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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-12
GATEFIELD CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
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Payment of Filing Fee (Check the appropriate box):
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<S> <C> <C>
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
Common Stock, par value $0.10 per share
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
4,530,184
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
$5.25 per share of Common Stock
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$23,783,466
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(5) Total fee paid:
$4,756.80
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
Schedule 14A
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(3) Filing Party:
GateField Corporation
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(4) Date Filed:
May 31, 2000
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[LOGO]
GATEFIELD CORPORATION
47436 Fremont Blvd., Fremont, California 94538-6503
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FRIDAY, JUNE 30, 2000
TO THE STOCKHOLDERS OF GATEFIELD CORPORATION:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the "Special
Meeting") of GateField Corporation, a Delaware corporation (the "Company"), will
be held on Friday, June 30, 2000 at 8:00 a.m., local time, at the Company's
principal executive office located at 47436 Fremont Boulevard, Fremont,
California 94538-6503 for the following purpose:
To approve and adopt an Amended and Restated Agreement and Plan of Merger
(the "Merger Agreement") providing for the merger of a wholly-owned
subsidiary of Actel Corporation with and into the Company, with the Company
continuing as the surviving corporation and wholly-owned subsidiary of Actel
(the "Merger"). In the proposed Merger the holders of Common Stock of the
Company will receive $5.25 in cash for each share of Common Stock held as of
the effective time of the Merger. Approval of the Merger Agreement will also
constitute approval of the Merger.
The proposed Merger is described in detail in the accompanying Proxy
Statement and its annexes. Please read all of these materials carefully.
THE COMPANY'S BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS FAIR AND
IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS. ACCORDINGLY, THE
BOARD HAS UNANIMOUSLY APPROVED THE MERGER AND RECOMMENDS THAT YOU VOTE IN FAVOR
OF THE MERGER AT THE SPECIAL MEETING.
The Board of Directors has fixed the close of business on May 25, 2000 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Special Meeting and at any adjournment or postponement thereof.
All stockholders are cordially invited to attend the Special Meeting in
person. Whether or not you expect to attend the Special Meeting, please
complete, date, sign and return the enclosed proxy as promptly as possible in
order to ensure your representation at the Special Meeting. A return envelope
(which is postage prepaid if mailed in the United States) is enclosed for that
purpose. Even if you have given your proxy, you may still vote in person if you
attend the Special Meeting. Please note, however, that if your shares are held
of record by a broker, bank or other nominee and you wish to vote at the Special
Meeting, you must obtain from the record holder a proxy issued in your name.
<PAGE>
THE TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THE TRANSACTION NOR
UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
By Order of the Board of Directors
/s/ LYNNE M. BENNETT
Lynne M. Bennett
SECRETARY
FREMONT, CALIFORNIA
[JUNE 10, 2000]
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GATEFIELD CORPORATION
47436 Fremont Boulevard
Fremont, CA 94538-6503
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS
JUNE 30, 2000
This Proxy Statement (the "Proxy Statement") is being furnished to the
holders of Common Stock, par value $0.10 per share ("Common Stock"), of
GateField Corporation, a Delaware corporation (the "Company"), in connection
with the solicitation of proxies by the Board of Directors of the Company for
use at a special meeting of stockholders (the "Special Meeting") of the Company
to be held on Friday, June 30, 2000 at 8:00 a.m., local time, and any
adjournments thereof, at the Company's principal executive office located at
47436 Fremont Boulevard, Fremont, California 94538-6503 for the following
purpose:
To approve and adopt an Amended and Restated Agreement and Plan of Merger
dated May 31, 2000 by and among the Company, Actel Corporation, a California
corporation and a principal stockholder of the Company ("Actel"), GateField
Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of Actel (the "Merger Sub") and with respect to Section 5.17
thereof only, Idanta Partners Ltd., a Texas general partnership ("Idanta")
(the "Merger Agreement") and to approve the merger (the "Merger") of the
Company and the Merger Sub as described therein.
The proposed merger is described in detail in the accompanying Proxy
Statement and its annexes. Please read all of these materials carefully.
The Merger Agreement provides for the merger of the Merger Sub with and into
the Company with the Company continuing as the surviving corporation and
wholly-owned subsidiary of Actel. Subject to the terms and conditions of the
Merger Agreement, each share of Common Stock of the Company outstanding as of
the Effective Date (as defined below) will be converted into and become a right
to receive $5.25 per share in cash, without interest, all as more fully
described in the Proxy Statement.
Approval and adoption of the Merger Agreement requires the affirmative vote
of a majority of the outstanding shares of the Company's Common Stock held by
stockholders of record on May 25, 2000 (the "Record Date"). Pursuant to the
terms of the Merger Agreement, Actel, Idanta, and certain affiliates of Idanta
have agreed to vote shares owned by them in favor of the approval and the
adoption of the Merger Agreement and the Merger. As of the Record Date, Idanta
and its affiliates owned 507,318 shares of the Company's Common Stock,
representing approximately 8.4% of the shares of Common Stock outstanding, and
Actel owned 1,621,298 shares of the Company's Common Stock, representing
approximately 26.4% of the shares of Common Stock outstanding.
The Board of Directors has fixed the close of business on May 25, 2000 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Special Meeting and at any adjournment or postponement thereof.
THE MERGER IS FOR CASH ONLY. AFTER THE CLOSING OF THE MERGER, CURRENT
COMPANY STOCKHOLDERS WILL HAVE NO FURTHER OWNERSHIP INTEREST IN THE COMPANY.
This Proxy Statement, the accompanying form of proxy (the "Proxy") and the
other enclosed documents are first being mailed to the stockholders of the
Company on or about [June 10, 2000].
The date of this Proxy Statement is [June 10, 2000].
<PAGE>
TABLE OF CONTENTS
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Questions and Answers About the Merger...................... 3
Summary..................................................... 5
Special Factors............................................. 8
Past Contacts Between GateField and Actel................. 8
Background of the Merger.................................. 10
Reasons for Merger; Recommendation of the Board of
Directors............................................... 12
Interests of Unaffiliated Stockholders.................... 14
Opinion of Financial Advisor.............................. 14
Certain Federal Income Tax Consequences................... 18
The Special Meeting of Stockholders......................... 19
Date, Place, and Time..................................... 19
Purpose................................................... 19
Revocability of Proxies................................... 19
Solicitation of Proxies................................... 19
Record Date and Voting Rights............................. 20
Quorum.................................................... 20
Required Vote............................................. 20
Appraisal Rights of Dissenting Stockholders............... 20
The Merger Agreement........................................ 21
Effective Time............................................ 21
The Merger................................................ 21
Conversion of Securities.................................. 21
Payment of Merger Consideration........................... 22
Stock Options............................................. 22
Representations and Warranties............................ 23
Certain Pre-Closing Covenants............................. 23
No Solicitation........................................... 23
Conditions Precedent to Merger............................ 24
Termination............................................... 25
Fees and Expenses......................................... 25
Indemnification; Insurance................................ 26
The Company................................................. 26
Description of Business................................... 26
Properties................................................ 27
Legal Proceedings......................................... 27
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 28
Quantitative and Qualitative Disclosure about Market
Risk.................................................... 32
Changes In and Disagreements with Accountant on Accounting
and Financial Disclosure................................ 33
Certain Effects of the Transaction.......................... 34
Interests of Certain Persons................................ 34
Stock Ownership........................................... 34
Indemnification........................................... 34
Stock Option Plans........................................ 34
Employment with Gatefield................................. 35
Employment with Actel..................................... 35
Stockholder Voting Obligation............................. 35
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1
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Information Concerning Actel and Merger Sub................. 35
Actel..................................................... 35
Merger Sub................................................ 36
Financing the Transaction................................... 36
Security Ownership of Certain Beneficial Owners and
Management................................................ 36
Market Prices and Volume.................................... 39
Appraisal Rights of Dissenting Stockholders................. 39
Section 262 of the DGCL................................... 40
Section 1300 et seq. of the CGCL.......................... 40
Notice to Company......................................... 40
Independent Auditors........................................ 41
Stockholders Proposals for the 2001 Annual Meeting.......... 41
Other Matters............................................... 41
Financial Statements........................................ 43
Annexes..................................................... A-1
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NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OTHER PERSON. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT
IMPLY THAT THERE HAS BEEN NO CHANGE IN INFORMATION SET FORTH HEREIN OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
As used herein, unless the context otherwise clearly requires "Company,"
"we," "our" or "GateField" refers to GateField Corporation, "Merger Sub" refers
to GateField Acquisition Corporation and "Actel" refers to Actel Corporation.
Capitalized terms used in but not defined in this Proxy Statement are defined in
the Merger Agreement.
------------------------
AVAILABLE INFORMATION
GateField is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the web site (http://www.sec.gov) maintained by the Commission; or at its
regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Such reports, proxy statements and other information are also available
for inspection at 47436 Fremont Boulevard, Fremont, California 94538-6503.
2
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHEN AND WHERE IS THE STOCKHOLDER MEETING?
A: The meeting will take place on Friday, June 30, 2000, in Fremont, California.
The exact location for the meeting can be found on page 19. The meeting may be
postponed if there are not enough votes to approve the merger.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
document, the attachments to this documents, and the documents referred to in
this document, please fill out, sign and mail your signed proxy card in the
enclosed return envelope as soon as possible so that we may vote your shares at
the special meeting of our stockholders.
In order to assure that we obtain your vote, please give your proxy as
instructed on your proxy card, even if you currently plan to attend the meeting
in person.
Q: WHAT IF I DON'T INDICATE HOW TO VOTE MY PROXY?
A: If you do not include instructions on how to vote your properly signed proxy,
your shares will be voted FOR adoption of the merger agreement and approval of
the merger.
Q: WHAT IF I DON'T RETURN A PROXY CARD?
A: Not returning your proxy card will have the same effect as voting against the
merger.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted at the
special meeting. You can do this in one of three ways. First, you can send a
written notice to our Secretary stating that you would like to revoke your
proxy. Second, you can complete and submit a new proxy card. Third, you can
attend the special meeting, file a written notice of revocation of your proxy
with our Secretary and vote in person. Your attendance alone will not revoke
your proxy.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: No. Your broker will not be able to vote your shares without instructions
from you. If you do not provide your broker with instructions on how to vote,
your shares will be considered present at the special meeting for purposes of
determining a quorum, but will not be considered to have been voted in favor of
adoption of the merger agreement and will have the same effect as voting against
the merger. If you have instructed a broker to vote your shares, you must follow
directions received from your broker to change those instructions.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If the merger is completed, you will receive $5.25, in cash, without
interest, for each share of our common stock that you own.
Q: WHEN CAN I EXPECT THE MERGER TO BE COMPLETE?
A: We are working toward completing the merger as quickly as possible. We hope
to complete the merger on June 30, 2000.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, Actel and/ or its exchange agent will send
you written instructions for surrendering your stock certificate for cash.
Q: WILL I RECOGNIZE A GAIN OR LOSS ON THE TRANSACTION?
A: In general, you will recognize gain or loss for federal income tax purposes
equal to the difference, if any, between the cash you receive as a result of the
merger (or pursuant to your dissenter's rights under Delaware or California law)
and the adjusted tax basis for your common stock. Generally, such gain or loss
will be capital gain or loss if you have held your shares for more than one year
as of the effective date of the merger. Please see "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES" beginning on page 18 for further details on this issue.
3
<PAGE>
You should consult with your tax adviser concerning your particular situation,
including any state and foreign laws that might affect you, as a result of the
merger.
Q: AM I ENTITLED TO DISSENTERS' RIGHTS OF APPRAISAL?
A: Yes. You have the right to dissent from the merger under both Delaware and
California law and to receive payment of the fair market value of your shares of
GateField common stock. Please see "APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS"
beginning on page 39 and Annexes III and IV for further details on this issue.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: You can write or call our Corporate Secretary, Lynne M. Bennett, at GateField
Corporation, 47436 Fremont Boulevard, Fremont, California 94538-6503, telephone
(510) 623-4400, fax (510) 623-4484, email [email protected] with any
questions about the merger or the merger agreement.
4
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SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER MORE FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD CAREFULLY READ THIS DOCUMENT, THE MERGER AGREEMENT, THE
OPINION OF NEEDHAM & COMPANY, INC., SECTION 262 OF THE DELAWARE GENERAL
CORPORATION LAW, AND SECTIONS 1300-1312 OF THE CALIFORNIA GENERAL CORPORATION
LAW, COPIES OF WHICH ARE ATTACHED AS ANNEXES I, II, III AND IV.
THE COMPANIES
GATEFIELD CORPORATION
GateField designs, develops and markets high-density, high performance
programmable logic solutions and related development software.
GateField's principal executive offices are located at 47436 Fremont
Boulevard, Fremont, California 94538-6503, and its telephone number is
(510) 623-4400. For additional information relating to GateField's business,
operations, properties and other matters, see "THE COMPANY."
ACTEL CORPORATION
Actel designs, develops and markets field programmable gate array devices
that are used in communications, computer, consumer and internet-appliance,
industrial, military/aerospace and other electronic systems.
Actel's principal executive offices are located at 955 East Arques Avenue,
Sunnyvale, California 94086-4533, and its telephone number is (408) 739-1010.
For additional information relating to Actel's business, operations, properties
and other matters, see "INFORMATION CONCERNING ACTEL AND MERGER SUB--ACTEL."
PRINCIPAL REASONS FOR THE MERGER (SEE PAGE 12)
We estimate that we will exhaust all of our currently available capital
resources on or about June 30, 2000. If the merger does not occur and we were
unable to obtain additional financing, the Company will be unable to continue as
a going concern. The merger, if consummated, will give you some return on your
investment in GateField and will remove the risk of losing all of your
investment if GateField were unable to continue as a going concern.
We believe that, if the merger is not consummated, we will need to raise
between $6 and $10 million to meet our capital requirements through the end of
2000 and a similar amount to meet our capital requirements through the end of
2001. After exploring various funding alternatives, we do not believe we would
be able to raise the reqired funding.
We believe that Actel is the best potential purchaser of GateField. We
believe that Actel's exclusive worldwide right to market and sell our ProASIC
products makes us less attractive to other potential purchasers. In addition,
Actel's ownership of 26.4% of our common stock would enable it to significantly
influence the stockholder vote on any other potential acquisition.
RECOMMENDATION TO STOCKHOLDERS (SEE PAGE 12)
Our board of directors unanimously believes that the merger is fair to you
and in your best interests and recommends that you vote FOR approval and
adoption of the merger and the merger agreement.
OPINION OF FINANCIAL ADVISOR (SEE PAGE 14)
Our financial advisor, Needham & Company, Inc. delivered an opinion to our
board of directors on May 23, 2000 that, as of the date of such opinion, the per
share consideration to be paid in the merger was fair, from a financial point of
view, to the holders of our common stock. The complete Needham & Company, Inc.
opinion is attached as ANNEX II and you are urged to read it in its entirety.
THE MERGER (SEE PAGE 21)
Under the terms of the merger agreement, a wholly-owned subsidiary of Actel,
formed for the purpose of the merger, will merge with and into GateField with
GateField being the surviving corporation. As a result of the merger, we will
become a direct, wholly-owned subsidiary of Actel.
The merger agreement is attached as ANNEX I to this document. We encourage
you to read the merger agreement as it is the legal document that governs the
merger.
5
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WHAT GATEFIELD STOCKHOLDERS WILL RECEIVE (SEE PAGE 21)
The merger agreement provides that at the effective time of the merger, each
issued and outstanding share of our common stock will be canceled and converted
into the right to receive $5.25 in cash, without interest.
STOCKHOLDER VOTE REQUIRED TO APPROVE THE MERGER (SEE PAGE 20)
The affirmative vote of holders of a majority of the shares of common stock
outstanding and entitled to vote on the record date of May 25, 2000 is required
to approve the merger agreement.
On the record date of May 25, 2000, Actel owned approximately 26.4% of our
common stock and Idanta Partners Ltd. and its affiliates owned approximately
8.4% of our common stock. Actel, Idanta and certain affiliates of Idanta have
agreed to vote their shares in favor of the approval of the merger and adoption
of the merger agreement.
You are entitled to cast one vote per share of GateField common stock you
owned at the close of business on May 25, 2000, the record date.
You should mail your signed proxy card in the enclosed return envelope as
soon as possible so that your shares of GateField common stock may be
represented at the special meeting. If you do not include instructions on how to
vote your properly executed proxy, your shares will be voted FOR adoption and
approval of the merger and the merger agreement.
If your shares are held in street name, your broker will vote your shares
only if you provide instructions on how to vote by following the information
provided to you by your broker. IF YOU DO NOT PROVIDE YOUR BROKER WITH VOTING
INSTRUCTIONS, YOUR SHARES WILL NOT BE VOTED AT THE GATEFIELD SPECIAL MEETING,
WHICH WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE APPROVAL AND ADOPTION OF
THE MERGER AND THE MERGER AGREEMENT.
If you desire to change your vote, just send a written notice to our
Secretary stating that you would like to revoke your proxy, or deliver to the
Secretary of GateField a later-dated, signed proxy card, before the special
meeting, or attend the special meeting in person, revoke your proxy there and
vote in person.
DISSENTERS' RIGHTS OF APPRAISAL (SEE PAGE 39)
Under Section 262 of the Delaware General Corporation Law and Sections
1300-1312 of the California General Corporation Law, you and other GateField
stockholders will have the right to dissent from the merger. Stockholders who
dissent from the merger and otherwise comply with the provisions of Delaware or
California law will be entitled to receive fair market value of their shares as
determined in accordance with applicable law.
INTERESTS OF UNAFFILIATED STOCKHOLDERS (SEE PAGE 14)
The merger and the merger agreement must be approved by the holders of a
majority of our common stock outstanding on the record date. Because Actel owns
26.4% of our common stock it will significantly influence the outcome of the
stockholder vote. The approval of a majority of our stockholders other than
Actel is NOT required.
INTERESTS OF CERTAIN PERSONS (SEE PAGE 34)
When considering our board's recommendation that you vote in favor of the
merger, you should be aware that some of GateField's directors and officers may
have interests in the merger that are different from or in addition to yours.
In connection with the merger, the interests of the directors and executive
officers of GateField relate to the assumption of our stock options held by them
into options to purchase Actel common stock. In addition and subject to
consummation of the merger, Timothy Saxe, our Chief Executive Officer, will
accept a Vice President position with Actel, with salary and benefits
commensurate with current standards for a person with comparable technological
expertise and executive experience. See "THE MERGER AGREEMENT--STOCK OPTIONS,"
"THE MERGER AGREEMENT--INDEMNIFICATION; INSURANCE" AND "INTERESTS OF CERTAIN
PERSONS IN THE MERGER."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 18)
In general, each stockholder will recognize gain or loss for federal income
tax purposes equal to the difference, if any, between the cash received
6
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pursuant to the merger (or the exercise of dissenters' rights) and such
stockholder's adjusted tax basis for its common stock. In general, such gain or
loss will be capital gain or loss if the stockholder has held its common stock
for more than one year as of the effective date of the merger. Such transactions
may also be taxable under applicable state, local and foreign tax laws and may
be subject to backup withholding. You and all other stockholders are urged to
consult your own tax advisors. See "THE MERGER--CERTAIN FEDERAL INCOME TAX
CONSEQUENCES."
CONDITIONS TO COMPLETION OF THE MERGER (SEE PAGE 24)
The completion of the merger is subject to a number of conditions, including
the following:
- approval and adoption of the merger agreement by our stockholders;
- absence of any law prohibiting the merger; and
- receipt of authorizations, consents or approvals needed to consummate the
merger.
The completion of the merger is not subject to governmental review under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 25)
Either GateField or Actel can terminate the merger agreement if any of the
following occur:
- we do not complete the merger within 60 days after the mailing of this
proxy statement; or
- a law or court order permanently prohibits the merger.
We may terminate the merger agreement if any of the following occurs:
- we receive an offer that is superior to the terms of the merger with
Actel; or
- Actel breaches any condition, representation or warranty contained in the
merger agreement;
Actel may terminate the merger agreement if any of the following occurs:
- the stockholders of GateField do not approve the merger within 50 days
after the mailing of this proxy statement;
- our board recommends an acquisition proposal by another party;
- our board modifies or withdraw its recommendation in favor of the merger
in a manner adverse to Actel;
- we breach any condition, representation or warranty contained in the
merger agreement; or
- by written notice to us.
EFFECT OF TERMINATION (SEE PAGE 25)
If Actel terminates the agreement because of a breach of any condition,
representation or warranty in the merger agreement by us or because stockholder
approval is not obtained, Actel may choose to purchase a $3 million promissory
note that is convertible into our common stock at the rate of $5.25 per share.
If we terminate the agreement because of a breach of any condition,
representation or warranty in the merger agreement by Actel or if Actel
terminates the agreement without cause, we may require Actel to purchase a
$3 million promissory note that is convertible into our common stock at the rate
of $5.25 per share.
PAYMENT OF MERGER CONSIDERATION AND SURRENDER OF SHARES (SEE PAGE 22)
The closing and effectiveness of the merger will occur after the conditions
to closing have been satisfied or waived.
Actel will appoint an exchange agent to handle the payment for the GateField
shares. IF YOU HAVE CERTIFICATES REPRESENTING GATEFIELD SHARES, PLEASE DO NOT
SEND THEM TO US NOW. THE EXCHANGE AGENT SELECTED BY ACTEL WILL CONTACT YOU WITH
INSTRUCTIONS FOR THE SURRENDER OF YOUR CERTIFICATES.
7
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SPECIAL FACTORS
PAST CONTACTS BETWEEN GATEFIELD AND ACTEL
1998 STRATEGIC ALLIANCE
In August 1998, the Company entered into a multi-year strategic alliance
with Actel. In establishing the alliance, Actel purchased certain marketing and
license rights, shares of the Company's Series C Preferred Stock, and the assets
of the Company's Design Services Business Unit. Consideration paid in these
transactions totaled $10.5 million, consisting entirely of cash. Since the
establishment of this strategic alliance, the Company and Actel have been in
constant contact.
PRODUCT MARKETING AGREEMENT
Under the terms of a Product Marketing Agreement dated as of August 14,
1998, Actel received exclusive, worldwide distribution rights to the Company's
standard application specific integrated circuit technology ("ProASIC") and
flash technology-based, high-density field programmable gate array ("FPGA")
products with process geometries of less than 0.35-micron, including FPGA
products that are integrated with SRAM or flash memory and all resulting next
generation reduced process geometry ProASIC FPGA products. For these rights,
Actel paid the Company an initial fee of $1.0 million and agreed to pay a $1.0
million fee upon qualification of the initial 0.25-micron product. In addition,
Actel and the Company will split equally the gross margins from ProASIC product
sales. The Company's recognition of the $1.0 million initial fee has been
deferred until delivery to Actel of pre-production quality parts with process
geometries of less than 0.35-micron.
Under the terms of the Product Marketing Agreement, development of the
underlying technology and products is managed and executed primarily by the
Company. The Agreement contains certain milestones relating to the development
schedule and manufacturing costs of the 0.25-micron product family. If the
Company fails to achieve such cost milestones, it must notify Actel and seek its
consent to corrective action. The Company has so notified Actel and the two
companies are jointly working on corrective measures. The Product Marketing
Agreement also contains Actel milestones with respect to the marketing and sale
of the 0.25-micron products (including certain revenue targets). The delays in
meeting GateField's milestones under the Product Marketing Agreement relieve
Actel from meeting the marketing and sales milestones.
LICENSE AGREEMENT
Pursuant to the terms of a License Agreement dated as of August 14, 1998,
the Company granted to Actel a fully paid, non-exclusive, non-transferable
license to sell and, upon certain conditions, to make, have made, import, and
use the Company's standard ProASIC FPGA products with process geometries of less
than 0.35-micron and all resulting next-generation reduced process geometry
ProASIC FPGA products. For these rights, Actel paid the Company a license fee of
$1 million. The Company's recognition of the $1 million license fee received as
revenue has been deferred until delivery to Actel of pre-production quality
parts with process geometries of less than 0.35-micron.
PREFERRED STOCK PURCHASE AGREEMENT
Pursuant to terms of a Series C Preferred Stock Purchase Agreement dated as
of August 14, 1998, the Company issued 300,000 shares of Series C Convertible
Preferred Stock, par value $0.10 (the "Series C Preferred"), to Actel for an
aggregate purchase price of $3.0 million. Each share of Series C Preferred was
entitled to certain preferential liquidation rights and was convertible into
6.67 shares of Common Stock plus an amount of shares at the conversion price
equal to the amount of accrued and unpaid dividends on the Series C Preferred.
In the event all shares of the Company's Series B Preferred Stock ("Series B
Preferred") were redeemed, each share of Series C Preferred was subject to
redemption at a price of
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<PAGE>
$10.00 per share plus the amount of declared but unpaid dividends. In addition,
Actel was entitled to certain registration rights and had a right of first
refusal to purchase its pro rata share of certain new securities that the
Company issued. Pursuant to the terms of the Merger Agreement, Actel converted
the Series C Preferred into 200,000 shares of Common Stock on May 24, 2000.
ASSET PURCHASE AGREEMENT
Pursuant to the terms of an Asset Purchase Agreement dated as of August 14,
1998, Actel purchased from the Company the assets of its Design Services
Business Unit, which is located in Mt. Arlington, New Jersey, and engaged in the
business of providing prototyping design services and verification services for
electronic systems, integrated circuits and other electronic components. The
purchase price for such assets was (i) $5.4 million plus (ii) contingent
payments payable over a three-year period on a quarterly basis based on Design
Services achieving certain profitability levels, which payments may not exceed
$1.0 million in the aggregate.
1999 COMMON STOCK FINANCING
Under the Series C Preferred Stock Purchase Agreement between Actel and the
Company, Actel had a right of first refusal to purchase its pro rata share of
certain new securities the Company may wish to sell. On September 30, 1999, the
Company sold, and two subsidiaries of Mitsui High-tec Inc. (Mitsui Create USA,
Inc. and MHT American Holdings, Inc.) purchased, a total of 307,696 shares of
Company Common Stock at $6.50 per share, for an aggregate sales price of $2.0
million. The owners of the Company's Series B Preferred Stock, Idanta and
certain affiliates of Idanta, exercised their rights to participate on a
pro-rata basis and purchased a total of 52,035 shares of Company Common Stock
for $338,223.44. Actel also exercised its right to participate on a pro-rata
basis and purchased 112,129 shares of Company Common Stock for $728,829.75. The
purchase of Company Common Stock by Actel was effected pursuant to a Common
Stock Purchase Agreement between Actel and Company dated as of September 30,
1999.
1999 AND 2000 CONVERTIBLE PROMISSORY NOTE FINANCINGS
In May 1999, the Company issued and sold to Actel a convertible promissory
note in the aggregate principal amount of $8 million (the "Convertible
Promissory Note"). The Convertible Promissory Note accrued interest at the rate
of 5.22% per annum, had a five-year term, and was secured by a lien against all
the assets of the Company. Interest under the Convertible Promissory Note was
payable quarterly from the date of issuance. The Convertible Promissory Note was
convertible at Actel's election into 420,000 shares of Series C-1 Convertible
Preferred Stock (the "Series C-1 Preferred"), which was in turn convertible into
1,230,769 shares of Common Stock, equating to a price of $6.50 per share of
Common Stock. Pursuant to the terms of the Merger Agreement, Actel converted the
Convertible Promissory Note into 420,000 shares of Series C-1 Preferred, and
converted the Series C-1 Preferred into 1,230,769 shares of Common Stock, on
May 24, 2000.
Under the terms of the Security Agreement dated May 25, 1999, pursuant to
which the Convertible Promissory Note was secured, the Company could request
Actel to make an additional loan to the Company on the same terms and conditions
as the Convertible Promissory Note and, if Actel declined to make such
additional loan, Actel agreed to execute a subordination agreement in favor of
any third party lender for a loan of up to $4 million in aggregate principal
amount. On May 23, 2000, the Company requested Actel to make an additional loan
of $4 million to the Company on the same terms as the Convertible Promissory
Note. On May 24, 2000, Actel declined to make the loan, but offered to make a
loan of $3.0 million to the Company on the same terms as the Convertible
Promissory Note, except that such new loan would be convertible into the
Company's Common Stock at an effective rate of $5.25 (rather than $6.50) per
share. The Company accepted Actel's offer and, on May 31, 2000, the Company and
Actel entered into a Security Agreement granting Actel a lien against all of the
Company's assets, the Company executed and delivered a 6.25% Convertible Note
Due 2005 in the principal amount of $1.0
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<PAGE>
million, and Actel loaned $1.0 million to the Company. The new convertible
promissory note is convertible at Actel's election into 35,000 shares of
Series C-2 Convertible Preferred Stock (the "Series C-2 Preferred"), which are
in turn convertible into 190,476 shares of Common Stock.
BACKGROUND OF THE MERGER
In July 1998, the Company approached Actel about a possible merger or
financing. Actel was not interested in a merger at that time, and the strategic
alliance between the companies was structured to permit each to remain
independent, but the Company and Actel have always recognized that the strategic
alliance might lead to a merger of the two companies. Since the establishment of
the strategic alliance in August 1998, the question of whether the Company and
Actel should merge has been raised often in a wide range of forums, but it was
not until March 2000 that any such inquiry received a positive response from the
other company or led to any negotiations.
On March 7, 2000, Timothy Saxe, the Company's President & CEO, telephoned
John East, Actel's President & CEO, to schedule a telephonic discussion between
Mr. East and Jonathan Huberman, Chairman of the Company's Board of Directors,
regarding a potential business combination between the Company and Actel. The
telephonic discussion occurred March 15, 2000, when Mr. Huberman indicated to
Mr. East that the Company was interested in being acquired by Actel and wished
to begin negotiations immediately.
On March 21, 2000, Messrs. Huberman and Saxe met with Dennis Kish, Actel's
Vice President of Strategic Marketing, Fares Mubarak, Actel's Vice President of
Engineering, and David Van De Hey, Actel's Vice President & General Counsel.
Mr. Huberman indicated that the Company was interested in being acquired by
Actel because the Company had determined that it was no longer viable as a
stand-alone entity, that it was going to lose employees if nothing were done,
and that resources were being wasted managing the relationship between the two
companies. The Actel representatives indicated that Actel believed an
acquisition would permit the ProASIC technology to be brought to market faster
and aid in the retention of the Company's employees, but that the Company's
ongoing operating losses were a potentially insurmountable financial problem.
With respect to price, the Company's representatives indicated that $10.00 per
share was too low, while the Actel representatives indicated that $7 per share
was too high.
On March 30, 2000, Messrs. Huberman and Saxe again met with Messrs. Kish,
Mubarak, and Van De Hey. At the conclusion of the meeting, the Company and Actel
agreed to consider a three-tiered price structure for an acquisition in which
the price would be $10.75 per share if the Company achieved certain technical
milestones, $9.00 per share if the Company achieved certain lesser milestones,
and $7.25 per share if the Company did not achieve either set of milestones.
Over the next three weeks, while milestones and organizational issues were
being negotiated, there were two significant developments. First, the Company
recognized new technological problems with products under development, which
caused Actel to indicate that it would pay no more than $4 per share if the
Company did not achieve either set of milestones. Second, the Company
experienced an increase in employee retention issues. This increased the desire
of both the Company and Actel to complete the Merger as quickly as possible.
On April 20, 2000, James Boyd, the Company's Chief Financial Officer, and
Mr. Van De Hey met with outside legal counsel for the Company and Actel to
discuss the three-tiered pricing structure. As a result of this meeting, the
Company and Actel both concluded that a fixed-price structure would permit the
acquisition to be completed in a more timely manner. Actel also advised the
Company that Actel believed it bore all of the risk in the three-tiered pricing
structure, since the price would have been fixed by the time the Company's
stockholders were asked to approve the acquisition.
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<PAGE>
On April 21, 2000, Actel advised the Company that Actel's Board of Directors
had authorized management to continue its discussions with the Company but did
not approve the three-tiered price structure.
On May 2, 2000, Messrs. Huberman and Saxe met with Messrs. Kish, Mubarak,
and Van De Hey. At the conclusion of the meeting, the Company and Actel agreed
that the acquisition should proceed at a fixed price, and that the price should
be negotiated following a thorough technical review. The Company and Actel
conducted joint technical reviews on May 5 and 6, 2000, and each company
conducted an internal technical debriefing on May 8, 2000.
On the evening of May 8, 2000, Mr. Saxe met with Messrs. Mubarak and Van De
Hey with Mr. Huberman participating by telephone. At the conclusion of the
meeting, the Actel representatives indicated that Actel would be interested in
acquiring the Company for cash at a price of $5.25 per share, and the Company's
representatives indicated that it was essential for Actel to be unconditionally
committed to either consummate any proposed merger or provide additional
financing. Continued negotiations over the next two days led to an agreement
that Actel would loan the Company, at the Company's election, $3 million on the
same terms as the Convertible Promissory Note (except that the new loan would be
convertible into Common Stock at the rate of $5.25 per share) if Actel chose not
to consummate the proposed merger (the "Call Option").
On May 11, 2000, the Company and Actel executed and delivered a nonbinding
letter of intent to merge. At 4:21 p.m., Eastern Time, on May 11, 2000, the
Company and Actel issued a joint press release announcing the proposed merger.
At approximately the same time, Mr. Saxe informed the Company's employees of the
proposed merger, and representatives from Actel's Human Resources Department met
individually with the Company's employees to discuss the implications of the
proposed merger.
Between May 10 and May 24, 2000, senior management of the Company and Actel
and their respective legal counsel held extensive negotiations regarding the
terms and conditions of the agreements relating to the proposed merger. On
May 16, 2000, Needham & Company, Inc. ("Needham") was retained by the Company as
financial advisor relating to the proposed merger.
On May 16, 2000, Mr. Saxe of the Company and Mr. East of Actel met with
Franz Neppl of Infineon, the Company's wafer fabrication partner, to discuss the
proposed merger of the Company and Actel. The meeting was requested by Actel in
order to ascertain whether Infineon would continue to support the Company's
ProASIC products following the proposed merger. Actel advised the Company it was
satisfied with the results of such meeting.
On May 23, 2000, the Company's Board of Directors met with its legal and
financial advisors to discuss the final terms of the proposed merger. Needham
reviewed its financial analysis of the proposed transaction, answered questions
posed by the Company's Board of Directors and delivered an oral opinion,
subsequently confirmed in writing, that, as of such date and based upon the
procedures followed, factors considered and assumptions made by Needham, and
subject to the limitations set forth in its written opinion, the consideration
to be received by the holders of the Common Stock other than Actel and its
affiliates in the Merger was fair to such holders from a financial point of
view. At the conclusion of these discussions and presentation, the Company's
Board of Directors voted to approve the Merger Agreement and set the Record
Date.
On May 24, 2000, the Company, Actel, Idanta, and Merger Sub entered into an
Agreement and Plan of Merger. Immediately following the execution and delivery
of such agreement, Idanta converted its shares of Series B Preferred into Common
Stock, and Actel converted its Convertible Promissory Note into shares of Series
C-1 Preferred and converted its shares of Series C Preferred and Series C-1
Preferred into Common Stock, as required by the Merger Agreement. The Merger
Agreement also requires Idanta, certain affiliates of Idanta and Actel to vote
all of their shares of Common Stock for approval of the Merger, which in
aggregate amount to approximately 34.8% of the shares of common stock
outstanding.
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<PAGE>
The Company's Board of Directors also concluded at its meeting on May 23,
2000, that the Company would probably exhaust all of its cash resources before
the contemplated closing of the Merger on June 30, 2000. Mr. Saxe was directed
by the Company's Board of Directors to make a formal request on behalf of the
Company that Actel make an additional loan of $4.0 million to the Company on the
same terms as the Convertible Promissory Note. Mr. Saxe made such request on
May 23, 2000. On May 24, 2000, Actel informed the Company that Actel was
unwilling to make an additional loan on the terms requested. On May 25, 2000,
the Company and Actel agreed that Actel would make a loan of $1.0 million to the
Company on the same terms as the Convertible Promissory Note except that such
new loan would be convertible into the Company's Common Stock at an effective
rate of $5.25 per share.
On May 31, 2000, Actel, Idanta and Merger Sub amended and restated the
Agreement and Plan of Merger signed on May 24. This amendment and restatement
added the Call Option and a provision under which Actel can, under certain
circumstance and at its election, require the Company to borrow $3.0 million on
the same terms as the Call Option (the "Put Option"). Also, on May 31, 2000, the
Company and Actel entered into a Security Agreement, the Company executed and
delivered a 6.25% Convertible Note Due 2005 in the principal amount of $1.0
million, and Actel loaned $1.0 million to the Company. As with the original
Convertible Promissory Note between the parties, all assets of the Company are
pledged to secure this loan. The 6.25% Convertible Note Due 2005 is convertible
at Actel's election into 35,000 shares of Series C-2 Preferred, which are in
turn convertible into 190,476 shares of Common Stock.
On [June __, 2000], Actel made an offer of employment to Mr. Saxe, the
effectiveness of which is subject to the consummation of the Merger. To date,
the principal terms of such employment agreement have not been finalized.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has determined that the Merger is fair
and in the best interests of the Company and its stockholders and has
unanimously approved the Merger Agreement and the transactions contemplated
thereby, including the Merger. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT THE COMPANY'S STOCKHOLDERS VOTE "FOR" THE MERGER AGREEMENT AND THE MERGER.
In determining to recommend that the Company's stockholders vote FOR the
Merger Proposal, the Board considered a number of factors, including the
following:
(i) THE ABILITY OF THE COMPANY TO CONTINUE AS A GOING CONCERN AND
COMMERCIALIZE IN THE NEAR TERM THE COMPANY'S 0.25-MICRON PRODUCTS AND RELATED
SOFTWARE. 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. The Company estimates it will have exhausted
all of its currently available capital resources on or about June 30, 2000.
Furthermore, the Company is highly dependent upon the successful introduction of
its 0.25-micron generation products. The Company is currently completing testing
of its 0.25-micron products and related software. Even though the Company began
testing its 0.25-micron products in November 1998, the results have not yet
yielded production parts. Initially the tests showed large lot-to-lot variations
in yield and reliability. Many, or perhaps all, of these problems have been
resolved, however testing is not completed and there is no way of knowing that
more problems will not show up in the future. Although yield has improved, it
has not improved as rapidly as planned and there is still uncertainty as to how
stable yield is and when it will reach commercially acceptable levels. If and
until yield reaches planned levels, costs will be higher than planned and
consequently the Company will consume cash faster than expected. At the same
time, delays in getting production parts resulted in delays in marketing the
products and consequently delays in revenue from product sales. During this
delay, the Company's competitors continued to improve their product features and
process technology, which reduced the attractiveness and hence commercial value
of the Company's product. At this time the Company's competitors are launching
competitive products in 0.18-micron geometries, which reduce the attractiveness
of the Company's products and its ability to win much needed design wins.
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<PAGE>
(ii) THE COMPANY'S CURRENT FINANCIAL CONDITION AND THE AVAILABILITY OF
FUTURE FUNDING. In the past, the Company has explored a number of potential
sources of additional capital. The Company currently anticipates that capital in
the aggregate principal amount of $6.0 million to $10.0 million would meet its
capital requirements through 2000 and up to an additional $9.0 million would be
needed through 2001. In 1999, the Company contacted a number of alternative
financing sources, all of whom declined to provide funding to the Company. Prior
to entering into negotiations with Actel, the Company reviewed with Needham the
likelihood of obtaining additional funding from sources other than Actel. It was
concluded that the Company would not be any more successful in obtaining funding
than in 1999. The Company did have informal discussions with three other
companies about the possibility of either an investment or an acquisition. These
discussions did not result in any offers.
(iii) THE PROBLEM OF RETAINING AND RECRUITING KEY PERSONNEL. On
December 31, 1999, the Company had 33 total employees and 19 research and
development related employees. On April 30, 2000 the Company had 29 total
employees and 18 research and development related employees. In May 2000, the
Company lost 2 research and development employees or 11% of its research and
development workforce and was concerned about losing more research and
development employees due to the financial condition of the Company. The
uncertainty surrounding the Company's future makes it difficult for the Company
to attract and retain qualified replacements.
(iv) THE BOARD OF DIRECTOR'S VIEW, AFTER CONSULTATION WITH MANAGEMENT,
REGARDING THE LIKELIHOOD OF THE EXISTENCE OF OTHER VIABLE PURCHASERS. The Board
of Directors considered the possibility that other companies might be willing to
acquire the Company. As discussed above, informal discussions with three
potential acquirers did not lead to any offers. The Board of Directors believed
that the Company's strategic alliance with Actel, which gives Actel exclusive
distribution rights to the Company's most valuable products, significantly
reduces the Company's attractiveness to potential acquirers. In addition, the
Board believes that most likely potential acquirers of the Company would be
other producers of FPGA's and, therefore, direct or indirect competitors of
Actel. As Actel owns 26.4% of the Company, it can exercise significant influence
on shareholder matters. The Board believed that it was likely that Actel would
use that influence to oppose any proposed sale of the Company to a competitor.
Taking these factors together, the Board concluded that it was highly unlikely
that there was any other potential acquirer of the Company which would be
willing to pay a higher price for the Company than Actel.
(v) THE OPINION OF NEEDHAM DELIVERED TO THE BOARD ON MAY 23, 2000 TO THE
EFFECT THAT, AS OF THE DATE OF SUCH OPINION, THE CONSIDERATION TO BE PAID TO
HOLDERS OF COMMON STOCK (OTHER THAN ACTEL AND ITS AFFILIATES) IN THE MERGER (THE
"MERGER CONSIDERATION") WAS FAIR, FROM A FINANCIAL POINT OF VIEW, TO THOSE
HOLDERS. The full text of the written opinion is attached hereto as ANNEX II
and should be read carefully in its entirety. SEE "OPINION OF FINANCIAL ADVISOR"
BELOW.
(vi) THE AVAILABILITY OF APPRAISAL RIGHTS UNDER DELAWARE AND CALIFORNIA LAW
FOR DISSENTING STOCKHOLDERS. Appraisal rights would allow any stockholder who
believed that the $5.25 Merger Consideration was insufficient to seek an
opportunity to so assert under Delaware and California law. See "APPRAISAL
RIGHTS OF DISSENTING STOCKHOLDERS" BELOW.
(vii) THE TERMS AND CONDITIONS OF THE MERGER AGREEMENT ALLOW THE COMPANY TO
ACCEPT A PROPOSAL THAT IS SUPERIOR TO THE MERGER PROPOSAL OF ACTEL. The members
of the Board of Directors noted that the Merger Agreement provides that the
Company may terminate the Merger Agreement and accept an alternative acquisition
proposal if the Board determines in good faith, based upon the opinion of its
outside financial advisors, such proposal to be more favorable to the Company's
stockholders than the Merger. Despite the provisions in the Merger Agreement
which allow the Company to respond to unsolicited third party offers, no such
third party offer has been forthcoming in the three weeks that the proposed
Merger has been publicly known.
(viii) THE COVENANT BY IDANTA, THE HOLDER OF A MAJORITY OF THE SERIES B
PREFERRED, TO CONVERT ALL OF SUCH SHARES INTO COMMON STOCK PRIOR TO THE RECORD
DATE AND TO VOTE ALL SHARES OF COMMON STOCK OVER WHICH IT OR
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<PAGE>
ANY OF ITS GENERAL PARTNERS HAVE VOTING AND INVESTMENT POWER IN FAVOR OF THE
MERGER. The Board of Directors also took into consideration that Idanta agreed
to support the Merger and forego its liquidation rights and preferences that
would be available upon consummation of the Merger.
(ix) THE RECOMMENDATION OF THE COMPANY'S MANAGEMENT IN FAVOR OF THE MERGER.
(x) THE FAIRNESS OF THE MERGER CONSIDERATION OF $5.25 PER SHARE OF COMMON
STOCK. The Board of Directors was mindful of the fact that an all cash offer of
$5.25 provided certainty of value to the stockholders in contrast to the
speculative nature of a continuing interest in the Company. The Merger, if
consummated, would give the stockholders some return on their investment and
remove the risk of losing all of their investment if the Company is unable to
continue as a going concern. Among other things, the Board of Directors
considered the continuing declining price performance and low trading volume of
the Common Stock.
(xi) THE POTENTIAL CONFLICT OF INTEREST OF ANY DIRECTOR OR EXECUTIVE
OFFICER OF THE COMPANY WITH RESPECT TO THE MERGER BY REASON OF SUCH DIRECTOR'S
OR EXECUTIVE OFFICER'S STOCK OWNERSHIP, EMPLOYMENT ARRANGEMENTS, STOCK OPTIONS
OR STOCKHOLDER VOTING AGREEMENTS.
The foregoing discussion of the information and factors considered by the
Board of Directors is not meant to be exhaustive but includes all material
factors considered by it. The Board of Directors did not believe there were any
material negative factors inherent in the Merger when compared to the
alternatives available to the Company. In view of the variety of factors
considered, the Board of Directors did not find it practical to, and did not,
quantify or otherwise attempt to assign relative weights to the specific factors
considered in reaching its determination.
INTERESTS OF UNAFFILIATED STOCKHOLDERS
The affirmative vote of the holders of a majority of the outstanding shares
of the Company is required for approval of the Merger and the Merger Agreement.
As Actel owns approximately 26.4% of the outstanding shares of the Company, it
will significantly influence the results of the stockholder vote. The
transaction has not been structured so as to require the affirmative vote of the
holders of the majority of the outstanding shares excluding Actel's shares.
The Merger and the Merger Agreement were unanimously approved by the
Company's Board of Directors including the two members of the Board of Directors
who are not employees of the Company. The non-employee directors did not retain
a separate representative to act solely on behalf of the stockholders other than
Actel in connection with the negotiation of the Merger.
OPINION OF FINANCIAL ADVISOR
The Company retained Needham to render an opinion as to the fairness, from a
financial point of view, of the consideration to be paid in the proposed merger
to the holders of Common Stock (other than Actel and its affiliates). The amount
of consideration to be paid in the merger was determined through arm's length
negotiations between the Company and Actel and not by Needham.
At a meeting of the Company's Board of Directors on May 23, 2000, Needham
delivered its oral opinion, which it subsequently confirmed in writing, that, as
of that date and based upon and subject to the assumptions and other matters
described in the written Needham opinion, the proposed merger consideration is
fair to the holders of Common Stock (other than Actel and its affiliates) from a
financial point of view. THE NEEDHAM OPINION IS ADDRESSED TO THE COMPANY'S
BOARD, IS DIRECTED ONLY TO THE FINANCIAL TERMS OF THE MERGER AGREEMENT, AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW THAT STOCKHOLDER
SHOULD VOTE AT THE SPECIAL MEETING.
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The complete text of the Needham opinion, which sets forth the assumptions
made, matters considered, limitations on and scope of the review undertaken by
Needham, is attached to this document as ANNEX II, and the summary of the
Needham opinion set forth in this Proxy Statement is qualified in its entirety
by reference to the Needham opinion. STOCKHOLDERS ARE URGED TO READ THE NEEDHAM
OPINION CAREFULLY AND IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES
FOLLOWED, THE FACTORS CONSIDERED, AND THE ASSUMPTIONS MADE BY NEEDHAM.
In arriving at its opinion, Needham, among other things:
- reviewed a draft of the Merger Agreement dated May 12, 2000;
- reviewed selected publicly available information concerning the Company
and selected other relevant financial and operating data of the Company
furnished to it by the Company;
- held discussions with members of the Company's management concerning
current and future business prospects;
- reviewed and discussed with the Company's management various financial
forecasts and projections prepared by management;
- reviewed the historical stock prices and trading volumes of the Company's
Common Stock;
- compared publicly available financial data of companies whose securities
are traded in the public markets and that Needham deemed generally
relevant to similar data for the Company;
- reviewed the financial terms of selected other business combinations that
Needham deemed generally relevant; and
- performed and/or considered such other studies, analyses, inquiries and
investigations as Needham deemed appropriate.
Needham also considered and discussed with the Company's management various
issues with respect to the Company's liquidity position, including management's
estimate that the Company would use all of its available capital resources by
June 30, 2000, its ability to continue as a going concern absent additional
financing, its ability to raise equity capital in the current market, and its
negative book value. Needham also noted that Actel owned over 25% of the Company
and considered the potential impact of that ownership stake on the Company's
ability to enter into financing or merger and acquisition transactions with
other parties.
Needham assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by or discussed with it
for purposes of rendering its opinion, Needham assumed that the financial
forecasts provided to Needham by the Company's management were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of management, at the time of preparation, of the Company's future
operating and financial performance. Needham did not assume any responsibility
for or make or obtain any independent evaluation, appraisal or physical
inspection of the assets or liabilities of the Company. The Needham opinion
states that it was based on economic, monetary and market conditions existing as
of its date. Needham expressed no opinion as to the prices at which the Common
Stock will trade at any time. In addition, Needham was not asked to consider,
and the Needham opinion does not address:
- the Company's underlying business decision to engage in the merger,
- the relative merits of the merger as compared to any alternative business
strategies that might exist for the Company, or
- the effect of any other transaction in which the Company might engage.
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<PAGE>
No limitations were imposed by the Company on Needham with respect to the
investigations made or procedures followed by Needham in rendering its opinion.
Based on this information, Needham performed a variety of financial analyses
of the merger and the merger consideration. The following paragraphs summarize
the material financial analyses performed by Needham in arriving at its opinion.
SELECTED COMPANY ANALYSIS. Using publicly available information, Needham
compared selected historical and projected financial and market data ratios for
the Company to the corresponding data and ratios of other publicly traded
semiconductor companies that Needham deemed relevant because their lines of
businesses are similar to the Company's line of business. These companies (the
"Selected Companies") consisted of:
<TABLE>
<S> <C>
Altera Corporation QuickLogic Corporation
Xilinx, Inc.
</TABLE>
The following table sets forth information, for the Selected Companies and
for the Company, concerning multiples of total market capitalization to last
twelve months' revenues ("LTM revenues"). Needham calculated multiples for the
Selected Companies based on the closing stock prices on May 22, 2000 and for the
Company based on the Merger Consideration of $5.25 per share of Common Stock.
<TABLE>
<CAPTION>
GATEFIELD
IMPLIED
GATEFIELD BY THE
SELECTED COMPANIES IMPLIED MERGER
------------------------------ BY THE FULLY
HIGH LOW MEAN MERGER DILUTED
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total market capitalization to LTM revenues.......... 23.1x 13.7x 18.3x 20.3x 23.5x
</TABLE>
Needham calculated the market value of Common Stock as a multiple of
earnings per share, or price/ earnings multiple, for the last twelve months, and
market value as a multiple of historical book value, but determined that the
results were not meaningful because of the Company's net losses for the last
twelve months and negative book value.
Needham also calculated multiples and ratios for projected calendar 2000 and
2001 results, but placed substantially less emphasis on those multiples and
ratios, noting that the Company would likely not achieve those projected results
due to its liquidity concerns and due to its performance to date in 2000.
SELECTED TRANSACTION ANALYSIS. Needham also analyzed publicly available
financial information for 63 selected mergers and acquisitions of companies in
the semiconductor sector that represent transactions since January 1, 1990 (the
"Selected Transactions"). Needham also analyzed two subsets of the Selected
Transactions: 30 transactions with transaction values between $10 million and
$100 million and 12 transactions with transaction values between $25 million and
$50 million. In examining the Selected Transactions, Needham analyzed
- the premium of consideration offered to the acquired company's stock price
one day prior to the announcement of the transaction,
- the premium of consideration offered to the acquired company's stock price
four weeks prior to the announcement of the transaction and
- the aggregate transaction value as a multiple of sales for the last twelve
months ("LTM sales").
Needham also analyzed, for the Selected Transactions,
- the aggregate transaction value as a multiple of earnings before interest
and taxes for the last twelve months,
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<PAGE>
- the aggregate transaction value as a multiple of earnings before interest,
taxes, depreciation and amortization for the last twelve months,
- market value as a multiple of net income for the last twelve months and
- market value as a multiple of historical book value,
but determined that the results were not meaningful because of the Company's net
losses for the last twelve months and negative book value. In some cases,
complete financial data was not publicly available for the Selected Transactions
and only partial information was used in those instances.
The following table sets forth information concerning the stock price
premiums in the Selected Transactions and the stock price premiums implied by
the proposed merger. The premiums implied by the proposed merger were based on
the Merger Consideration of $5.25 per share of Common Stock.
<TABLE>
<CAPTION>
ACTEL/
GATEFIELD
HIGH LOW MEAN MEDIAN MERGER
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
ALL SELECTED TRANSACTIONS
One day stock price premium........................... 189.2% 10.2% 49.1% 42.9% 22.0%
Four week stock price premium......................... 209.9% 15.4% 73.9% 66.7% 18.0%
$10 MILLION--$100 MILLION SELECTED TRANSACTIONS
One day stock price premium........................... 66.7% 25.6% 47.4% 50.9%
Four week stock price premium......................... 131.3% 44.6% 77.6% 61.9%
$25 MILLION--$50 MILLION SELECTED TRANSACTIONS
One day stock price premium........................... 62.4% 55.6% 59.0% 59.0%
Four week stock price premium......................... 131.3% 51.4% 91.3% 91.3%
</TABLE>
The following table sets forth information concerning the multiples of
aggregate transaction value to LTM sales for the Selected Transactions and the
same multiples implied by the proposed merger. The multiples for the proposed
merger were based on the Merger Consideration of $5.25 per share of Common
Stock.
<TABLE>
<CAPTION>
ACTEL/
GATEFIELD
HIGH LOW MEAN MEDIAN MERGER
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
ALL SELECTED TRANSACTIONS
Aggregate transaction value to LTM sales................. 60.9x 0.1x 3.7x 1.2x 17.9x*
$10 MILLION--$100 MILLION SELECTED TRANSACTIONS
Aggregate transaction value to LTM sales................. 4.4x 0.3x 1.4x 1.1x
$25 MILLION--$50 MILLION SELECTED TRANSACTIONS
Aggregate transaction value to LTM sales................. 4.4x 0.3x 1.7x 1.6x
</TABLE>
------------------------
* 21.1x based on fully diluted shares outstanding.
No company, transaction or business used in the "Selected Company Analysis"
or "Selected Transaction Analysis" as a comparison is identical to the Company,
Actel or the Merger. Accordingly, these analyses are not simply mathematical;
rather, they involve complex considerations and judgments concerning differences
in the financial and operating characteristics and other factors that could
affect the acquisition, public trading or other values of the Selected
Companies, Selected Transactions, or the business segment, company or
transaction to which they are being compared.
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<PAGE>
OTHER ANALYSES. In rendering its opinion, Needham considered various other
analyses, including, among other things, a history of trading prices and volumes
for the Company, noting that the Common Stock has had low trading volumes, is
traded over-the-counter and is quoted on the OTC Bulletin Board.
The summary set forth above does not purport to be a complete description of
the analyses performed by Needham in connection with the rendering of its
opinion. The preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant quantitative and qualitative methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Accordingly, Needham believes that its analyses must be
considered as a whole and that considering any portions of its analyses and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying its opinion. In
its analyses, Needham made numerous assumptions with respect to industry
performance, general business and economic and other matters, many of which are
beyond the control of the Company or Actel. Any estimates contained in these
analyses are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable.
Additionally, analyses relating to the values of business or assets do not
purport to be appraisals or necessarily reflect the prices at which businesses
or assets may actually be sold. Accordingly, these analyses and estimates are
inherently subject to substantial uncertainty. The Needham opinion and Needham's
related analyses were only one of many factors considered by the Company's Board
of Directors in its evaluation of the proposed merger and should not be viewed
as determinative of the views of the Board of Directors or management with
respect to the Merger Consideration or the Merger.
Under the terms of Needham's engagement letter with the Company, the Company
has paid or agreed to pay Needham fees for rendering the Needham opinion that
the Company and Needham believe are customary in transactions of this nature.
None of Needham's fees are contingent on consummation of the Merger. The Company
has also agreed to reimburse Needham for its reasonable out-of-pocket expenses
and to indemnify it against specified liabilities relating to or arising out of
the rendering of the opinion or other services performed under the engagement
letter by Needham as financial advisor to the Company.
Needham is a nationally recognized investment banking firm. As part of its
investment banking services, Needham is frequently engaged in the evaluation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and other purposes. Needham was retained by the Board of Directors to
act as the Company's financial advisor in connection with the merger based on
Needham's experience as a financial advisor in mergers and acquisitions as well
as Needham's familiarity with the semiconductor industry. Needham has had no
other investment banking relationship with the Company or Actel during the past
two years. In the normal course of its business, Needham may actively trade the
equity securities of the Company or Actel for its own account or for the account
of its customers and, therefore, may at any time hold a long or short position
in those securities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material federal income tax
consequences of the Merger to beneficial owners of Common Stock and to holders
of options to purchase Common Stock, and is based upon current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), existing, proposed,
temporary and final regulations thereunder and current administrative rulings
and court decisions, all of which are subject to change (possibly on a
retroactive basis). No attempt has been made to comment on all federal income
tax consequences of the Merger that may be relevant to particular holders,
including those that are subject to special tax rules such as dealers in
securities, mutual funds, insurance companies, tax-exempt entities, stockholders
who do not hold their Common Stock as capital assets and stockholders that, for
federal income tax purposes, are non-resident alien individuals, foreign
corporations, foreign partnerships or foreign estates or trusts.
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<PAGE>
The tax discussion set forth below is included for general information only.
It is not intended to be, nor should it be construed to be, legal or tax advice
to any particular stockholder. Stockholders are advised and expected to consult
with their own legal and tax advisers regarding the federal income tax
consequences of the Merger under state, local and foreign tax laws.
In general, each stockholder will recognize gain or loss for federal income
tax purposes equal to the difference, if any, between the cash received pursuant
to the Merger or pursuant to the exercise of dissenters' rights and such
stockholder's adjusted tax basis for its Common Stock. In general, such gain or
loss will be capital gain or loss if the stockholder has held its Common Stock
for more than one year as of the effective date of the Merger.
Unless a stock holder entitled to receive cash payments pursuant to the
Merger complies with certain reporting and certification procedures, or
otherwise demonstrates to the satisfaction of the Exchange Agent under the
Merger Agreement that it is an exempt recipient under applicable withholding
provisions of the Code and the Treasury regulations promulgated thereunder, such
stockholder may be subject to federal backup withholding at a rate of 31% with
respect to all such cash payments which such stockholder is entitled to receive.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to 31% backup withholding will be reduced by the amount of tax
withheld.
Consummation of the Merger will result in a change of control under Internal
Revenue Code Section 382 limiting the future use of the Company's existing NOL
carry forwards.
THE SPECIAL MEETING
DATE, PLACE AND TIME
The Special Meeting will be held at 8:00 a.m., local time, on Friday,
June 30, 2000 at the Company's principal executive office located at
47436 Fremont Boulevard, Fremont, California 94538-6503.
PURPOSE
At the Special Meeting, the Company's stockholders will consider and vote
upon the Merger Agreement and the Merger.
The Company's Board of Directors has determined that the Merger is fair and
in the best interests of the Company and its stockholders and has unanimously
approved the Merger Agreement and the Merger. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE "FOR" THE MERGER. SEE "REASONS
FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS."
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office,
47436 Fremont Boulevard, Fremont, California 94538-6503, a written notice of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the Special Meeting and voting in person. Attendance at the Special
Meeting will not, by itself, revoke a proxy.
SOLICITATION OF PROXIES
Proxies are being solicited hereby on behalf of the Board of Directors of
the Company. The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly, printing and mailing of this proxy statement,
the accompanying proxy card and any additional information furnished to
stockholders. Copies of solicitation materials will be furnished to banks,
brokerage houses, fiduciaries and custodians holding in their names shares of
Common Stock beneficially owned by others to forward to such
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<PAGE>
beneficial owners. The Company may reimburse persons representing beneficial
owners of Common Stock for their costs of forwarding solicitation materials to
such beneficial owners. Original solicitation of proxies by mail may be
supplemented by telephone, telegram or personal solicitation by directors,
officers or other regular employees of the Company or, at the Company's request,
Beacon Hill Partners, Inc. No additional compensation will be paid to directors,
officers or other regular employees for such services, but Beacon Hill
Partners, Inc. would be paid reasonable out-of-pocket expenses, if it renders
solicitation services.
RECORD DATE AND VOTING RIGHTS
Only stockholders of record at the close of business on the Record Date will
be entitled to notice of and to vote at the Special Meeting. On the close of
business on the day prior to the Record Date, the Company had outstanding and
entitled to vote 6,151,482 shares of Common Stock. Each holder of record of
Common Stock on such date will be entitled to one vote for each share held on
all matters to be voted upon.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions and broker non-votes are each
included in the determination of the number of shares present and voting, and
each is tabulated separately. However, broker non-votes are not counted for
purposes of determining the number of votes cast with respect to a particular
proposal.
QUORUM
A majority of the outstanding shares of the Common Stock must be represented
in person or by proxy at the Special Meeting in order to constitute a quorum for
the transaction of business. Abstentions and broker non-votes are counted for
purposes of determining the presence or absence of a quorum for the transaction
of business. If a quorum is not present or represented at the Special Meeting,
the stockholders entitled to vote at the Special Meeting, whether in person or
represented by proxy, shall only have the power to adjourn the Special Meeting
for the purpose of allowing additional time for soliciting and obtaining
additional proxies or votes. The Special Meeting will be adjourned even if a
quorum is present if a sufficient proxies or votes approving the Merger have not
been received. At any subsequent reconvening of the Special Meeting, all proxies
will be voted in the same manner as such proxies would have been voted at the
original convening of the Special Meeting, except for any proxies which have
theretofore effectively been revoked or withdrawn. At such time as a quorum is
present or represented by proxy, the Special Meeting will reconvene without
notice to stockholders, other than an announcement at the prior adjournment of
the Special Meeting, unless the adjournment is for more than thirty days or a
new record date has been set.
REQUIRED VOTE
Approval of the Merger Agreement and the Merger will require the affirmative
vote of the holders of a majority of shares of the Common Stock outstanding on
the Record Date.
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
Under the Delaware General Corporations Law ("DGCL"), holders of Common
Stock have the right to dissent from the Merger and to receive payment of the
fair value of their shares upon full compliance with Section 262 of the DGCL,
attached as ANNEX III hereto. In addition, under the California General
Corporations Law ("CGCL"), holders of Common Stock have the right to dissent
from the Merger and to receive payment of the fair value of their shares upon
full compliance with Sections 1300-1312 of the CGCL, attached as ANNEX IV
hereto. In order to dissent, (i) under the DGCL the dissenting stockholder must
deliver to the Company, prior to the vote being taken on the Merger at the
Special Meeting, a written demand for appraisal of such stockholder's Common
Stock (ii) under the CGCL the dissenting stockholder must deliver such written
demand to the Company within 30 days following the Special Meeting and (iii) in
either case, the dissenting stockholder must not vote in favor of the Merger.
SEE "APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS" AND ANNEXES III AND IV HERETO.
20
<PAGE>
THE MERGER AGREEMENT
The description of the Merger Agreement contained in this Proxy Statement
discusses the material aspects thereof, but does not purport to be complete in
every respect. It is qualified in its entirety by reference to the Amended and
Restated Merger Agreement, a copy of which is attached hereto as ANNEX I and
incorporated herein by reference.
EFFECTIVE TIME
As soon as is practicable after the satisfaction or waiver of the conditions
precedent to the Merger (as set forth below), a certificate of merger will be
filed with the Secretary of State of the State of Delaware. The Merger will
become effective at the time of acceptance of such filings with the Secretary of
State of Delaware (the "Effective Time"). On the same day as such filing with
the Secretary of State of Delaware a closing of the Merger will be held (the
"Closing"). The date of the Closing is hereinafter referred to as the Closing
Date.
THE MERGER
At the Effective Time, the Merger Sub will be merged with and into the
Company, with the Company continuing as the surviving corporation (in such
capacity, the "Surviving Corporation") and wholly-owned subsidiary of Actel. As
a result of the Merger, the separate existence of the Merger Sub will cease and
all the rights and property of Merger Sub and the Company will vest in the
Surviving Corporation, and all debts and liabilities of Merger Sub and the
Company will become the debts and liabilities of the Surviving Corporation.
At the Effective Time, the Certificate of Incorporation and the Bylaws of
the Merger Sub as in effect immediately prior thereto, will become the
Certificate of Incorporation and Bylaws, respectively, of the Surviving
Corporation, until thereafter amended in accordance with applicable law.
The directors and officers of Merger Sub immediately prior to the Effective
Time will become the directors of the Surviving Corporation.
CONVERSION OF SECURITIES
COMMON STOCK. At the Effective Time, by virtue of the Merger and without any
action on the part of any stockholder of the Company:
(i) each issued and outstanding share of Common Stock (other than shares
held by dissenting stockholders, the Company, Actel or any of their
subsidiaries) shall be canceled and converted into and become a right to receive
the Merger Consideration of $5.25 in cash, without interest;
(ii) each share of Common Stock held in the treasury of the Company, or
issued and outstanding and owned by Actel or any subsidiaries of the Company or
Actel will be canceled and retired without consideration; and
(iii) each dissenting stockholder will be entitled to receive the "fair
market value" of such shares of Common Stock held by them in accordance with the
applicable provisions of Delaware Law or California Law. SEE "APPRAISAL RIGHTS
OF DISSENTING STOCKHOLDERS."
Shares of Common Stock which immediately prior to the Effective Time are
held by person who have properly exercised and perfected appraisal rights under
either Section 262 of the DGCL or Section 1300-1312 of the CGCL (the "Dissenting
Shares") will not be converted into or represent the right to receive the Merger
Consideration. The holders of Dissenting Shares will be entitled to receive such
consideration as shall be determined pursuant to Section 262 of the DGCL or
Section 1300-1312 of the CGCL; provided, however, that if any such holder fails
to perfect or effectively withdraw or lose such holder's right to appraisal or
payment under the DGCL or CGCL, each of such holder's shares of
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<PAGE>
Common Stock will be deemed to have been converted as of the Effective Time into
the right to receive the applicable Merger Consideration, without any interest
thereon, and such shares will no longer be Dissenting Shares. Although
stockholders may perfect their appraisal rights under both the DGCL and the
CGCL, Actel and the Merger Sub will be obligated obligated, if at all, to make a
"fair market value" payment under only one of such remedies.
After the Effective Time, holders of certificates to be exchanged for Merger
Consideration will cease to have rights with respect thereto, except the right
to surrender such certificates in exchange for payment of the Merger
Consideration or the right to perfect appraisal rights.
PAYMENT OF MERGER CONSIDERATION
Prior to the Effective Time, Actel will designate the Exchange Agent under
the Merger Agreement. On or before the Effective Time, Actel will deposit with
the Exchange Agent, the aggregate Merger Consideration (the "Deposit Amount").
Promptly after the Effective Time, the Exchange Agent will mail to each
record holder of certificates for Common Stock that immediately prior to the
Effective Time represented Common Stock of the Company a letter of transmittal
and instructions for use in surrendering such certificates and receiving the
Merger Consideration. Upon the surrender to the Exchange Agent of an outstanding
certificate together with a duly completed and validly executed letter of
transmittal and such other document as the Exchange Agent may require, the
Exchange Agent will deliver the applicable Merger Consideration represented by
such certificate without interest. Any portion of the Deposit Amount that
remains unclaimed for one year after the Effective Time will be delivered by the
Exchange Agent to Actel and any holder of a certificate that immediately prior
to the Effective Time represented Common Stock of the Company may surrender such
certificate to Actel and receive in exchange therefor the Merger Consideration,
without interest, subject in all events to applicable abandoned property,
escheat and similar laws.
If the amount to be paid from the Deposit Amount upon surrender of a
certificate that immediately prior to the Effective Time represented Common
Stock of the Company, is to be delivered to a person other than the person in
whose name such certificate is registered, it will be a condition to such
payment or exchange that the person requesting such payment or exchange will pay
to the Exchange Agent any transfer or other taxes required by reason of the
payment of such Merger Consideration to a name other than that of the registered
holder of the certificate surrendered, or such person will establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
STOCKHOLDERS SHOULD NOT FORWARD THEIR STOCK CERTIFICATES WITH THE ENCLOSED
PROXY CARD, NOR SHOULD THEY RETURN THEIR STOCK CERTIFICATES TO THE EXCHANGE
AGENT UNTIL THEY HAVE RECEIVED A LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.
STOCK OPTIONS
At the Effective Time, each option to purchase Common Stock pursuant to the
Company's 1993 Stock Option Plan, as amended, 1996 Stock Option Plan, as
amended, 1999 Stock Option Plan or any other employee or director stock option
plan or arrangement of the Company except the Company's 1995 Directors Plan and
the Company's 1999 Employee Stock Purchase Plan (a "Company Stock Option") that
is then outstanding will be assumed by Actel and converted into an option to
purchase [.16713] shares of Actel Common Stock (rounded down to the nearest
whole share). The exercise price per share of the options assumed by Actel
(rounded up to the nearest penny) will be equal to (A) the former exercise price
per share of the Company Common Stock under such option immediately prior to the
Effective Time divided by (B) [.16713]. In the case of any Company Stock option
that is an "incentive stock option" (as defined in Section 422 of the Internal
Revenue Code), the conversion formula will be adjusted in a manner consistent
with Section 424 (a) of the Internal Revenue Code. As used herein, the "Average
Purchaser Stock Price" means the average of the daily closing price, regular
way, of one share of Actel's Common
22
<PAGE>
Stock (rounded to the nearest thousandth) on the Nasdaq National Market (as
reported in the New York City edition of the Wall Street Journal, or, if not
reported thereby, another nationally recognized source).
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
Company relating to, among other things, the following matters (which
representations and warranties are subject, in certain cases, to specified
exceptions): (i) due organization, power and standing of, and similar corporate
matters with respect to the Company, (ii) the capital structure of the Company;
(iii) the authorization, execution, delivery, performance and enforceability of
the Merger Agreement; (iv) the absence of any conflict with the Company's
Certificate of Incorporation and Bylaws, as well as certain laws, agreements,
contracts, license and permits; (v) reports and other documents filed with the
Commission and the accuracy of the information contained therein; (vi) the
absence of certain changes involving the Company since December 31, 1999; (vii)
the absence of litigation except those set forth in the Company's reports and
other documents filed with the Commission; (viii) the payment of taxes and the
filing of tax returns by the Company; (ix) the Company's title to its properties
and use of its leased properties; (x) the Company's intellectual property
rights; (xi) the absence of any material misstatement or omission by the Company
in this Proxy Statement; (xii) the absence of written notices, citations or
decisions of any governmental or regulatory body that any product is defective
or fails to meet any applicable standards and the obtainment by the Company, in
all countries where its products are marketed or have been marketed, of all
applicable licenses, registrations, approvals, clearances and authorizations
required by local, state, or federal agencies in such countries regulating the
safety, effectiveness and market clearance of the such products; and (xiii) the
absence of broker fees.
The Merger Agreement contains several representations and warranties of
Actel and the Merger Sub, among other things, to: (i) their organization,
existence and good standing; (ii) the authorization, execution, delivery,
performance and enforceability of the Merger Agreement; and (iii) the
availability of all funds necessary to satisfy Actel's obligations under the
Merger Agreement.
CERTAIN PRE-CLOSING COVENANTS
During the period from the date of the Merger Agreement until the Effective
Time (except to the extent that Actel shall otherwise consent in writing), the
Company has agreed that the Company and its subsidiaries will conduct their
respective operations according to the ordinary course of business consistent
with past practice, and will use its reasonable efforts to preserve intact its
present business organization, to keep available the services of its present
officers and employees and to maintain satisfactory relationships with
licensors, licensees, suppliers, contractors, distributors, customers and others
having business relationships with the Company.
The Merger Agreement contains certain other covenants of the Company
relating to changes in share capital, the issuance of securities, the amendment
of corporate governance documents, the incurrence and satisfaction of
indebtedness, executive compensation and employee benefit plan, accounting
methods, taking of actions affecting the representations and warranties of the
Company in the Merger Agreement, income tax elections, and access to the
Company's officers, employees, agents, properties, books, records and contracts
information.
The Merger Agreement also contains certain covenants of Actel relating to
indemnification of the Company's officers and directors and honoring all
employees severance plans (or policies) of the Company.
NO SOLICITATION
The Company has agreed that from the date of the Merger Agreement until the
earlier of the Effective Time or the termination of the Merger Agreement it will
not, nor will it authorize or permit any
23
<PAGE>
officer, director, affiliate or agent of the Company or any of its subsidiaries,
to solicit, initiate, entertain or encourage (including by way of furnishing
nonpublic information) any proposals or offers from any party other than Actel
or its affiliates regarding any merger, sale of substantial assets, sale of (or
right to sell) shares of capital stock (other than pursuant to the exercise of
options outstanding on the date of the Merger Agreement) or similar transactions
involving the Company or any of its subsidiaries (any of the foregoing inquiries
or proposals being hereinafter referred to as an "Acquisition Proposal").
Notwithstanding the foregoing, the Company, to the extent required by the
fiduciary obligations of the Company's Board of Directors, may, in response to a
request or inquiry that could reasonably be expected to result in an Acquisition
Proposal, which request or inquiry was unsolicited after the date of the Merger
Agreement, participate in discussions or negotiations with, or furnish
information with respect to the Company to any person. In addition, following
the receipt of an Acquisition Proposal, if the Board of Directors determines in
good faith, that an Acquisition Proposal is more favorable to the Company's
stockholders than the Merger, the Company may terminate the Merger Agreement and
accept such superior proposal, and the Board may withdraw or modify its approval
or recommendation of the Merger Agreement or the Merger.
The Company has agreed to promptly inform Actel of any inquiry (including
the terms thereof and the identity of the party making the inquiry) which it
receives in respect of an Acquisition Proposal and furnish Actel a copy of any
such written inquiry.
CONDITIONS PRECEDENT TO THE MERGER
The obligations of the Company and Actel to consummate the Merger are
conditioned, among other things, upon: (i) the approval and adoption of the
Merger and the Merger Agreement by a majority of the outstanding shares of the
Company's Common Stock; (ii) the absence of any law of any governmental entity
of competent jurisdiction restraining, enjoining or otherwise preventing or
restricting the consummation of the Merger; and (iii) obtaining all
authorizations, consents or approvals of a governmental entity required in
connection with the execution and delivery of the Merger Agreement and the
performance of the obligations under the Merger Agreement shall have been
obtained.
The obligations of Actel and the Merger Sub to consummate the Merger are
subject to the additional conditions that: (i) the representations and
warranties of the Company set forth in the Merger Agreement are true in all
material respects as of the Closing Date and that Actel and the Merger Sub shall
have received an officers' certificate to that effect; (ii) the Company and
Idanta shall have performed or complied in all material respects with all
agreements and conditions contained in the Merger Agreement and that Actel and
the Merger Sub shall have received an officers' certificate to such effect; and
(iii) Actel shall have made employment arrangements with Timothy Saxe, Chief
Executive Officer of the Company, following the Merger.
The obligation of the Company to consummate the Merger is subject to the
additional condition that: (i) the representations and warranties of Actel and
the Merger Sub set forth in the Merger Agreement are true in all material
respects as of the Closing Date and that the Company shall have received an
officers' certificate to such effect; and (ii) Actel and the Merger Sub shall
have performed in all material respects all agreements and conditions contained
in the Merger Agreement and that the Company shall have received an officers'
certificate to such effect.
The consummation of the Merger is not subject to governmental review under
the Hart-Scott-Rodino Act of 1976.
As of the date hereof, the Company is not aware of the occurrence of any
event that may prevent the consummation of the Merger.
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<PAGE>
TERMINATION
The Merger Agreement may be terminated, among other things, at any time
prior to the Effective Time, whether before or after approval of the Merger by
the Company's stockholders:
(i) by mutual written agreement of the Boards of Directors of Actel and the
Company;
(ii) by either Actel or Company, if (a) any court of competent jurisdiction
in the United States or other United States governmental body shall have issued
an order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other action
shall have become final and nonappealable; (b) if there has been a willful
breach by the other party of any representation, warranty, covenant or agreement
set forth in the Merger Agreement and such breach is not reasonably capable of
being cured and such condition satisfied prior to the Closing Date; or (c) if
the Closing has not occurred within 60 days after mailing of this Proxy
Statement, provided that the party terminating the Merger Agreement has
performed or complied in all material respects with all agreements and
conditions in the Merger Agreement required to be performed or complied with by
it prior to or at the time of the Closing;
(iii) by Actel: (a) if the Board of Directors of the Company or any
committee thereof shall have approved or recommended an Acquisition Proposal by
a third party, or withdrawn or modified in a manner adverse to Actel its
approval or recommendation of the Merger Agreement or the transactions
contemplated hereby; (b) if GateField stockholder approval of the Merger
Agreement has not been obtained within 50 days after the mailing of this Proxy
Statement; or (c) if Actel sends written notice to the Company;
(iv) by the Company pursuant to the No Solicitation provision in
Section 5.5 of the Merger Agreement (See "NO SOLICITATION"), in the event the
Company has complied with all the terms of Section 5.5 and has determined to
accept an Acquisition Proposal that is superior to the Merger.
In the event the Merger Agreement is terminated due to a willful breach by
the Company or Actel, the party committing such breach will be subject to
liability for damages actually incurred as a result of such breach. In addition,
if termination occurs due to a willful breach by the Company, Actel will be
entitled to exercise the Put Option within 90 days of notice of such
termination. If termination occurs due to a willful breach by Actel, the Company
will be entitled to exercise the Call Option within 90 days of such termination.
The Put Option and the Call Option are described in "SPECIAL FACTORS--BACKGROUND
OF THE MERGER." Actel would also be entitled to exercise the Put Option if the
Merger Agreement is terminated by Actel for the following reasons: (a) if the
Board of Directors of the Company or any committee thereof shall have approved
or recommended an Acquisition Proposal by a third party, or withdrawn or
modified in a manner adverse to Actel its approval or recommendation of this
Agreement or the transactions contemplated hereby; or (b) if GateField
stockholder approval of this Agreement has not been obtained within 50 days
after the mailing of this proxy statement. The Company would also be entitled to
exercise the Call Option if Actel terminates the Merger Agreement without cause.
FEES AND EXPENSES
Regardless of whether the Merger is consummated, all expenses incurred in
connection with the transactions contemplated by the Merger Agreement will be
paid by the party incurring such expenses. Expenses incurred in connection with
preparing and mailing this Proxy Statement will be borne by the Company. Fees
and expenses of the Company in connection with the Merger, including filing
fees, printing costs, attorneys' fees and costs, the fees of the Company's
independent accountants and fees to Needham are expected to total approximately
$600,000.
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<PAGE>
INDEMNIFICATION; INSURANCE
Pursuant to the Merger Agreement, all rights to indemnification (including
with respect to the advancement of expenses incurred in the defense of any
action or suit) provided by the Company to its present and former directors,
officers, employees and agents under the Company's Certificate of Incorporation
and Bylaws or otherwise existing on the date of the Merger Agreement will
survive the Merger for a period of six years from the Effective Time. Pursuant
to the Merger Agreement, Actel has agreed, to the fullest extend permitted by
law or its Articles of Incorporation, to indemnify the present and former
directors, officers, employees and agents of the Company against all losses,
damages, liabilities or claims made against them arising from their service in
such capacities prior to and including the Effective Time, to at least the same
extent as such persons are currently indemnified under the Company's Certificate
of Incorporation, and Bylaws for a period of six years from the Effective Time.
Actel has agreed to maintain for a period of six years from the Effective Time,
the Company's current directors' and officers' insurance and indemnification
policy (to the extent that it provides coverage for events occurring prior to
the Effective Time) for all persons who are directors and officers of the
Company on the date of the Merger Agreement.
THE COMPANY
DESCRIPTION OF BUSINESS
CURRENT STATUS
As of May 31, 2000, the Company believes that it will exhaust all of its
currently available capital resources on or about June 30, 2000. The Company
estimates that it will need an additional $6.0 million to $10.0 million to meet
its capital requirements through 2000 and up to an additional $9.0 through 2001.
At this time the Company's 0.25-micron product has experienced significant
lot-to-lot variation and the Company has not qualified these parts for
production. No volume shipments to customer have begun. Even if such production
shipments were to begin immediately, the Company might not be able to ramp its
manufacturing process up to sufficient volumes to satisfy customer demand, if
any.
GENERAL
The Company designs, develops and markets high-density, high-performance
programmable logic solutions and related development software. The Company was
originally a division of the Zycad Corporation, a leader in the development,
manufacturing and marketing of design verification tools and services. Zycad was
founded in 1981 and became a public corporation in 1984. The GateField division
of Zycad was formed in the third quarter of 1993 to research and develop a new
and innovative semiconductor logic product: a flash technology-based,
high-density field programmable gate array (FPGA) device.
During 1997, Zycad transitioned from a provider of high-performance
verification products to a provider of FPGA products based on the GateField
division's research and development of an application specific integrated
circuit ("ACIC") technology called ProASIC-TM-. Zycad introduced and first
shipped its 0.72-micron products in 1997. This transition required the sale of
several of Zycad's assets, including: its stock ownership in QSS Inc.; products
and assets relating to its verification product line, including its rights,
title and interest in hardware and software simulation products; and the assets
related to the semiconductor test software product line. In addition, Zycad sold
its maintenance division for the verification products to Zycad TSS, Inc.
In October 1997, a new management team was put in place and Zycad was
renamed "GateField Corporation". A month later, the Company announced a
strategic alliance with Infineon Technologies AG (formerly Siemens
Aktiengesellschaft) ("Infineon"). In this alliance, Infineon licensed the
ProASIC technology for use in nonstandard FPGA products and purchased the
Company's Common Stock and warrants for $3.25 million. In addition, Infineon
agreed to provide the Company with early access and
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foundry service for Infineon's advanced embedded flash technology for the
Company's 0.25-micron products and below. The Company and Infineon concluded a
foundry agreement in June 1998.
In August 1998, the Company entered into a strategic alliance with Actel,
under which Actel received exclusive, worldwide distribution rights to our
0.35-micron and below standard ProASIC products. Actel also purchased the assets
of our Design Services product line as well as $3.0 million of the Company's
Series C Preferred , which converted prior to the Record Date into an aggregate
of 200,000 shares of Common Stock.
The Company's products are designed to provide high integration, fast
time-to-market and fast time-to-volume for electronic equipment manufacturers in
the networking, telecommunications, computer, peripheral, industrial control,
instrumentation and consumer markets. When and if the 0.25-micron and below
ProASIC products are successfully produced, they will be subject to exclusive
distribution by Actel. Infineon has agreed to manufacture the 0.25-micron
product in its production facility in Dresden, Germany for the foreseeable
future.
PROPERTIES
The Company leases approximately 24,000 square feet of office space in
Fremont, California, which is currently used for its headquarters and test and
engineering operations.
As of May 25, 2000, the Company had a total of 27 full-time employees. The
Company's employees are not represented by any collective bargaining agreement
with respect to their employment by the Company, and the Company has never
experienced an organized work stoppage.
LEGAL PROCEEDINGS
There are no ongoing legal or material proceedings with respect to the
Company.
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SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 1997(C) 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues................................ $ 1,987 $ 7,700(b) $ 15,503(b) $ 33,577 $51,117(a)
Gross profit............................ $ 690 $ 393 $ 4,600 $ 16,569 $33,624
Operating income (loss)................. $(8,946) $(8,061) $(15,101) $(18,435) $ 2,324
Net income (loss)....................... $(9,961) $(8,268) $(16,432) $(21,376) $ 1,957
Basic net income (loss) per share:
Profit (loss) before extraordinary
item................................ $ (2.30) $ (2.00) $ (7.15) $ (10.30) $ 0.90
Extraordinary item.................... (0.35)
------- ------- -------- -------- -------
Net income (loss) per share........... $ (2.30) $ (2.00) $ (7.50) $ (10.30) $ 0.90
Diluted net income (loss) per share:
Profit (loss) before extraordinary
item................................ $ (2.30) $ (2.00) $ (7.15) $ (10.30) $ 0.90
Extraordinary item.................... (0.35)
------- ------- -------- -------- -------
Net income (loss) per share........... $ (2.30) $ (2.00) $ (7.50) $ (10.30) $ 0.90
Basic weighted average shares
outstanding........................... 4,332 4,125 3,030 2,066 1,939
Diluted weighted average shares
outstanding........................... 4,332 4,125 3,030 2,066 2,123
------- ------- -------- -------- -------
YEAR END FINANCIAL DATA:
Working capital (deficit)............... $ (561) $(3,510) $ (47) $ (1,240) $ 6,741
Total assets............................ $ 7,085 $ 6,853 $ 11,256 $ 29,527 $28,980
Redeemable preferred stock.............. $ 3,086 $ 3,083 $ 4,594 -- --
Long-term debt.......................... $ 8,079 $ 330 $ 58 $ 6,636(c) $ 1,207
------- ------- -------- -------- -------
</TABLE>
------------------------
(a) Revenues, net income and net income per share for 1995 included amounts
related to a technology distributed by GateField and owned by a U.K.
Company. Effective January 1, 1996, the two companies formed a joint
venture. Consequently, specific revenues and costs related to this product
were no longer consolidated in GateField's financial statements beginning in
1996.
(b) Revenues decreased in 1998 and 1997 due to the sale of certain assets of the
Company (see Note 3 of Notes to Consolidated Financial Statements).
(c) As restated, see Note 11 of Notes to Consolidated Financial Statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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 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
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and does not expect sales to reach a volume that could generate operating cash
flow break-even 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 results of operations.
Service revenues for the quarters ended March 31, 2000 and 1999 were zero
and $311,000, respectively. Service revenues in 1999 represent the Company's
portion of a profit sharing agreement with the purchaser of the verification
assets that were sold in 1997.
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 reflected overhead costs required to maintain the
Company's manufacturing capabilities until product sales could begin. Gross
profit deficit from ProASIC product revenues for the quarter ended March 31,
1999 was ($95,000) and related 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 .25-micron product
has not yet been manufactured in commercial quantities.
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 its efforts to support strategic
initiatives and product designs.
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.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended March 31,
2000 and 1999 were ($237,000) and $740,000, respectively. The contribution in
the first quarter of 2000 was 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 general and administrative
expenses to be approximately $650,000 per quarter for the remainder of the year.
29
<PAGE>
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.
RESULTS OF OPERATIONS--FISCAL YEAR ENDED 1999, 1998 AND 1997
REVENUES
Total product revenues declined to $1.3 million in 1999 down from $2.6
million in 1998 and $5.4 million in 1997. The 1997 figure includes $2.5 million
in verification products from assets the Company sold in that year. Sales of
ProASIC related products were $1.4 million in 1999, $2.6 million in 1998 and
$2.9 million in 1997. ProASIC product revenue included deferred license revenue
from Infineon and from Rohm of approximately $0.9 million in 1999 and $1.1
million in 1998. The decline in ProASIC revenues from 1997 through 1999 was due
to a decision by the Company to halt active sales of the 0.72-micron product in
the third quarter of 1998 and due to the current delay in shipment of its
0.25-micron product that was scheduled to begin in the second half of 1999.
Service revenues were $0.6 million, $5.1 million and $10.1 million in 1999,
1998 and 1997, respectively. Service revenues are comprised of two components:
maintenance contracts on the verification systems and design services.
Verification maintenance revenues were $.6 million in 1999, $2.3 million in 1998
and $8.7 million in 1997. The decline in verification maintenance revenues in
1998 from 1997 relates to the sale of the underlying verification products and
the termination of new sales of those products by the purchaser. The Company
expects revenues from the verification services to cease in 2000. Service fees
related to the Company's Design Service product line, which was sold to Actel in
August 1998, were $2.8 million in 1998, and $3.8 million in 1997.
GROSS MARGIN
Gross margin in 1999, 1998 and 1997 was affected by many factors, including
but not limited to: license fees, pricing strategies, product mix, yield
variations and increased costs incurred in the introduction of new products.
Gross margin was approximately $690,000 in 1999, $393,000 in 1998 and $4.6
million in 1997. Gross margin as a percentage of total revenues was 35% in 1999,
5% in 1998 and 30% in 1997.
Gross margin (deficit) from product revenues was $213,000 in 1999, ($2.0)
million in 1998, and $(1.0) million in 1997. Gross margin related to
verification products was ($1.8) million in 1997. Gross margin (deficit) related
to ProASIC products was $.2 million in 1999, $(2.0) million in 1998, ($3.3)
million in 1997. In 1998, negative ProASIC product margins were significantly
affected by a $1.8 million inventory write-down charge for 0.72-micron product
inventories to reflect a decrease in the net realizable value, which was
partially offset by $1.2 million in license revenue with minimal related costs.
The decline in ProASIC gross margins in 1998 versus 1997 were largely due to
volume differences and the inventory write-down charge. As the design and
manufacturing processes are different for the 0.72-micron and the 0.25-micron
products, the yield and, hence, the gross margins on the two products are
totally unrelated, thus, the Company cannot predict its margins for 2000 with
any degree of certainty.
Gross margin from service revenues was $.5 million in 1999, $2.4 million in
1998, and $5.6 million in 1997. Gross margin as a percentage of service revenues
was 75%, 48%, and 56% for the three years respectively. Margins related to
maintenance contracts on the verification systems were $2.2 million or 69.7% in
1998 and $4.8 million or 77.5% in 1997. Margins related to design services were
$277,000 or 14% in 1998 and $725,000 or 19% in 1997.
SALES AND MARKETING
Sales and marketing expenses were $.8 million or 39% of total revenue in
1999, $4.1 million or 53% in 1998, and $9.7 million or 62% in 1997. In 1999,
sales and marketing expenses declined 81% due to the
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<PAGE>
Company's decision to largely eliminate that function in August of 1998 and
enter into an exclusive marketing agreement with Actel. In 1998, sales and
marketing expenses also decreased 58% or $5.6 million from earlier year figures
reflecting reduced staffing levels in the second half of 1997 resulting from the
disposition of product lines in 1997.
As a result of our efforts to market its 0.72-micron products in 1997 and
early 1998, the Company realized the process of introducing new products to the
semiconductor marketplace required significant sales and marketing resources.
The Company elected to sell the exclusive worldwide distribution rights to its
0.25 and below standard ProASIC products to Actel in August 1998 and to focus on
product development.
RESEARCH AND DEVELOPMENT
The Company's research and development expenses were $5.9 million or 298% of
total revenue in 1999, $5.5 million or 71% of total revenue in 1998 and $7.9
million or 51% of total revenue 1997. Research and development expenses increase
8% in 1999 over 1998 due to $.8 million in wafer costs necessary to refine the
design of the 0.25-micron family and develop the manufacturing process with
Infineon, these costs were partially offset by reduced headcount. A similar
level of wafer costs and masks expense is anticipated in 2000. The 30% decrease
in research and development costs in 1998 over 1997 were principally due to
reduced staffing levels resulting from the sale of the verification businesses
in 1997. Research and development expenses related to ProASIC development have
remained relatively constant over the three-year period from 1997 to 1999. The
Company's current research and development efforts are focused on its four
member 0.25-micron ProASIC product family.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $2.7 million, $3.3 million and $4.2
million in 1999, 1998 and 1997, respectively. This declining trend in general
and administrative expenses in 1999 as compared to 1998 and in 1998 as compared
to 1997 was primarily related to decreased staffing levels, cost cutting
measures and reduced overhead. These reduced expenses were partially offset by
higher legal, financial, and consulting expenses associated with the
implementation of strategic relationships in 1997 and 1998. 1999 expenses
included $.2 million related to a moving the Company's offices to a smaller
facility.
OTHER INCOME AND EXPENSE
Net interest expense was $1.3 million in 1999 compared to $173,000 in 1998
and $1.4 million in 1997. The increase in 1999 relates to an $8.0 million
convertible promissory note entered into in May 1999 with Actel, while the
decrease in 1998 reflects the lack of interest-bearing debt compared to earlier
periods and interest income on positive bank balances held throughout the year
due to the Company's issuance of equity at the end of 1997 and during 1998.
Interest expense in 1997 relates primarily to subordinated convertible
debentures that were converted to Common Stock in 1997.
Other income was $114,000 in 1999, $4.4 million in 1998 and $3.1 million in
1997. These amounts include a $4.5 million gain in 1998 from the sale of the
Design Service assets to Actel, a $2.7 million gain from the sale of the
verification and LightSpeed product families and the sale of the Company's
interest in QSS in 1997. See Note 3 of the "NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS."
NET LOSS
The net loss for 1999 was $10.0 million, which compares to a net loss of
$8.3 million in 1998 and a net loss of $16.4 million in 1997. The 1999 figure
includes a $1.2 million Conversion Discount recognized in the second quarter of
1999 as a non-cash interest expense and $.8 million in wafer costs necessary to
develop the manufacturing process at the foundry. Recognizing the impact of
lower sales in these years, the Company took steps to decrease operating
expenses through a series of reorganizations, which helped to
31
<PAGE>
progressively reduce the annual net loss. The Company has maintained its
operating expenses for the last quarters ending December 31, 1999 at
approximately $2.1 million, not including mask expenses, wafer development lots
and write off of obsolete inventory.
The $8.3 million net loss in 1998 was aided by a $4.5 million gain in other
income from the sale of the Company's Design Services assets to Actel. This
compares to a $16.4 million net loss in 1997 which was also aided by a $2.7
million gain in other income from the sale of certain assets in that year and
offset by $500,000 in debt discount amortization and $1 million debt
extinquishment losses. See Note 3 of the "NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS." The loss in 1998 was additionally impacted by a $2.2 million one-
time inventory write-down charge to cost of sales.
LIQUIDITY AND CAPITAL RESOURCES
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.
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. 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
exhausted 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.
Net cash used in operations was $8.8 million in 1999 compared to $8.2
million in 1998 and $11.3 million in 1997. During 1999, 1998 and 1997, there was
a significant decline in the size of the business as the Company transitioned to
a provider of FPGA products Company and sold off its other significant assets
related to non-ProASIC product lines. This decrease in the size of the business
resulted in decreasing accounts receivable, accounts payable and accrued
liabilities balances and decreasing depreciation expenses. The decrease in net
cash used in operations was partially offset in 1998 by the receipt of $4.5
million in license fees resulting in deferred revenue.
Net cash used in investing activities was $.7 million in 1999 compared to
net cash provided by investing activities of $5.2 million in 1998 and $11.2
million in 1997. The amounts generated in 1998 and 1997 were primarily due to
cash receipts from the disposition of product families. Were the Merger not to
occur, and the Company could obtain additional financing, the Company
anticipated investing a minimum of $300,000 and possibly as much as $1.1 million
in mask sets for its new product families in 2000.
Net cash generated by financing activities was $10.8 million in 1999, which
compares to $2.9 million in 1998 and $3.0 million in 1997. The increase in 1999
includes the sale of $3.1 million of Common Stock to private investors and the
issuance to Actel of a convertible promissory note in the aggregate principal
amount of $8.0 million. The increase in 1998 was due to the $4.6 million sale of
Common Stock to a single investor in the first quarter of 1998, the $3.0 million
sale of Convertible Preferred Stock in August 1998, offset by the $4.6 million
redemption of the Company's Series B Preferred in December 1998. (See Note 9 of
the "Notes to Consolidated Financial Statements.") The 1997 figure includes the
sale of $4.6 million in Convertible Preferred Stock. SEE NOTE 9 OF THE "NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS."
Cash used in operations was $251,000 in the first quarter of 2000 compared
to $2.7 million for the first quarter of 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk related to fluctuations in interest
rates and in foreign currency exchange rates:
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INTEREST RATE EXPOSURE
The Company 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 EXPOSURE
The Company's exposure to market risk due to fluctuations in foreign
currency exchange rates relates primarily to the inter-Company balances with its
UK, 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, the Company 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
the Company'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.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There are no changes in or disagreements with the Company's accountants on
accounting and financial disclosure.
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CERTAIN EFFECTS OF THE TRANSACTION
Because all of the Company's Common Stock that is outstanding immediately
prior to the consummation of the Merger will be canceled in exchange for payment
of the cash merger consideration as a result of the proposed merger, the Common
Stock will no longer be traded on the OTCBB. At such time, the Common Stock also
will meet the requirements for deregistration under the Securities Exchange Act
of 1934, as amended, and, once deregistered, the Company will no longer be
required to file periodic reports with the Securities and Exchange Commission.
Generally, any dividends and other distributions by the Company having a
Record Date prior to the date of completion of the Merger will remain payable to
the Company's stockholders who held their shares on the Record Date. The Company
has never declared or paid any dividends on its capital stock and does not
anticipate paying a final dividend. All other distributions by the Surviving
Corporation after completion of the Merger will be paid to Actel and not to the
Company's current stockholders.
INTEREST OF CERTAIN PERSONS
Directors and executive officers of the Company may have interests, in
addition to their interests as stockholders, which present them with potential
conflicts of interest in connection with the Merger. The Board of Directors
(including the non-management members of the Board) is aware of the potential
conflicts described below and considered them in addition to the other matters
described under "REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF
DIRECTORS."
STOCK OWNERSHIP
Shares of Common Stock held by officers and directors of the Company will be
converted into the right to receive the same consideration as shares of Common
Stock held by other stockholders.
INDEMNIFICATION
Pursuant to the Merger Agreement, Actel has agreed for six years after the
Effective Time to indemnify all present and former directors, officers,
employees and agents of the Company and will, subject to certain limitations,
maintain for six years directors' and officers' liability insurance and
fiduciary liability insurance policies containing terms and conditions which are
not less advantageous than any such policies which may be in effect prior to the
Effective Time. See "THE MERGER AGREEMENT--INDEMNIFICATION; INSURANCE."
STOCK OPTION PLANS
Pursuant to the Merger Agreement outstanding options to purchase Common
Stock (including certain unvested options) previously granted to directors,
executive officers and employees of the Company will be assumed by Actel and
become exercisable for a certain umber of shares of Actel stock. All shares
issued under the Company's option plans will fully vest either upon the
consummation of the Merger or two years thereafter. As a result, 162,854 options
will vest immediately upon the consummation of the Merger, and 95,161 options
will vest over the next two years. Of these options, Mr. Saxe holds 30,533 that
will vest immediately upon the consummation of the Merger, and 30,533 that will
vest over the next two years.
34
<PAGE>
The Table below sets forth the number of Company options owned by each of
the Company's current directors and executive officers and the equivalent number
of Actel options to be issued to such director or executive officer:
<TABLE>
<CAPTION>
GATEFIELD ACTEL
OPTIONS EQUIVALENTS
--------- -----------
<S> <C> <C>
Timothy Saxe................................................ 252,339(1) 42,173
James B. Boyd............................................... 47,500(2) 7,938
Jonathan S. Huberman........................................ -0- -0-
Horst G. Sandfort........................................... 2,250(3) 376
</TABLE>
------------------------
1. 179,721 shares of which have an exercise price of less than $5.25 per share.
2. 20,000 shares of which have an exercise price of less than $5.25 per share.
3. none of which have an exercise price of less than $5.25 per share.
EMPLOYMENT WITH GATEFIELD
Mr. Saxe is an at-will employee of the Company. He will not receive
additional salary upon a change of control on the Company. Mr. Saxe owns options
to purchase 252,339 shares of Common Stock at prices ranging from $4.00 to $6.44
per share.
Mr. Boyd is an at-will employee of the Company. Upon consummation of the
Merger, Mr. Boyd is entitled to receive six months annual base salary under a
severance agreement with the Company dated May 11, 2000. Mr. Boyd owns options
to purchase 47,500 shares of Common Stock at prices ranging from $4.00 to $17.50
per share. These options vest on a change of control.
EMPLOYMENT WITH ACTEL
Mr. Saxe has been offered, and plans to accept, the position of Vice
President of Engineering of Actel. Mr. Saxe will be compensated with an
executive package commensurate with current standards for someone of equivalent
technological expertise and experience, but details of this arrangement have not
as yet been finalized. The employment of Mr. Saxe is a condition precedent to
the consummation of the Merger.
STOCKHOLDER VOTING OBLIGATION
Mr. Huberman is a general partner of Idanta. Pursuant to Section 5.17 of the
Merger Agreement, Idanta has converted all shares of its Series B Preferred into
Common Stock prior to the Record Date and to vote all shares of Common Stock
over which Idanta or any of its affiliates have voting and investment power in
favor of the Merger at the Special Meeting.
INFORMATION CONCERNING ACTEL AND MERGER SUB
ACTEL
Actel designs, develops and markets FPGAs and associated design and
development software and programming hardware. FPGAs are used by designers of
communications, computer, consumer and internet-appliance, industrial,
military/aerospace and other electronic systems. Actel's product line consists
of eleven families of antifuse-based FPGAs; Designer Series Development System,
DeskTOP and CoreHDL software; Silicon Sculptor device programmers; Silicon
Explorer debugging and diagnostic tools; and an evaluation board and sockets. In
August 1998, Actel entered into a strategic alliance with the Company, under
which Actel received exclusive, worldwide distribution rights to the Company's
0.25-micron, standard ProASIC products and the ASICmaster design tool software.
Actel also purchased
35
<PAGE>
the assets of the Company's Design Services Group and product line as well as $3
million of the Company's Series C Preferred, which is currently convertible into
200,000 shares of Common Stock. In 1999, Actel loaned $8.0 million to the
Company in exchange for a promissory note that was converted into 420,000 shares
of Series C-1 Preferred, which in turn was converted into 1,230,769 shares of
Common Stock. In addition, during 1999 Actel, through open market transactions
and private purchases, increased its ownership of Common Stock from 16,500
shares to 190,529 shares. Also in 1999, Actel introduced the SX-A family of
antifuse FPGAs and the PROASIC family of reprogrammable gate arrays developed by
the Company. With Actel's acquisition of the Company's Design Services product
line in 1998, Actel became the first FPGA provider to offer system-level design
expertise to its customers. Actel offers system-level design, prototyping, and
consulting services through its Protocol Design Service Group. Actel's principal
executive offices are located 955 East Arques Avenue, Sunnyvale, California
94086-4533 and its telephone number is (408) 739-1010. Actel was organized in
1985.
MERGER SUB
Merger Sub is a newly formed Delaware corporation was incorporated solely
for the purpose of consummating the Merger. Merger Sub has minimal assets and no
business and has carried on no activities that are not directly related to its
formation and its execution of the Merger Agreement. The address of the
principal executive office is c/o Actel Corporation, Inc., 955 East Arques
Avenue, Sunnyvale, California 94086-4533 and its telephone number is (408)
739-1010.
FINANCING OF THE TRANSACTION
Actel estimates that the that the total funds required to purchase all
Common Stock that was validly tendered pursuant to the Merger Agreement,
consummate the Merger and pay all related costs and expenses will be
approximately [$___]. Actel intends to finance the payment of the Merger
Consideration and its share of costs and expenses with available cash.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of June __,
2000 by: (i) each director; (ii) each executive officer; (iii) all executive
officers and directors of the Company as a group; and (iv) all those known by
the Company to be beneficial owners of more than five percent of its Common
Stock, after giving effect to the conversion of each series of Preferred Stock.
Except as indicated in the footnotes to this table and subject to applicable
community property laws, the persons named in the table, based on the
information provided
36
<PAGE>
by such persons, have sole voting and investment power with respect to all
shares of stock beneficially owned by them.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
-----------------------------------
PERCENTAGE OF
TOTAL
OUTSTANDING
NUMBER OF COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES STOCK
------------------------------------ --------- -----------------------
<S> <C> <C>
Idanta Partners Ltd. (2)
4660 La Jolla Drive, Suite 850, San Diego, CA 92122......... 447,570 7.28%
Infineon (3)
Hofmannstr. 51, 81359 Munich, Germany....................... 402,375 6.54%
Actel Corporation (4)
955 East Argues Avenue, Sunnyvale, CA 94086................. 1,621,298 26.36%
Mitsui (5)
1500 East Higgins Road, Unit B, Elk Grove Village, IL
60067..................................................... 307,696 5.00%
Timothy Saxe (6)............................................ 252,339 4.10%
Horst G. Sandfort (7)....................................... 2,250 *
Jonathan S. Huberman (8).................................... 447,570 7.28%
Peter G. Feist (9).......................................... 21,876 *
James R. Fiebiger (10)...................................... 70,788 1.15%
James B. Boyd (11).......................................... 50,650 *
All directors and executive officers as a group (6 persons)
(12)...................................................... 845,473 13.7%
</TABLE>
------------------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders owning greater than five percent of the outstanding
securities of the Company, as set forth in filings required by the
Commission, or as otherwise provided herein. Percentages are based on
6,151,482 shares of Common Stock outstanding on June __, 2000, adjusted as
required by rules promulgated by the Commission. The address of each officer
and director identified in this table is that of GateField's executive
offices, 47436 Fremont Blvd., Fremont, CA 94538.
(2) The address of Idanta is 4660 La Jolla Village Drive, Suite 850, San Diego,
CA 92122. Includes 6,471 shares of Common Stock issued upon the conversion
of 14,122 shares of Series B Stock. Also includes 40,818 shares of Common
Stock purchased on a pro-rata basis on September 30, 1999.
(3) The address of Infineon, formally known as Siemens Aktiengesellschaft
("Infineon") is Hofmannstr. 51, 81359 Munich, Germany. Includes 352,375
shares of Common Stock which Infineon has the right to acquire within 60
days of the date of this table upon the exercise of outstanding warrants.
(4) The address of Actel is 955 East Argues Avenue, Sunnyvale, California 94086.
Consists of 200,000 shares of Common Stock issued upon conversion of 300,000
shares of Series C Preferred and 1,230,769 shares of Common Stock issued
upon conversion of 420,000 shares of Series C-1 Preferred. Also includes
112,129 shares of Common Stock purchased on a pro-rata basis on
September 30, 1999. Excludes 190,476 shares of Common Stock issued upon
conversion of 35,000 shares of Series C-2 Preferred.
37
<PAGE>
(5) The address of Mitsui Create USA, Inc ("MCU") and MHT America
Holdings, Inc. ("MHT") is 1500 East Higgins Road, Unit B, Elk Grove Village,
Illinois 60067. Consists of 153,848 shares of Common Stock each.
(6) Includes 66,147 shares, which Mr. Saxe has the right to acquire within 60
days after the date of this table upon the exercise of outstanding Common
Stock options.
(7) Consists of shares, which Mr. Sandfort has the right to acquire within 60
days after the date of this table upon the exercise of outstanding Common
Stock options.
(8) Includes 447,570 shares of Common Stock beneficially owned by Idanta, with
respect to which Mr. Huberman is a general partner. Mr. Huberman shares
voting and investment power with respect to such shares. Mr. Huberman
disclaims beneficial ownership of all of the foregoing shares.
(9) Includes 21,876 shares, which Mr. Feist has the right to acquire within 60
days after the date of this table upon the exercise of outstanding Common
Stock options. Mr. Feist resigned as Senior VP of Marketing on April 7,
2000.
(10) Includes 11,163 shares purchased in 1999, 5,000 warrants that were
exercised by Mr. Fiebiger on April 19, 1999, 1,722 shares purchased in 1998,
40,000 shares which Mr. Fiebiger has the right to acquire within 60 days
after the date of this table upon the exercise of outstanding Common Stock
options. Mr. Fiebiger resigned as Director and Chief Executive Officer of
the Company on February 8, 1999.
(11) Includes 1,567 shares purchased in 2000, 921 shares purchased in 1999, 662
shares purchased in 1998 and 47,500 shares which Mr. Boyd has the right to
acquire within 60 days after the date of this table upon the exercise of
outstanding Common Stock options.
(12) Includes shares described in the notes above, as applicable.
38
<PAGE>
MARKET PRICES AND VOLUME
The Company's Common Stock is quoted on the OTC Bulletin Board ("OTCBB")
under the symbol "GATE." On July 15, 1998, GateField Corporation's stock was
delisted from the Nasdaq National Market and began trading on the Nasdaq
SmallCap Market. On September 17, 1998, the Company's stock was delisted from
the Nasdaq SmallCap Market for failing to meet Nasdaq's on-going minimum bid
price requirement. At that date, the Company's stock immediately began to trade
on the OTCBB.
On May 10, 2000, the day before the public announcement of the Merger, the
last reported sales price of the Common Stock, as reported on the OTCBB, was
$4.13 per share. On June , 2000, the last trading day prior to the date of
this Proxy Statement, the last reported sale price of Common Stock, as reported
by the OTCBB, was $ per share.
The following table sets forth for the periods indicated the high and low
sales prices for the Common Stock:
GATEFIELD STOCK PRICE AND VOLUME
<TABLE>
<CAPTION>
DAILY STOCK PRICES DAILY STOCK VOLUMES
----------------------- -----------------------
HIGH LOW HIGH LOW
-------- -------- -------- --------
<S> <C> <C> <C> <C>
2000
First Quarter................................ $ 6.31 $ 4.75 67,400 2,200
1999
First Quarter................................ $ 9.20 $ 6.40 37,510 670
Second Quarter............................... $17.80 $ 6.20 128,000 1,060
Third Quarter................................ $ 7.63 $ 3.44 184,000 1,100
Fourth Quarter............................... $ 7.00 $ 3.81 57,500 100
1998
First Quarter................................ $22.50 $10.30 119,651 2,714
Second Quarter............................... $21.30 $ 8.40 131,615 2,725
Third Quarter................................ $13.10 $ 3.00 58,880 1,300
Fourth Quarter............................... $11.30 $ 2.70 72,100 740
</TABLE>
There are approximately record holders of Common Stock as of the
Record Date. The Company has not paid dividends on the Common Stock since its
inception and has no ability to pay dividends in the foreseeable future.
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
DISSENTERS' AND APPRAISAL RIGHTS UNDER BOTH DELAWARE AND CALIFORNIA LAW ARE
AVAILABLE TO THE COMPANY'S STOCKHOLDERS IF THE MERGER IS CONSUMMATED. A
STOCKHOLDER'S VOTE AGAINST APPROVAL OF THE MERGER IS NOT SUFFICIENT TO PRESERVE
DISSENTING STOCKHOLDER'S RIGHT TO RECEIVE SUCH APPRAISAL RIGHTS. A DISSENTING
STOCKHOLDER MUST AFFIRMATIVELY COMPLETE CERTAIN PROCEDURES INCLUDING GIVING
NOTICE TO THE COMPANY WITHIN CERTAIN STATUTORY TIME FRAMES IN ORDER TO PRESERVE
THE DISSENTER'S RIGHTS OF APPRAISAL. IMPORTANT DETAILS CONCERNING THESE
REQUIREMENTS ARE SET FORTH BELOW; FAILURE TO TAKE THESE ACTIONS IN A TIMELY AND
PROPER FASHION WILL RESULT IN THE LOSS OF DISSENTERS' APPRAISAL RIGHTS. ALTHOUGH
A DISSENTING STOCKHOLDER MAY PERFECT ITS APPRAISAL RIGHTS UNDER BOTH THE DGCL
AND THE CGCL, ACTEL CAN ONLY BE REQUIRED TO MAKE A "FAIR VALUE" OR "FAIR MARKET
VALUE" PAYMENT UNDER ONE OF SUCH STATE COURT REMEDIES.
The following is not a complete statement of the law relating to dissenters'
rights and is qualified in its entirety by reference to ANNEX III and ANNEX IV
hereto, Section 262 of the DGCL and Section 1300-1312 of the CGCL, respectively.
This discussion and each of ANNEX III and ANNEX IV should be reviewed carefully
39
<PAGE>
by any stockholder who wishes to exercise dissenters' rights or who wishes to
preserve the right to do so, since failure to comply with the procedures set
forth therein will result in the loss of dissenters' rights.
All references in CGCL Section 1300-1312 to a "shareholder" and all
references in DGCL Section 262 and in this summary to a "stockholder" are to the
record holder of the shares of the Company's Common Stock as to which appraisal
rights are asserted. A PERSON HAVING A BENEFICIAL INTEREST IN SHARES OF THE
COMPANY'S COMMON STOCK HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A
BROKER OR NOMINEE, MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW THE
STEPS SUMMARIZED BELOW PROPERLY AND IN A TIMELY MANNER TO PERFECT APPRAISAL
RIGHTS.
SECTION 262 OF THE DGCL
If the Merger is consummated, those stockholders who elect to exercise their
dissenters' rights under Delaware law and who in a timely and proper fashion
perfect such rights, will be entitled to an appraisal by the Delaware Court of
Chancery of the "fair value" of their shares. Pursuant to Section 262 of the
DGCL, such "fair value," together with a fair rate of interest, if any, would be
determined by taking into account all relevant factors, exclusive of any element
of value arising from the accomplishment or expectation of the Merger. The
notice and demand to the Company required under the DGCL and described below
must be received by the Company prior to the Special Meeting.
SECTION 1300 ET SEQ. OF THE CGCL
If the Merger is consummated, those stockholders who elect to exercise their
dissenters' rights under California law and who in a timely and proper fashion
perfect such rights, will be entitled to file a complaint in the superior court
of the proper California county for determination of the "fair market value" of
their shares. The court, or an appraiser appointed by the court, shall determine
such "fair market value" as of the day before the first announcement of the
terms of the Merger, excluding any appreciation or depreciation caused by the
Merger. THE NOTICE AND DEMAND TO THE COMPANY REQUIRED UNDER THE CGCL AND
DESCRIBED BELOW MUST BE DELIVERED TO THE COMPANY UP TO 30 DAYS FOLLOWING THE
SPECIAL MEETING.
NOTICE TO COMPANY
If any stockholder elects to demand appraisal of his or her shares of Common
Stock, such holder must satisfy each of the following conditions: (i) the holder
must deliver, in a timely fashion, to the Company a written demand for appraisal
of his or her shares of Common Stock before the vote with respect to the Merger
is taken (this written demand for appraisal must be in addition to and separate
from any proxy or vote abstaining from or against the Merger; voting against or
failing to vote for the Merger by itself does not constitute a demand for
appraisal; and (ii) the stockholder must not vote in favor of the Merger (an
abstention or failure to vote will satisfy this requirement, but a vote in
favor, by proxy (including by returning an executed but otherwise unmarked proxy
card) or in person, will constitute a waiver of the stockholder's appraisal
rights in respect to the shares so voted and will nullify any previously filed
written demands for appraisal). Such demand should be sent to the Company's
offices at 47436 Fremont Boulevard, Fremont, California 94538-6503. Such written
demand must reasonably inform the Company of the identity of the stockholder and
the intention of such stockholder to demand appraisal of his or her shares of
Common Stock.
If the Merger is approved by the Company's stockholders, Actel will, within
10 days after the affirmative vote, mail to stockholders of record who so filed
a written demand for appraisal and who did not vote in favor of the Merger, a
notice that the required stockholder approval of the Merger was obtained (the
"Notice of Approval"). The Notice of Approval will set forth the price
determined by Actel and the Company to represent the "fair market value" of any
dissenting shares, and will set forth a brief description of the procedures to
be followed by the dissenting stockholders who wish to pursue further
40
<PAGE>
their statutory rights, including a discussion of the time in which written
demand must be made on the Company in order to perfect the right of dissent.
The statement in the Notice of Approval of the determination of the fair
market value of the dissenting shares will constitute an offer by Actel to
purchase shares from dissenting stockholders at the price stated, assuming the
Merger is consummated. However, the determination by Actel and the Company of
fair market value is not binding on its stockholders, and if a dissenting
stockholder chooses not to accept that offer, he or she has the right during a
period of 6 months following the mailing of the Notice of Approval to commence a
lawsuit to have the fair market value, as described in Section 262 of the DGCL
or Section 1304 of the CGCL, determined by a court. The fair market value as
determined by the court in these circumstances could be higher or lower than the
amount offered by Actel in the Notice of Approval or the consideration provided
for in the Merger Agreement, and any such determination would be binding on the
dissenting stockholder or stockholders involved in the lawsuit and on Actel. Any
party may appeal from the judgment. However, the court action to determine the
fair market value of the shares will be suspended if litigation is instituted to
test the sufficiency or regularity of the votes of stockholders in authorizing
the Merger.
Dissenting shares may lose their status as such if any of the following
occur: the Merger is abandoned (in which case the Company shall pay on demand to
any stockholder who has initiated proceedings in good faith as provided under
appropriate law all necessary expenses and reasonable attorneys' fees incurred
in such proceedings); the shares are transferred before being submitted to the
Company for endorsement; the stockholder withdraws his or her demand with the
consent of the Company; or, in the absence of agreement between the stockholder
and the Company as to the price of his or her shares, the stockholder fails to
file suit against the Company or otherwise fails to become a party to such suit
within 6 months following the mailing of the Notice of Approval.
FAILURE TO FOLLOW THE STEPS OUTLINED HEREIN FOR PERFECTING APPRAISAL RIGHTS
MAY RESULT IN THE LOSS OF SUCH RIGHTS (IN WHICH EVENT A STOCKHOLDER WILL BE
ENTITLED TO RECEIVE THE MERGER CONSIDERATION IN ACCORDANCE WITH THE MERGER
AGREEMENT FOR EACH SHARE OF COMMON STOCK HELD BY SUCH STOCKHOLDER).
INDEPENDENT AUDITORS
Deloitte & Touche LLP are the Company's independent auditors.
Representatives of Deloitte & Touche LLP are expected to be present at the
Special Meeting, where they will have the opportunity to make a statement if
they desire to do so and will be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS FOR THE 2001 ANUUAL MEETING
If the Merger is not consummated, the Company will hold its 2001 Annual
Meeting of its stockholders in accordance with its Bylaws and the DGCL. Any
proposals of stockholders to be presented at the 2001 Meeting were required to
have been received by the Secretary of the Company for inclusion in the
Company's Proxy Statement and form of Proxy no later than December 28, 2000.
OTHER MATTERS
The Board of Directors knows of no other matters that may properly be, or
which are likely to be, presented for consideration at the Special Meeting. If
any other matters are properly brought before the Special Meeting, it is the
intention of the persons named in the accompanying Proxy to vote on such matters
in accordance with their best judgment.
It is important that your shares be represented at the Special Meeting,
regardless of the number of shares, which you hold. You are, therefore, urged to
execute and return, at your earliest convenience, the accompanying Proxy in the
envelope which has been enclosed.
41
<PAGE>
ANNEXES
Annex I--Amended and Restated Agreement and Plan of Merger
Annex II--Opinion of Needham & Company, Inc.
Annex III--Section 262 of DCGL
Annex IV--Section 1300 of the CGCL
42
<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.
43
<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.
44
<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.
45
<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.
46
<PAGE>
GATEFIELD CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
--------- ---------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 5,418 $ 3,832
Accounts receivable, less allowance for doubtful accounts
of $536 in 1999 and $244 in 1998........................ 33 463
Inventories............................................... -- 117
Other current assets...................................... 205 556
-------- --------
Total current assets.................................... 5,656 4,968
Property and equipment, net................................. 1,423 1,783
Other assets................................................ 6 102
-------- --------
Total assets............................................ $ 7,085 $ 6,853
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current portion of long-term obligations.................. $ 244 $ 393
Accounts payable.......................................... 1,586 1,372
Accrued expenses.......................................... 825 1,941
Deferred revenues......................................... 3,562 4,772
-------- --------
Total current liabilities............................... 6,217 8,478
Long-term obligations....................................... 8,079 330
-------- --------
Total liabilities....................................... 14,296 8,808
Commitments and contingencies (Note 5)
Redeemable Preferred Stock
$0.10 par value; 2,000,000 shares authorized; shares
issued and outstanding: 318,000 in 1999 and 1998--at
redemption value.......................................... 3,086 3,083
Stockholders' deficit
Common stock
$0.10 par value; 65,000,000 shares authorized; shares
issued and outstanding: 4,693,000 in 1999 and 4,193,000
in 1998................................................. 469 419
Additional paid-in capital................................ 86,307 81,900
Accumulated deficit....................................... (96,584) (86,620)
Accumulated other comprehensive loss...................... (489) (737)
-------- --------
Total stockholders' deficit............................. (10,297) (5,038)
-------- --------
Total liabilities and stockholders' deficit............. $ 7,085 $ 6,853
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
47
<PAGE>
GATEFIELD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues
Product................................................... $ 1,348 $ 2,624 $ 5,385
Service................................................... 639 5,076 10,118
-------- ------- --------
Total revenues.......................................... 1,987 7,700 15,503
-------- ------- --------
Cost of revenues
Product................................................... 1,135 4,648 6,421
Service................................................... 162 2,659 4,482
-------- ------- --------
Total cost of revenues.................................. 1,297 7,307 10,903
-------- ------- --------
Gross profit............................................ 690 393 4,600
-------- ------- --------
Operating expenses
Sales and marketing....................................... 783 4,112 9,664
Research and development.................................. 5,915 5,478 7,854
General and administrative................................ 2,739 3,256 4,202
Loss/(gain) on sale of assets............................. 199 (4,392) (2,019)
-------- ------- --------
Total operating expenses................................ 9,636 8,454 19,701
-------- ------- --------
Operating loss.............................................. (8,946) (8,061) (15,101)
-------- ------- --------
Other income (expense)
Interest expense, net..................................... (1,328) (173) (1,379)
Other income (expense), net............................... 313 (34) 1,096
-------- ------- --------
Total other expense..................................... (1,015) (207) (283)
-------- ------- --------
Loss before extraordinary item.............................. (9,961) (8,268) (15,384)
Extraordinary item--loss on early extinguishment of debt.... -- -- (1,048)
-------- ------- --------
Net loss.................................................... (9,961) (8,268) (16,432)
Other comprehensive loss:
Currency translation adjustments.......................... (248) (193) (496)
-------- ------- --------
Comprehensive loss.......................................... $(10,209) $(8,461) $(16,928)
======== ======= ========
Loss attributable to common stockholders.................... $ (9,964) $(8,405) $(22,725)
======== ======= ========
Basic and diluted net loss per share:
Loss before extraordinary item............................ $ (2.30) $ (2.00) $ (7.15)
Extraordinary item........................................ -- -- (0.35)
-------- ------- --------
Basic and diluted net loss per share........................ $ (2.30) $ (2.00) $ (7.50)
======== ======= ========
Basic and diluted weighted average shares outstanding....... 4,332 4,125 3,030
======== ======= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
48
<PAGE>
GATEFIELD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities
Net loss.................................................. $(9,961) $(8,268) $(16,432)
Reconciliation to net cash used in operating activities
Depreciation and amortization........................... 894 1,866 3,124
Subordinated convertible debt interest and debt
extinquishment loss................................... 1,231 -- 1,745
Loss on disposition of property and equipment........... 199 70 722
Gain on sale of assets.................................. -- (4,462) (2,741)
Stock compensation expense.............................. -- 56 9
Sales under capital leases.............................. -- -- (606)
Collections under capital leases........................ -- -- 620
Changes in assets and liabilities
Accounts receivable................................... 430 1,484 9,543
Inventories........................................... 117 618 143
Other assets.......................................... 447 159 31
Accounts payable and accrued expenses................. (902) (3,578) (5,951)
Deferred revenues..................................... (1,210) 3,819 (1,549)
------- ------- --------
Net cash used in operating activities............... (8,755) (8,236) (11,342)
------- ------- --------
Investing activities:
Property and equipment purchases.......................... (733) (332) (1,568)
Proceeds from sale of assets.............................. -- 5,400 12,750
Proceeds from sale of short-term investments.............. -- 98 --
------- ------- --------
Net cash provided by (used in) investing
activities........................................ (733) 5,166 11,182
------- ------- --------
Financing activities:
Proceeds from issuance of convertible debt, net........... 8,000 -- 2,650
Proceeds from issuance of common stock.................... 3,226 5,108 458
Proceeds from issuance of redeemable preferred stock...... -- 3,000 4,583
Redemption of preferred stock............................. -- (4,648) (1,827)
Proceeds from subscribed stock............................ -- -- 761
Proceeds from warrants.................................... -- 161 1,589
Bank financing, net....................................... -- -- (3,203)
Borrowings under debt obligations......................... -- -- 199
Repayments of debt obligations............................ (400) (676) (2,161)
------- ------- --------
Net cash provided by financing activities........... 10,826 2,945 3,049
------- ------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... 248 (232) (403)
------- ------- --------
Net change in cash and cash equivalents..................... 1,586 (357) 2,486
Cash and cash equivalents, beginning of year................ 3,832 4,189 1,703
------- ------- --------
Cash and cash equivalents, end of year...................... $ 5,418 $ 3,832 $ 4,189
======= ======= ========
Supplemental disclosure of cash flow information
Noncash activities
Common stock issued for convertible debentures.......... $ -- $ -- $ 5,998
Preferred stock issued for convertible debentures....... $ -- $ -- $ 3,553
Accretion of redeemable preferred stock (Note 9)........ $ -- $ -- $ 5,866
Accrued dividends on preferred stock.................... $ 3 $ 137 $ 283
Common stock issued for preferred stock................. $ -- $ -- $ 1,805
Equipment acquired under capital leases................. $ -- $ 825 $ 19
Cash activities
Cash paid during the year for interest.................. $ 173 $ 429 $ 363
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
49
<PAGE>
GATEFIELD CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------
ADDITIONAL ACCUMULATED
PAID-IN OTHER ACCUMULATED
SHARES AMOUNT CAPITAL COMP. LOSS DEFICIT TOTAL
-------- -------- ---------- ----------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1997...................... 2,322 $ 232 $59,300 $ (48) $(55,490) $ 3,994
Exercise of common stock options............... 28 3 250 -- -- 253
Compensation for accelerated vesting of stock
options...................................... -- -- 47 -- -- 47
Sale of common stock to employees.............. 9 1 78 -- -- 79
Issuance of common stock to nonemployees for
services..................................... 6 1 69 -- -- 70
Issuance of common stock for debentures, net... 742 74 5,924 -- -- 5,998
Discount on convertible debentures............. -- -- 875 -- -- 875
Accrued dividends on preferred stock........... -- -- 63 -- (283) (220)
Conversion of preferred stock to common
stock........................................ 455 45 1,760 -- -- 1,805
Redemption of preferred stock.................. -- -- -- (144) (144)
Exercise of common stock warrants.............. 10 1 55 -- -- 56
Subscribed common stock........................ 50 5 756 -- -- 761
Accretion of preferred stock................... -- -- 5,866 -- (5,866) --
Issuance of warrants........................... -- -- 1,589 -- -- 1,589
Current translation adjustment................. -- -- -- (496) -- (496)
Net loss....................................... -- -- -- -- (16,432) (16,432)
----- ----- ------- ------ -------- --------
Balances, December 31, 1997.................... 3,622 362 76,632 (544) (78,215) (1,765)
Exercise of common stock options............... 74 7 381 -- -- 388
Sale of common stock to employees.............. 25 2 148 -- -- 150
Issuance of common stock to nonemployees for
services..................................... 1 1 5 -- -- 6
Issuance of common stock....................... 459 46 4,536 -- -- 4,582
Cash received for warrants..................... -- -- 161 -- -- 161
Exercise of common stock warrants.............. 12 1 37 -- -- 38
Accretion of preferred stock................... -- -- -- -- (137) (137)
Current translation adjustment................. -- -- -- (193) -- (193)
Net loss....................................... -- -- -- (8,268) (8,268)
----- ----- ------- ------ -------- --------
$(86,620)
Balances, December 31, 1998.................... 4,193 $ 419 $81,900 $ (737) $(5,038)
Exercise of common stock options............... 17 1 83 -- -- 84
Sale of common stock to employees.............. 8 1 58 -- -- 59
Issuance of common stock....................... 470 47 3,014 -- -- 3,061
Exercise of common stock warrants.............. 5 1 22 -- -- 23
Discount on conversion of promissory note...... -- -- 1,230 -- -- 1,230
Accretion of preferred stock................... -- -- -- -- (3) (3)
Current translation adjustment................. -- -- -- 248 -- 248
Net loss....................................... -- -- -- -- (9,961) (9,961)
----- ----- ------- ------ -------- --------
Balances, December 31, 1999.................... 4,693 $ 469 $86,307 $ (489) $(96,584) $(10,297)
===== ===== ======= ====== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
50
<PAGE>
GATEFIELD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
GateField Corporation, (the "Company"), based in Fremont, California,
designs, develops, manufactures and markets high density, high performance
programmable logic solutions and related development software. During 1998, the
Company disposed of its system engineering services and custom solutions assets
(see Note 3). During 1997, the Company disposed of its verification and
simulation assets (see Note 3).
On July 16, 1998 the Company's common stock was delisted from the Nasdaq
National Market (a distinct tier of the Nasdaq Stock Market) and moved to the
Nasdaq SmallCap Market. 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.
The Company reviewed its strategies, organization and expenses in the fourth
quarter of 1998 and as a result of management actions, reduced its monthly cash
expenditures. Management's plan in 2000 is to maintain the level of operating
expenses it established in the fourth quarter of 1999, begin volume shipment of
its .25-micron standard ProASIC products manufactured by Infineon, and to obtain
additional financing. Because the Company is essentially a restart, its
historical financial performance cannot and should not be used to indicate
future financial performance.
In June 1999, the Company effected a ten-for-one reverse stock split. All
shares and per share amounts in these financial statements have been adjusted to
give effect to the stock split.
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 1999, 1998 and 1997, the Company incurred net losses of
approximately $10.0 million, $8.3 million and $16.4 million, respectively.
Additionally, the Company had stockholders' deficits of approximately
$10.3 million and $5.0 million at December 31, 1999 and 1998, respectively, and
is highly dependent on its ability to obtain sufficient additional financing in
order to fund the 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 reduce operating expenses, 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.
51
<PAGE>
GATEFIELD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the 1999
presentation. Such reclassification had no effect on previously reported results
of operations or financial position.
PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All intercompany accounts and transactions have
been eliminated in consolidation. The functional currency of the Company's
foreign subsidiaries is the local currency.
ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
BUSINESS RISKS AND UNCERTAINTIES
The Company participates in a dynamic high technology industry and believes
that changes in any of the following areas could have a material adverse effect
on the Company's future financial position or results of operations: dependence
on independent wafer manufacturers and assembly subcontractors; changes in
certain strategic partners or customer relationships; competitive pressures in
the form of new products or price reductions on existing products; advances and
trends in new technologies; ability to capture design wins; cyclical economic
effects of the semiconductor industry; litigation or claims against the Company
based on intellectual property, patent, product, regulatory or other factors and
the Company's ability to attract and retain employees necessary to support its
growth.
CASH EQUIVALENTS
Cash and cash equivalents consist of cash on deposit with banks and money
market instruments with maturities of three months or less when acquired.
SHORT-TERM INVESTMENTS
Short-term investments consist of Certificates of Deposit, stated at cost
plus accrued interest, which approximates market.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company invests in high credit quality short-term money market
instruments and certificates of deposit and limits the amount of credit exposure
to any one entity. The majority of the Company's trade accounts receivables are
derived from sales to manufacturers in the semiconductor, computer, military and
aerospace industries. The Company
52
<PAGE>
GATEFIELD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
performs ongoing credit evaluations of its customers' financial condition and
limits the amount of credit extended when deemed necessary, but generally
requires no collateral. The Company maintains reserves for estimated potential
credit losses.
INVENTORIES
Inventories are stated at the lower of standard cost, which approximates
actual cost on a first-in, first-out basis, or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Equipment acquired under capital
lease obligations is stated at the lower of fair value or the present value of
future minimum lease payments at the inception of the lease. Depreciation and
amortization is provided over the shorter of the estimated useful lives of the
assets or the life of the lease, using the straight-line method. An impairment
loss is recognized when estimated future cash flows expected to result from the
use of the asset including disposition, is less than the carrying value of the
asset.
INCOME TAXES
The Company follows Statement of Financial Accounting Standards No. 109
(SFAS No. 109), "Accounting for Income Taxes," which requires an asset and
liability approach to account for income taxes and requires recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between the financial statement carrying amounts and the
tax basis of assets and liabilities and net operating loss and tax credit
carryforwards. Valuation allowances are provided when necessary to reduce net
deferred tax assets to an amount that is more likely then not to be realized.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with Accounting Principles Board No. 25 (APB
No. 25), "Accounting for Stock Issued to Employees".
REVENUE RECOGNITION
The Company recognizes product revenues at the time of shipment, but may
delay revenue recognition until products are installed or accepted, depending on
the particular product and contract terms. Design and verification service
revenues are recognized as the services are performed. Revenues from the sale of
maintenance contracts are recognized over the term of the respective contract.
ProASIC products are shipped to Actel who in turn may ship them to distributors
under agreements allowing certain rights of return and price protection on
unsold merchandise. Because of this two-layer process of sales, the Company
defers recognition of revenue and related cost of revenue on sales of products
to Actel until such products are sold by Actel or Actel's distributors.
In 1998, the Company adopted Statement of Position ("SOP") 97-2, "Software
Revenue Recognition," which requires revenue earned on software arrangements
involving multiple elements to be allocated to each element based on the
relative fair values of the elements. Revenue for software licenses
53
<PAGE>
GATEFIELD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
included in product revenues is recognized when an agreement has been signed,
the product has been shipped, the fee is fixed or determinable, and collection
of resulting receivable is probable. Software support and maintenance revenue
are deferred and amortized over the maintenance period on a straight-line basis.
Adoption of this statement did not have a material impact on the Company's
financial position, results of operations and cash flows.
NET INCOME (LOSS) PER SHARE
Basic earnings per share ("EPS") excludes dilution and is computed by
dividing net income or loss attributable to common stockholders by the weighted
average of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock (convertible preferred stock, warrants to purchase common stock and
common stock options using the treasury stock method) were exercised or
converted into common stock. The following potential weighted average common
shares in the diluted EPS computation are excluded in net loss periods, as their
effect would be antidilutive.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Conversion of preferred stock.................... 208,250 514,200 171,800
Warrants......................................... 379,159 398,100 135,600
Stock options.................................... 376,099 268,500 268,600
Convertible Promissory Note...................... 745,204 -- --
</TABLE>
In the computation of loss per share, loss attributable to common
stockholders includes the accretion and dividends on Preferred Stock totaling
$6,293,000 in 1997 and the accrual of dividends on Preferred Stock of $3,000 and
$137,000 in 1999 and 1998, respectively.
COMPREHENSIVE LOSS
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS"), No. 130, "Reporting Comprehensive Income," which requires an
enterprise to report, by major components and as a single total, the change in
net assets during the period from nonowner sources. Statements of comprehensive
loss for 1999, 1998 and 1997 have been included with the statements of
operations.
GEOGRAPHIC AND OPERATING SEGMENT INFORMATION
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major customers.
The Company has two reportable segments under SFAS No. 131 (Note 8).
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge
54
<PAGE>
GATEFIELD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
accounting. SFAS No. 133 will be effective for the Company's fiscal year ending
December 31, 2001. Management believes that these statements will not have a
significant impact on the Company's financial position, results of operations or
cash flows.
NOTE 2: STRATEGIC ALLIANCES
PRODUCT MARKETING AGREEMENT
In August 1998, the Company and Actel Corporation ("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 0.35-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 received has been
deferred until delivery of pre-production quality parts to Actel of products
below 0.35-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 0.35-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. Revenue recognition of the $1.0 million license fee
received has been deferred until delivery of pre-production quality parts to
Actel of products below 0.35-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. Revenue recognition of the $2.5 million
license fee was initially deferred but is currently being recognized as the
underlying work is performed.
INFINEON LICENSE AGREEMENT
In October 1997, the Company and Infineon Technologies, ("Infineon")
formerly Siemens AG entered into a license agreement (the "Infineon License
Agreement"). Pursuant to the Infineon License Agreement, the Company sold to
Infineon for an unlimited, worldwide, non-exclusive right and license to use the
technology, software, engineering services, and equipment related to ProASIC
products; 50,000 shares of common stock and warrants to purchase 9.9% of the
Company's outstanding common stock for a fee of $3,250,000. In 1997, the Company
received $1,500,000, of which $761,000 was allocated to the shares
55
<PAGE>
GATEFIELD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 2: STRATEGIC ALLIANCES (CONTINUED)
of Common Stock (see Note 9) and $739,000 was allocated to warrants net of a
warrant receivable of $161,000 (see Note 9). In 1998, the Company received
$1,750,000, of which $750,000 was recorded as Service Revenue for consulting
services, and $839,000 was recorded as Product Revenue for license fees, and
$161,000 was recorded as a receipt of cash for warrants issued in 1997.
NOTE 3: LOSS (GAIN) ON SALE OF ASSETS
DESIGN SERVICES
In August 1998, the Company sold certain assets relating to its Design
Services products, providing prototyping design services and verification
services for electronic systems, integrated circuits and other electronic
components, located in Mt. Arlington, New Jersey to 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 Design Services achieving
certain profitability levels which payments shall not exceed $1.0 million in the
aggregate. The Design Services represented approximately 17% of 1998 revenues.
See table below for details of the transaction.
VERIFICATION PRODUCT
In August 1997, the Company sold its assets relating to its verification
products, excluding the maintenance and support business, for a total of
$4,450,000. As defined in the purchase agreement, all of the rights, title and
interest to the intangible assets of the XP and PXP hardware fault simulation
product business were sold for $2,200,000. In a separate agreement, all of the
assets of the Attest division were sold for $2,250,000. The verification
products represented approximately 16% of 1997 revenues. See table below for
details of the transaction.
In October 1997, as a result of the Company selling its rights, title, and
interest in the assets of the XP and PXP hardware fault simulation product, the
Company transferred its related maintenance contracts to Zycad TSS Corporation
("Zycad TSS") in October 1997 for future royalties. Zycad TSS is a Company
formed by former employees of the Company to perform maintenance services. The
agreement with Zycad TSS entitles the Company to receive 30% of all domestic
XP/PXP maintenance revenue in the first two years and 10% in the third year. In
addition, the Company is generally entitled to receive 10% of Japanese revenues
for the first five years up to a $1.8 million.
LIGHTSPEED PRODUCT
In April 1997, the Company sold its software and hardware simulation
technology relating to its LightSpeed product family for $5,000,000. Revenues in
1997 were nominal. See table below for details of the transaction.
QUALITY SYSTEMS SOFTWARE, INC.
In May 1997, the Company sold its interest in QSS Inc. a distributor of the
DOORS technology for $3,500,000. See table below for details of the transaction.
56
<PAGE>
GATEFIELD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 3: LOSS (GAIN) ON SALE OF ASSETS (CONTINUED)
Details of these transactions are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1999 1998 1997
------------ --------------- -------------------------------------------------
OTHER ASSETS DESIGN SERVICES VERIFICATION LIGHTSPEED QSS 1997 TOTAL
------------ --------------- ------------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sales Price........................ $ -- $(5,400) $(4,450) $(5,000) $(3,500) $(12,950)
Net Assets disposed................ 0 687 5,130 3,201 179 $ 8,510
Liabilities incurred............... 0 251 245 1,454 -- $ 1,699
Loss on disposition of other
assets........................... 199 70 -- -- -- 722
---- ------- ------- ------- ------- --------
Loss (Gain) on sale of assets.... $199 $(4,392) $ 925 $ (345) $(3,321) $ (2,019)
==== ======= ======= ======= ======= ========
</TABLE>
NOTE 4: LONG-TERM DEBT
Debt obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Capital leases (see Note 5)................................. $ 323 $ 723
Convertible Promissory Note................................. $8,000 $ --
------ -----
$8,323 $ 723
Current portion............................................. (244) (393)
------ -----
Long term debt.............................................. $8,079 $ 330
====== =====
</TABLE>
TERM LOANS
In May 1999, the Company issued a convertible promissory note in the
aggregate principal amount of $8.0 million (the Note). The Note accrues interest
at 5.22% per annum, has a five-year term and is secured by a lien against all
the assets of the Company. The Note is convertible into 420,000 shares of the
Company's Series C-1 Convertible Preferred Stock. The Series C-1 Convertible
Preferred Stock is in turn convertible into 1,230,769 shares of the Company's
common stock, or the equivalent price of $6.50 per share of common stock.
The Note is convertible at the option of the noteholder. On the date of
issuance, the Note was convertible into common stock at a price equal to
approximately a 13% discount (the Conversion Discount) to the closing market
price as reported on the OTCBB. The Company recognized the Conversion Discount
of $1.2 million during the second quarter of 1999 as a non-cash interest expense
with a corresponding increase in the common stock additional paid in capital.
In 1997, the Company obtained promissory notes from key vendors that bear
interest rates from 12% to 18%. At December 31, 1997 all amounts were classified
as current positions of long-term obligations.
57
<PAGE>
GATEFIELD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 4: LONG-TERM DEBT (CONTINUED)
SUBORDINATED CONVERTIBLE DEBENTURE NOTES
In May 1996, the Company sold a total of $10,000,000 of subordinated
convertible debenture notes (the "Notes") to institutional investors as part of
a private placement. The Notes accrue interest at an annual rate of 6%,
beginning on the date of issue, with the principal due and payable three years
from the date of issue if and to the extent that the Notes are not previously
converted. The Notes were convertible at the option of the noteholders into
Common Stock at a price equal to 80% to 85% of the average closing bid price for
the Common Stock on the Nasdaq National Market for the five trading days prior
to the date of conversion. During 1997, an aggregate of $5,998,000 ($5,700,000
of the original principal of the Notes and $298,000 of accrued interest) were
converted into 741,800 shares of Common Stock.
In February 1997, the Company completed a $3,500,000 private placement with
investors whereby the Company issued 6% Subordinated Convertible Debentures (the
Debentures) with warrants to purchase 50,000 shares of Common Stock at $22.50
per share. The warrants are valued at $850,000 and recorded as a discount to the
debentures. The Debentures accrue interest at an annual rate of 6%, beginning on
the date of issue, with principal due and payable three years from the date of
issue, if and to the extent that the Debentures are not previously converted.
The Debentures are convertible at the option of the holder into the Company's
Common Stock at a discount up to 20% from market price (the Conversion Discount)
resulting in debenture discount of $875,000. In May 1997, the Debentures were
converted into 100,000 shares of the Company's Series A Convertible Preferred
Stock ("Series A Stock") having an aggregate stated value of $3,500,000. In
addition, Preferred Stock Purchase Warrants (the "Preferred Warrants") were
issued to the holders of the Debentures to purchase a total of 42,858 shares of
the Series A Stock. The conversion of the debentures to Series A Stock resulted
in a debt extinguishment loss of $1,048,000. During the year ended December 31,
1997, a total of $456,000 was recorded as interest expense relating to the
Debentures and $272,000 was recorded as accrued dividends on the Series A Stock.
The interest expense and dividend principally include a charge for the
Conversion Discount and default discounts. During 1997, 51,972 shares of the
Series A Preferred Stock were converted to 454,693 shares of the Company's
Common Stock. In August 1997, the Company redeemed all of the remaining
outstanding shares of the Company's Series A Stock and the Preferred Warrants
for $1,827,000 and all of the outstanding common stock warrants were exchanged
for 35,000 warrants for the Company's Common Stock at an exercise price of $5.30
per share. A preferred dividend of $144,000 was recognized for the excess of the
redemption price over the carrying amount of the preferred stock. During 1997,
10,500 of the warrants were exercised for $56,000.
NOTE 5: LEASES AND COMMITMENTS
The Company leases its facilities and other equipment under operating lease
agreements, which expire at various dates through 2004. The Company also leases
certain manufacturing equipment under
58
<PAGE>
GATEFIELD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 5: LEASES AND COMMITMENTS (CONTINUED)
capital leases that expire in 2001. Approximate future minimum lease payments
under these leases are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
---- -------- ---------
<S> <C> <C>
2000 $269 298
2001 81 275
2002 -- 290
2003 -- 299
2004 -- 178
---- ------
350 $1,340
======
Less amount representing imputed interest.................. 27
----
323
Less current portion....................................... 244
----
$ 79
====
</TABLE>
Accumulated depreciation of equipment under capital leases totaled $517,915
and $747,000 at December 31, 1999 and 1998, respectively. Depreciation expense
on equipment under capital leases was $257,867 in 1999 and $127,000 in 1998 and
$203,000 in 1997.
The Company leases office facilities under an operating lease, which expires
in July 2004. Rent expense of $538,000, $948,000 and $1,582,000 was incurred in
1999, 1998, and 1997, respectively. A portion of the Company's facilities had
been sublet and sublease income received was $291,583, $491,000, and $76,000
during 1999, 1998, and 1997, respectively.
59
<PAGE>
GATEFIELD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 6: SELECTED BALANCE SHEET INFORMATION
Selected Balance Sheet information is summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Accounts receivable
Accounts receivable....................................... $ 569 $ 707
Less allowance for doubtful accounts...................... (536) (244)
------ ------
$ 33 $ 463
====== ======
Inventories
Finished goods............................................ -- 117
------ ------
$ -- $ 117
====== ======
Property and equipment
Engineering, manufacturing, and general office
equipment............................................... $2,562 $3,761
Leasehold improvements.................................... 205 1,064
Equipment under capital lease............................. 865 1,752
------ ------
3,632 6,577
Accumulated depreciation and amortization................... (2,209) (4,794)
------ ------
$1,423 $1,783
====== ======
Accrued expenses
Salaries and commissions.................................. $ 348 $ 521
Other accrued expenses.................................... 477 1,420
------ ------
$ 825 $1,941
====== ======
</TABLE>
NOTE 7: INCOME TAXES
The Company was not required to pay income taxes in 1999, 1998 or 1997 due
to its net operating loss carryforwards.
The following is a reconciliation of the provision for income taxes at the
U.S. federal income tax rate to the income taxes reflected in the Statements of
Operations:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax benefit............................. $(3,486) $(2,811) $(5,587)
State tax................................................... (665) (504) (1,514)
Other....................................................... 553 (162) 544
Valuation Allowance......................................... 3,598 3,477 6,557
------- ------- -------
Income tax benefit.......................................... $ -- $ -- $ --
======= ======= =======
</TABLE>
60
<PAGE>
GATEFIELD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 7: INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax asset are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforwards.......................... $30,809 $24,457
Tax credit carryforwards.................................. 2,659 3,529
Capitalized research and development costs................ 638 433
Depreciation.............................................. 253 853
Accruals and reserves not currently deductible............ 338 3,318
------- -------
Total gross deferred tax assets......................... 34,697 32,590
Valuation allowance....................................... (34,697) (32,590)
------- -------
Total deferred tax assets............................... $ -- $ --
======= =======
</TABLE>
The net change in the total valuation allowance for the year ended
December 31, 1999 was a net increase of $2,107,000. The increase in the
valuation allowance was primarily a result of increased net operating loss and
tax credit carryforwards and capitalized research and development costs
generated in 1999 which the Company provided a full valuation allowance against
based on the Company's evaluation of the likelihood of realization of future tax
benefits resulting from the deferred tax assets.
Net pretax foreign income (losses) were $65,000, ($405,000) and ($93,000) in
1999, 1998 and 1997, respectively. The Company has net operating loss
carryforwards of approximately $80,700,000 for federal tax purposes and
$18,162,000 for state tax purposes that will begin to expire in 2005 and 2000,
respectively. Of the $18,162,000 net operating loss carryforwards for state tax
purposes, $94,000 will expire in 2000, $3,056,000 in 2001 and $8,042,000 in
2002. The Company's tax credit carryforwards of $1,922,000 and $1,133,000 are
available to reduce future federal and California income taxes, respectively. Of
the $1,922,000 tax credit carryforwards for federal income tax purposes,
$636,000 will expire in 2000, $962,000 in 2001 and $39,000 in 2002. The Company
also has foreign net operating loss carryforwards of approximately $3,057,000
that may be used to offset future foreign taxable income.
The Tax Reform Act of 1986 and California Conformity Act of 1987 impose
substantial restrictions on the utilization of net operating losses and tax
credit carryforwards in the event of an "ownership change" as defined by the
Internal Revenue Code. If there should be such a change, the Company's ability
to utilize the stated carryforwards could be significantly limited.
NOTE 8: GEOGRAPHIC SEGMENT AND OPERATING INFORMATION
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision-maker. Using this definition the Company operates in
two reportable segments: product and services and follows the requirements of
SFAS 131, "Disclosures about Segments of an Enterprise and Related Information."
In 1997 through 1999 these segments reflect the Company's transition from the
design, development and marketing of special purpose systems for the EDA market
to the design, development, and marketing of high density, high performance
programmable logic solutions and related development software. Included in the
product segment are all hardware, software and license revenue and costs related
to the Company's
61
<PAGE>
GATEFIELD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 8: GEOGRAPHIC SEGMENT AND OPERATING INFORMATION (CONTINUED)
proprietary technology. Included in the service segment are fees and costs
associated with the maintenance of hardware systems related software and
consulting services related to the design of programmable logic solutions. The
Company evaluated performance and allocates resources based on the gross margin
of the reportable segments and does not identify assets to any segment.
NET REVENUES BY REPORTABLE SEGMENT (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Product
Revenues........................................ $1,348 $ 2,624 $ 5,385
Cost of Revenues................................ 1,135 4,648 6,421
------ ------- -------
Gross Margin.................................. $ 213 $(2,024) $(1,036)
====== ======= =======
Services
Revenues........................................ $ 639 $ 5,076 $10,118
Cost of Revenues................................ 162 2,659 4,482
------ ------- -------
Gross Margin.................................. $ 477 $ 2,417 $ 5,636
====== ======= =======
</TABLE>
NET REVENUES TO UNAFFILIATED CUSTOMERS BY GEOGRAPHIC REGION (IN THOUSANDS):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
United States...................................... $1,696 $5,613 $ 9,565
Japan.............................................. 291 1,947 4,382
Other.............................................. 0 140 1,556
------ ------ -------
$1,987 $7,700 $15,503
====== ====== =======
</TABLE>
The amounts reported for Japan and other reflect amounts sold by foreign
subsidiaries. Included in the United States revenue amounts are sales directly
to Japan and other Asian countries amounting to $291,000 in 1999, $217,000 in
1998 and $1,648,000 in 1997. Outside the United States, the Company operated
three subsidiaries in Europe, one subsidiary in Japan and also supported a
branch office in Taiwan. All these subsidiaries have been or are in the process
of being shut down and dissolved. For the years ended December 31, 1999, 1998
and 1997, export sales (including sales by foreign subsidiaries), principally to
Europe and Japan, comprised approximately 15%, 38% and 38% of consolidated
revenues, respectively. During 1999, Rohm accounted for 47% and Zycad TSS
accounted for 18% of consolidated revenues. During 1998 and 1997, Infineon
accounted for 22% and Intel Corporation accounted for 16% of consolidated
revenues, respectively.
62
<PAGE>
GATEFIELD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 8: GEOGRAPHIC SEGMENT AND OPERATING INFORMATION (CONTINUED)
LONG-LIVED ASSETS BEFORE DEPRECIATION BY GEOGRAPHIC LOCATION ARE AS FOLLOWS
(IN THOUSANDS):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Long-lived assets
United States............................................... $3,631 $5,949
Japan....................................................... -- 94
Other....................................................... -- 635
------ ------
$3,631 $6,678
====== ======
</TABLE>
NOTE 9: STOCKHOLDERS' EQUITY
REDEEMABLE PREFERRED STOCK
On November 10, 1997, the Board of Directors authorized the designation of
1,000,000 shares of preferred stock, par value $0.10 per share, as Series B
Preferred Stock ("Series B Preferred Stock"). In November 1997, the Company
issued 1,000,000 shares of Series B Preferred Stock for $4.6 million. Each share
is convertible into .45825 shares of Common Stock at the discretion of the
holder and accrues a dividend of $0.137475 per share per annum. The holders of
outstanding shares of Series B Preferred Stock are entitled to vote as a
separate class with respect to certain actions (as defined by the preferred
stock agreement) by the Company. The Company has granted demand registration
rights for the common stock to be issued pursuant to the conversion.
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). In the event of default, the holders of the
Series B Preferred Stock can redeem the preferred stock at a redemption price of
$4.5825 in cash per share plus accrued and unpaid dividends thereon or be
convertible, at the option of the holder, into .611 shares of Common Stock.
Effective September 17, 1998 the Company's stock was delisted from The Nasdaq
SmallCap Market. In October 1998 certain holders of its Series B Preferred Stock
requested redemption and on December 16, 1998 the Company redeemed an aggregate
of 981,997 shares of its Series B Preferred Stock at a price equal to $4.5825
per share plus accrued and unpaid dividends for an aggregate cash redemption
price of approximately $4.6 million. A total of 18,003 shares of the Series B
Preferred Stock remain outstanding as of December 31, 1999.
On August 14, 1998, the Company issued 300,000 shares of the Company's
Series C Convertible Preferred Stock ("Series C Preferred Stock"), par value
$0.10, for an aggregate purchase price of $3,000,000 to Actel Corporation
("Actel"). The Series C Preferred Stock are initially convertible into 200,000
shares of the Company's common stock, are entitled to certain liquidation rights
and are redeemable in the event that all of the Company's remaining outstanding
shares of Series B Preferred Stock are redeemed.
COMMON STOCK
The Company's Certificate of Incorporation was duly amended by a proposal by
the Board of Directors on November 10, 1997 and by vote of the stockholders at
the Annual Meeting of Stockholders on December 15, 1997, to increase the
Company's Common Stock from 40,000,000 shares to 65,000,000
63
<PAGE>
GATEFIELD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 9: STOCKHOLDERS' EQUITY (CONTINUED)
shares of Common Stock authorized at $0.10 par value. At December 31, 1999 there
were 4,693,038 shares of the Company's Common Stock outstanding including 50,000
unissued shares of subscribed stock.
In October 1997, the Company entered into a $3,250,000 Strategic Partnership
Agreement with Infineon, which principal terms included the delivery of
technology, software, equipment, engineering services, a warrant to purchase
Common Stock, and 50,000 shares of Common Stock. The Company has valued the
Common Stock at $761,000 and the warrant to purchase common stock at $900,000
(see Warrants). At December 31, 1997, $739,000 cash related to the warrants had
been received and the remaining $161,000 was received during 1998. At
December 31, 1999, subscribed stock represents cash received for this Common
Stock, which has not been issued as of that date.
In March 1999, the Company's Board of Directors approved a ten for one
reverse stock split of the Company's common stock. In June 1999, the Company's
shareholders approved the reverse stock split. The reverse split became
effective on June 30, 1999 (the "Effective Date"). No fractional shares were
issued. In lieu of any such fractional share interest, each holder will receive
cash in an amount equal to the product obtained by multiplying (i) the closing
sales price of the Company's Common Stock on the Effective Date as reported on
the OTCBB by (ii) the number of shares of Common Stock held by such holder that
would otherwise have been exchanged for such fractional share interest.
STOCK COMPENSATION PLANS
EMPLOYEE PLANS.
The 1993 Stock Option Plan (the "1993 Plan"), as amended, provides for
300,000 shares of Common Stock to be issued under the 1993 Plan.
The 1996 Stock Option Plan (the "1996 Plan"), as amended, provides for
200,000 shares of Common Stock to be issued under the 1996 Plan.
The 1999 Stock Option Plan (the "1999 Plan"), as amended, provides for
300,000 shares of Common Stock to be issued under the 1999 Plan.
Under the Company's stock option Plans, incentive stock options granted must
have a per share exercise price of not less than the fair market value per share
at the date of grant. Non-qualified stock options may be granted at such price
as may be determined by the Board of Directors. Dependent upon the Plan, options
generally vest at specific intervals over a three to four year period and expire
eight to ten years after the grant date. In the event of termination, the
Company has the right to cancel any vested options not exercised within 90 days
of termination.
In July 1997, the Board of Directors authorized the exchange of outstanding
stock options held by all employees for new options with an exercise price of
$4.70 per share, the fair market value of the Common Stock on such date. In
return, participating employees who chose to exchange their options agreed to
accept stock options which will vest on a quarterly basis upon achievement of
certain management goals to be established quarterly for each such employee, or
in any event, in July 1999, should the employee still be employed by the
Company. Options covering a total of 174,410 shares were exchanged under this
program. The effect of such exchange reduced the weighted average exercise price
of the outstanding options from $17.90 to $8.00 per share.
64
<PAGE>
GATEFIELD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 9: STOCKHOLDERS' EQUITY (CONTINUED)
Activity under the employee stock option plans is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------
WEIGHTED-
SHARES AVERAGE
AVAILABLE EXERCISE
FOR GRANT SHARES PRICE
--------- -------- ---------
<S> <C> <C> <C>
Balance, January 1, 1997....................... 105,592 329,812 $18.80
Granted........................................ (374,319) 374,319 4.20
Exercised...................................... -- (27,800) 13.70
Cancelled...................................... 336,034 (336,034) 16.60
-------- -------- ------
Balance, December 31, 1997..................... 67,307 340,297 6.80
Additional shares authorized................... 125,000 -- --
Retire 1984 Plan............................... (58,631) -- --
Granted........................................ (172,283) 172,283 6.30
Exercised...................................... -- (74,254) 5.30
Cancelled...................................... 101,580 (101,531) 11.70
-------- -------- ------
Balance, December 31, 1998..................... 62,973 336,795 5.40
Additional shares authorized................... 300,000
Granted........................................ (175,700) 175,700 6.49
Exercised...................................... -- (16,310) 4.70
Cancelled...................................... 26,760 (26,760) 6.70
-------- -------- ------
Balance, December 31, 1999..................... 214,033 469,425 $ 5.73
======== ======== ======
</TABLE>
The weighted average per share fair value of the stock options granted in
1999, 1998 and 1997 was $6.49, $6.30 and $4.20, respectively. At December 31,
1999, 1998 and 1997, outstanding options under the employee stock option plans
were exercisable for 184,009, 141,533 and 142,321 shares, respectively and
exercisable at weighted-average exercise prices of $5.25, $4.90 and $6.80,
respectively. All outstanding options are nonqualified options and / or
incentive stock options.
The following tables summarize information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- --------------------------
WEIGHTED-AVG
EXERCISE PRICE NUMBER REMAINING WEIGHTED-AVG NUMBER WEIGHTED-AVG
-------------------------------- OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
FROM TO AT 12/31/99 LIFE PRICE AT 12/31/99 PRICE
--------------------- -------- ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
$4.70 $ 4.70 139,353 6.18 $ 4.70 139,353 $ 4.70
$5.30 $ 5.30 147,297 8.96 $ 5.30 36,831 $ 5.30
$6.44 $ 6.44 169,200 9.67 $ 6.44 0 $ --
$7.63 $17.50 13,575 6.99 $11.96 7,825 $14.92
----- ------ ------- ---- ------ ------- ------
$4.70 $17.50 469,425 8.33 $ 5.73 184,009 $ 5.25
===== ====== ======= ==== ====== ======= ======
</TABLE>
65
<PAGE>
GATEFIELD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 9: STOCKHOLDERS' EQUITY (CONTINUED)
NON-EMPLOYEE PLANS.
During 1995, stockholders approved a Non-Employee Directors' stock option
plan (the "Director Option Plan") whereby 20,000 shares of common stock have
been reserved for issuance. Under the Company's Director Option Plan, each
non-employee director initially elected to the Board of Directors in the future
will be granted an option, upon his or her initial election as a director, to
purchase 1,500 shares of common stock. Each non-employee director is also
entitled to receive an option for 750 shares on the date of each Annual Meeting
of Stockholders. All options granted under the Director Option Plan have or will
have an exercise price equal to the fair market value of the common stock on the
date of grant and expire ten years from the date of grant (subject to earlier
termination in the event the optionee ceases to serve as a director of the
Company). Under the Director Option Plan, options from an Initial Grant vest in
full two years after the date of grant. Options from an Annual Grant vest one
year after the date of grant and the right to exercise vested options terminate
one year after a Director ceases to be a director. The Company granted 1,500,
3,750 and 3,750 options to purchase Common Stock at $8.10 to $15.00 per share to
non-employee directors in 1999, 1998 and 1997, respectively, of which 3,750 and
1,500 option grants were canceled in 1999 and 1998, respectively.
EMPLOYEE STOCK PURCHASE PLAN
Through the Company's 1999 Employee Stock Purchase Plan (the "1999 Plan"),
eligible employees of the Company may purchase common stock at 85% of the fair
market value of the stock at the beginning or end of each offering period
(12 months except for the initial period which is 18 months), whichever is
lower. Each participant may contribute up to 15% of total compensation, to a
maximum of $25,000 annually. Additionally, each participant is prohibited from
participation if he owns more than 5% of the Company's common stock. The maximum
number of shares available for purchase under the plan during any six-month
purchase period is 20,000 shares, thus, the plan is designed to last a minimum
of five purchase periods. The 1999 Plan was approved by the stockholders in
June 1999 with an initial 100,000 shares of which 19,362 shares were issued at
the end of the first purchase period in February 2000, at a purchase price of
$3.35 per share. Simultaneous with the creation of the 1999 Plan the Company
terminated its 1987 ESPP (the "Old Plan") which was created in May 1987 with an
initial 10,000 shares of Common Stock and added to over the ensuing years in
blocks of 20,000 until a total of 70,000 shares had been authorized by May of
1998, of which a total of 60,500 shares had been issued at December 31, 1999.
During 1999, 8,083 shares were purchased under the Old Plan for prices ranging
from $6.20 to $7.60 with an average price of $6.89 per share. The fair value of
the 1999 awards under both plans was not considered significant.
ADDITIONAL STOCK PLAN INFORMATION
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, which establishes financial accounting and reporting standards for
stock-based employee compensation plans. This statement defines a fair value
based method of accounting for an employee stock option of similar equity
instrument. Under this method, compensation costs are measured at the grant date
based on the value of the award and are recognized over the service period,
which is the vesting period. The Company continues to account for its
stock-based awards using the intrinsic value method in accordance with APB
No. 25 and its related interpretations. Had compensation cost for the Company's
various stock option plans been
66
<PAGE>
GATEFIELD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 9: STOCKHOLDERS' EQUITY (CONTINUED)
determined consistent with SFAS No. 123, the Company's net loss and diluted net
loss attributable to common stockholders per share would have been changed to
the pro forma amounts indicated below (in thousands, except net loss
attributable to common stockholders per share amounts):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C> <C>
Net loss attributable to common
stockholders..................... As reported $ (9,964) $(8,405) $(22,725)
Pro forma (10,593) (9,116) (23,562)
Diluted net loss per share......... As reported (2.30) (2.00) (7.50)
Pro forma (2.45) (2.20) (7.80)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1999, 1998 and 1997 respectively; expected
volatility of 137% for 1999, 157% for 1998 and 145% for 1997, dividend yield of
0%, risk-free interest rates of 4.78%, 4.60%, and 5.91% for 1999, 1998, and 1997
respectively, and expected lives from the grant date of 7.5 years for 1999,
6.5 years for 1998, and 3.5 years for 1997.
WARRANTS
At December 31, 1999, total warrants outstanding were 377,625. Purchase
price of the securities subject to these warrants range from $5.30 to $14.40 and
they expire at various dates through November 2005.
In April 1999, James R. Fiebiger exercised 5,000 warrants granted in
July 1997 at an option price of $4.70 per share.
In November 1997, the Company entered into a Stock Purchase Agreement ("the
Agreement") in connection with the Series B Preferred Stock financing. Pursuant
to this Agreement, the Company issued warrants to purchase 997,751 shares of
common stock at $1.00 per share. In January 1998, the warrants expired in
accordance with the Agreement upon approval by the stockholders of an increase
in the Company's authorized common stock and the closing of the common stock
financing contemplated by the Agreement.
In October 1997, the Company entered into a licensing agreement under which
the Company granted a stock warrant to purchase 9.9% of its outstanding shares
of Common Stock to a strategic partner at an exercise price equal to 80% of the
Market Price of the Company's Common Stock on the trading day immediately prior
to the date of exercise, subject to a minimum exercise price of $10.00 per
share. Market Price is defined as the last trade price for common stock as
reported on the Nasdaq. In the event that the strategic partners' interest is
decreased to less than 9.9% by future equity offerings, they will have the right
to increase the stock warrant under the same conditions as the equity offering
to maintain its 9.9% interest in the Company. The term of this warrant is for
five years and is exercisable as follows: the first 1/3 shares after 6 months,
an additional 1/3 shares after 12 months, and the final 1/3 after 18 months. The
fair value of the warrants was $900,000 at grant, which has been included in
additional paid-in capital.
67
<PAGE>
GATEFIELD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 9: STOCKHOLDERS' EQUITY (CONTINUED)
In July 1997, the Board of Directors approved the exchange of Common Stock
warrants and nonqualifying stock options held by certain directors for new
Common Stock warrants to purchase 20,256 shares of Common Stock at an exercise
price of $4.70 per shares, the fair market value of the common stock on that
date of exchange. The effect of such exchange reduced the weighted average
exercise price of the warrants and nonqualifying options from $19.70 to $4.70
per share. In November 1997, a director was issued warrants to purchase 750
shares of Common Stock at an exercise price of $14.40 per share. In
February 1998, certain directors exercised their warrants for 13,756 shares of
Common Stock.
In February 1997, the Company issued 50,000 warrants at $22.50 per share in
conjunction with the $3,500,000 convertible debentures. The value of the
warrants was $850,000 and was recorded as a discount to the debentures. In
August 1997, the 50,000 warrants were exchanged for 35,000 warrants at $5.30 per
share. During 1997, 10,500 warrants were exercised for $56,000.
NOTE 10
EMPLOYEE BENEFIT PLANS
Through the Company's elective 401(k) savings plan, eligible U.S. employees
of the Company may contribute up to 17.6% of their pre-tax earnings, subject to
current IRS restrictions. Under the plan, the Company may make discretionary
matching contributions up to $1,500 or 25% of an employee's contributions. The
participants vest in the Company's contribution over five years. Company
contributions to this plan were $38,000 in 1999, $73,000 in 1998 and $161,000 in
1997.
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<PAGE>
SIGNATURE
By Order of the Board of Directors
/s/ LYNNE M. BENNETT
Lynne M. Bennett
SECRETARY
[June 10, 2000]
69
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ACTEL CORPORATION,
GATEFIELD ACQUISITION CORPORATION
AND
GATEFIELD CORPORATION
DATED AS OF MAY 31, 2000
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (the "AGREEMENT") is
made and entered into this 31(st) day of May, 2000, by and among Actel
Corporation, a California corporation ("PURCHASER"), GateField Acquisition
Corporation, a Delaware corporation and wholly-owned subsidiary of Purchaser
("MERGER SUB"), and GateField Corporation, a Delaware corporation (the
"COMPANY"), and, with respect to Section 5.17 hereof only, Idanta Partners Ltd.,
a Texas general partnership ("IDANTA").
RECITALS
WHEREAS, the Boards of Directors of Purchaser, Merger Sub and the Company
each deem it advisable and in the best interests of their respective
corporations and security holders that Merger Sub be merged with and into
Company (the "MERGER") upon the terms and subject to the conditions set forth
herein and in accordance with the Delaware General Corporation Law (the
"DELAWARE LAW") and the California General Corporation Law ("CALIFORNIA LAW").
The Board of Directors of Purchaser and the Board of Directors of Merger Sub
have approved this Agreement. The Board of Directors of Company has approved
this Agreement and has resolved to recommend to the stockholders of Company to
vote in favor of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, Purchaser, Merger Sub and Company
hereby agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.3 hereof),
in accordance with this Agreement and Delaware Law, Merger Sub shall be merged
with and into Company, the separate existence of Merger Sub (except as may be
continued by operation of law) shall cease, and Company shall continue as the
surviving corporation under the corporate name it possesses immediately prior to
the Effective Time. Company after the Merger is sometimes referred to
hereinafter as the "SURVIVING CORPORATION".
1.2 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of this Agreement and the
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the rights and
property of Merger Sub and Company shall vest in the Surviving Corporation, and
all debts and liabilities of Merger Sub and the Company shall become the debts
and liabilities of the Surviving Corporation.
1.3 CONSUMMATION OF THE MERGER. As soon as is practicable after the
satisfaction or waiver of the conditions set forth in Article VI hereof, the
parties hereto will cause the Merger to be consummated by filing with the
Secretary of State of Delaware a Certificate of Merger in the form of EXHIBIT A
(the time of acceptance of such filings with the Secretary of State of Delaware
being the "EFFECTIVE TIME"). On the same day as the filings referred to in this
Section 1.3, a closing (the "CLOSING") will be held at the offices of Wilson
Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo
Alto, California, 94304 or at such other location as the parties may establish
for the purpose of confirming all the foregoing. The date of such Closing is
referred to herein as the "CLOSING DATE."
1.4 CHARTER; BYLAWS; DIRECTORS AND OFFICERS. Unless otherwise determined
by Purchaser prior to the Effective Time, the Certificate of Incorporation and
Bylaws of the Surviving Corporation shall be the Certificate of Incorporation
and Bylaws of Merger Sub, as in effect immediately prior to the Effective
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<PAGE>
Time, until thereafter amended as provided therein and under the applicable
provisions of Delaware law. The directors of Merger Sub immediately prior to the
Effective Time will be the initial directors of the Surviving Corporation, and
the officers of Merger Sub immediately prior to the Effective Time will be the
initial officers of the Surviving Corporation, in each case until their
successors are elected and qualified.
ARTICLE II
CONVERSION OF SECURITIES
2.1 CONVERSION OF SECURITIES. At the Effective Time, by virtue of the
Merger and without any action on the part of Purchaser, Merger Sub, Company or
the holder of any of the following securities:
(a) Each share of Common Stock, $.10 par value per share, of the Company
(the "SHARES") issued and outstanding immediately prior to the Effective Time
(other than Shares to be canceled pursuant to Section 2.1(c) hereof and any
Dissenting Shares (as hereinafter defined)), shall be canceled and extinguished
and be automatically converted into and become a right to receive $5.25 in cash,
without interest (the "MERGER CONSIDERATION"), upon surrender, in the manner
provided in Section 2.4, of the certificate that evidenced the Shares (the
"CERTIFICATE").
(b) Each Share that is issued and held in the treasury of Company, or
issued and outstanding and owned by Purchaser or any direct or indirect
subsidiary of Purchaser or Company, immediately prior to the Effective Time
shall be canceled and retired, and no payment shall be made with respect
thereto.
(c) The holders of Dissenting Shares (as defined below), if any, shall
be entitled to payment for such Shares only to the extent permitted by and in
accordance with the applicable provisions of Delaware Law and California Law.
(d) Each share of Common Stock of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be automatically converted into
shares of the Surviving Corporation.
2.2 COMPANY STOCK OPTIONS AND RELATED MATTERS.
(a) At the Effective Time, Purchaser and the Company (or, if
appropriate, any committee of the Board of Directors of the Company
administering the Company's 1993 Stock Option Plan, as amended, 1996 Stock
Option Plan, as amended, 1999 Stock Option Plan or any other employee or
director stock option plan or arrangement of the Company except the Company's
1995 Directors Plan and the Company's 1999 Employee Stock Purchase Plan
(collectively, the "PLANS") shall take such action as may be required to effect
the following provisions of this Section 2.2(a). Subject to the provisions of
Section 16 of the Exchange Act (as hereinafter defined), as of the Effective
Time each option to purchase Shares pursuant to the Plans (a "COMPANY STOCK
OPTION") which is then outstanding shall be assumed by Purchaser and converted
into an option (an "ASSUMED STOCK OPTION") to purchase the number of shares of
Purchaser Common Stock (rounded down to the nearest whole share) equal to (x)
the number of Shares subject to such option multiplied by (y) the ratio
determined by dividing $5.25 by the Average Purchaser Stock Price (as defined
below) for the five (5) consecutive trading day period ending on the second
trading day following the date on which Purchaser and Company issue a press
release announcing this Agreement (the "EXCHANGE RATIO"), at an exercise price
per share of Purchaser Common Stock (rounded up to the nearest penny) equal to
(A) the former exercise price per share of Company Common Stock under such
option immediately prior to the Effective Time divided by (B) the Exchange
Ratio; PROVIDED, HOWEVER, that in the case of any Company Stock Option which is
an "incentive stock option" (as defined in Section 422 of the Code), the
conversion formula shall be adjusted, if necessary, in a manner consistent with
Section 424(a) of the Code. Except as provided above and except as otherwise
provided by the terms of any Company Stock Option, the Assumed Stock Option
shall be subject to the same terms and conditions (including expiration date,
vesting and exercise provisions) as were applicable to the converted Company
Stock Option immediately prior to the Effective Time. As used herein, the
"AVERAGE PURCHASER STOCK
A-2
<PAGE>
PRICE" shall mean the average of the daily closing prices, regular way, of one
share of Purchaser Common Stock (rounded to the nearest thousandth) on the
Nasdaq National Market (as reported in the New York City edition of the Wall
Street Journal, or, if not reported thereby, another nationally recognized
source).
(b) As soon as practicable after the Effective Time, Purchaser shall
deliver to holders of Company Stock Options appropriate notices setting forth
such holders' rights pursuant to the respective Plans and the agreements
evidencing the grants of such Company Stock Options and stating that such
Company Stock Options and agreements have been assumed by Purchaser and shall
continue in effect on the same terms and conditions (subject to the adjustments
required by this Section 2.2). Purchaser shall comply with the terms of the
Plans and ensure, to the extent required by, and subject to the provisions of,
such Plans, that the Company Stock Options which qualified as incentive stock
options after the Effective Time continue to qualify as incentive stock options
after the Effective Time. Purchaser shall take such actions as are reasonably
necessary for the assumption of the Plans pursuant to this Section 2.2,
including the reservation, issuance and listing of Purchaser Common Stock as is
necessary to effectuate the transactions contemplated by this Section 2.2.
Purchaser shall use reasonable efforts to prepare and file with the Securities
and Exchange Commission (the "SEC") within 30 days after the Effective Time a
registration statement on Form S-8 or other appropriate form with respect to
shares of Purchaser Common Stock subject to the Assumed Stock Options (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such Assumed Stock Options remain outstanding.
(c) The Board of Directors of Company (the "BOARD") shall take all
actions necessary pursuant to the terms of the Company's 1999 Employee Stock
Purchase Plan (the "ESPP") in order to shorten the Offering Periods (as defined
in the ESPP) then in progress such that the New Exercise Date (as defined in the
ESPP) shall occur immediately prior to the Effective Time.
2.3 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the contrary,
holders of Shares which are entitled to dissenter's rights in connection with
the Merger under the applicable provisions of Delaware Law and California Law
(collectively, the "DISSENTING SHARES") shall not be converted into or represent
the right to receive the Merger Consideration. Such stockholders shall be
entitled to receive payment of the fair market value of such Shares held by them
in accordance with the provisions of Delaware Law or California Law, except that
all Dissenting Shares held by stockholders who shall have failed to perfect or
who effectively shall have withdrawn or lost their rights to the payment of fair
market value for such Shares under Delaware Law or California Law shall
thereupon be deemed to have been converted into and to have become exchangeable
for, as of the Effective Time, the right to receive the Merger Consideration,
without any interest thereon, upon surrender, in the manner provided in
Section 2.4, of the certificate or certificates that formerly evidenced such
Shares.
(b) Company shall give Purchaser (i) prompt notice of any demand for
payment of fair market value received by Company, the withdrawals of any such
demand, and any other instrument served pursuant to Delaware Law or California
Law and received by Company and (ii) the opportunity to direct all negotiations
and proceedings with respect to demands for payment of fair market value under
Delaware Law or California Law. Company shall not, except with the prior written
consent of Purchaser, make any payment with respect to any demands for payment
of fair market value or offer to settle or settle any such demands.
2.4 EXCHANGE OF CERTIFICATES.
(a) From and after the Effective Time, a bank or trust company to be
designated by Purchaser (the "EXCHANGE AGENT") shall act as exchange agent in
effecting the exchange of the Merger Consideration for Certificates which, prior
to the Effective Time, represented Shares entitled to payment pursuant to
Section 2.1 hereof. On or before the Effective Time, Purchaser shall deposit
with the Exchange Agent the aggregate Merger Consideration (the "DEPOSIT
AMOUNT") in trust for the benefit of the holders of
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<PAGE>
Certificates. Pending distribution pursuant to this Section 2.4(a) of the
Deposit Amount deposited with the Exchange Agent, Purchaser may direct the
Exchange Agent to invest such Deposit Amount, PROVIDED that such investments
(i) shall be obligations of or guaranteed by the United States of America, in
commercial paper obligations receiving the highest rating from either Moody's
Investors Services, Inc. or Standard & Poor's Corporation, or in certificates of
deposit, bank repurchase agreements or bankers acceptances of commercial banks
with capital exceeding $500,000,000 (collectively "PERMITTED INVESTMENTS") or in
money market funds which are invested solely in Permitted Investments and
(ii) shall have maturities that will not prevent or delay payments to be made
pursuant to this Section 2.4(a). Upon the surrender of each such Certificate and
the issuance and delivery by the Exchange Agent of the Merger Consideration in
exchange therefor, such Certificate shall forthwith be canceled. Until so
surrendered and exchanged, each such Certificate (other than Certificates
representing Shares held by Purchaser or the Company or any direct or indirect
subsidiary of Purchaser or the Company and Dissenting Shares) shall represent
solely the right to receive the Merger Consideration, without interest,
multiplied by the number of Shares represented by such Certificate. Promptly
after the Effective Time (but in no event later than five (5) business days
thereafter), the Exchange Agent shall mail to each record holder of Certificates
which immediately prior to the Effective Time represented Shares a form of
letter of transmittal and instructions for use in surrendering such Certificates
and receiving the Merger Consideration therefor. Upon the surrender to the
Exchange Agent of such an outstanding Certificate together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be required pursuant to
such instructions, the holder shall receive the Merger Consideration, without
any interest thereon, and such certificate shall be canceled. If any Merger
Consideration is to be paid to a name other than the name in which the
Certificate representing Shares surrendered in exchange therefor is registered,
it shall be a condition to such payment or exchange that the person requesting
such payment or exchange shall pay to the Exchange Agent any transfer or other
taxes required by reason of the payment of such Merger Consideration to a name
other than that of the registered holder of the Certificate surrendered, or such
person shall establish to the satisfaction of the Exchange Agent that such tax
has been paid or is not applicable. Notwithstanding the foregoing, neither the
Exchange Agent nor any party hereto shall be liable to a holder of Shares for
any Merger Consideration delivered to a public official pursuant to applicable
abandoned property laws.
(b) Purchaser shall not be entitled to the return of any of the Deposit
Amount in the possession of the Exchange Agent relating to the transactions
described in this Agreement until the date which is one year after the Effective
Time. Thereafter, each holder of a Certificate representing a Share may
surrender such Certificate to the Surviving Corporation or Purchaser and
(subject to applicable abandoned property, escheat and similar laws) receive in
exchange therefor the Merger Consideration, without any interest thereon, but
shall have no greater rights against the Surviving Corporation or Purchaser than
may be accorded to general creditors of the Surviving Corporation or Purchaser.
(c) At and after the Effective Time, the holders of Certificates to be
exchanged for the Merger Consideration pursuant to this Agreement shall cease to
have any rights as to stockholders of the Company except for the right to
surrender such holder's Certificates in exchange for payment of the Merger
Consideration, and after the Effective Time there shall be no transfers on the
stock transfer books of the Surviving Corporation of the Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation or Purchaser or
the Exchange Agent, they shall be canceled and exchanged for the Merger
Consideration, as provided in this Article I, subject to applicable law in the
case of Dissenting Shares.
(d) The provisions of this Section 2.4 shall also apply to Dissenting
Shares that lose their status as such, except that the obligations of Exchange
Agent under this Section 2.4 shall commence on the date of loss of such status.
2.5 SUPPLEMENTARY ACTION. If at any time after the Effective Time, any
further assignments or assurances in law or any other things are necessary or
desirable to vest or to perfect or confirm of record in
A-4
<PAGE>
the Surviving Corporation the title to any property or rights of either the
Company or Merger Sub, or otherwise to carry out the provisions of this
Agreement, the officers and directors of the Surviving Corporation are hereby
authorized and empowered, in the name of and on behalf of the Company and Merger
Sub, to execute and deliver any and all things necessary or proper to vest or to
perfect or confirm title to such property or rights in the Surviving
Corporation, and otherwise to carry out the purposes and provisions of this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser and Merger Sub that, except
as described in the disclosure letter furnished by the Company to Purchaser
within twenty one (21) days after the date of this Agreement (the "SIGNING
DISCLOSURE LETTER") as supplemented by the disclosure letter furnished by the
Company to the Purchaser at the Closing (the "CLOSING DISCLOSURE LETTER" and,
together with the Signing Disclosure Letter, the "COMPANY DISCLOSURE LETTER"):
3.1 ORGANIZATION AND QUALIFICATION.
(a) Each of the Company and its Subsidiaries (as defined below) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, and has all requisite corporate power
and authority to own, operate and lease its properties and to carry on its
business as it is now being conducted. Each of the Company and its Subsidiaries
is duly qualified as a foreign corporation, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary except where
such failure would not have a Material Adverse Effect. Section 3.1 of the
Company Disclosure Letter sets forth a list of all Subsidiaries of the Company.
Other than the Company's ownership interest in its Subsidiaries, the Company has
no direct or indirect equity or related interest in any partnership,
corporation, joint venture, business association or other entity.
(b) In this Agreement, (i) a "SUBSIDIARY" means any corporation more
than fifty percent (50%) of whose outstanding voting securities are, or any
partnership, joint venture or other entity more than fifty percent (50%) of
whose total equity interest is, directly or indirectly owned by Purchaser or the
Company or such other entity, as the case may be, (ii) any reference to any
event, change or effect being "material" with respect to any entity or group of
entities means any event, change or effect which is material to the businesses,
assets, results of operations or financial conditions of such entity or group of
entities and (iii) "MATERIAL ADVERSE EFFECT" means, with respect to any entity
or group of entities, any change in or effect on the business, properties or
assets of such entity or group of entities that is materially adverse to the
business, properties, assets, results of operations or financial condition of
such entity or group of entities, taken as a whole.
3.2 CERTIFICATE OF INCORPORATION AND BYLAWS. The Company shall furnish to
Purchaser within twenty one (21) days after the date of this Agreement complete
and correct copies of the Certificate of Incorporation (or other charter
document) and Bylaws of the Company and similar governing instruments of each of
its Subsidiaries, and in each case such copies shall be accurate and complete as
of the date of this Agreement.
3.3 CAPITALIZATION OF THE COMPANY.
(a) The authorized capital stock of the Company consists of (i)
2,000,000 shares of preferred stock, of which (A) 1,000,000 shares have been
designated Series B Preferred Stock, of which 18,003 are issued and outstanding
(the "SERIES B PREFERRED"), (B) 300,000 shares of which have been designated
Series C Preferred Stock, all of which are issued and outstanding (the
"SERIES C PREFERRED"), and (C) 420,000 shares of which have been designated
Series C-1 Preferred Stock, none of which are issued and
A-5
<PAGE>
outstanding (the "SERIES C-1 PREFERRED") but up to all of which are issuable
upon conversion of that certain Convertible Promissory Note dated May 25, 1999,
issued to Purchaser (the "CONVERTIBLE PROMISSORY NOTE"); and (ii) 65,000,000
shares of common stock, par value $.10 per share, of which (A) 4,662,464 Shares
are issued and outstanding, (B) 165,158 shares of common stock are reserved for
issuance pursuant to the 1993 Stock Option Plan, as amended (of which options to
purchase 157,338 Shares are outstanding as of the date of this Agreement and
options to purchase 7,820 Shares remain available for future grant), (C) 20,000
shares of common stock are reserved for issuance pursuant to the 1995 Directors
Plan (of which options to purchase 2,250 Shares are outstanding as of the date
of this Agreement and options to purchase 17,750 Shares remain available for
future grant), (D) 198,292 shares of common stock are reserved for issuance
pursuant to the 1996 Stock Option Plan, as amended (of which options to purchase
194,296 Shares are outstanding as of the date of this Agreement and options to
purchase 3,996 Shares remain available for future grant), (E) 300,000 shares of
common stock are reserved for issuance pursuant to the 1999 Stock Option Plan
(of which options to purchase 288,000 Shares are outstanding as of the date of
this Agreement and options to purchase 12,000 Shares remain available for future
grant), and (F) 60,647 shares of common stock are reserved for issuance pursuant
to the 1999 Employee Stock Purchase Plan (of which options to purchase 60,647
Shares are reserved for issuance and no Shares remain available for future
grant). Except for (i) the rights created pursuant to this Agreement and the
Plans and (ii) the Company's right to repurchase any unvested Shares under the
Plans, there are no other options, warrants, calls, rights commitments or
agreements of any character to which the Company is a party or by which it is
bound obligating the Company to issue, sell, deliver, repurchase, or redeem or
cause to be issued, sold, delivered, repurchased or redeemed any shares of
capital stock of, or equity interests in, the Company. All outstanding Shares
are, and all Shares subject to issuance as aforesaid, upon issuance on the terms
and conditions specified in the instruments pursuant to which they are issuable,
will be, duly authorized, validly issued, fully paid and nonassessable and free
of preemptive rights or rights of first refusal. None of the Company or any of
its Subsidiaries is required to redeem, repurchase or otherwise acquire shares
of capital stock of the Company or any of its Subsidiaries, respectively, as a
result of the transactions contemplated by this Agreement. The Company has no
stockholder rights plan or agreement in force providing for the issuance to
holders of Shares of rights to purchase or receive stock, cash or other assets
upon the acquisition or proposed acquisition of Shares by a person or entity (a
"RIGHTS PLAN"), nor has the Company's Board of Directors or stockholders ever
adopted a Rights Plan.
(b) The Company owns all of the outstanding capital stock of its
Subsidiaries free and clear of any liens, security interests, pledges,
agreements, claims, charges or encumbrances of any nature whatsoever. There are
no voting trusts or other agreements or understandings to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries may be bound with respect to the voting of the capital stock of the
Company or any of the Company's Subsidiaries.
3.4 CORPORATE POWER, AUTHORIZATION AND ENFORCEABILITY. The Company has
full corporate power and authority to enter into this Agreement and to perform
its obligations hereunder and to consummate all the transactions contemplated
hereby. The execution and delivery of this Agreement by the Company, the
performance by the Company of its obligations hereunder and the consummation by
the Company of the transactions contemplated hereby have been duly and validly
authorized by the Company's Board of Directors and no other corporate action on
the part of the Company is necessary to authorize this Agreement or to
consummate the transactions contemplated hereby (other than, with respect to the
Merger, the approval and adoption of this Agreement by stockholders holding a
majority of the outstanding Shares). All corporate actions necessary to ensure
that the provisions of Section 203 of Delaware Law shall not be applicable to
the consummation of the transactions contemplated by this Agreement have been
taken prior to the execution of this Agreement. This Agreement has been duly
executed and delivered by the Company and (subject to obtaining any necessary
approval of its stockholders) is a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
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3.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Assuming satisfaction of any applicable requirements referred to in
Section 3.5(b) below, the execution and delivery by the Company of this
Agreement, the compliance by the Company with the provisions hereof and the
consummation by the Company of the transactions contemplated hereby will not
conflict with or violate any statute, law, ordinance, rule, regulation, order,
writ, judgment, award, injunction, decree or ruling applicable to the Company or
any of its Subsidiaries or any of their respective properties, or conflict with,
violate or result in any breach of or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, cancellation or acceleration of, or
the loss of a benefit under, or result in the creation of a lien, security
interest, charge or encumbrance on any of the properties or assets of the
Company or any of its Subsidiaries pursuant to (i) the Certificate of
Incorporation (or other charter document) or Bylaws of the Company or the
similar governing instruments of any of its Subsidiaries or (ii) any contract,
lease, agreement, note, bond, mortgage, indenture, deed of trust, or other
instrument or obligation, or any license, authorization, permit, certificate or
other franchise, other than such conflicts, violations, breaches, defaults,
losses, rights of termination, amendment, cancellation or acceleration, liens,
security interests, charges or encumbrances as to which requisite waivers have
been obtained.
(b) Other than in connection with or in compliance with the provisions
of Delaware Law, California Law, the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), or the "takeover" or "blue sky" laws of various states,
(i) no notice, report, registration, declaration or other filing with any
federal, state or local government, court, administrative agency or commission
or other governmental authority or instrumentality, domestic or foreign
(collectively, "GOVERNMENTAL ENTITIES"), is required in connection with the
execution or delivery of this Agreement by the Company or the performance by the
Company of its obligations hereunder or the consummation by the Company of the
transactions contemplated by this Agreement and (ii) no waiver, consent,
approval, order or authorization of any Governmental Entity is required to be
obtained in connection with the execution or delivery of this Agreement by the
Company or the performance by the Company of its obligations hereunder or the
consummation by the Company of the transactions contemplated by this Agreement.
3.6 SEC REPORTS; FINANCIAL STATEMENTS.
(a) The Company has filed in a timely manner all forms, reports and
documents required to be filed with the SEC since August 14, 1998, and has made
available to Purchaser all such forms, reports and documents. All such required
forms, reports and documents (including those that the Company may file
subsequent to the date hereof) are referred to herein as the "SEC REPORTS." As
of their respective dates, the SEC Reports (i) were prepared in accordance with
the requirements of the Securities Act of 1933, as amended (the "SECURITIES
ACT"), or the Exchange Act, as the case may be, and the rules and regulations of
the SEC thereunder applicable to such the SEC Reports, and (ii) did not at the
time they were filed (or if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. None of the
Company's Subsidiaries is required to file any forms, reports or other documents
with the SEC.
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(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the SEC Reports (the "FINANCIAL
STATEMENTS"), including any of the SEC Reports filed after the date hereof until
the Closing, (x) complied as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, (y) was prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited interim financial statements, as
may be permitted by the SEC on Form 10-Q, 8-K or any successor form under the
Exchange Act) and (z) fairly presented the consolidated financial position of
the Company and its Subsidiaries as at the respective dates thereof and the
consolidated results of the Company's operations and cash flows for the periods
indicated, except that the unaudited interim financial statements may not
contain footnotes and were or are subject to normal and recurring year-end
adjustments. The balance sheet of the Company contained in the SEC Reports as of
March 31, 2000 is hereinafter referred to as the "COMPANY BALANCE SHEET." Except
as disclosed in the Financial Statements, since the date of the Company Balance
Sheet neither the Company nor any of its Subsidiaries has any liabilities
(absolute, accrued, contingent or otherwise) of a nature required to be
disclosed on a balance sheet or in the related notes to the consolidated
financial statements prepared in accordance with GAAP which are, individually or
in the aggregate, material to the business, results of operations or financial
condition of the Company and its Subsidiaries taken as a whole, except
liabilities (i) provided for in the Company Balance Sheet, or (ii) incurred
since the date of the Company Balance Sheet in the ordinary course of business
consistent with past practices and immaterial in the aggregate and liabilities
incurred in connection with this Agreement.
(c) The Company shall furnish to Purchaser within twenty one (21) days
after the date of this Agreement a complete and correct copy of any amendments
or modifications, which have not yet been filed with the SEC but which are
required to be filed, to agreements, documents or other instruments which
previously had been filed by the Company with the SEC pursuant to the Securities
Act or the Exchange Act.
3.7 NO DEFAULT. As of the date of this Agreement, neither the Company nor
any of its Subsidiaries is in default or violation (and no event has occurred
which with or without notice, the lapse of time or the happening or occurrence
of any other event would constitute a default or violation) of any term,
condition or provision of (i) its Certificate of Incorporation or Bylaws (or
similar governing instruments), or (ii) any material contract, lease, agreement,
license, note, bond, mortgage, indenture, deed of trust or other instrument or
obligation to which the Company or any of its Subsidiaries is a party or by
which the Company or its Subsidiaries or any of their properties or assets may
be bound (nor to the knowledge of the Company is any other party thereto in
breach thereof or default thereunder).
3.8 COMPLIANCE WITH LAW. Except as disclosed in the SEC Reports, each of
the Company and its Subsidiaries is in compliance, and has conducted its
respective businesses so as to comply with all statutes, laws, ordinances,
rules, regulations, permits and approvals applicable to its operations. Except
as disclosed in the SEC Reports, no investigation or review by any Governmental
Entity with respect to the Company, any of its Subsidiaries or any property
owned or leased by the Company or any of its Subsidiaries is pending or, to the
knowledge of the Company, threatened. The Company and its Subsidiaries have all
permits, authorizations, licenses and franchises from Governmental Entities
required to conduct their businesses as now being conducted.
3.9 ABSENCE OF CERTAIN CHANGES. Except as contemplated by this Agreement
or as disclosed in the SEC Reports, the Company's financial statements for the
fiscal year ended December 31, 1999, or the Company Balance Sheet, since the
date of the Company Balance Sheet (the date of the Company Balance Sheet is
referred to as the "BALANCE SHEET DATE"), the Company and its Subsidiaries have
conducted their business in the ordinary course consistent with past practice
and have not taken any of the actions set forth in paragraphs (a) through (m) of
Section 5.1, and there has not been any occurrence that has had or may
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reasonably be expected to have a Material Adverse Effect including any material
change by the Company in its accounting methods, principles or practices, except
as required by changes in GAAP.
3.10 NO UNDISCLOSED LIABILITIES. Except for liabilities and obligations
recognized or disclosed in the Financial Statements or disclosed in the SEC
Reports or incurred since the Balance Sheet Date in the ordinary course of
business consistent with past practices, neither the Company nor any of its
Subsidiaries has any liabilities or obligations of any nature whatsoever
(whether absolute, accrued, fixed, contingent, liquidated, unliquidated or
otherwise) required by GAAP to be recognized or disclosed on a consolidated
balance sheet of the Company and its Subsidiaries or in the notes thereto.
3.11 LITIGATION. Except as set forth in the SEC Reports, there is no
action, suit, investigation or proceeding pending against or, to the knowledge
of the Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties and there is no judgment,
decree, writ, injunction, award, ruling or order of any Governmental Entity or
arbitrator outstanding against or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries. The Company shall
make available to Purchaser within twenty one (21) days after the date of this
Agreement correct and complete copies of all correspondence prepared by its
counsel for the Company's auditors in connection with the last two completed
audits of the Company's financial statements and any such correspondence since
the date of the last such audit. As of the date of this Agreement, there are no
actions, suits or proceedings pending or, to the knowledge of the Company,
threatened against the Company arising out of or in any way related to this
Agreement, the Merger or any of the transactions contemplated hereby or thereby.
3.12 ERISA.
(a) Section 3.12 of the Company Disclosure Letter identifies each
"employee benefit plan," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and all other written or
formal plans or agreements involving direct or indirect compensation (including
any employment agreements entered into between the Company or any of its
Subsidiaries and any employee or former employee of the Company or any of its
Subsidiaries, but excluding worker's compensation, unemployment compensation and
other government-mandated programs) currently or previously maintained,
contributed to or entered into by the Company or any of its Subsidiaries or any
ERISA Affiliate thereof for the benefit of any employee or former employee of
the Company or any of its Subsidiaries under which the Company or any of its
Subsidiaries or any ERISA Affiliate thereof has any present or future obligation
or liability (collectively, the "COMPANY EMPLOYEE PLANS"). For purposes of this
Section 3.12, "ERISA AFFILIATE" shall mean any entity which is a member of
(i) a "controlled group of corporations," as defined in Section 414(b) of the
Internal Revenue Code of 1986, as amended (the "CODE"), (ii) a group of entities
under "common control," as defined in Section 414(c) of the Code or (iii) an
"affiliated service group," as defined in Section 414(m) of the Code or treasury
regulations promulgated under Section 414(o) of the Code, any of which includes
the Company or any of its Subsidiaries. The only Company Employee Plans which
individually or collectively would constitute an "employee pension benefit
plan," as defined in Section 3(2) of ERISA (collectively, the "COMPANY PENSION
PLANS"), are identified as such in Section 3.12 of the Company Disclosure
Letter.
(b) No Company Pension Plan is subject to Title IV of ERISA, Part 3 of
Title I of ERISA or Section 412 of the Code. No Company Pension Plan constitutes
or has since the enactment of ERISA constituted a "multiemployer plan," as
defined in Section 3(37) of ERISA. No "prohibited transaction," as defined in
Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to
any Company Employee Plan which is covered by Title I of ERISA, excluding
transactions effected pursuant to a statutory or administrative exemption.
Nothing done or omitted to be done and no transaction or holding of any asset
under or in connection with any Company Employee Plan has or is likely to make
the Company or any of its Subsidiaries or any officer or director thereof
subject to any material liability under Title I of ERISA or liable for any
material tax pursuant to Section 4975 of the Code.
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(c) Each Company Pension Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified during the
period from its adoption to date, except to the extent that the requirements for
qualification may be satisfied by adopting retroactive amendments under Section
401(b) of the Code and the regulations thereunder or under Section 1140 of the
Tax Reform Act of 1986. Each trust forming a part of a Company Pension Plan is
exempt from tax pursuant to Section 501(a) of the Code. Each Company Pension
Plan has been maintained substantially in compliance with its terms and with the
applicable requirements of ERISA and the Code.
(d) Section 3.12 of the Company Disclosure Letter identifies each
employment, severance or other similar contract, arrangement or policy and each
plan or arrangement (written or oral) providing for insurance coverage
(including any self-insured arrangements), vacation benefits, severance or
severance-type benefits, disability benefits, death benefits, hospitalization
benefits, retirement benefits, deferred compensation, profit-sharing, bonuses,
stock options, stock purchase, phantom stock, stock appreciation or other forms
of incentive compensation or post-retirement insurance, compensation or benefits
which (i) is not a Company Employee Plan, (ii) is entered into, maintained or
contributed to, as the case may be, by the Company or any of its Subsidiaries,
and (iii) covers any employee or former employee of the Company or any of its
Subsidiaries. Such contracts, plans and arrangements as are described in this
Section 3.12 are herein referred to collectively as the "COMPANY BENEFIT
ARRANGEMENTS." Each Company Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations which are applicable to such
Company Benefit Arrangements.
(e) Except as set forth in Section 3.12 of the Company Disclosure
Letter, there has been no amendment to, written interpretation or announcement
(whether or not written) by the Company or any of its Subsidiaries relating to,
or change in employee participation or coverage under, any Company Employee Plan
or Company Benefit Arrangement which would increase materially the expense of
maintaining such Company Employee Plan or Company Benefit Arrangement above the
level of the expense incurred in respect thereof for the fiscal year ended
December 31, 1999.
(f) The Company has materially complied with the requirements of Section
4980B of the Code with respect to any "qualifying event" (as defined in Section
4980B(f)(3) of the Code) occurring prior to and including the Closing Date, and,
to the best of the Company's knowledge, no tax payable on account of Section
4980B of the Code has been incurred with respect to any current or former
employees of the Company or any of its Subsidiaries.
(g) Except as set forth in Section 3.12 of the Company Disclosure
Letter, there is no contract, instrument, agreement or arrangement with a
"disqualified individual" (as defined in Section 280G(c) of the Code) who is
also an employee or director of the Company or any subsidiary that individually
or collectively could result in a disallowance of the deduction for any "excess
parachute payment" (as defined in Section 280G(b)(i) of the Code) or the
imposition of the Excuse tax provided in Section 4999 of the Code. Set forth in
Section 3.12 of the Company Disclosure Letter is (i) the maximum amount that
could be paid to each Key Employee (as defined below) as a result of the
transactions contemplated by this Agreement under all employment, severance and
termination agreements, other compensation arrangements and Company Benefit
Arrangements concurrently in effect and (ii) the "base amount" (as defined in
Section 280G(b)(3) of the Code) for each Key Employee calculated as of the date
of this Agreement. "KEY EMPLOYEE" for this purpose means a "disqualified
individual" (as defined in Section 280G(c) of the Code) who is also an employee
or director of the Company or any subsidiary of the Company.
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3.13 TAX RETURNS AND REPORTS.
(a) The Company and its Subsidiaries have timely filed with the
appropriate taxing authorities all material federal, state, county, local and
foreign returns, estimates, information statements, reports and other documents
in respect of Taxes (as defined below) required to be filed by the Company and
its Subsidiaries. All amounts shown due on such returns have been timely paid as
required by law. For purposes of this Agreement, "TAXES" and "TAX" shall mean
any and all material federal, state, local or foreign taxes and other
governmental liabilities or assessments, including, without limitation, all
income, franchise, property, excise, withholding, sales and use, payroll,
profit, trade, capital, occupation, value-added, unitary, stamp, transfer,
registration, license, net worth and other similar taxes, levies, imposts,
duties, deficiencies and assessments, together with all interest, penalties and
additions imposed with respect thereto.
(b) None of the federal, state, local or foreign Tax returns of the
Company or its Subsidiaries is presently being examined, audited or contested by
the relevant taxing authorities. The federal income Tax returns of the Company
and each of its Subsidiaries consolidated in such returns have been examined and
finally resolved by the Internal Revenue Service (or the applicable statute of
limitations has expired) for all years through 1999. All deficiencies asserted
as a result of such examination have been paid or finally settled or are being
contested in good faith. Neither the Company nor any of its Subsidiaries has
executed, or been asked in writing to execute, an agreement or waiver extending
the statutory period of limitation applicable to any Tax return for any period
with respect to which the applicable statute of limitations has not expired.
(c) The Company has no ruling requests currently pending with the
Internal Revenue Service.
(d) Neither the Company nor any of its Subsidiaries is a party to (or
obligated under) any Tax allocation, tax sharing or tax indemnity agreement
which has as a party any person or entity other than the Company or its
Subsidiaries.
3.14 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) Section 3.14 of the Company Disclosure Letter lists the real
property owned by the Company. Section 3.14 of the Company Disclosure Letter
lists all real property leases to which the Company is a party and each
amendment thereto. All such current leases are in full force and effect, are
valid and effective in accordance with their respective terms, and there is not,
under any of such leases, any existing default or event of default (or event
which with notice or lapse of time, or both, would constitute a default) that
would give rise to a claim in an amount greater than $100,000.
(b) The Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any liens, pledges, charges, claims, security
interests or other encumbrances of any sort, except as reflected in the
Financial Statements and except for liens for taxes not yet due and payable and
such imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the value,
or materially interfere with the present use, of the property subject thereto or
affected thereby.
3.15 INTELLECTUAL PROPERTY. For the purposes of this Agreement, the
following terms have the following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United
States, international and foreign patents and applications therefor and
all reissues, divisions, renewals, extensions, provisionals,
continuations and continuations-in-part thereof; (ii) all inventions
(whether patentable or not), invention disclosures, improvements, trade
secrets, proprietary information, know how, technology, technical data
and customer lists, and all documentation relating to any of the
foregoing; (iii) all copyrights,
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copyrights registrations and applications therefor, and all other rights
corresponding thereto throughout the world; (iv) all industrial designs
and any registrations and applications therefor throughout the world;
(v) all trade names, logos, common law trademarks and service marks,
trademark and service mark registrations and applications therefor
throughout the world; (vi) all databases and data collections and all
rights therein throughout the world; and (vii) any similar or equivalent
rights to any of the foregoing anywhere in the world.
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual Property that
is owned by, or exclusively licensed to, the Company.
"REGISTERED INTELLECTUAL PROPERTY" means all United States, international
and foreign: (i) patents and patent applications (including provisional
applications); (ii) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or
applications related to trademarks; (iii) registered copyrights and
applications for copyright registration; and (iv) any other Intellectual
Property that is the subject of an application, certificate, filing,
registration or other document issued, filed with, or recorded by any
state, government or other public legal authority.
(a) Section 3.15(a) of the Company Disclosure Letter lists the
Registered Intellectual Property owned by, or filed in the name of, the Company
(the "COMPANY REGISTERED INTELLECTUAL PROPERTY").
(b) Section 3.15(b) of the Company Disclosure Letter lists all
proceedings or actions before any court, tribunal (including the United States
Patent and Trademark Office ("PTO") or equivalent authority anywhere in the
world) related to any Company Intellectual Property.
(c) No Company Intellectual Property or product or service of the
Company is subject to any proceeding or outstanding decree, order, judgment,
agreement, or stipulation restricting in any manner the use, transfer, or
licensing thereof by the Company, or which may affect the validity, use or
enforceability of such Company Intellectual Property.
(d) Each item of Company Registered Intellectual Property is valid and
subsisting, all necessary registration, maintenance and renewal fees in
connection with such Registered Intellectual Property have been made and all
necessary documents and certificates in connection with such Registered
Intellectual Property have been filed with the relevant patent, copyright,
trademark or other authorities in the United States or foreign jurisdictions, as
the case may be, for the purposes of maintaining such Registered Intellectual
Property.
(e) The Company owns and has good and exclusive title to each item of
Company Intellectual Property, including all Company Registered Intellectual
Property listed on Section 3.15(a) of the Company Disclosure Letter but
excluding all Intellectual Property that is exclusively licensed to the Company,
free and clear of any lien or encumbrance; and the Company is the exclusive
owner of all trademarks and trade names used in connection with the operation or
conduct of the business of the Company, including the sale of any products or
the provision of any services by the Company.
(f) The Company owns exclusively, and has good title to, all copyrighted
works that are Company products or which the Company otherwise purports to own.
(g) To the extent that any work, invention, or material has been
developed or created by a third party specifically for the Company, the Company
has a written agreement with such third party with respect thereto and the
Company thereby has obtained ownership of, and is the exclusive owner of, all
Intellectual Property in such work, material or invention by operation of law or
by valid assignment.
(h) The Company has not transferred ownership of, or granted any
exclusive license with respect to, any Intellectual Property that is material
Company Intellectual Property to any third party.
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(i) Section 3.15(i) of the Company Disclosure Letter lists all material
contracts, licenses and agreements to which the Company is a party (i) with
respect to Company Intellectual Property licensed or transferred to any third
party; or (ii) pursuant to which a third party has licensed or transferred any
Intellectual Property to the Company, with a cost or royalty value in excess of
$50,000. Section 3.15(i) of the Company Disclosure Letter lists any material
agreements pursuant to which the Company has licensed any Company Intellectual
Property or products to any third party that differs in any material respect
from its standard form.
(j) The contracts, licenses and agreements listed in Section 3.15(i) of
the Company Disclosure Letter are in full force and effect. The consummation of
the transactions contemplated by this Agreement will neither violate nor result
in the breach, modification, cancellation, termination, or suspension of such
contracts, licenses and agreements. The Company is in compliance with, and has
not breached any term any of such contracts, licenses and agreements and, to the
knowledge of the Company, all other parties to such contracts, licenses and
agreements are in compliance with, and have not breached any term of, such
contracts, licenses and agreements. Following the Closing Date, Purchaser will
be permitted to exercise all of the Company's rights under the contracts,
licenses and agreements listed in Section 3.15(i) of the Company Disclosure
Letter to the same extent the Company would have been able to had the
transactions contemplated by this Agreement not occurred and without the payment
of any additional amounts or consideration other than ongoing fees, royalties or
payments which the Company would otherwise be required to pay.
(k) Section 3.15(k) of the Company Disclosure Letter lists all
contracts, licenses and agreements between the Company and any third party
wherein or whereby the Company has agreed to, or assumed, any obligation or duty
to warrant, indemnify, hold harmless or otherwise assume or incur any obligation
or liability with respect to the infringement or misappropriation by the Company
or such third party of the Intellectual Property of any third party.
(l) The operation of the business of the Company as such business
currently is conducted, or is reasonably contemplated to be conducted, including
the Company's design, development, manufacture, marketing and sale of the
products or services of the Company (including with respect to products
currently under development) has not, does not and to the Company's knowledge
will not infringe or misappropriate the Intellectual Property of any third party
or constitute unfair competition or trade practices under the laws of any
jurisdiction.
(m) The Company has not received notice from any third party that the
operation of the business of the Company or any act, product or service of the
Company, infringes or misappropriates the Intellectual Property of any third
party or constitutes unfair competition or trade practices under the laws of any
jurisdiction. To the knowledge of the Company, there is no current claim
asserted against any customer of the Company which alleges that the customer's
use or distribution of the Company's products violates any Intellectual Property
of any third party.
(n) To the knowledge of the Company, no Person has or is infringing or
misappropriating any Company Intellectual Property.
(o) The Company has taken all steps that are reasonably required to
protect the Company's rights in the Company's confidential information and trade
secrets or any trade secrets or confidential information of third parties
provided to the Company, and, without limiting the foregoing, the Company has
and enforces a policy requiring each employee and contractor to execute a
proprietary information/ confidentiality agreement substantially in the
Company's standard form and all current and former employees and contractors of
the Company have executed such an agreement.
3.16 LABOR MATTERS.
(a) Section 3.16 of the Company Disclosure Letter sets forth a list of
all employment, labor or collective bargaining agreements to which the Company
or any of its Subsidiaries is party and, except as set
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forth therein, there are no employment, labor or collective bargaining
agreements which pertain to employees of the Company or any of its Subsidiaries.
The Company shall made available to Purchaser within twenty one (21) days after
the date of this Agreement true and complete copies of (i) the employment
agreements listed on Section 3.16 of the Company Disclosure Letter and (ii) the
labor or collective bargaining agreements listed on Section 3.16 of the Company
Disclosure Letter, together with all amendments, modifications, supplements and
side letters affecting the duties, rights and obligations of any party
thereunder.
(b) No employees of the Company or any of its Subsidiaries are
represented by any labor organization; no labor organization or group of
employees of the Company or any of its Subsidiaries has made a pending demand
for recognition or certification; and, to the Company's knowledge, there are no
representations or certification proceedings or petitions seeking a
representation proceeding presently pending or threatened in writing to be
brought or filed with the National Labor Relations Board or any other labor
relations tribunal or authority. To the Company's knowledge, there are no
organizing activities involving the Company or any of its Subsidiaries pending
with any labor organization or group of employees of the Company or any of its
Subsidiaries.
(c) There are no unfair labor practice charges, grievances or complaints
pending or threatened in writing by or on behalf of any employees or group of
employees of the Company or any of its Subsidiaries.
(i) There are no complaints, charges or claims against the Company
or any of its Subsidiaries pending, or threatened in writing to be brought or
filed, with any Governmental Entity or arbitrator based on, arising out of, in
connection with, or otherwise relating to the employment or termination of
employment of any individual by the Company or any of its Subsidiaries.
(ii) The Company and each of its Subsidiaries is in material
compliance with all laws relating to the employment of labor, including all such
laws and orders relating to wages, hours, collective bargaining, discrimination,
civil rights, safety and health workers' compensation and the collection and
payment of withholding and/or Social Security Taxes and similar Taxes.
3.17 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. No underground storage tanks and no amount
of any substance that has been designated by any Governmental Entity or by
applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PCBs, asbestos, petroleum, urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a hazardous
waste pursuant to the United States Resource Conservation and Recovery Act of
1976, as amended, and the regulations promulgated pursuant to said laws (a
"HAZARDOUS MATERIAL"), but excluding office and janitorial supplies, are present
in, on or under any property, including the land and the improvements, ground
water and surface water thereof, that the Company or any of its Subsidiaries has
at any time owned, operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. Neither the Company nor any of
its Subsidiaries has transported, stored, used, manufactured, disposed of,
released or exposed its employees or others to Hazardous Materials in violation
of any law in effect on or before the Closing Date, nor has the Company or any
of its Subsidiaries disposed of, transported, sold, used, released, exposed its
employees or others to or manufactured any product containing a Hazardous
Material (collectively "HAZARDOUS MATERIALS ACTIVITIES") in violation of any
rule, regulation, treaty or statute promulgated by any Governmental Entity in
effect prior to or as of the date hereof to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity.
(c) PERMITS. The Company and its Subsidiaries currently hold all
environmental approvals, permits, licenses, clearances and consents (the
"COMPANY ENVIRONMENTAL PERMITS") necessary for the
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conduct of the Company's and its Subsidiaries' Hazardous Material Activities and
other businesses of the Company and its Subsidiaries as such activities and
businesses are currently being conducted.
(d) ENVIRONMENTAL LIABILITIES. No material action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to the Company's knowledge, threatened concerning any Company
Environmental Permit, Hazardous Material or any Hazardous Materials Activity of
the Company or any of its Subsidiaries. The Company is not aware of any fact or
circumstance which could involve the Company or any of its Subsidiaries in any
material environmental litigation or impose upon the Company any material
environmental liability.
3.18 YEAR 2000 COMPLIANCE. All of the current versions of the Company's
products (including products currently under development) will record, store,
process, calculate and present calendar dates falling on and after (and if
applicable, spans of time including) January 1, 2000, or calculate any
information dependent on or relating to such dates (collectively, "YEAR 2000
COMPLIANT"). The Company's material internal computer and technology products
and systems are Year 2000 Compliant, except for upgrades or replacements which
may be made without disruption to the Company's operations.
3.19 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth in the SEC
Reports, neither the Company nor any of its Subsidiaries is a party to or is
bound by:
(a) any employment or consulting agreement, contract or commitment with
any officer or director level employee or member of the Company's Board of
Directors, other than those that are terminable by the Company or any of its
Subsidiaries on no more than thirty days notice without liability or financial
obligation, except to the extent general principles of wrongful termination law
may limit the Company's or any of its Subsidiaries' ability to terminate
employees at will;
(b) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan, stock purchase plan or restricted
stock purchase agreement, any of the benefits of which will be increased, or the
vesting of benefits of which will be accelerated, by the occurrence of any of
the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement;
(c) any agreement of indemnification or guaranty not entered into in the
ordinary course of business other than indemnification agreements between the
Company or any of its Subsidiaries and any of its officers or directors;
(d) any agreement, contract or commitment currently in force containing
any covenant limiting the freedom of the Company or any of its Subsidiaries to
engage in any line of business or compete with any person or granting any
exclusive distribution rights;
(e) any agreement, contract or commitment currently in force relating to
the disposition or acquisition of assets not in the ordinary course of business
or any ownership interest in any corporation, partnership, joint venture or
other business enterprise;
(f) any material joint marketing or development agreement; or
(g) any agreement, contract or commitment currently in force to provide
source code to any party for any product or technology that is material to the
Company and its Subsidiaries taken as a whole.
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Neither the Company nor any of its Subsidiaries, nor to the Company's
knowledge any other party to a Company Contract (as defined below), has
breached, violated or defaulted under, or received notice that it has breached
violated or defaulted under, any of the material terms or conditions of any
agreement, contract or commitment to which the Company or any of its
Subsidiaries is a party of the type described above or any other material
agreement, contract or commitment (any such agreement, contract or commitment,
as well as any agreement, contract or commitment that is an exhibit to any SEC
Report, a "COMPANY CONTRACT") in such a manner as would permit any other party
to cancel or terminate any such Company Contract, or would permit any other
party to seek damages, which would be reasonably likely to be material to the
Company.
3.20 PROXY STATEMENT. The proxy statement to be sent to the stockholders
of the Company in connection with the Special Meeting (as hereinafter defined)
(such proxy statement, as amended or supplemented, being referred to herein as
the "PROXY STATEMENT"), shall not, at the date the Proxy Statement (or any
amendment or supplement thereto) is first mailed to stockholders of the Company,
at the time of the Special Meeting and at the Effective Time, be false or
misleading with respect to any material fact, or omit to state any material fact
required to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they are made, not
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Special Meeting which shall
have become false or misleading. The Proxy Statement shall comply in all
material respects as to form with the requirements of the Exchange Act and the
rules and regulations thereunder.
3.21 COMPANY PRODUCTS; REGULATION. There have been no written notices,
citations or decisions by any governmental or regulatory body that any product
produced, manufactured, marketed or distributed at anytime by the Company or its
Subsidiaries (the "PRODUCTS") is defective or fails to meet any applicable
standards promulgated by any such governmental or regulatory body.
The Company has obtained, in all countries where the Company or the
Subsidiaries are marketing or have marketed the Products, all applicable
licenses, registrations, approvals, clearances and authorizations required by
local, state or federal agencies in such countries regulating the safety,
effectiveness and market clearance of the Products which are currently marketed
by the Company or its Subsidiaries. The Company has set forth in Section 3.21 of
the Company Disclosure Schedule or otherwise produced for examination by
Purchaser information relating to regulation of its Products in the United
States, including licenses, registrations, approvals, permits, audits, device
listings, inspections, Company recalls and product actions. The Company has
identified in writing to Purchaser, to Company's knowledge, all international
locations where regulatory information and documents are kept.
3.22 BROKERS AND FINDERS. No broker, finder or investment banker other
than the Company's Financial Advisor is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company or any of
its Subsidiaries.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB
Purchaser represents and warrants to the Company that:
4.1 ORGANIZATION AND QUALIFICATION. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Purchase and
Merger Sub has all requisite corporate power and authority to own, operate and
lease its properties and to carry on its business as it is now being conducted.
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4.2 CORPORATE POWER, AUTHORIZATION AND ENFORCEABILITY. Purchaser and
Merger Sub have full corporate power and authority to enter into this Agreement
and to perform their respective obligations hereunder and to consummate all the
transactions contemplated hereby. The execution and delivery of this Agreement
by Purchaser and Merger Sub, the performance by each of Purchaser and Merger Sub
of its obligations hereunder and the consummation by Purchaser and Merger Sub of
the transactions contemplated hereby have been duly and validly authorized by
the Board of Directors of Purchaser and the Board of Directors of Merger Sub and
no other corporate action on the part of Purchaser or Merger Sub is necessary to
authorize this Agreement or to consummate the transactions contemplated hereby
(other than the filing and recordation of appropriate merger documents as
required by the applicable provisions of Delaware Law and California Law). This
Agreement has been duly executed and delivered by Purchaser and Merger Sub and
is a legal, valid and binding obligation of each of Purchaser and Merger Sub,
enforceable against each of Purchaser and Merger Sub in accordance with its
terms.
4.3 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Assuming satisfaction of all applicable requirements referred to in
Section 4.3(b) below, the execution and delivery of this Agreement by Purchaser
and Merger Sub, the compliance by Purchaser and Merger Sub with the provisions
hereof and the consummation by Purchaser and Merger Sub of the transactions
contemplated hereby will not conflict with or violate (i) any statute, law,
ordinance, rule, regulation, order, writ, judgment, award, injunction, decree or
ruling applicable to Purchaser or Merger Sub or any of their respective
properties, other than such conflicts or violations which individually or in the
aggregate do not and will not have a Material Adverse Effect on Purchaser and
its Subsidiaries, including Merger Sub, taken as a whole, or (ii) conflict with
or violate the Articles of Incorporation or Bylaws of Purchaser of the
Certificate of Incorporation or Bylaws of Merger Sub.
(b) Other than in connection with or in compliance with the provisions
of Delaware Law, California Law, the Exchange Act and the "takeover" or "blue
sky" laws of various states, (i) neither Purchaser nor Merger Sub is required to
submit any notice, report, registration, declaration or other filing with any
Governmental Entity in connection with the execution or delivery of this
Agreement by Purchaser or Merger Sub or the performance by Purchaser or Merger
Sub or their respective obligations hereunder or the consummation by Purchaser
of the transactions contemplated by this Agreement and (ii) no waiver, consent,
approval, order or authorization of any Governmental Entity is required to be
obtained by Purchaser or Merger Sub in connection with the execution or delivery
of this Agreement by Purchaser or Merger Sub or the performance by Purchaser or
Merger Sub of their respective obligations hereunder or the consummation by
Purchaser of the transactions contemplated by this Agreement. None of the
information supplied by Purchaser for inclusion in the Proxy Statement shall, at
the date the Proxy Statement (or any amendment thereof or supplement thereto) is
first mailed to stockholders, at the time of the Company's Special Meeting and
at the Effective Time, contain any untrue statement of a material fact required
to be stated therein or necessary in order to make the statements made therein
in light of the circumstances under which they were made, not misleading.
4.4 AVAILABLE FUNDS. Purchaser has or has available to it all funds
necessary to satisfy all of Purchaser's obligations under this Agreement and in
connection with the transaction contemplated hereby, including, without
limitation, the obligation to purchase all outstanding Shares pursuant to the
Merger and to pay all related fees and expenses in connection with the Merger.
ARTICLE V
COVENANTS
5.1 CONDUCT OF BUSINESS BY THE COMPANY. Except as contemplated by this
Agreement, during the period from the date of this Agreement until the Effective
Time or the termination of this Agreement by either party, the Company agrees as
to itself and its Subsidiaries that (except to the extent that Purchaser
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shall otherwise consent in writing, which consent shall not be unreasonably
withheld) the Company and its Subsidiaries shall conduct their respective
operations according to the ordinary course of business consistent with past
practice, and each of the Company and its Subsidiaries will use its reasonable
efforts to preserve intact its present business organization, to keep available
the services of its present officers and employees and to maintain satisfactory
relationships with licensors, licensees, suppliers, contractors, distributors,
customers and others having business relationships with it. Without limiting the
generality of the foregoing, during the period from the date of this Agreement
to the Effective Time or the termination of this Agreement by either party,
neither the Company nor any of its Subsidiaries shall, without the prior written
consent of Purchaser (which consent shall not be unreasonably withheld):
(a) except as contemplated by this Agreement, amend its Certificate of
Incorporation or other charter document or Bylaws (or similar governing
instruments);
(b) authorize for issuance, issue, sell, deliver, pledge or agree or
commit to issue, sell, deliver or pledge (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any capital stock of any class or any debt or other securities
convertible into capital stock or equivalents (including, without limitation,
stock appreciation rights), or amend any of the terms, other than (i) the grant
of options in the ordinary course of business consistent with past practice
under the Plans or the ESPP, (ii) the issuance of shares of capital stock under
the exercise of options under the Plans or the ESPP;
(c) split, combine or reclassify any shares of its capital stock, or
authorize or propose the issuance or authorization of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, or
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock,
adopt or approve any Rights Plan, or repurchase, redeem or otherwise acquire any
of its securities or any securities of its Subsidiaries, other than in
connection with the exercise of options or rights under the Plans or pursuant to
the standard terms of existing employee stock repurchase agreements;
(d) except in the ordinary course of business consistent with past
practice, (i) incur or assume any long-term debt or increase any amounts
outstanding under long-term credit facilities existing as of the Balance Sheet
Date; (ii) incur or assume any short-term debt or increase amounts outstanding
under short-term credit facilities existing as of the Balance Sheet Date;
(iii) assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any other
person, entity or organization; (iv) make any loans, advances or capital
contributions to, or investments in, any other person; (v) pledge or otherwise
encumber shares of capital stock of the Company or any of its Subsidiaries; or
(vi) mortgage or pledge any of its material assets, tangible or intangible, or
create or suffer to exist any material lien thereon except as existing on the
date of this Agreement or as may be required under agreements outstanding on the
date of this Agreement to which the Company or any of its Subsidiaries are
parties;
(e) except as contemplated by this Agreement, enter into, adopt or amend
in any material manner or terminate any bonus, profit sharing, compensation,
severance, termination, stock option, stock appreciation right, restricted
stock, performance unit, stock equivalent, stock purchase agreement, pension,
retirement, deferred compensation, employment, severance, change-in-control or
other employee benefit agreement, trust, plan, fund or other arrangement for the
benefit or welfare of any director, officer or employee, or increase in any
manner the compensation or fringe benefits of any director, officer or employee
or pay any benefit not required by any plan or arrangement as in effect as of
the date of this Agreement or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing, other than the employment and severance
agreements set forth in Section 3.12 of the Company Disclosure Letter;
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(f) sell, lease, license, pledge or otherwise dispose of or encumber any
material assets except in the ordinary course of business consistent with past
practice (including without limitation any indebtedness owed to it or any claims
held by it);
(g) except as otherwise permitted pursuant to Section 5.5, acquire or
agree to acquire by merging or consolidating with or by purchasing any portion
of the capital stock or assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof, other than in the ordinary course of business consistent with past
practice;
(h) change any of the accounting principles or practices used by it
materially affecting its assets, liabilities or business, except for such
changes required by a change in generally accepted accounting principles;
(i) pay, discharge or satisfy any claims, liabilities or obligations
(whether absolute, accrued, fixed, contingent, liquidated, unliquidated or
otherwise), other than the payment, discharge or satisfaction of liabilities
(x) in the ordinary course of business consistent with past practices or
(y) with notice to Purchaser, in an amount which does not exceed $100,000 in the
aggregate;
(j) except as required by their terms, enter into, materially amend,
terminate or default (or take or fail to take any action, that, with or without
notice or lapse of time or both, would become a default) under any contract
which (i) would be required to be filed as an exhibit to the Company's annual
report on Form 10-K filed with the SEC, (ii) involves the expenditure by the
Company and its Subsidiaries of more than $250,000 annually or (iii) is with any
officer, employee, agent, consultant, advisor, salesman or sales representative
of the Company or a Subsidiary and involves annual cash payments of more than
$25,000 (each, a "MATERIAL CONTRACT");
(k) transfer the stock of any Subsidiary to any other Subsidiary or any
assets or liabilities to any new or, except in the ordinary course of business
consistent with past practice, existing Subsidiary;
(l) propose or, except pursuant to the terms of Section 5.5(b), enter
into an agreement with any person other than Purchaser or its affiliates
providing for the acquisition of the Company (whether by way of merger, purchase
of capital stock, purchase of substantially all assets or otherwise);
(m) take, or agree in writing or otherwise to take, (i) any of the
actions described in Sections 5.1(a) through 5.1(l) or (ii) any action which
would make any of the representations or warranties of the Company contained in
this Agreement untrue or incorrect in any material respect as of the date when
made.
5.2 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) Subject to and in accordance with the terms and conditions of that
certain Reciprocal Non-Disclosure Agreement dated as of September 15, 1998,
between Purchaser and the Company (the "CONFIDENTIALITY AGREEMENT"), from the
date of this Agreement to the Effective Time or the termination of this
Agreement by either party, the Company shall, and shall cause its Subsidiaries,
officers, directors, employees and agents to, afford the officers, employees and
agents of Purchaser and its affiliates and the attorneys, accountants, banks,
other financial institutions and investment banks working with Purchaser, and
their respective officers, employees and agents, reasonable access, at all
reasonable times upon reasonable notice and in such manner as will not
unreasonably interfere with the conduct of the Company's business, to its
officers, employees, agents, properties, books, records and contracts, and shall
furnish Purchaser and its affiliates and the attorneys, banks, other financial
institutions and investment banks working with Purchaser, all financial,
operating and other data and information as it reasonably requests.
(b) Subject to the requirements of applicable law, Purchaser shall, and
shall cause their officers, employees, agents and affiliates and the attorneys,
banks, other financial institutions and investment banks who obtain such
information to, hold all information obtained pursuant to this Agreement or the
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Confidentiality Agreement in confidence in accordance with the terms and
conditions of the Confidentiality Agreement.
(c) No investigation pursuant to this Section 5.2 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
5.3 PROXY STATEMENT. Promptly after execution and delivery of this
Agreement, the Company shall prepare and shall file with the Commission as soon
as is reasonably practicable a preliminary Proxy Statement, together with a form
of proxy, with respect to the meeting of the Company's stockholders at which the
stockholders of the Company will be asked to vote upon and approve this
Agreement and the Merger and shall use all reasonable efforts to have the Proxy
Statement and form of proxy cleared by the Commission as promptly as
practicable, and promptly thereafter shall mail the definitive Proxy Statement
and form of proxy to stockholders of the Company. The term "PROXY STATEMENT"
shall mean such proxy or information statement at the time it initially is
mailed to the Company's stockholders and all amendments or supplements thereto,
if any, similarly filed and mailed. The information provided and to be provided
by Purchaser and the Company, respectively, for use in Proxy Statement shall, on
the date the Proxy Statement is first mailed to the Company's stockholders and
on the date of the Special Meeting (as hereinafter defined), not contain an
untrue statement of a material fact or omit to state any material fact necessary
in order to make such information, in light of the circumstances under which it
was provided, not misleading, and the Company and Purchaser each agree to
correct any information provided by it for use in the Proxy Statement which
shall have become false or misleading in any material respect. The Proxy
Statement shall comply as to form in all material respects with all applicable
requirements of federal securities laws. The Proxy Statement shall contain the
recommendation of the Board of Directors that the stockholders of the Company
vote to adopt and approve the Merger and this Agreement.
5.4 MEETING OF STOCKHOLDERS OF THE COMPANY. Promptly after execution and
delivery of this Agreement, the Company shall take all action necessary, in
accordance with Delaware Law and California Law and its Amended and Restated
Certificate of Incorporation and Bylaws, to convene a meeting of its
stockholders (the "SPECIAL MEETING") on June 30, 2000, to consider and vote upon
this Agreement and the Merger. The Company shall use its best efforts to solicit
from stockholders of the Company proxies in favor of such adoption and approval
and to take all other action necessary to secure the vote or consent of
stockholders required by Delaware Law and California Law to effect the Merger.
5.5 NO SOLICITATION.
(a) Except as provided in Section 5.5(b) below, the Company agrees that
from the date of this Agreement until the earlier of the Effective Time or the
termination of this Agreement, the Company will not, nor shall it authorize or
permit any officer, director, affiliate or agent of the Company or any of its
Subsidiaries, solicit, initiate, entertain, or encourage (including by way of
furnishing nonpublic information) any proposals or offers from any party other
than Purchaser or its affiliates (a "third party") regarding any merger, sale of
substantial assets, sale of (or right to sell) shares of capital stock (other
than pursuant to the exercise of options outstanding on the date of this
Agreement) or similar transactions involving the Company or any of its
Subsidiaries (an "ACQUISITION PROPOSAL"). The Company shall promptly inform
Purchaser of any inquiry (including the terms thereof and the identity of the
third party making such inquiry) which it may receive in respect of an
Acquisition Proposal and furnish to Purchaser a copy of any such written
inquiry.
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(b) Notwithstanding the foregoing, to the extent required by the
fiduciary obligations of the Board of Directors of the Company, the Company may,
in response to a request or inquiry that could reasonably be expected to result
in an Acquisition Proposal, which request or inquiry was unsolicited after the
date of this Agreement, participate in discussions or negotiations with, or
furnish information with respect to the Company pursuant to a confidentiality
agreement substantially similar to that then in effect between the Company and
Purchaser, to, any person. In addition, following the receipt of an Acquisition
Proposal, which the Company's Board of Directors determines in good faith to be
more favorable to the Company's stockholders than the Merger (a "SUPERIOR
PROPOSAL"), the Company may terminate this Agreement under Section
7.1(d)(i) and accept such Superior Proposal, and the Board of Directors of the
Company may approve or recommend (and, in connection therewith withdraw or
modify its approval or recommendation of this Agreement or the Merger). Nothing
contained in this Section 5.5(b) shall prohibit the Company or its Board of
Directors from making any disclosure to the Company's stockholders that, in the
judgment of the Board of Directors or the Company, is required under applicable
law.
5.6 PUBLIC ANNOUNCEMENTS. Purchaser on the one hand and the Company on the
other hand will consult with each other before issuing any press release or
otherwise making any public statements with respect to this Agreement or the
Merger or the other transactions contemplated hereby, and shall not issue any
such press release or make any such public statement prior to such consultation,
except as may be required by law. This Section 5.6 shall supersede any
conflicting provisions in the Confidentiality Agreement.
5.7 NOTIFICATION OF CERTAIN MATTERS.
(a) The Company shall give prompt notice (which notice shall state that
it is delivered pursuant to Section 5.7 of this Agreement) in writing to
Purchaser and Purchaser shall give prompt notice in writing to the Company, of
(i) the occurrence, or failure to occur, of any event which occurrence or
failure would be likely to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at any time
from the date of this Agreement through the Effective Time and (ii) any material
failure of the Company, Merger Sub, Purchaser, as the case may be, or of any
officer, director, employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement; PROVIDED, HOWEVER, no such notification shall affect the
representations or warranties of the parties or the conditions to the
obligations of the parties hereunder.
(b) The Company shall give prompt notice in writing (which notice shall
state that it is delivered pursuant to Section 5.7 of this Agreement) to
Purchaser of any occurrence that has had or may reasonably be expected to have a
Material Adverse Effect.
5.8 OFFICERS' AND DIRECTORS' INDEMNIFICATION; INSURANCE.
(a) Purchaser agrees to assume and to honor, for a period ending on the
sixth anniversary of the Effective Time, all rights to indemnification
(including with respect to the advancement of expenses incurred in the defense
of any action or suit) existing on the date of this Agreement and at the
Effective Time in favor of the present and former directors, officers, employees
and agents of the Company as provided in the Company's Certificate of
Incorporation and Bylaws or otherwise, in each case in effect on the date of
this Agreement, and during such period not to reduce or limit the ability of the
Purchaser to indemnify them, nor to hinder, delay or make more difficult the
exercise of such rights of indemnity or the ability to indemnify.
(b) Purchaser agrees to indemnify to the fullest extent permitted under
its Articles of Incorporation, its Bylaws and applicable law the present and
former directors, officers, employees and agents of the Company against all
losses, damages, liabilities or claims made against them arising from their
service in such capacities prior to and including the Effective Time, to at
least the same extent as such persons are currently permitted to be indemnified
pursuant to the Company's Certificate of Incorporation and Bylaws, for a period
ending not sooner than the sixth anniversary of the Effective Time.
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(c) Should any claim or claims be made against any present or former
director, officer, employee or agent of the Company, arising from such person's
service as such, on or prior to the sixth anniversary of the Effective Time, the
provisions of this Section 5.8 respecting the obligation of indemnity of the
Purchaser shall continue in effect until the final disposition of all such
claims.
(d) In the event that Purchaser or any of its successors or assigns
consolidates with or merges into any other person and shall not be the
continuing or surviving corporations or entity of such consolidation or merger,
then and in each such case, proper provisions shall be made so that the
successors and assigns of Purchaser shall assume the obligations of Purchaser
set forth in this Section 5.8.
(e) The provisions of this Section 5.8 are intended to be for the
benefit of, and shall be enforceable by, each indemnified party and such party's
heirs and representatives.
(f) Purchaser will cause to be maintained for a period of six years from
the Effective Time the Company's current directors' and officers' insurance and
indemnification policy to the extent that it provides coverage for events
occurring prior to and including the Effective Time for all persons who are
directors and officers of the Company on the date of this Agreement.
5.9 SEVERANCE BENEFITS. The Surviving Corporation shall honor, without
modification, all employee severance plans (or policies) of the Company or any
of its Subsidiaries in existence on the date of this Agreement and the
employment and severance agreements of the Company or its Subsidiaries, as such
agreements shall be in effect in accordance with the terms of this Agreement at
the Effective Time.
5.10 ADDITIONAL AGREEMENTS.
(a) Subject to the terms and conditions hereof, each of the parties to
this Agreement agrees to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective as promptly as practicable
the transactions contemplated by this Agreement (including consummation of the
Merger) and to cooperate with each other in connection with the foregoing.
(b) Subject to the terms and conditions hereof, each of the parties to
this Agreement agrees (i) to obtain all necessary waivers, consents and
approvals from other parties to loan agreements, leases, licenses and other
contracts, and (ii) to obtain all necessary consents, approvals and
authorizations as required to be obtained under any federal, state or foreign
law or regulations, to defend all lawsuits or other legal proceedings
challenging this Agreement or the consummation of the transactions contemplated
hereby, to lift or rescind any injunction or restraining order or other order
adversely affecting the ability of the parties to consummate the transactions
contemplated hereby, to effect all necessary registrations and filings,
including, but not limited to, submissions of information requested by
Governmental Entities, and to fulfill all conditions to this Agreement.
5.11 COMPANY INDEBTEDNESS. Prior to the Effective Time, the Company shall
cooperate with Purchaser in taking such actions as are reasonably appropriate or
necessary in connection with the redemption, prepayment, modification,
satisfaction or elimination of any outstanding long-term indebtedness of the
Company or any of its Subsidiaries with respect to which a consent is required
to be obtained to effectuate the Merger and the transactions contemplated by
this Agreement and has not been so obtained.
5.12 OTHER ACTIONS BY THE COMPANY. If any "fair price," "moratorium,"
"control share acquisition," "shareholder protection" or other form of
anti-takeover statute, regulation or charter provision or contract is or shall
become applicable to the Merger or the transactions contemplated hereby, the
Company and the Board of Directors of the Company shall grant such approvals and
take such actions as are necessary under such laws and provisions so that the
transactions contemplated hereby may be consummated as promptly as practicable
on the terms contemplated hereby and otherwise act to eliminate or minimize the
effects of such statute, regulation, provision or contract on the transactions
contemplated hereby.
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5.13 LITIGATION COOPERATION. Promptly upon execution of this Agreement and
until the Effective Time, the Company and Purchaser shall cooperate with each
other in connection with any litigation by a third party arising out of or in
connection with this Agreement or any of the transactions contemplated by this
Agreement, and shall take such steps as are necessary to establish successfully
a joint defense privilege, including without limitation coordinating all
depositions in such actions.
5.14 FUTURE FILINGS. The Company will deliver to Purchaser as soon as they
become available true and complete copies of any report or statement mailed by
it to its stockholders generally or filed by it with the SEC subsequent to the
date of this Agreement and prior to the Effective Time. As of their respective
dates, such reports and statements (excluding any information therein provided
by Purchaser, as to which the Company makes no representation) will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading and will
comply as to form in all material respects with all applicable requirements of
law. The consolidated financial statements of the Company to be included in such
reports and statements (excluding any information therein provided by Purchaser,
as to which the Company makes no representation) will be prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except (i) as otherwise indicated in such
financial statements and the notes thereto or (ii) in the case of unaudited
interim statements, to the extent permitted under Form 10-Q under the Exchange
Act) and will present fairly the consolidated financial position, results of
operations and cash flows of the Company as of the dates thereof and for the
periods indicated therein (subject, in the case of any unaudited interim
financial statements, to normal year-end audit adjustments). Purchaser shall
deliver to the Company as soon as they become available, true and complete
copies of any report or statement mailed by it to the Company's stockholders
generally or filed by it with the SEC subsequent to the date of this Agreement
and prior to the Effective Time.
5.15 SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW. From and after
the date of this Agreement, the Company will not, except as otherwise provided
herein, approve any acquisition of shares of common stock by any person which
would result in such person becoming an interested stockholder (as such term is
defined in Section 203 of the Delaware General Corporation Law) or otherwise be
subject to Section 203 of the Delaware General Corporation Law.
5.16 COMPANY ACTIONS RELATING TO TAX MATTERS. Without the prior consent of
Purchaser (which shall not be unreasonably withheld and which shall be deemed
given if there is no response within twenty business days of a request for
consent), neither the Company nor any Subsidiary shall make or change any
election, request permission of any Tax authority or to change any accounting
method, file any amended Tax return, enter into any closing agreement, settle
any Tax claim or assessment relating to the Company or its Subsidiaries,
surrender any right to claim a refund of Taxes, consent to any extension or
waiver of the limitation period applicable to any Tax claim or assessment
relating to the Company or its Subsidiaries, or take or omit to take any action
out of the ordinary course of its business, if any such election, adoption,
change, amendment, agreement, settlement, surrender, consent or other action or
omission would have the effect of materially increasing the Tax liability of the
Company, any Subsidiary, or the Purchaser.
5.17 CONVERSION AND VOTING. Purchaser covenants and agrees to convert its
Convertible Promissory Note into Series C-1 Preferred and to convert its Series
C Preferred and Series C-1 Preferred into Common Stock before the record date
for the Special Meeting and to vote all of its shares of common stock in favor
of the Merger at the Special Meeting. Idanta covenants and agrees to convert its
Series B Preferred into Common Stock before the record date for the Special
Meeting and to vote all shares of common stock over which Idanta or any of its
general partners have voting and investment power in favor of the Merger at the
Special Meeting.
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ARTICLE VI
CONDITIONS OF MERGER
6.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of each of the following
conditions, any or all of which may be waived in whole or in party by the party
being benefited thereby, to the extent permitted by applicable law:
(a) This Agreement and the Merger shall have been approved and adopted
by the requisite vote of the stockholders of the Company.
(b) There shall not be in effect any law of any Governmental Entity of
competent jurisdiction, restraining, enjoining or otherwise preventing
consummation of the transactions contemplated by this Agreement or permitting
such consummation only subject to any condition or restriction that has or would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company (or an effect on Purchaser and its Subsidiaries
that, were such effect applied to the Company and its Subsidiaries, has or would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company) and no Governmental Entity shall have instituted
any proceeding which continues to be pending seeking any such law.
(c) All authorizations, consents or approvals of a Governmental Entity
required in connection with the execution and delivery of this Agreement and the
performance of the obligations hereunder shall have been made or obtained,
without any limitation, restriction or condition that has or would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company (or an effect on Purchaser and its Subsidiaries that, were such
effect applied to the Company and its Subsidiaries, would have or reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company.
6.2 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF COMPANY TO EFFECT THE
MERGER. The obligations of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following condition,
any or all of which may be waived in whole or in party by the party being
benefited thereby, to the extent permitted by applicable law:
(a) The representations and warranties of Purchaser and Merger Sub
contained herein shall have been true in all material respects when made and
shall be true in all material respects on and as of the Closing Date as though
made on and as of the Closing Date.
(b) Purchaser and Merger Sub shall have performed or complied in all
material respects with all agreements and conditions contained herein required
to be performed or complied with by it prior to or at the time of the Closing.
(c) Purchaser shall have delivered to the Company a certificate, dated
as of the Closing Date, signed by the President or any Vice President of
Purchaser authorized to sign on behalf of Purchaser (but without personal
liability thereto), certifying as to the fulfillment of the conditions specified
in Sections 6.2(a) and (b).
(d) Company shall have received a legal opinion from Wilson Sonsini
Goodrich & Rosati, Professional Corporation, counsel to Actel and GateField
Acquisition Corporation, in substantially the form attached hereto as EXHIBIT B.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PURCHASER AND MERGER SUB TO
EFFECT THE MERGER. The obligations of Purchaser and Merger Sub to effect the
Merger shall be subject to the fulfillment at or prior to the Effective Time of
the following condition, any or all of which may be waived in whole or in party
by the party being benefited thereby, to the extent permitted by applicable law:
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(a) The representations and warranties of the Company contained herein
shall have been true in all material respects when made, with the exceptions
described in the Signing Disclosure Letter, and shall be true in all material
respects and on and as of the Closing Date, with the exceptions described in the
Company Disclosure Letter, as though made on and as of the Closing Date.
(b) The Company and Idanta shall have performed or complied in all
material respects with all agreements and conditions contained herein required
to be performed or complied with by it prior to or at the time of the Closing.
(c) The Company shall have delivered to Purchaser and Merger Sub a
certificate, dated as of the Closing Date, signed by the President or any Vice
President of the Company authorized to sign on behalf of the Company (but
without personal liability thereto), certifying as to the fulfillment of the
conditions specified in Sections 6.3(a) and (b).
(d) Purchaser shall have received a legal opinion from Bay Venture
Counsel, LLP, counsel to the Company, in substantially the form attached hereto
as EXHIBIT C.
(e) Purchaser shall have made arrangements with Timothy Saxe
satisfactory to Purchaser providing for the employment of Mr. Saxe by Purchaser
following the Merger.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated, at any time prior to
the Effective Time, whether before or after approval by the stockholders of the
Company:
(a) by mutual written agreement of the Boards of Directors of Purchaser
and the Company;
(b) by either Purchaser or Company,
(i) if any court of competent jurisdiction in the United States or
other United States governmental body shall have issued an order, decree or
ruling or taken any other action restraining, enjoining or otherwise prohibiting
the Merger and such order, decree, ruling or other action shall have become
final and nonappealable; or
(ii) if there has been a willful breach by the other party (in the
case of the Company, the "other party" as described in this paragraph shall
refer to either Purchaser or Merger Sub) of any representation, warranty,
covenant or agreement set forth in the Agreement and such breach is not
reasonably capable of being cured and such condition satisfied prior to the
Closing Date; or
(iii) if the Closing has not occurred within sixty (60) days after
the date the Proxy Statement (or any amendment or supplement thereto) is first
mailed to stockholders of the Company, provided that such party shall have
performed or complied in all material respects with all agreements and
conditions contained herein required to be performed or complied with by it
prior to or at the time of the Closing;
(c) by Purchaser:
(i) if the Board of Directors of the Company or any committee
thereof shall have approved or recommended an Acquisition Proposal by a third
party, or withdrawn or modified in a manner adverse to Purchaser its approval or
recommendation of this Agreement or the transactions contemplated hereby, or
failed to mail the Proxy Statement to its stockholders or failed to include in
such Proxy Statement such recommendation (including the recommendation that the
stockholders of the Company vote in favor of the Merger); or publicly resolved
to do any of the foregoing;
(ii) if GateField stockholder approval of this Agreement has not
been obtained within fifty (50) days after the date the Proxy Statement (or any
amendment or supplement thereto) is first mailed to stockholders of the Company;
or
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(iii) if Purchaser sends written notice to the Company;
(d) by the Company pursuant to Section 5.5, in the event the Company has
complied with all the provisions of Section 5.5 and has determined to accept a
Superior Proposal.
7.2 PROCEDURE AND EFFECT OF TERMINATION.
(a) In the event of the termination of this Agreement by the Company or
Purchaser or both of them pursuant to Section 7.1(a), 7.1(b)(i), or 7.1(b)(iii),
(A) the terminating party shall provide written notice of such termination to
the other party and (B) this Agreement shall forthwith become void, except as
set forth in Section 7.2(e) hereof, and there shall be no liability on the part
of Purchaser or the Company.
(b) In the event of the termination for willful breach of this Agreement
by the Company or Purchaser pursuant to Section 7.1(b)(ii) or 7.1(c)(i),
(A) the terminating party shall provide written notice of such termination to
the other party; (B) this Agreement shall forthwith become void, except as set
forth in this Section 7.2(b) and Section 7.2(e) hereof; (C) the party committing
such breach shall be subject to liability for damages actually incurred as a
result of such breach; (D) if such breach was by the Company, Purchaser shall be
entitled to exercise the Put Option, as defined in Section 7.2(c) hereof; and
(E) if such breach was by Purchaser, the Company shall be entitled to exercise
the Call Option, as defined in Section 7.2(d) hereof.
(c) In the event of the termination of this Agreement by Purchaser
pursuant to Section 7.1(c)(ii) or by the Company pursuant to Section 7.1(d),
(A) the terminating party shall provide written notice of such termination to
the other party; (B) this Agreement shall forthwith become void, except as set
forth in this Section 7.2(c) and Section 7.2(e) hereof; and (C) Purchaser may
require the Company, at Purchaser's discretion, to sell to Purchaser a
convertible promissory note in the amount of $3 million on the same terms as the
Convertible Promissory Note, except that such convertible promissory note would
be convertible at an effective rate of $5.25 per share of Common Stock and shall
bear interest at 100% of the applicable federal rate (the "PUT OPTION").
Purchaser may exercise the Put Option at any time within ninety days following
the receipt by the non-terminating party of written notice of termination of
this Agreement, and Purchaser shall tender the $3 million within three business
days following the Company's receipt of Purchaser's written notice that
Purchaser is exercising the Put Option.
(d) In the event of the termination of this Agreement by Purchaser
pursuant to Section 7.1(c)(iii) for any reason, (A) this Agreement shall
forthwith become void and there shall be no liability on the part of Purchaser
or the Company, except as set forth in this Section 7.2(d) and Section 7.2(e)
hereof, and (B) the Company may require Purchaser, at the Company's discretion,
to purchase a convertible promissory note in the amount of $3 million on the
same terms as the Convertible Promissory Note, except that such convertible
promissory note would be convertible at an effective rate of $5.25 per share of
Common Stock and shall bear interest at 100% of the applicable federal rate (the
"CALL OPTION"). The Company may exercise the Call Option at any time within
ninety days following the Company's receipt of written notice of termination of
this Agreement, and Purchaser shall tender the $3 million within three business
days following Purchaser's receipt of the Company's written notice that the
Company is exercising the Call Option.
(e) The Confidentiality Agreement and Sections 5.2, 7.2, 7.3, 8.2, 8.3
and 8.5 of this Agreement shall survive any termination of this Agreement.
(f) If this Agreement is terminated as provided herein, upon request
therefor, each party will redeliver all documents or copies thereof, work papers
and other material of the other party relating to the transactions contemplated
hereby, whether obtained before or after the execution hereof, to such other
party.
7.3 FEES AND EXPENSES. Except as otherwise provided in this Agreement and
whether or not the transactions contemplated by this Agreement are consummated,
all costs and expenses incurred in
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connection with the transactions contemplated by this Agreement shall be paid by
the party incurring such expenses.
7.4 AMENDMENT. This Agreement may be amended by each of the parties by
action taken by or on behalf of their respective Boards of Directors at any time
prior to the Effective Time; PROVIDED, HOWEVER, that (i) such amendment shall be
in writing signed by all of the parties, and (ii) after adoption of this
Agreement and the Merger by the stockholders of the Company, no amendment may be
made without the further approval of the stockholders of the Company which
reduces the Merger Consideration or changes the form thereof or changes any
other terms and conditions of this Agreement if the changes, alone or in the
aggregate, would materially adversely affect the stockholders of the Company.
7.5 WAIVER. At any time prior to the Effective Time, whether before or
after the Company's Special Meeting, any party hereto, by action taken by its
Board of Directors, may (i) extend the time for the performance of any of the
obligations or other acts of any other party hereto or (ii) waive compliance
with any of the agreements of any other party or with any conditions to its own
obligations. Any agreement on the part of a party hereto to any such extension
or waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party by a duly authorized officer of such party. Notwithstanding
the above, any waiver given shall not apply to any subsequent failure of
compliance with agreements of the other party or conditions to its own
obligations.
ARTICLE VIII
MISCELLANEOUS
8.1 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by rule of law or public policy,
all other conditions and provisions of this Agreement shall nevertheless remain
in full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
8.2 NOTICES. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given, or made
as of the date delivered if sent via telecopier or delivered personally
(including, without limitation, delivery by commercial carrier warranting
next-day delivery) to the parties at the following addresses (or at such other
address for a party as shall be specified by similar notice, except that notices
of changes of address shall be effective upon receipt):
(a) If to Company:
GateField Corporation
47100 Bayside Parkway
Fremont, California 94538
Attention: Timothy Saxe
Fax No.: (510) 623-4484
With copies to:
Bay Venture Counsel, LLP
1999 Harrison Street, Suite 1300
Oakland, CA 94612
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<PAGE>
Attention: Donald C. Reinke
Fax No.: (510) 834-7440
(b) If to the Purchaser or Merger Sub:
Actel Corporation
955 East Arques Avenue
Sunnyvale, CA 94086-4533
Attention: David L. Van De Hey
Fax No.: (408) 328-2341
With copies to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: Henry P. Massey, Jr.
Fax No.: (650) 493-6811
8.3 HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
8.4 REPRESENTATIONS AND WARRANTIES, ETC. The respective representations
and warranties of the Company, Purchaser and Merger Sub contained herein shall
survive until, and shall expire with, and be terminated and extinguished upon
the Closing Date. This Section 8.4 shall have no effect upon any other
obligation of the parties hereto, whether to be performed before or after the
consummation of the Merger.
8.5 MISCELLANEOUS. This Agreement, the documents delivered pursuant hereto
or in connection herewith and the Confidentiality Agreement (i) constitute the
entire agreement and supersede all other prior agreements and undertakings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof, (ii) except for Section 5.8(e) are not intended to confer upon
any person other than the parties hereto any rights or remedies hereunder,
(iii) may not be assigned, except that Purchaser may assign its rights hereunder
in whole or in part to one or more direct or indirect Subsidiaries which, in
written instruments reasonably satisfactory to the Company, shall agree to make
all representations and warranties of Purchaser set forth herein and shall agree
to assume all of such party's obligations hereunder and be bound by all of the
terms and conditions of this Agreement; PROVIDED, HOWEVER, that no such
assignment shall relieve the assignor of its obligations hereunder, and
(iv) shall be governed by and construed in accordance with the laws of the State
of Delaware and the State of California, respectively. This Agreement may be
executed in one or more counterparts which together shall constitute a single
agreement.
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<PAGE>
IN WITNESS WHEREOF, Purchaser, Merger Sub and the Company have caused this
Agreement to be executed effective as of the date first written above by their
respective officers thereunto duly authorized.
<TABLE>
<S> <C> <C>
GATEFIELD CORPORATION
By:
---------------------------------------
Timothy Saxe, PRESIDENT
ACTEL CORPORATION
By:
---------------------------------------
Fares N. Mubarak, VICE PRESIDENT OF ENGINEERING
GATEFIELD ACQUISITION
CORPORATION
By:
---------------------------------------
Fares N. Mubarak, VICE PRESIDENT OF ENGINEERING
As to Section 5.17 only
IDANTA PARTNERS LTD.
By:
---------------------------------------
----------------, GENERAL PARTNER
</TABLE>
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<PAGE>
May 23, 2000
Board of Directors
GateField Corporation
47436 Fremont Blvd.
Fremont, CA 94538
Gentlemen:
We understand that Gatefield Corporation ("Gatefield") and Actel Corporation
("Actel") propose to enter into an Agreement and Plan of Merger (the "Merger
Agreement") whereby a wholly-owned subsidiary of Actel will be merged with and
into GateField and GateField will become a wholly-owned subsidiary of Actel (the
"Merger"). The terms of the Merger will be set forth more fully in the Merger
Agreement.
Pursuant to the proposed Merger Agreement, we understand that at the
Effective Time (as defined in the Merger Agreement) the issued and outstanding
shares of common stock, par $0.10 par value per share, of GateField ("GateField
Common Stock") will be converted into the right to receive $5.25 per share in
cash (the "Consideration").
You have asked us to advise you as to the fairness, from a financial point
of view, to the holders of GateField Common Stock (other than Actel and its
affiliates) of the Consideration to be received by such holders in the Merger.
Needham & Company, Inc., as part of its investment banking business, is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of securities, private placements and other purposes. We have been
engaged by GateField as financial advisor to render this opinion in connection
with the Merger and will receive a fee for our services, none of which is
contingent on the consummation of the Merger. In addition, GateField has agreed
to indemnify us for certain liabilities arising from our role as financial
advisor and out of the rendering of this opinion.
For purposes of this opinion we have, among other things: (i) reviewed a
draft of the Merger Agreement dated May 12, 2000; (ii) reviewed certain publicly
available information concerning GateField and certain other relevant financial
and operating data of GateField furnished to us by GateField; (iii) held
discussions with members of management of GateField concerning the current and
future business prospects of GateField; (iv) reviewed and discussed with the
management of GateField certain financial forecasts and projections prepared by
such management; (v) reviewed the historical stock prices and trading volumes of
GateField Common Stock; (vi) compared certain publicly available financial data
of companies whose securities are traded in the public markets and that we
deemed generally relevant to similar data for GateField; (vii) reviewed the
financial terms of certain other business combinations that we deemed generally
relevant; and (viii) performed and/or considered such other studies, analyses,
inquiries and investigations as we deemed appropriate.
In connection with our review and in arriving at our opinion, we have
assumed and relied on the accuracy and completeness of all of the financial and
other information reviewed by us for purposes of this opinion and have neither
attempted to verify independently nor assumed responsibility for verifying any
of such information. In addition, we have assumed, with your consent, that
(i) any material liabilities (contingent or otherwise, known or unknown) of
GateField are as set forth in the financial statements of GateField and
(ii) the terms set forth in the executed Merger Agreement will not differ
materially from the proposed terms provided to us in the draft Merger Agreement
dated May 12, 2000. With respect to GateField's financial forecasts provided to
us by its management, we have assumed for purposes of our opinion that such
forecasts have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of such management, at the time of
preparation, of the future operating and financial performance of GateField. We
express no opinion with respect to such forecasts or the
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<PAGE>
GateField Corporation
May 23, 2000
Page 2
assumptions on which they were based. We have not assumed any responsibility for
or made or obtained any independent evaluation, appraisal or physical inspection
of the assets or liabilities of GateField. Further, our opinion is based on
economic, monetary and market conditions as they exist and can be evaluated as
of the date hereof. Our opinion as expressed herein is limited to the fairness,
from a financial point of view, to the holders of GateField Common Stock (other
than Actel and its affiliates) of the Consideration to be received by such
holders in the Merger and does not address GateField's underlying business
decision to engage in the Merger or the consideration to be received by any
individual stockholder. Our opinion does not constitute a recommendation to any
stockholder of GateField as to how such stockholder should vote on the proposed
Merger. We are not expressing any opinion as to the prices at which the
GateField Common Stock will actually trade at any time.
In the ordinary course of our business, we may actively trade the equity
securities of GateField and Actel for our own account or for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
This letter and the opinion expressed herein are provided at the request and
for the information of the Board of Directors of GateField and may not be quoted
or referred to or used for any purpose without our prior written consent, except
that this letter may be disclosed in connection with any information statement
or proxy statement used in connection with the Merger so long as this letter is
quoted in full in such information statement or proxy statement.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof the Consideration to be received by the holders of GateField Common
Stock (other than Actel and its affiliates) in the Merger is fair to such
holders from a financial point of view.
Very truly yours,
NEEDHAM & COMPANY, INC.
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<PAGE>
DELAWARE GENERAL CORPORATION LAW
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257,
Section 258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to Section
Section 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d)
and (e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of such stockholder's shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of such stockholder's shares. Such demand will
be sufficient if it reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to demand the
appraisal of such stockholder's shares. A proxy or vote against the merger
or consolidation shall not constitute such a demand. A stockholder electing
to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each consitutent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock
of such constitutent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constitutent
corporation shall send a second notice before the effective date of the
merger or consolidation notifying each of the holders of any class or series
of stock of such constitutent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice to all
such holders on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than 20 days following the
sending of the first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the
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secretary or assistant secretary or of the transfer agent of the corporation
that is required to give either notice that such notice has been given
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled to receive
either notice, each constitutent corporation may fix, in advance, a record
date that shall be not more than 10 days prior to the date the notice is
given, provided , that if the notice is given on or after the effective date
of the merger or consolidation, the record date shall be such effective
date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day
next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion,
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permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the surviving
or resulting corporation pursuant to subsection (f) of this section and who has
submitted such stockholder's certificates of stock to the Register in Chancery,
if such is required, may participate fully in all proceedings until it is
finally determined t hat such stockholder is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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CALIFORNIA CORPORATIONS CODE
SECTION 1300 ET SEQ.
Section 1300. Shareholder in short-form merger; Purchase at fair market value;
"Dissenting shares"; "Dissenting shareholder"
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the National Market System of the NASDAQ Stock Market, and the
notice of meeting of shareholders to act upon the reorganization summarizes
this section and Sections 1301, 1302, 1303 and 1304; provided, however, that
this provision does not apply to any shares with respect to which there
exists any restriction on transfer imposed by the corporation or by any law
or regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A)
or (B) of paragraph (1)(without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that
subparagraph (A) rather than subparagraph (B) of this paragraph applies in
any case where the approval required by Section 1201 is sought by written
consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
Section 1301. Notice to holder of dissenting shares of reorganization approval;
Demand for purchase of shares; Contents of demand
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3)
and (4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a
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brief description of the procedure to be followed if the shareholder desires to
exercise the shareholder's right under such sections. The statement of price
constitutes an offer by the corporation to purchase at the price stated any
dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
Section 1302. Stamping or endorsing dissenting shares
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
Section 1303. Dissenting shareholder entitled to agreed price with interest
thereon; When price to be paid
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
Section 1304. Action by dissenters to determine whether shares are dissenting
shares or fair market value of dissenting shares or both; Joinder of
shareholders; Consolidation of actions; Determination of issues; Appointment of
appraisers
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(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
Section 1305. Duty and report of appraisers; Court's confirmation of report;
Determination of fair market value by court; Judgment, and payment; Appeal;
Costs of action
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than
125 percent of the price offered by the corporation under subdivision (a) of
Section 1301).
Section 1306. Prevention of payment to holders of dissenting shares of fair
market value; Effect
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
Section 1307. Disposition of dividends upon dissenting shares
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Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
Section 1308. Rights and privileges of dissenting shares; Withdrawal of demand
for payment
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
Section 1309. When dissenting shares lose their status
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
Section 1310. Suspension of proceedings for compensation or valuation pending
litigation
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
Section 1311. Shares to which chapter inapplicable
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
Section 1312. Attack on validity of reorganization or short-form merger; Rights
of shareholders; Burden of proof
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
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(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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GATEFIELD CORPORATION
47436 FREMONT BOULEVARD
FREMONT, CALIFORNIA 94538-6503
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON
JUNE 30, 2000
The undersigned stockholder of GateField Corporation, a Delaware Corporation
(the "Company") acknowledges receipt of the Notice of Special Meeting of
Stockholders and Proxy Statement, each dated [June 10, 2000], and hereby
appoints Lynne M. Bennett and Timothy Saxe and each of them, as the proxies and
attorneys-in-fact, with full power to each of substitution on behalf and in the
name of the undersigned, to vote all shares of the capital stock the Company,
and otherwise represent all of the shares registered in the name of the
undersigned at the Special Meeting of Stockholders of the Company to be held at
the offices of the Company, on Friday, June 30, 2000 at 8:00 a.m. (local time),
and at any and all postponements, continuations or adjournments thereof, with
the same force and effect as the undersigned might or could do if personally
present thereat, as set forth below and in their discretion upon any other
business that may properly come before the Special Meeting.
Attendance of those signing on the reverse side at the Special Meeting or at
any adjourned session thereof will not be deemed to revoke this proxy unless
those signing on the reverse side shall affirmatively indicate thereat the
intention of those signing on the reverse side to vote said shares in person. If
those signing on the reverse side hold(s) any of the shares of capital stock of
the Company in a fiduciary, custodial or joint capacity or capacities, this
proxy is signed by those signing on the reverse side in every such capacity as
well as individually.
IN THEIR DISCRETION, THE NAMED PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING, OR ANY
ADJOURNMENT THEREOF.
To approve and adopt an Amended and Restated Agreement and Plan of Merger
dated May 31, 2000 by and among the Company, Actel Corporation, a California
corporation ("Actel"), GateField Acquisition Corporation, a Delaware corporation
and a wholly-owned subsidiary of Actel and with respect to Section 5.17 thereof
only, Idanta Partners Ltd, a Texas general partnership, and to approve the
merger of the Company and GateField Acquisition Corporation as described
therein.
/ / FOR / / AGAINST / / ABSTAIN
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. SHARES
REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH SPECIFICATIONS MADE
HEREIN. IF NO SPECIFICATION IS MADE AS TO ANY INDIVIDUAL ITEM HEREIN, IT IS
INTENDED THAT SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR THE APPROVAL
AND ADOPTION OF THE AGREEMENT AND PLAN OF MERGER.
Both of said attorneys and proxies or their substitutes as shall be present
and act at the Special Meeting, or if only one be present and act then that one,
shall have and may exercise all of the powers of both of said attorneys and
proxies hereunder.
The undersigned hereby acknowledges receipt of (a) the Notice of Special
Meeting of Stockholders to be held on June 30, 2000 and (b) the accompanying
Proxy Statement.
WITNESS the signature of the undersigned this day of ,
2000.
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SIGNATURE(S)
Please sign this proxy exactly as your name
appears hereon: joint owners should each sign
personally. Trustees and other fiduciaries
should indicate the capacity in which they sign.
If a corporation or partnership, this signature
should be that of an authorized officer who
should state his or her title.
Please vote, date and promptly return this proxy
in the enclosed return envelope which is postage
prepaid if mailed in the United States.
