountant reasonably
acceptable to the other party, to examine the other party's records from time
to time as may be necessary to determine, with respect to any calendar year,
the correctness of any report or payment made under this Agreement. If any
such audit reveals an underpayment of more than five percent (5%) of the
correct amount due hereunder, such audit will be at the expense of the
underpaying party. If any audit conducted shall show that a party underpaid
or overpaid the amounts due to the other party as to the period subject to
the audit, then such underpayment or overpayment shall be adjusted in the
following month's payment to GateField.
17.3 WAIVER. No failure or delay by any party hereto in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial waiver thereof include any other or
further exercise thereof or the exercise of any other right, power or
privilege.
17.4 AMENDMENT. Unless otherwise provided herein, this
Agreement may not be changed, waived, discharged, or terminated orally, but
only by a written document signed by duly authorized officers of each of the
parties hereto.
17.5 EXPORT LAW COMPLIANCE. Actel understands and recognizes
that the Distribution Products and other materials made available to it
hereunder may be subject to the export administration regulations of the
United States Department of Commerce and other United States government
regulations related to the export of technical data and products produced
therefrom. Actel agrees to comply with all such regulations, including any
future modifications thereto, in connection with the distribution of the
Products. Actel agrees to obtain the same agreement from each of its
affiliates and end users. Actel hereby agrees to indemnify and hold GateField
harmless from any breach of this SECTION 17.5.
17.6 FOREIGN CORRUPT PRACTICES ACT. Actel hereby agrees that
it shall comply with the requirements of the U.S. Foreign Corrupt Practices
Act (the "Act") and shall refrain from any payments to third parties which
would cause GateField or Actel to violate the Act. Actel hereby agrees to
indemnify and hold GateField harmless from any breach of this SECTION 17.6.
17.7 GOVERNING LANGUAGE. The official text of this Agreement
shall be in the English language as used in the United States, and any
interpretation or construction of this Agreement shall be based solely on the
English-language text. In addition, all communications, notices, mediation or
arbitration proceedings shall also be in the English language as used in the
United States.
23
<PAGE>
17.8 NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been
received: (a) when delivered personally; (b) when sent by confirmed
facsimile; (c) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (d) one (1) day
after deposit with a commercial overnight carrier with written verification
of receipt.
17.9 RELATIONSHIP OF PARTIES. Nothing herein contained shall
be deemed to create an agency, joint venture or partnership relation between
the parties hereto. It is understood and agreed that Actel is not, by reason
of this Agreement or anything herein contained, constituted or appointed the
agent or representative of GateField for any purpose whatsoever, nor shall
anything herein contained be deemed or construed as granting to Actel any
right or authority to assume or to create any obligation or responsibility,
express or implied, for, on behalf of, or in the name of GateField, or to
bind GateField in any way or manner whatsoever.
17.10 ASSIGNMENT OF AGREEMENT. Neither this Agreement nor any
interest or obligation herein is assignable or transferable by either party
without the prior written consent of the other except in connection with a
Change in Ownership, PROVIDED, HOWEVER, that Actel may assign this Agreement
in connection with reincorporation to Nevada. Subject to the foregoing, this
Agreement shall be binding upon any successors and assignees of the parties.
Any attempted assignment or transfer in violation hereof shall be null and
void from the beginning in which the new owner is bound by the terms of the
Agreement.
17.11 MERGER DISCUSSIONS. In the event that either party
enters into discussions with a third party regarding an acquisition, and such
discussions have proceeded to the stage where both parties have participated
in meetings with outside legal counsel present, such party shall provide the
other party notice of the name of the party with whom such discussions take
place, but not the content of such discussions. All information provided by
one party to the other party pursuant to this SECTION 17.11 shall be deemed
to be Confidential Information.
17.12 GOVERNING LAW; VENUE. This Agreement is made in
accordance with and shall be governed and construed in accordance with the
laws of the State of California as between California residents, without
regard to conflicts of laws rules. Actel hereby agrees to consent to the
personal jurisdiction of the state and federal courts having jurisdiction
over disputes arising in Santa Clara County, California. The UN Convention on
the International Sale of Goods shall not apply to this Agreement.
17.13 SEVERABILITY. Whenever possible, each provision of the
Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of the Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of the Agreement.
17.14 ENTIRE AGREEMENT. This Agreement, including all exhibits
attached hereto, constitutes the entire agreement between the parties with
respect to the subject matter hereof, and supersedes any prior agreements, or
understandings of the parties hereto in either written or oral form.
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Product
Marketing Agreement and the Exhibits attached hereto and incorporated herein
by reference, as of the first date set forth above.
ACTEL CORPORATION GATEFIELD CORPORATION
By: John East By: James R. Fiebiger
------------------------- -----------------------------
Name: /s/ John East Name: /s/ James R. Fiebiger
----------------------- ---------------------------
Title: President and CEO Title: Chief Executive Officer
---------------------- --------------------------
25
<PAGE>
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (this "Agreement") is entered into as of
August 14, 1998 (the "Effective Date"), by and between GATEFIELD CORPORATION,
a Delaware corporation with offices at 47100 Bayside Parkway, Fremont,
California 94538 ("LICENSOR"), and ACTEL CORPORATION, a California
corporation with offices at 955 East Arques Avenue, Sunnyvale, California
94086 ("LICENSEE").
AGREEMENT
1. DEFINITIONS. As used in this Agreement:
"EXECUTABLE CODE" means the fully compiled version of a software program
that can be executed by a computer and used by an end user without further
compilation.
"LICENSED PRODUCTS" means the Distribution Products and any New Product
family and Next Generation products developed by Licensee pursuant to this
Agreement.
"LICENSE FEE" means One Million Dollars ($1,000,000).
"LICENSED SOFTWARE" means the Distribution Product Software and
including any modifications, enhancements, or derivative works thereof
created by Licensee pursuant to this Agreement.
"PRODUCT MARKETING AGREEMENT" means the Product Marketing Agreement of
even date herewith executed by and between Licensor and Licensee.
"RELEASE EVENT" means (a) a Bad Faith Breach by Licensor under the
Product Marketing Agreement or (b) Licensor is not capable of producing
Licensed Products and is not engaging in commercially reasonable efforts to
attempt to supply Licensed Products to Licensor or (c) Licensor refuses to
supply Licensed Products to Licensor in accordance with the Product Marketing
Agreement.
"SOURCE CODE" means the human-readable version of a software program
that can be compiled into Executable Code.
Unless otherwise defined herein, capitalized terms are used herein as
defined in the Product Marketing Agreement.
2. LICENSE GRANT. Subject to the terms and conditions of this Agreement
and in consideration of the License Fee, the receipt of which Licensor hereby
acknowledges, Licensor hereby grants to Licensee the following rights and
licenses under all GateField Intellectual Property Rights:
2.1 LICENSED PRODUCTS. A fully-paid, non-exclusive, non-transferable
(except in connection with a Change in Ownership), worldwide license to (a)
make, have made, import, and
1.
<PAGE>
use Licensed Products, (b) offer for sale and sell Licensed Products, and (c)
design and develop New Product and Next Generation products.
2.2 LICENSED SOFTWARE. A limited, fully-paid, non-exclusive,
non-transferable (except in connection with a Change in Ownership), worldwide
license to (a) reproduce, have reproduced, import, and use the Licensed
Software in Executable Code form, (b) offer for sale and sell the Licensed
Software in Executable Code form, and (c) modify, enhance, and create
derivative works of the Licensed Software.
3. COVENANTS
3.1 ESCROW. Licensor covenants and agrees to enter into an escrow
agreement substantially in the form set forth in EXHIBIT A ("Escrow
Agreement") with Licensee and an independent escrow agent, which shall
provide for access by Licensee to the source code of the Licensed Software
and the database and test tapes of the Licensed Products upon the occurrence
of a Release Event. Under such Escrow Agreement, Licensor will agree to
deposit source code of the Licensed Software and the database and test tapes
of the Licensed Products and related materials, and periodic updates thereto,
into the account maintained by such escrow agent. Licensee agrees to be
responsible for any escrow fees payable to maintain such escrow account.
3.2 MANUFACTURING AND REPRODUCTION. Licensee covenants and agrees
that, until the occurrence of a Release Event, it will exercise its rights
pursuant to Sections 2.1(a) and 2.2(a) exclusively pursuant to the Product
Marketing Agreement.
3.3 DEVELOPMENT. Licensee covenants and agrees that, until the
occurrence of a Release Event, it will not exercise its rights pursuant to
Sections 2.1(c) and 2.2(c) of this Agreement. Licensee further covenants and
agrees that its rights pursuant to Section 2.1(c) of this Agreement will be
limited to the development of one New Product family, if a New Product had
not already been supplied to Licensee by Licensor under the Product Marketing
Agreement upon the occurrence of a Release Event, and to Next Generations of
such New Product family (if applicable) and Licensed Products that had
already been supplied to Licensee by Licensor under the Product Marketing
Agreement upon the occurrence of a Release Event.
3.4 RESTRICTIONS ON USE. Licensee acknowledges Licensor's claim that
the Licensed Products and Licensed Software and their structure, organization
and Source Code constitute valuable trade secrets of Licensor and its
suppliers. Accordingly, Licensee agrees that, prior to the occurrence of a
Release Event, it will not (a) modify, adapt, alter, translate, or create
derivative works from the Licensed Product or Licensed Software; (b) merge
the Licensed Products or Licensed Software with other software, except that
Licensee may integrate the Licensed Software with its own software and
software licensed from third parties; (c) reverse engineer, decompile,
disassemble, or otherwise attempt to derive the Source Code for the Licensed
Products or Licensed Software for the purpose of manufacturing, replicating,
or developing similar products; or (d) otherwise use or copy the Licensed
Products or Licensed Software except as expressly allowed under Section 2.
Licensee further agrees that, following the occurrence of a Release Event, it
will engage in the activities described in the foregoing sentence only for
the purpose of exercising its rights under Sections 2 and 3.3.
2.
<PAGE>
4. LICENSE FEE. The License Fee excludes all applicable sales, use and
other taxes and all applicable export and import fees, customs duties and
similar charges, and Licensee will be responsible for payment of all such
taxes (other than taxes based on Licensor's income), fees, duties and
charges, and any related penalties and interest, arising from the payment of
the License Fee.
5. WARRANTIES. LICENSOR MAKES NO WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY, REGARDING THE LICENSED PRODUCTS OR LICENSED SOFTWARE, INCLUDING
ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE,
AND NON-INFRINGEMENT OF THIRD PARTY RIGHTS. LICENSEE ACKNOWLEDGES THAT IT
HAS RELIED ON NO WARRANTIES IN THIS AGREEMENT AND THAT NO WARRANTIES ARE MADE
BY ANY OF LICENSOR'S SUPPLIERS.
6. LIMITATION OF LIABILITY. IN NO EVENT WILL LICENSOR BE LIABLE FOR ANY
CONSEQUENTIAL, INDIRECT, EXEMPLARY, SPECIAL OR INCIDENTAL DAMAGES, INCLUDING
ANY LOST DATA AND LOST PROFITS, ARISING FROM OR RELATING TO THIS AGREEMENT.
LICENSOR'S TOTAL CUMULATIVE LIABILITY IN CONNECTION WITH THIS AGREEMENT AND
THE LICENSED PRODUCTS OR LICENSED SOFTWARE, WHETHER IN CONTRACT OR TORT OR
OTHERWISE, WILL NOT EXCEED THE AMOUNT OF LICENSE FEE PAID TO LICENSOR
HEREUNDER. LICENSEE ACKNOWLEDGES THAT THE LICENSE FEE REFLECTS THE ALLOCATION
OF RISK SET FORTH IN THIS AGREEMENT AND THAT LICENSOR WOULD NOT ENTER INTO
THIS AGREEMENT WITHOUT THESE LIMITATIONS ON ITS LIABILITY. IN ADDITION,
LICENSEE DISCLAIMS ALL LIABILITY OF ANY KIND OF LICENSOR'S SUPPLIERS.
7. TERM AND TERMINATION
7.1 TERM. The term of this Agreement will begin on the Effective Date
and will continue for seven (7) years unless terminated pursuant to SECTION
7.2.
7.2 TERMINATION. Licensee may terminate this Agreement at any time,
with or without cause, upon written notice to Licensor. Licensor may
terminate this Agreement, effective immediately upon written notice to
Licensee, if Licensee breaches any provision of this Agreement such breach
remains uncured at the end of any applicable cure period. The provisions of
Section 12 of the Product Marketing Agreement are incorporated herein by this
reference, and such provision shall apply to any breaches of this Agreement.
This Agreement shall automatically terminate upon termination of the Product
Marketing Agreement (a) by mutual agreement or (b) pursuant to Section 12.3.2
of the Product Marketing Agreement as a result of a breach by Licensee.
7.3 EFFECTS OF TERMINATION. Upon expiration or termination of this
Agreement for any reason, all licensed rights granted in this Agreement will
immediately cease to exist. Notwithstanding the foregoing, if (a) this
Agreement does not terminate pursuant to Section 7.2(a) or pursuant to
Section 7.2(b) as a result of a Bad Faith Breach by Licensee and
3.
<PAGE>
(b) a Release Event has occurred prior to the termination of this Agreement,
Licensee shall have a perpetual, fully-paid, non-exclusive right and license
under all GateField Intellectual Property Rights to (i) make, have made,
import, use, offer for sale, and sell all Licensed Products that Actel sells,
offers for sale, or samples on or before the termination of this Agreement,
and (ii) reproduce, have reproduced, import, use, offer for sale, and sell in
Executable Code form all Licensed Software that Actel licenses, offers for
license, or delivers to customers in beta form on or before the termination
of this Agreement.
7.4 SURVIVAL. Sections 1 ("Definitions"), 3.4 ("Restrictions on Use"),
5 ("Limitation of Liability"), 6.3 ("Effects of Termination"), and 7
("General") will survive expiration or termination of this Agreement for any
reason.
8. GENERAL
8.1 PROPRIETARY RIGHTS. The Licensed Software, and all worldwide
Intellectual Property Rights therein, are the exclusive property of Licensor
and its suppliers. All rights in and to the Licensed Software not expressly
granted to Licensee in this Agreement are reserved by Licensor and its
suppliers. Licensee will not remove, alter, or obscure any proprietary
notices (including copyright notices) of Licensor on the Licensed Software or
the Licensed Products.
8.2 COMPLIANCE WITH LAWS. Licensee will comply with all applicable
export and import control laws and regulations in its use of the Licensed
Products and Licensed Software and, in particular, Licensee will not export
or re-export the Licensed Products or Licensed Software without all required
United States and foreign government licenses. Licensee will defend,
indemnify and hold harmless Licensor from and against any violation of such
laws or regulations by Licensee or any of its agents, officers, directors, or
employees.
8.3 INSPECTIONS. Licensee will permit Licensor or its representatives
to review Licensee's relevant records and inspect Licensee's facilities to
ensure compliance with this Agreement. Licensor will give Licensee at least
ten (10) days advance notice of any such inspection and will conduct the same
during normal business hours in a manner that does not unreasonably interfere
with Licensee's normal operations.
8.4 ASSIGNMENTS. Licensee may not assign or transfer, by operation of
law or otherwise, any of its rights under this Agreement (including its
licenses with respect to the Licensed Products or Licensed Software) to any
third party without Licensor's prior written consent except in connection
with a Change in Ownership. Any attempted assignment or transfer in violation
of the foregoing will be void.
8.5 RIGHTS IN BANKRUPTCY. All rights and licenses granted under or
pursuant to this Agreement are and shall be deemed to be, for purposes of
Section 365(n) of the U.S. Bankruptcy Code, licenses of rights to
"intellectual property" as defined under Section 101 of the U.S. Bankruptcy
Code. The parties agree that Licensee, as a licensee of such rights under
this Agreement, shall retain and may fully exercise all of its rights and
elections under the U.S. Bankruptcy Code.
4.
<PAGE>
8.6 NOTICES. All notices, consents and approvals under this Agreement
must be delivered in writing by courier, by electronic facsimile (fax), or by
certified or registered mail, (postage prepaid and return receipt requested)
to the other party at the address set forth beneath such party's signature,
and will be effective upon receipt or three (3) business days after being
deposited in the mail as required above, whichever occurs sooner. Either
party may change its address by giving notice of the new address to the other
party.
8.7 GOVERNING LAW AND VENUE. This Agreement will be governed by the
laws of the State of California as such laws apply to contracts between
California residents performed entirely within California. The United
Nations Convention on Contracts for the International Sale of Goods does not
apply to this Agreement. Any action or proceeding arising from or relating
to this Agreement must be brought in a federal court in the Northern District
of California or in state court in Santa Clara County, California, and each
party irrevocably submits to the jurisdiction and venue of any such court in
any such action or proceeding.
8.8 REMEDIES. Except as provided in SECTIONS 5 AND 6, the parties'
rights and remedies under this Agreement are cumulative. Licensee
acknowledges that the Licensed Products and Licensed Software contain
valuable trade secrets and proprietary information of Licensor, that any
actual or threatened breach of SECTION 3 will constitute immediate,
irreparable harm to Licensor for which monetary damages would be an
inadequate remedy, and that injunctive relief is an appropriate remedy for
such breach. If any legal action is brought to enforce this Agreement, the
prevailing party will be entitled to receive its attorneys' fees, court costs
and other collection expenses, in addition to any other relief it may receive.
8.9 WAIVERS. All waivers must be in writing. Any waiver or failure to
enforce any provision of this Agreement on one occasion will not be deemed a
waiver of any other provision or of such provision on any other occasion.
8.10 SEVERABILITY. If any provision of this Agreement is unenforceable,
such provision will be changed and interpreted to accomplish the objectives
of such provision to the greatest extent possible under applicable law and
the remaining provisions will continue in full force and effect. Without
limiting the generality of the foregoing, Licensee agrees that SECTION 6 will
remain in effect notwithstanding the unenforceability of any provision in
SECTION 3.
8.11 CONFIDENTIALITY OF AGREEMENT. Neither party will disclose any
terms of this Agreement to anyone other than its attorneys, accountants and
other professional advisors except (a) as required by law or (b) pursuant to
a mutually agreeable press (provided that any third party to whom the terms
of this Agreement are to be disclosed signs a confidentiality agreement
reasonably satisfactory to the other party).
8.12 CONSTRUCTION. The headings of Sections of this Agreement are for
convenience and are not to be used in interpreting this Agreement. As used
in this Agreement, the word "including" means "including but not limited to".
8.13 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which will be considered an original, but all of which together will
constitute the same instrument.
5.
<PAGE>
8.14 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties regarding the subject hereof and supersedes all prior or
contemporaneous agreements, understandings, and communication, whether
written or oral. This Agreement may be amended only by a written document
signed by both parties. The terms on any purchase order or similar document
submitted by Licensee to Licensor will have no effect.
6.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
<TABLE>
<CAPTION>
LICENSOR: LICENSEE:
GATEFIELD CORPORATION ACTEL CORPORATION
<S> <C>
By: /s/ James R. Fiebiger By: /s/ John East
-------------------------- --------------------------
Name: James R. Fiebiger Name: John East
------------------------ ------------------------
Title: Chief Executive Officer Title: President and CEO
----------------------- -----------------------
Address for Notice: Address for Notice:
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
Attn: ------------------------ Attn: ------------------------
Fax: ------------------------- Fax: -------------------------
</TABLE>
6.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 11,342
<SECURITIES> 118
<RECEIVABLES> 1,080
<ALLOWANCES> 274
<INVENTORY> 172
<CURRENT-ASSETS> 12,786
<PP&E> 2,707
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,707
<CURRENT-LIABILITIES> 9,905
<BONDS> 0
0
7,697
<COMMON> 4,174
<OTHER-SE> 77,189
<TOTAL-LIABILITY-AND-EQUITY> 15,707
<SALES> 379
<TOTAL-REVENUES> 1,008
<CGS> 1,040
<TOTAL-COSTS> 1,391
<OTHER-EXPENSES> 4,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110
<INCOME-PRETAX> (288)
<INCOME-TAX> 0
<INCOME-CONTINUING> (288)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (288)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
<PAGE>
NEWS RELEASE
CONTACT INFORMATION: FOR IMMEDIATE RELEASE
James B. Boyd, Corporate Controller
GateField Corporation
(510) 623-4516
GATEFIELD CORPORATION RECEIVES REDEMPTION NOTICE FROM SERIES B
CONVERTIBLE PREFERRED STOCKHOLDERS
FREMONT, CALIF., U.S.A. - NOVEMBER 3, 1998 -- GateField-TM- Corporation (OTCBB:
GATE) (the "Company") has been notified by Idanta Partners Ltd. and certain
other affiliated holders of the Company's Series B Convertible Preferred Stock
of their request that the Company redeem on November 3, 1998 an aggregate of
981,997 shares of Series B Convertible Preferred Stock, at a redemption price
equal to $4.5825 per share plus accrued and unpaid dividends thereon in cash for
an aggregate redemption price of approximately $4.6 million. The holders of the
Series B Convertible Preferred Stock became entitled to request redemption of
their shares upon the delisting of the Company's Common Stock from the Nasdaq
SmallCap Market. The Board of Directors of the Company has designated a
special committee composed of Messrs. James R. Fiebiger and Horst G. Sandfort to
review the request for redemption and to assess whether the redemption is
permitted by applicable law. The Company intends to meet its obligation for
redemption only to the extent it is permitted by applicable law. If all 981,997
shares of Series B Convertible Preferred Stock are redeemed, an aggregate of
18,003 shares of Series B Convertible Preferred Stock will remain outstanding.
If the holders of the Company's Series B Preferred Stock elect to redeem the
remaining 18,003 shares of Series B Convertible Preferred Stock, as permitted
under the Company's Restated Certificate of Incorporation (the "Certificate"),
and the Company redeems such remaining shares, then the holders of the Company's
Series C Convertible Preferred Stock would have the right, under the
Certificate, to request redemption of their shares to the extent permitted by
applicable law.
GATEFIELD CORPORATION (OTCBB: GATE) developed the revolutionary, patented
flash-based field programmable gate array technology and architecture upon
which its ProASIC family of high gate count, non-volatile reprogrammable
products are built. The company is located at 47100 Bayside Parkway,
Fremont, CA 94538-9942. The company can be reached by phone at 800-818-5052
or 510-249-5757, or on the internet at http://www.gatefield.com.
