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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-Q
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
COMMISSION FILE NUMBER 0-13244
------------------------
GATEFIELD CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 41-1404495
(State of incorporation) (I.R.S. Employer Identification No.)
47436 FREMONT BLVD. FREMONT, CALIFORNIA 94538
(Address of principal executive (Zip Code)
offices)
</TABLE>
(510) 623-4400
Registrant's telephone number, including area code:
------------------------
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.
<TABLE>
<S> <C>
TITLE OF EACH CLASS OUTSTANDING AT APRIL 28, 2000
- --------------------------------------- -----------------------------
Common stock, par value $0.10 per share 4,662,400
</TABLE>
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<PAGE>
GATEFIELD CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999..................................... 3
Condensed Consolidated Statements of Operations and
Comprehensive Loss for the Three Months Ended March 31,
2000 and March 31, 1999................................... 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2000 and March 31, 1999...... 5
Notes to Condensed Consolidated Financial Statements, March
31, 2000.................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 18
Item 2. Changes in Securities and Use of Proceeds.................... 18
Item 3. Defaults upon Senior Securities.............................. 18
Item 4. Submission of Matters to a Vote of Security Holders.......... 18
Item 5. Other Information............................................ 18
Item 6. Exhibits and Reports on Form 8-K............................. 18
SIGNATURES........................................................... 19
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GATEFIELD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------ -------------
(UNAUDITED) (AUDITED)
(IN THOUSANDS, EXCEPT SHARE
AMOUNTS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 3,954 $ 5,418
Accounts receivable, less allowance for doubtful accounts
of $12 in 2000 and $536 in 1999......................... 462 33
Other current assets...................................... 62 205
-------- --------
Total current assets.................................... 4,478 5,656
Property and equipment, net................................. 1,287 1,423
Other assets................................................ 54 6
-------- --------
Total assets............................................ $ 5,819 $ 7,085
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current portion of long-term obligations.................. $ 244 $ 244
Accounts payable.......................................... 1,957 1,586
Accrued expenses.......................................... 796 825
Deferred revenues......................................... 3,265 3,562
-------- --------
Total current liabilities............................... 6,262 6,217
Long-term obligations....................................... 8,019 8,079
-------- --------
Total liabilities....................................... 14,281 14,296
Redeemable Preferred Stock
$0.10 par value; 2,000,000 shares authorized; shares
issued and outstanding: 318,000 in 2000 and 318,000 in
1999.................................................... 3,086 3,086
Stockholders' deficit
Common stock
$0.10 par value; 65,000,000 shares authorized; shares
issued and outstanding: 4,713,000 in 2000 and
4,693,000 in 1999..................................... 471 469
Additional paid-in capital.............................. 86,370 86,307
Accumulated other comprehensive loss...................... (466) (489)
Accumulated deficit....................................... (97,923) (96,584)
-------- --------
Total stockholders' deficit............................. (11,548) (10,297)
-------- --------
Total liabilities and stockholders' deficit............. $ 5,819 $ 7,085
======== ========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
GATEFIELD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Revenues
Product................................................... $ 312 $ 142
Service................................................... -- 311
------- -------
Total revenues.......................................... 312 453
------- -------
Cost of revenues
Product................................................... 78 237
Service................................................... -- 138
------- -------
Total cost of revenues.................................. 78 375
------- -------
Gross profit............................................ 234 78
------- -------
Operating expenses
Sales and marketing....................................... 152 188
Research and development.................................. 1,604 1,347
General and administrative................................ (237) 740
------- -------
Total operating expenses................................ 1,519 2,275
------- -------
Operating loss.............................................. (1,285) (2,197)
------- -------
Other Expense
Interest expense, net..................................... (47) (12)
Other expense, net........................................ (7) (32)
------- -------
Total other expense..................................... (54) (44)
Net loss.................................................... $(1,339) $(2,241)
Other comprehensive loss
Currency translation adjustments.......................... $ (23) $ (16)
======= =======
Comprehensive loss.......................................... $(1,362) $(2,257)
Loss attributable to common stockholders.................... $(1,340) $(2,241)
======= =======
Basic and diluted net loss per share........................ $ (0.28) $ (0.53)
======= =======
Basic and diluted weighted average shares outstanding....... 4,713 4,195
======= =======
</TABLE>
See Accompanying Notes To Condensed Consolidated Financial Statements.
4
<PAGE>
GATEFIELD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Operating activities:
Net loss.................................................. $(1,339) $(2,241)
Reconciliation to net cash used in operating activities:
Depreciation and amortization........................... 146 247
Noncash subordinated convertible debt interest.......... 1,231 --
Changes in assets and liabilities:
Accounts receivable................................... (429) 425
Inventories........................................... -- 19
Other assets.......................................... 95 193
Accounts payable and accrued expenses................. 342 (1,174)
Deferred revenues..................................... (297) (147)
------- -------
Net cash used in operating activities............... (251) (2,678)
------- -------
Investing activities:
Property and equipment purchases.......................... (10) --
------- -------
Net cash used in investing activities............... (10) --
------- -------
Financing activities:
Proceeds from issuance of common stock.................... (1,166) 66
Principal payments on long term debt and capital lease
obligations............................................. (60) --
------- -------
Net cash provided by financing activities........... (1,226) 66
Effect of exchange rate changes on cash and cash
equivalents............................................... 23 (16)
------- -------
Net change in cash and cash equivalents..................... (1,464) (2,628)
Cash and cash equivalents, beginning of period.............. 5,418 3,832
------- -------
Cash and cash equivalents, end of period.................... $ 3,954 $ 1,204
======= =======
Supplemental disclosure of cash flow information:
Cash activities:
Cash paid during the year for interest.................. $ 113 $ 38
</TABLE>
See Accompanying Notes To Condensed Consolidated Financial Statements.
5
<PAGE>
GATEFIELD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, during the quarters ended March 31, 2000 and 1999, GateField
Corporation, (the "Company" or "GateField") incurred net losses of approximately
$1,339,000 and $2,241,000, respectively. Additionally, the Company had
stockholders' deficits of approximately $11,548,000 at March 31, 2000 and
$10,297,000 at December 31, 1999, and is highly dependent on obtaining
additional financing in order to fund current and planned operating levels.
These factors among others raise substantial doubt about the ability of the
Company to continue as a going concern for a reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern is dependent upon its ability to obtain additional financing to complete
its new product development and begin commercial sales, and ultimately obtain
sufficient customer demand to attain profitable operations. Management intends
to maintain operating expenses at current or slightly higher levels, begin sales
of new products currently in development and obtain additional financing to
cover its additional cash flow requirements until it reaches a break-even level
of operations. No assurance can be given that the Company will be successful in
these efforts.
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
March 31, 2000 and 1999, respectively. In the opinion of the Company, all
adjustments (consisting only of normal, recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows at
March 31, 2000, and for all periods presented, have been made. These condensed
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's December 31, 1999 Annual Report on
Form 10-K.
2. LETTER OF INTENT TO MERGE
On May 11, 2000, GateField Corporation and Actel Corporation announced the
signing of a letter of intent. In the merger, Actel would pay cash consideration
of $5.25 per share of GateField Common Stock not already owned by Actel
(approximately 4.5 million shares). Actel would also assume all outstanding
GateField stock options. The merger is subject to several conditions, including
execution by the parties of a definitive agreement and approval by GateField's
stockholders at a special meeting. In the definitive agreement, Actel will agree
to convert its $8.0 million Convertible Promissory Note into GateField Preferred
Stock and Actel and Idanta Partners, Ltd. will agree to convert their GateField
Preferred Stock into GateField Common Stock before the record date for the
special meeting and to vote their shares of GateField Common Stock for approval
of the merger.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE DISCUSSION IN THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS REPORT THAT
ARE NOT PURELY HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING STATEMENTS REGARDING THE
COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS OR STRATEGIES REGARDING THE FUTURE.
ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED ON
INFORMATION AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE COMPANY ASSUMES
NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED IN "FACTORS AFFECTING FUTURE RESULTS" AS WELL AS THOSE DISCUSSED
IN THIS SECTION AND ELSEWHERE IN THIS REPORT, AND THE RISKS DISCUSSED IN THE
COMPANY'S SECURITIES AND EXCHANGE COMMISSION FILINGS.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
REVENUES
Total revenues for the quarters ended March 31, 2000 and 1999 were $312,000
and $453,000, respectively, a decrease of 31%. Total ProASIC product revenues
for the first quarter of 2000 increased to $312,000 from $142,000 in the first
quarter of 1999. ProASIC product revenues in 2000 consisted entirely of deferred
revenue from license fees from Rohm Co. Ltd that were collected in fiscal 1998.
ProASIC revenue in the first quarter of 1999 consisted entirely of hardware
sales of its 0.72-micron product that was terminated in 1999. Revenues in the
year 2000, if any, will come from the Company's anticipated introduction of its
0.25-micron products. At this time, the company believes 0.25-micron product
sales will begin in the third quarter of 2000. The Company began sampling its
0.25-micron product to initial customers in the first quarter of 1999 and began
shipping engineering samples in limited volumes in the fourth quarter of 1999.
The Company does not expect to begin shipment of pre-production quality parts
for this family until the third quarter of 2000 and does not expect sales to
reach a volume that could generate break-even operating cash flow in fiscal year
2000. While the Company expects to have the capacity to produce pre-production
parts in volume in the third quarter of 2000 there can be no assurance that
sales will indeed begin at that time, if at all. Nor can there be any assurance
how many products will be introduced in 2000 or in what packages or volumes
those products will ship. In addition, it is impossible to anticipate the degree
of market acceptance of this new technology, or whether it will be accepted at
all. Therefore the revenues associated with the new 0.25-micron product cannot
be predicted with any degree of accuracy. The Company's failure to introduce its
0.25-micron products on a timely basis and to achieve market acceptance of such
products would have a material adverse effect on the Company's business,
financial condition and result of operations.
Service revenues for the quarters ended March 31, 2000 and 1999 were $nil
and $311,000, respectively. Service revenues in 1999 represent the Company's
portion of a profit sharing agreement with the purchaser of certain assets that
were sold in 1997. The Company does not expect revenues from services in fiscal
2000.
GROSS PROFIT
Gross profit for the quarters ended March 31, 2000 and 1999 was $234,000,
and $78,000, respectively. Gross profit as a percentage of total revenues was
75% in the first quarter of 2000 and 17% in the first quarter of 1999.
Gross profit from ProASIC product revenues for the quarter ended March 31,
2000 was $234,000, which reflects overhead costs required to maintain the
Company's manufacturing capabilities until product sales begin. Gross profit
deficit from ProASIC product revenues for the quarter ended March 31, 1999 was
7
<PAGE>
($95,000) and relates to poor manufacturing yields on the 0.72-micron product
wafers. As the design and manufacturing processes are very different for the
0.72-micron and the 0.25-micron products, the yields, and hence, the gross
profits, on the two products are unrelated. Furthermore, the 0.25-micron product
has not yet been manufactured in commercial quantities. Therefore, the Company
cannot predict its margins for the year 2000 with any degree of certainty.
Gross profit from service revenues was $173,000 in the quarter ended
March 31, 1999 and relates to maintenance contracts on the verification systems.
The verification maintenance revenues, and hence, the related gross profits
ceased in 1999 and therefore the Company does not expect any gross margin
contribution from this source in fiscal 2000.
SALES AND MARKETING
Sales and marketing expenses were $152,000 for the quarter ended March 31,
2000 and $188,000 for the quarter ended March 31, 1999. Expenses incurred in the
first quarter of 2000 and 1999 related to the Company's efforts to support
strategic initiatives and product designs. The Company expects quarterly sales
and marketing expenses to remain relatively flat for the remainder of the year.
RESEARCH AND DEVELOPMENT
Research and development expenses for the quarter ended March 31, 2000 were
$1,604,000 as compared to $1,347,000 for the quarter ended March 31, 1999. The
increase in quarterly expenses is due to mask costs for the 0.25-micron product
development, consulting expenses related to new designs and the cost of
manufacturing engineering lots necessary to develop the 0.25-micron product. The
Company expects quarterly research and development expenses to increase slightly
over the remaining three quarters of the year due to the development of new
products and the migration to smaller geometries.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended March 31,
2000 and 1999 were a negative ($237,000) and $740,000, respectively. The
reduction in the first quarter of 2000 is mainly due to the collection of a
$720,000 debt that was previously written off. The Company also experienced
lower legal and accounting expense as well as reduced labor and overhead
expenses associated with non-engineering activities. The Company expects G&A
expenses to be approximately $650,000 per quarter for the remainder of the year.
However, G&A could experience significant increases in future quarters due to
legal and accounting expenses incurred in connection with future financings.
OTHER INCOME AND EXPENSES
Other expenses for the quarter ended March 31, 1999 were $54,000 as compared
to other expenses of $44,000 for the quarter ended March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had cash and cash equivalents of
approximately $4.0 million and a working capital deficit of $1.8 million. During
the first quarter ended March 31, 2000, and the year ended December 31, 1999,
GateField incurred net losses of approximately $1.3 million and $10.0 million,
respectively. The Company expects to continue to generate such losses for at
least the remainder of 2000. As a result, the Company estimates it will have
utilized all of its currently available capital resources on or about June 30,
2000. Thus, the Company will be unable to continue as a going concern if
sufficient funding is not immediately available. Accordingly, the Board of
Directors has authorized management to identify all options to strengthen its
operating capabilities and provide greater financial resources including, but
not limited to, the sale of debt, sell common stock or preferred stock. The
Board has authorized
8
<PAGE>
management to pursue its options in raising from $10 million to $15 million in
additional capital to fund operations.
In the past the Company has contacted a number of potential providers of
additional capital, including investment banking firms, financial investors,
customers, potential customers, strategic partners and potential strategic
partners. The price per share of common stock to be issued in any new financing
would be determined at about the time the offering is made. It is anticipated
that should the Company be able to sell equity or debt to independent investors
or to existing stockholders the common stock would be issued at a substantial
discount to the prevailing market price to reflect the illiquidity of such debt
or equity. The Company is seeking one or more investors to participate in a
proposed financing. If additional funds are raised through the issuance of
equity securities, the percentage ownership of current stockholders will be
reduced and such equity securities may have rights, preferences or privileges
senior to those of current stockholders. No assurance can be given that
additional financing will be available or that, if available, it can be obtained
on terms favorable to GateField and its stockholders. If adequate funds were not
available, the Company would be required to delay, limit or eliminate some or
all of its proposed operations.
Under a Security Agreement dated May 25, 1999 between Actel Corporation
("Actel") and the Company, the Company may elect to borrow an additional
$4.0 million under the same terms and conditions as its existing $8.0 million
convertible promissory note. Actel in its sole and absolute discretion may make
such loan and has indicated to the Company its interest in doing so. Actel is
under no obligation to fund the Company in any manner and there can be no
assurance that Actel funding, or any other source of funding will be available
when needed or that, if available, it can be obtained on terms favorable to
GateField and its stockholders. If adequate funds were not available, the
Company would be required to delay, limit or eliminate some or all of its
proposed operations.
The Company currently anticipates that capital in the aggregate principal
amount of $6 million to $10 million would meet its capital requirements through
2000. However, the Company's capital requirements may be greater than
anticipated. Therefore, there can be no assurance that such amounts will be
sufficient to meet the Company's capital requirements through 2000. The Company
has historically used private offerings of convertible debt and convertible
preferred stock, public and private offerings of common stock, sale and
leaseback arrangements and bank financing and credit lines to finance its
business.
Cash used in operations was $251,000 in the first quarter of 2000 compared
to $2.7 million for the first quarter of 1999. Net cash used by investing
activities during the three-month period ended March 31, 2000 was $10,000 for
equipment acquisitions. GateField expects to invest a minimum of $700,000 and
possibly as much as $1.5 million in mask sets for its new 0.25-micron and
smaller geometries product in 2000 but does not anticipate any other significant
capital asset acquisitions during the upcoming year.
Net cash used by financing activities was $1.2 million in the first three
months of 2000. Net cash provided by financing activities was $66,000 in the
first three months of 1999 and represents employee purchases of stock under
certain option plans.
FACTORS AFFECTING FUTURE RESULTS
IMMEDIATE NEED FOR ADDITIONAL FUNDING
At March 31, 2000, the Company had cash and cash equivalents of
approximately $4.0 million and a working capital deficit of $1.8 million. During
the first quarter ended March 31, 2000, and the year ended December 31, 1999,
the Company incurred net losses of approximately $1.3 million and
$10.0 million, respectively. Also, the Company has not reported an operating
profit since fiscal 1995. In addition, a substantial number of parts will have
to be sold on a quarterly basis before the Company can achieve quarterly
profitability and several factors including gross margins, market acceptance and
competitive factors make it impossible to predict with any degree of assurance
when or whether the Company will
9
<PAGE>
attain profitability. Accordingly, GateField cannot predict how long it will
continue to experience significant or increasing operating and net loss, or
whether or if it will become profitable. The Company expects to continue to
generate such losses for at least the remainder of 2000. As a result, the
Company expects that it will have utilized all of its currently available assets
on or about June 30, 2000. If sufficient funding is not immediately available,
the Company will be unable to continue as a going concern.
NO ASSURANCE OF FUTURE FUNDING
GateField must continue to make significant investments in research and
development to bring its technology to market and to remain competitive. Our
future capital requirements will depend on many factors, including, among
others: product development expense levels, investments in working capital, and
the amount of income generated by operations, including royalty income and
income deriving from the Actel relationship. To the extent that existing
resources and future earnings are insufficient to fund the Company's operations,
GateField may need to raise additional funds through public or private debt or
equity financings. If additional funds are raised through the issuance of equity
securities, the percentage ownership of current stockholders will be reduced and
such equity securities may have rights, preferences or privileges senior to
those of the holders of the Company's common stock.
The Company has historically funded its operations primarily through private
equity and debt financings, sale and leaseback arrangements and bank financing
and credit lines. The Company intends to continue to explore and, as
appropriate, enter into discussions with current stockholders and other parties
regarding possible future sources of capital (See "Liquidity and Capital
Resources"). Although Actel has indicated their preliminary interest in
providing additional funding, no assurance can be given that this additional
financing will be available or that, if available, it can be obtained on terms
favorable to GateField and its stockholders. Unless the Company obtains
additional funding, the Company will have utilized all its currently available
resources on or about June 30, 2000.
The Company anticipates that capital in the aggregate principal amount of
$6 million to $10 million would meet its capital requirements through 2000.
However, the Company's capital requirements may be greater than anticipated.
Therefore, there can be no assurance that such amounts would be sufficient to
meet the Company's capital requirements through 2000.
DEPENDENCE ON THE SUCCESSFUL DEVELOPMENT OF 0.25-MICRON PRODUCTS
GateField's success is highly dependent upon the timely completion and
introduction of new products at competitive price and performance levels,
especially the timely introduction of its 0.25-micron generation products. The
Company is currently completing testing of its 0.25-micron products and related
software. A joint Actel/GateField marketing team began sampling initial
customers in the first quarter of 1999 and began limited shipments of
engineering samples to select customers in the fourth quarter of 1999. The
Company currently believes it has a design capable of yielding pre-production
parts however it has experienced significant lot-to-lot variation and has to
date been unable to qualify its parts for production status and begin volume
shipments to customers. No assurance can be given that the Company's design and
manufacturing process issues can be resolved nor can the Company ensure
introduction schedules for such products will be met. Moreover, there can be no
assurances that, even if such products are introduced into the market on a
timely basis, they will be successfully developed or that they will achieve
market acceptance. To the extent that the Company's development and
commercialization efforts with respect to the 0.25-micron products are
unsuccessful or if these products do not achieve market acceptance, the
Company's business, financial condition and results of operations would be
materially adversely affected.
The Company's 0.25-micron products are highly complex and may contain
undetected or unresolved defects when first introduced or as new versions are
released. There can be no assurance that, despite testing by the Company,
defects will not be found in new products, including the Company's 0.25-micron
products, or new versions of such products following commercial release. This
could result in loss of
10
<PAGE>
market share, delay in or loss of market acceptance or product recall. Any such
occurrence could have a material adverse effect upon the Company's business,
financial condition and results of operations.
DEPENDENCE ON INDEPENDENT WAFER MANUFACTURERS
GateField does not manufacture any of the wafers used in the production of
its products, including its 0.25-micron ProASIC products. This dependence on
independent wafer manufacturers puts the Company at risk should its suppliers be
unable or unwilling to produce its products.
Currently, Infineon Corp., Inc. ("Infineon") manufactures GateField's
0.25-micron ProASIC products at their wafer fabrication facility located in
Dresden, Germany. This dependence on a single foundry subjects the Company to
risks associated with an interruption of supply from a single source.
GateField plans to initially produce its 0.25-micron products in relatively
low volumes. Still, it will be competing with Infineon's internal requirements
for production capacity and the attention of Infineon's process engineers. The
Company's reliance on Infineon to fabricate its 0.25-micron products involves
significant risks, such as technical difficulties or damage to production
facilities that could limit production and reduce yields, lack of control over
capacity allocation and lack of control over delivery schedules. Also, these
risks are increased by the fact that the Company does not have second source
suppliers for any of its wafer products.
GateField has in the past experienced delays in obtaining wafers from its
foundries, and there can be no assurance that the Company will not experience
similar or more severe delays in the future. Although the Company has supply
agreements with Infineon, a shortage of raw materials or production capacity
could lead Infineon to allocate available capacity to customers other than the
Company or internal uses could delay manufacture of the Company products and
interrupt the Company's capability to meet its product delivery obligations. Any
inability or unwillingness of the Company's independent wafer manufacturers to
provide adequate quantities of finished wafers to satisfy the Company's needs in
a timely manner would delay production and product shipments and could have a
material adverse effect on the Company's business, financial condition and
results of operations. These risks are particularly pronounced with respect to
the Company's reliance on Infineon as the only manufacturer of the Company's
0.25-micron products.
If GateField's independent wafer manufacturers were unable or unwilling to
manufacture the Company's products as required, the Company would have to
identify and qualify additional foundries. The development and qualification
process typically takes one year or longer. No assurance can be given that any
additional qualified wafer foundries would become available or be able to
satisfy the Company's requirements on a timely basis. In particular, the Company
has invested significant amounts of time and resources in working with Infineon
to develop and improve the manufacturing processes relating to the Company's
0.25-micron product family. Although Infineon has also invested significant
resources into its relationship with the Company, if Infineon were unable or
unwilling to manufacture such products as anticipated, the Company would be
unable to introduce such products to market on a timely basis, which would have
a material adverse effect on the Company's business, financial condition and
results of operations.
RELIANCE ON ACTEL RELATIONSHIP
In August 1998, GateField entered into a strategic relationship with Actel
Corporation. In a product marketing agreement, Actel acquired the exclusive
right to distribute the Company's standard ProASIC products based on 0.25-micron
and smaller geometries. In connection with the formation of the alliance, the
Company terminated its entire sales force and does not anticipate creating a new
sales force in the foreseeable future. Consequently, the Company is highly
dependent on Actel's sales efforts and the success of its sales force in
marketing the Company's 0.25-micron products.
11
<PAGE>
Actel will continue to market its own products, including products that are
competitive with GateField's products. Accordingly, there is a risk that Actel
may give higher priority to the Actel products, thus reducing its efforts to
sell the Company's products. In addition, the Company's agreement with Actel is
terminable by Actel under a variety of circumstances, including the Company's
material breach of the product marketing agreement. As the Company would require
significant amounts of time and resources to rebuild its sales force, reduction
in sales efforts by Actel or a termination of its agreement with the Company
would have a material adverse effect on the Company's business, financial
condition and results of operations. Furthermore, if Actel's sales and marketing
efforts do not achieve anticipated growth rates, the Company would be forced to
reduce the amount of product that is manufactured. As a result, the Company's
profit margins on future sales of higher cost products would be reduced because
the Company would be unable to take full advantage of Infineon's manufacturing
cost reductions.
The product marketing agreement with Actel contains certain GateField
milestones relating to the development schedule and manufacturing costs of the
0.25-micron product family. The agreement also contains Actel milestones with
respect to the marketing and sale of the 0.25-micron products (including certain
revenue targets). If the Company fails to achieve such cost milestones, it must
notify Actel and seek their consent to its corrective action. The Company has so
notified Actel and the two companies are jointly working on corrective measures.
Should Actel decide it is not in their best interest to support these corrective
actions it may take longer to resolve the delays. Loss of cooperation and
support from Actel could divert resources from other GateField development
efforts and disrupt the Company's development efforts with respect to the
0.25-micron product family. The delays in meeting the Company's milestones
relieve Actel from its milestones as set forth in the product marketing
agreement. Such consequences of the Company's failure to achieve its milestones
could have a material adverse effect on the Company's business, financial
condition and results of operations.
COMPETITION
The semiconductor industry is intensely competitive and is characterized by
rapid rates of technological change, product obsolescence and price erosion.
GateField's existing competitors include suppliers of conventional gate arrays,
complex programmable logic devices ("CPLDs") and field programmable gate arrays
("FPGAs"). The Company's two principal competitors are Xilinx, a supplier of
FPGAs based on SRAM technology, and Altera, a supplier principally of CPLDs. The
Company also faces competition in the future from major domestic and
international semiconductor suppliers and suppliers of logic products based on
new or emerging technologies. Given the intensity of the competition and the
research and development being done, no assurance can be given that the
Company's technology--or patents--will remain competitive.
Important competitive factors in the Company's market are: price,
performance, number of usable gates, ease of use and functionality of
development system software, installed base of development systems, adaptability
of products to specific applications, length of development cycle (including
reductions to finer micron design rules), number of I/Os, reliability, adequate
wafer fabrication capacity and sources of raw materials, protection of products
by effective utilization of intellectual property laws and technical service and
support. Failure of the Company to compete successfully in any of these or other
areas could have a material adverse effect on its business, financial condition
and results of operations.
Furthermore, if there was a downturn in the market for CPLDs and FPGAs, the
Company believes companies that have broader product lines and longer standing
customer relationships may be in a stronger competitive position than the
Company. Many of the Company's current and potential competitors offer broader
product lines and have significantly greater financial, technical, manufacturing
and marketing resources than the Company has.
12
<PAGE>
DEPENDENCE ON KEY PERSONNEL
GateField's success is dependent in large part on the continued service of
its key management, engineering, marketing and support employees. Competition
for qualified personnel, particularly skilled IC engineers, is intense in the
semiconductor industry. The loss of the Company's current key employees, or the
inability of the Company to attract other qualified personnel, could have a
material adverse effect on the Company. The Company does not have employment
agreements with any of its key employees, but it does have standard
non-disclosure agreements with all technical and management employees and it
does have indemnity agreements with Dr. Timothy Saxe, its chief executive
officer, president and chief operating officer, and James B. Boyd, its chief
financial officer.
PRICE EROSION
The semiconductor industry is characterized by intense competition.
Historically, average selling prices in the semiconductor industry in general,
and for the Company's products in particular, have declined significantly over
the life of each product. Moreover, the Company is highly dependent on Actel for
the marketing of the Company's next generation of ProASIC products. While the
Company expects that the average selling prices of its products will be reduced
over time as the Company achieves manufacturing cost reductions, the Company may
from time to time be required by competitive pressures to reduce the prices of
its products more quickly than such cost reductions can be achieved. In
addition, the Company occasionally approves price reductions on specific sales
to meet competition. If these reductions are not offset by reductions in
manufacturing costs or by a shift in the mix of products sold toward
higher-margin products, declines in the average selling prices of the Company's
products will reduce gross margins and could have a material adverse effect on
the Company's business, financial condition and results of operations.
MANUFACTURING YIELDS
GateField depends upon its independent wafer manufacturers to produce wafers
with acceptable yields and to deliver them to the Company in a timely manner.
Currently, substantially all of the Company's revenues are derived from products
based on the Company's proprietary ProASIC technology. Successful implementation
of ProASIC technology requires a high degree of coordination between the Company
and its independent wafer manufacturers. In particular, with respect to the
manufacture of the Company's 0.25-micron products, Infineon will require
significant lead-time to reach volume production on new processes. Accordingly,
no assurance can be given that volume production or acceptable yields with
respect to the Company's new 0.25-micron product family will be achieved on a
timely basis or at all.
The manufacture of high-performance ProASIC products is a complex process
that requires a high degree of technical skill, state-of-the-art equipment and
effective cooperation between the wafer supplier and the circuit designer to
produce acceptable yields. Minute impurities, errors in any step of the
fabrication process, defects in the masks used to print circuits on a wafer and
other factors can cause a substantial percentage of wafers to be rejected or
numerous die on each wafer to be nonfunctional. As is common in the
semiconductor industry, the Company has from time to time experienced in the
past, and expects that it will experience in the future, production yield
problems and delivery delays. Any prolonged inability to obtain adequate yields
or deliveries of the 0.25-micron products would adversely affect the Company's
business, financial condition and results of operations.
SEMICONDUCTOR INDUSTRY RISKS
The semiconductor industry has historically been cyclical and periodically
subject to significant economic downturns, which are characterized by rapid
technological change, product obsolescence, diminished product demand,
accelerated price erosion and overcapacity. These downturns often occur in
connection with, or in anticipation of, maturing product cycles (of both the
semiconductor companies and
13
<PAGE>
their "end customers") and declines in general economic conditions. Some of
these downturns have lasted for more than a year. Also, during such periods,
customers of semiconductor manufacturers benefiting from shorter lead times may
delay some purchases of semiconductors into future periods.
GateField has experienced in the past, and may experience again in the
future, substantial period-to-period fluctuations in business and results of
operations. This can adversely affect the market price of the Company's common
stock. The main factors affecting these fluctuations are the performance of the
semiconductor industry, overall economic conditions, or other factors, including
legislation and regulations governing the import or export of semiconductor
products.
DEPENDENCE ON DESIGN WINS
For GateField to sell its ProASIC products to a customer, the customer must
incorporate the Company's ProASIC technology into the customer's product in the
design phase. The Company is highly dependent on Actel's sales marketing and
Field Application Engineer ("FAE") team, in conjunction with the support of the
Company's resources, to persuade potential customers to incorporate the
Company's standard ProASIC product into new or updated products. These efforts
may precede by many months, (and sometimes a year or more) the generation of
volume sales, if any, by the customer. The value of any design win, moreover,
will depend in large part upon the ultimate success of the customer's product.
No assurance can be given that the Company will win sufficient designs or that
any design win will result in significant revenues.
In addition, there are some costs associated with marketing the Company's
licensing of its ProASIC technology for embedded applications. Such costs would
not be recovered if the Company were unable to win additional licenses.
DEPENDENCE ON INDEPENDENT ASSEMBLY SUBCONTRACTORS
GateField relies primarily on foreign subcontractors for the assembly and
packaging of its products and, to a lesser extent, for the testing of its
finished products. The Company generally relies on a few key subcontractors to
provide particular services and has from time to time experienced difficulties
with the timeliness and quality of product deliveries. The Company has no
long-term contracts with its subcontractors, and certain of those subcontractors
are currently operating at or near full capacity. There can be no assurance that
these subcontractors will continue to be able and willing to meet the Company's
requirements for components or services. Any significant disruption in supplies
from, or degradation in the quality of components or services supplied by, these
subcontractors could delay shipments and result in the loss of customers or
revenues or otherwise have a material adverse effect on the Company's business,
financial condition and results of operations.
SUPPLY PROBLEMS
In a typical semiconductor manufacturing process, silicon wafers produced by
a foundry are sorted and cut into individual die, which are then assembled into
individual packages and tested for performance. The manufacture, assembly and
testing of semiconductor products are highly complex and subject to a wide
variety of risks, including contaminants in materials, contaminants in the
environment and performance failures by personnel and equipment. Any of these
conditions could have a material adverse effect on GateField's business,
financial condition and results of operations.
It is common in the semiconductor industry for independent wafer suppliers
to experience lower than anticipated yields of usable die. For example,
GateField experienced a yield problem at one of its independent wafer
manufacturers in fiscal years 1997 and 1998 that was severe enough to have a
material adverse effect on the Company's operating results. To the extent yields
of usable die decrease, the average cost to the Company of each usable die
increases, which reduces gross margin.
14
<PAGE>
Wafer yields can decline without warning and may take substantial time to
analyze and correct, particularly for a Company such as GateField that does not
operate its own manufacturing facility, but instead relies upon a single
independent wafer manufacturer. Yield problems may also increase the
time-to-market for the Company's products and create inventory shortages and
dissatisfied customers. In 1999 the Company experienced process problems at
Infineon that caused the introduction of its 0.25-micron product family to be
significantly delayed. Once production of commercially acceptable product
begins, the Company anticipates that yields for such products will initially be
low. If such yields do not improve over time, the Company's business, financial
condition and results of operations would be adversely affected.
Although GateField has overcome such difficulties in the past, no assurance
can be given that it will be able to do so with respect to its 0.25-micron
product family. Nor can any assurance be given that the Company will not
experience wafer supply problems in the future, or that any such problem would
not have a material adverse effect on the Company's business, financial
condition and results of operations. See "Dependence on Independent Wafer
Manufacturer."
PATENT INFRINGEMENT
Although GateField has obtained patents covering aspects of its ProASIC and
related technologies, no assurance can be given that the Company's patents will
be determined to be valid or that any assertions of infringement or invalidity
by other parties (or claims for indemnity from customers resulting from any
infringement claims) will not be successful. Although the Company is not
currently a party to any material litigation, the semiconductor industry is
characterized by frequent claims regarding patent and other intellectual
property rights. As is typical in the semiconductor industry, the Company from
time to time receives communications from third parties asserting patents on
certain of the Company's technologies. In the event any third party were to make
a valid claim against the Company, the Company could be required to discontinue
the use of certain processes or cease the use, import and sale of infringing
products, to pay substantial damages and to develop non-infringing technologies
or to acquire licenses to the alleged infringed technology. The Company's
business, financial condition and results of operations could be materially and
adversely affected by such developments. Litigation, which could result in
substantial cost to and diversion of resources of the Company, may also be
necessary to enforce patents or other intellectual property rights of the
Company or to defend the Company against claimed infringement of the rights of
others. The failure to obtain necessary licenses or the occurrence of litigation
relating to patent infringement or other intellectual property matters could
have a material adverse effect on the Company's business, financial condition
and results of operations.
PROTECTION OF INTELLECTUAL PROPERTY
GateField has historically devoted significant resources to research and
development. It believes that the intellectual property derived from research
and development is a valuable asset that has been and will continue to be
important to the success of the Company's business. The Company relies primarily
on a combination of nondisclosure agreements, other contractual provisions, and
patent and copyright laws to protect its proprietary rights. No assurance can be
given that the steps taken by the Company will be adequate to protect its
proprietary rights. In addition, the laws of certain territories in which the
Company's products are or may be developed, manufactured or sold, including Asia
and Europe, may not protect the Company's products and intellectual property
rights to the same extent as the laws of the United States. Failure of the
Company to enforce its patents or copyrights or to protect its trade secrets
could have a material adverse effect on the Company's business, financial
condition and results of operations.
15
<PAGE>
RELIANCE ON INTERNATIONAL SALES
GateField expects that revenues indirectly derived from international sales
will represent a significant portion of the Company's total revenues received
through its marketing relationship with Actel. Further, such foreign sales are
denominated in U.S. dollars. Therefore, the Company's products become less price
competitive in countries with currencies that are declining in value against the
dollar. International sales are subject to a variety of risks, including longer
payment cycles, greater difficulty in accounts receivable collection, currency
restrictions, tariffs, trade barriers, taxes, export license requirements and
the impact of recessionary environments in economies outside the United States.
DEPENDENCE ON NEW PRODUCT DEVELOPMENT; RAPID TECHNOLOGICAL CHANGE
The market for GateField's products is characterized by rapidly changing
technology, frequent new product introductions, and declining average selling
prices over product life cycles. All of these factors make the timely
introduction of new products a critical objective of the Company. The Company's
future success is highly dependent upon the timely completion and introduction
of new products at competitive price and performance levels, including the
timely introduction of its 0.25-micron ProASIC products.
In evaluating new product decisions, GateField must anticipate well in
advance both the future demand and the technology that will be available to
supply such demand. Failure to anticipate customer demand, delays in developing
new products with anticipated technological advances and failure to coordinate
the design and development of silicon and associated software products each
could have a material adverse effect on the Company's business, financial
condition and results of operations.
In addition, there are greater technological and operational risks
associated with new products. Several factors could have a material adverse
effect on GateField's business, financial condition and results of operations:
the inability of Infineon to produce the Company's 0.25-micron products; delays
in commencing or maintaining volume shipments of new products; the discovery of
product, process, software or programming failures; and any related product
returns. No assurance can be given that any other new products will gain market
acceptance or that the Company will respond effectively to new technological
changes or new product announcements by others. Any failure of the Company or
its strategic partners to successfully define, develop, market, manufacture,
assemble or test competitive new products could have a material adverse effect
on its business, financial condition and results of operations.
DEPENDENCE ON INTERNATIONAL OPERATIONS
GateField buys all of its wafers from foreign foundries and has most of its
commercial products assembled, packaged and tested by subcontractors located
outside the United States. These activities are subject to the uncertainties
associated with international business operations, including trade barriers and
other restrictions, changes in trade policies, foreign governmental regulations,
currency exchange fluctuations, reduced protection for intellectual property,
war and other military activities, terrorism, changes in political or economic
conditions and other disruptions or delays in production or shipments, any of
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
"BLANK CHECK" PREFERRED STOCK
GateField's Certificate of Incorporation authorizes the issuance of up to
2,000,000 shares of "blank check" preferred stock (of which (1,261,997) shares
remain available for issuance), with such designations, rights and preferences
as may be determined from time to time by the Company's Board of Directors.
Accordingly, the Board is empowered, without approval by holders of the
Company's common stock, to issue preferred stock with dividend, liquidation,
redemption, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of the common stock. Issuance of the
preferred stock could be used as a method of discouraging, delaying or
preventing a change in control of
16
<PAGE>
the Company. In addition, such issuance could adversely affect the market price
of the Company's common stock. In order to raise capital, the Company may issue
additional shares of its preferred stock in the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
GateField is exposed to a variety of risks, including changes in interest
rates affecting the return on its investments and foreign currency fluctuations.
The Company has established policies and procedures to manage its exposure to
fluctuations in interest rates and foreign currency exchanged.
INTEREST RATE RISK. GateField maintains its funds in money market and
Certificate of Deposit accounts at banks. The Company's exposure to market risk
due to fluctuations in interest rates relates primarily to its interest earnings
on its cash deposits. These securities are subject to interest rate risk
inasmuch as their fair value will fall if market interest rates increase. If
market interest rates were to increase immediately and uniformly by 10% from the
levels prevailing at December 31, 1999, the fair value of the portfolio would
not decline by a material amount. The Company does not use derivative financial
instruments to mitigate risks. However, it does have an investment policy that
would allow it to invest in short-term investments such as money market
instruments and corporate debt securities. The Company's policy does attempt to
reduce such risks by typically limiting the maturity date of such securities to
no more than eighteen months with a maximum average maturity to its whole
portfolio of such investments at six months, placing its investments with high
credit quality issuers and limiting the amount of credit exposure with any one
issuer.
FOREIGN CURRENCY EXCHANGE RATE RISK. The Company's exposure to market risk
due to fluctuations in foreign currency exchange rates relates primarily to the
intercompany balances with its United Kingdom, German and Japanese subsidiaries.
The Company closed these subsidiaries in 1999 and only has some insignificant
cash balances remaining in these countries. Although the Company transacts
business in various foreign countries, settlement amounts are usually based on
U.S. currency. Transaction gains or losses have not been significant in the
past, and there is no hedging activity on the pound, mark, yen or other
currencies. The Company would not experience a material foreign exchange loss
based on a hypothetical 10% adverse change in the price of the pound, mark or
yen against the U.S. dollar. Consequently, GateField does not expect that a
reduction in the value of such accounts denominated in foreign currencies
resulting from even a sudden or significant fluctuation in foreign exchange
rates would have a direct material impact on the Company's financial position,
results of operations or cash flows.
Notwithstanding the foregoing analysis of the direct effects of interest
rate and foreign currency exchange rate fluctuations on the value of certain of
GateField's investments and accounts, the indirect effects of such fluctuations
could have a material adverse effect on the Company's business, financial
condition and results of operations. For example, international demand for the
Company's products is affected by foreign currency exchange rates. In addition,
interest rate fluctuations may affect the buying patterns of the Company's
customers. Furthermore, interest rate and currency exchange rate fluctuations
have broad influence on the general condition of the U.S. foreign and global
economics, which could materially adversely affect the Company.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
2.1 Letter of Intent, dated May 11, 2000, between the Company
and Actel Corporation.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
The requestor filed a current report on Form 8-K on January 4, 2000
to announce the resignation of Michael J. Kucha, a director of the
Company, effective December 31, 1999.
18
<PAGE>
SIGNATURES
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.
<TABLE>
<S> <C>
Date: May 15, 2000 GATEFIELD CORPORATION
/s/ TIMOTHY SAXE
--------------------------------------------
Timothy Saxe
PRESIDENT AND CHIEF EXECUTIVE OFFICER
/s/ JAMES B. BOYD
--------------------------------------------
James B. Boyd
CHIEF FINANCIAL OFFICER
</TABLE>
19
<PAGE>
Exhibit 2.1
[ACTEL LOGO]
May 10, 2000
VIA FACSIMILE
(510) 623-4540
GateField Corporation
47436 Fremont Blvd
Fremont, CA 94538-6503
Attn: Mr. Timothy Saxe
President & Chief Executive Officer
Dear Tim:
Actel Corporation ("Actel") hereby proposes to acquire GateField
Corporation ("GateField") as follows:
1. ACQUISITION. Actel believes it is in the best interests of Actel and
GateField and their respective shareholders for Actel to acquire GateField (the
"Acquisition").
2. STATUTORY MERGER. The Acquisition will be structured as a statutory
merger of GateField with and into Actel or, at the election of Actel, a
triangular merger of GateField with and into a subsidiary of Actel or a reverse
triangular merger of a subsidiary of Actel with and into GateField (the
"Merger"). In the Merger, Actel will pay $5.25 cash for each outstanding share
of GateField Common Stock.
3. GATEFIELD OPTIONS. At the effective time of the Merger (the "Effective
Time"), Actel will assume each GateField employee stock option ("GateField
Option") then outstanding, which will thereafter be deemed to be an option to
purchase, in lieu of the shares of GateField Common Stock previously subject to
such option, that number of shares of Actel Common Stock equal to the product of
(a) the number of shares then subject to the GateField Option and (b) the Merger
Exchange Ratio (rounded downward to the nearest whole share) at an exercise
price per share equal to quotient of (x) the exercise price per share under the
GateField Option and (y) the Merger Exchange Ratio (rounded upward to the
nearest whole cent). The Merger Exchange Ratio will be determined by dividing
(A) $5.25 by (B) the average of the closing sale prices of Actel's Common Stock
as reported by the Nasdaq National Market Service on the day of the joint public
announcement by Actel and GateField of the Acquisition and the two days before
and after such date. The vesting commencement date and vesting schedule for each
GateField Option assumed in the Merger will remain the same. The assumption of
GateField Options that are incentive stock options as defined in Section 422A(b)
of the Code will be accomplished in a transaction to which Section 425(a) of the
Code applies. Actel will (i) file with the SEC a new registration statement on
Form S-8 relating to the GateField Options assumed in the Merger and the shares
of Actel Common Stock to be issued upon their exercise or an amendment to its
existing registration statement on Form S-8 to include such options and shares
and (ii) use its best efforts to cause such new or amended registration
statement to become effective as soon as practicable after the Effective Date.
4. AGREEMENT. The parties will expeditiously and in good faith negotiate
the terms and provisions governing the Acquisition, which will be contained in
an Agreement and Plan of Merger (the "Agreement") providing for a scheduled
closing on June 30, 2000, but in no event later than July 31, 2000 (the
"Closing"). The terms and provisions of the Agreement will include, but not be
limited to, the following:
<PAGE>
Mr. Timothy Saxe
GateField Corporation
May 10, 2000
Page 2
(a) REPRESENTATIONS, WARRANTIES, AND COVENANTS. The usual and
customary representations, warranties, and covenants made by parties to an
acquisition of this nature.
(b) CONDITIONS TO CLOSING. The conditions that must be satisfied
before the parties are obligated to close, which will include (i) approval
of the Agreement by GateField's shareholders; (ii) receipt of all necessary
legal, regulatory, and other third-party approvals, authorizations, and
clearances; (iii) no breach of the Agreement; and (iv) no statute, rule, or
regulation, or action or other proceeding, or temporary restraining order,
preliminary injunction, permanent injunction, or other order that
materially and adversely affects the Merger or its consummation; and (iv)
such other conditions precedent as may be mutually agreed upon by the
parties.
(d) VOTING AGREEMENT. Actel and Idanta Partners will agree to convert
their GateField Preferred Stock into GateField Common Stock before the
record date for approval of the Agreement by GateField's shareholders and
to vote their shares of GateField Common Stock for approval of the
Agreement.
5. INVESTIGATION OF BUSINESS AND AFFAIRS. GateField will permit Actel and
its representatives (including legal counsel, auditors, and advisors) to make a
full and complete investigation of GateField and the business, financial
condition, and affairs of GateField, and will give Actel and such
representatives full access, at all times, to GateField's premises and to such
books, records, personnel, information, contracts, and other documentation as
Actel may reasonably request in connection with such investigation. GateField
will furnish to Actel and such representatives such financial and operating
data, and such other information with respect to GateField, as Actel may from
time to time reasonably request. In connection therewith, Actel and such
representatives will be privileged, after reasonable advance notice to
GateField, to contract and communicate with GateField's independent agents,
auditors, and other persons having dealings with GateField.
6. CONFIDENTIALITY. Actel understands and agrees that all access,
investigation, and contacts by Actel and its representatives will be conducted
in such a manner as not to interfere unduly with the normal conduct of
GateField's business, will be coordinated through GateField's President or his
appointed designee, and will be subject to and in accordance with the terms and
conditions of that certain Reciprocal Non-Disclosure Agreement dated as of
September 15, 1998, between Actel and the Company (the "NDA").
7. ANNOUNCEMENTS. Actel and GateField agree that, within five days after
GateField executes this proposal, the parties will jointly make an appropriate
announcement to the public regarding the Acquisition. Subject to each party's
compliance with applicable law, neither party will issue any statement or
communication to the public regarding the Acquisition without the consent of the
other party, which consent will not be unreasonably withheld.
8. CONDUCT OF BUSINESS. GateField will use its best efforts to preserve
and maintain its assets and business, and will take no action or fail to take
any action where such action or failure to act would not be in the normal and
ordinary course of business.
9. COSTS AND EXPENSES. Unless otherwise agreed, each party will bear its
own costs and expenses in connection with the transactions contemplated hereby.
<PAGE>
Mr. Timothy Saxe
GateField Corporation
May 10, 2000
Page 3
10. INTENTION OF THE PARTIES. This proposal does not contain all matters
upon which agreement must be reached in order for the proposed Acquisition to be
consummated, and therefore it does not constitute a binding commitment with
respect to the proposed Acquisition. A binding commitment with respect to the
proposed Acquisition will result only from the execution and delivery by Actel
and GateField of the Agreement. Notwithstanding the foregoing, the provisions of
paragraphs 5, 6, 7, 8, 9, 10, and 11 are agreed to be fully binding on the
parties upon the execution and delivery of this proposal by GateField.
11. TERMINATION. After this letter of intent has been executed by
GateField, the agreements contained herein will remain in effect until (i) the
Agreement is executed and delivered by both parties or (ii) this letter of
intent is terminated by either party upon not less than three days' prior
written notice. Upon termination, all rights and obligations of each party to
the other will cease, except that the obligations under the NDA will survive
such termination. Except for breaches of the NDA and for breaches of obligations
prior to termination, each party acknowledges and agrees that it will have no
rights against or liability to the other party as a result of the termination of
this letter of intent.
12. EXPIRATION. This proposal will be null and void if GateField does not
accept it by delivery of an executed copy to Actel by the close of business on
May 12, 2000.
Please indicate your acceptance and approval of this proposal by executing
it in the space below.
Very truly yours,
/s/ Fares N. Mubarak
Fares N. Mubarak
Vice President of Engineering
Accepted and agreed this 11th
day of May 2000.
GATEFIELD CORPORATION
By: /s/ Timothy Saxe
---------------------------------
Name: TIMOTHY SAXE
-------------------------------
Title: PRESIDENT AND CEO
------------------------------
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