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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:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ 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.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/X/ 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO]
GATEFIELD CORPORATION
47436 Fremont Blvd., Fremont, California 94538-6503
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , OCTOBER , 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 , October , 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 purposes:
1. 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 a 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; and
2. To adjourn the Special Meeting to a future date, if necessary to seek
additional votes, and to transact such business as may properly come before
the Special Meeting.
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 September 20, 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
Lynne M. Bennett
SECRETARY
FREMONT, CALIFORNIA
SEPTEMBER , 2000
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GATEFIELD CORPORATION
47436 Fremont Boulevard
Fremont, CA 94538-6503
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS
, OCTOBER , 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 , October , 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
purposes:
1. To approve and adopt an Amended and Restated Agreement and Plan of Merger
dated May 31, 2000 (the "Merger Agreement") 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 limited
partnership ("Idanta"), and to approve the merger (the "Merger") of the
Company and the Merger Sub as described therein; and
2. To adjourn the Special Meeting to a future date, if necessary to seek
additional votes, and to transact such business as may properly come before
the Special Meeting.
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 a
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 August 7, 2000 (the "Record Date").
Actel and Idanta agreed, pursuant to the terms of the Merger Agreement, to
vote all of the shares owned by them in favor of the approval and adoption of
the Merger Agreement and the Merger. As of the Record Date, Actel owned
1,621,298 shares of Common Stock, representing approximately 26.2% of the
outstanding shares of Common Stock, and intends to vote all of such shares in
favor of the Merger, and Idanta and two affiliated entities, the Dunn Family
Trust and The Perscilla Faily Trust, owned an aggregate of 517,723 shares of
Common Stock, representing approximately 8.4% of the outstanding shares of
Common Stock, and intend to vote all of such shares in favor of the Merger.
The Board of Directors has fixed the close of business on September 20, 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 CONSIDERATION CONSISTS ONLY OF CASH. 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 September , 2000.
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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.
The date of this Proxy Statement is September , 2000.
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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 the Merger; Recommendation of the Board of
Directors............................................... 14
Interests of Affiliated Stockholders...................... 18
Interests of Unaffiliated Stockholders.................... 20
Opinion of Financial Advisor.............................. 20
Certain Federal Income Tax Consequences................... 24
The Special Meeting of Stockholders......................... 26
Date, Place, and Time..................................... 26
Purpose................................................... 26
Revocability of Proxies................................... 26
Solicitation of Proxies................................... 26
Record Date and Voting Rights............................. 26
Quorum.................................................... 26
Solicitation, Revocation and use of Proxies............... 27
Required Vote............................................. 27
Appraisal Rights of Dissenting Stockholders............... 27
The Merger Agreement........................................ 28
Effective Time............................................ 28
The Merger................................................ 28
Conversion of Securities.................................. 28
Payment of Merger Consideration........................... 29
Stock Options............................................. 29
Representations and Warranties............................ 30
Certain Pre-Closing Covenants............................. 30
No Solicitation........................................... 31
Conditions Precedent to the Merger........................ 31
Termination............................................... 32
Fees and Expenses......................................... 32
Indemnification; Insurance................................ 33
The Company................................................. 33
General................................................... 33
Current Status............................................ 34
Properties................................................ 34
Legal Proceedings......................................... 34
Selected Financial Data................................... 35
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 36
Quantitative and Qualitative Disclosure about Market
Risk.................................................... 40
Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure..................... 40
Certain Effects of the Merger............................... 41
Interests of Executive Officers and Directors in the
Merger.................................................... 41
Stock Ownership........................................... 41
Indemnification........................................... 41
Stock Option Plans........................................ 41
Employment with Gatefield................................. 42
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Employment Agreement with Actel........................... 42
Stockholder Voting Obligation............................. 42
Information Concerning Actel and Merger Sub................. 43
Actel..................................................... 43
Merger Sub................................................ 43
Information Concerning Idanta Partners Ltd.................. 43
Financing of the Transaction................................ 44
Security Ownership of Certain Beneficial Owners and
Management................................................ 45
Market Prices and Volume.................................... 47
Appraisal Rights of Dissenting Stockholders................. 47
Section 262 of the DGCL................................... 48
Sections 1300-1312 of the CGCL............................ 48
Notice to the Company..................................... 48
Independent Auditors........................................ 49
Stockholder Proposals for the 2001 Annual Meeting........... 49
Other Matters............................................... 49
Financial Statements........................................ 50
Annexes..................................................... 78
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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.
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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.
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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 , October , 2000, in Fremont,
California. The exact location for the meeting can be found on page . 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 document, 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 at our principal executive office 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 and 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 by October 1, 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: 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 and Annexes III and IV for further details on this issue.
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
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<PAGE>
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 "SPECIAL
FACTORS--CERTAIN FEDERAL INCOME TAX CONSEQUENCES" on page for further details
on this issue.
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: 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.
Q: WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETING OF STOCKHOLDERS?
A: We are not aware of any other matters to be voted on at the special meeting.
If you are voting by proxy, however, we ask that you give the proxies listed in
the proxy card the power to act in their discretion upon any other matters that
may come before the special meeting or any adjournment or postponement of the
special meeting.
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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 AND 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, RESPECTIVELY.
THE COMPANIES
GATEFIELD CORPORATION (SEE PAGE 33)
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 (SEE PAGE 43)
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 14)
We estimate that we will exhaust all of our currently available capital
resources on or about October 15, 2000. We are currently in the process of
negotiating with Actel for financing through the expected date of merger. If the
merger does not occur and we are 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 of 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 $3 million and $6 million to meet our capital requirements through the
end of 2000 and $6 million to $10 million to meet our capital requirements
through the end of 2001. After unsuccessfully exploring various funding
alternatives, we do not believe we would be able to raise the required 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 26.2% of our common stock would enable it to significantly
influence the stockholder vote on any other potential acquisition.
RECOMMENDATION TO STOCKHOLDERS (SEE PAGE 14)
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 agreement and approval of the merger. Each of our
principal stockholders, Actel and Idanta, have also determined that the merger
is fair to all stockholders, whether or not affiliated with Actel or Idanta.
OPINION OF FINANCIAL ADVISOR (SEE PAGE 20)
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 28)
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.
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WHAT GATEFIELD STOCKHOLDERS WILL RECEIVE (SEE PAGE 28)
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 27)
The affirmative vote of holders of a majority of the shares of common stock
outstanding and entitled to vote on the record date of September 20, 2000 is
required to approve the merger and adoption of the merger agreement.
On the record date of September 20, 2000, Actel owned approximately 26.2% of
our common stock and Idanta Partners Ltd. and two affiliated entities owned
approximately 8.4% of our common stock. Actel, Idanta and certain entities
affiliated with Idanta intend to vote their shares in favor of the approval of
the merger and adoption of the merger agreement.
In addition, while there is no formal agreement to do so, we expect and
believe that all directors and executive officers of GateField will vote any
shares over which they hold voting power in favor of the merger. Our directors
and executive officers hold voting power over approximately 3.1% of our common
stock as of the record date.
You are entitled to cast one vote per share of GateField common stock you
owned at the close of business on September 20, 2000, the record date on any
matter which may properly come before the special meeting, including the
proposal to adjourn the special meeting for the purpose of soliciting additional
proxies. If any other matters properly come before the special meeting, the
persons named on the accompanying proxy card will vote the shares represented by
all properly executed proxies on such matters in their discretion.
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 and FOR any adjournment of the
special meeting.
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 47)
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 the fair market value of their shares
as determined in accordance with applicable law.
INTERESTS OF UNAFFILIATED STOCKHOLDERS (SEE PAGE 20)
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,
Idanta, two entities affiliated with Idanta and our directors and executive
officers collectively hold voting power over 37.7% of our common stock, they
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 EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER (SEE PAGE 41)
When considering our board of directors' 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 executive officers of
GateField relate to the assumption by Actel of our stock options held by them.
In addition and subject to consummation of the merger, Timothy Saxe, our Chief
Executive Officer, will accept a Vice President position with
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Actel. See "THE MERGER AGREEMENT--STOCK OPTIONS," "THE MERGER
AGREEMENT--INDEMNIFICATION; INSURANCE" AND "INTERESTS OF EXECUTIVE OFFICERS AND
DIRECTORS IN THE MERGER."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 24)
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 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 "SPECIAL FACTORS--CERTAIN FEDERAL INCOME TAX CONSEQUENCES."
CONDITIONS TO COMPLETION OF THE MERGER (SEE PAGE 31)
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 or court order 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 32)
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 withdraws 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 32)
If Actel terminates the merger agreement because of a breach by us of any
condition, representation or warranty in the merger agreement 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 merger agreement because of a breach by Actel of any
condition, representation or warranty in the merger agreement 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 29)
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.
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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 static random access memory ("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). GateField's
delays in meeting its milestones under the Product Marketing Agreement relieve
Actel from meeting its 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
$1.0 million. The Company's recognition of the $1.0 million license fee 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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$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. Actel has not yet become obligated to make any
contingent payments.
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. Two of the holders of the Company's Series B Preferred Stock, Idanta
and the Dunn Family Trust, exercised their rights to participate on a pro-rata
basis and purchased a total of 51,225 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, MAY 2000 AND AUGUST 2000 CONVERTIBLE PROMISSORY NOTE FINANCINGS
In May 1999, the Company issued and sold to Actel a convertible promissory
note in the principal amount of $8.0 million (the "1999 Note"). The 1999 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 1999
Note was payable quarterly from the date of issuance. The 1999 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
1999 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 1999 Note was secured, the Company could request that Actel make an
additional loan to the Company on the same terms and conditions as the 1999 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
$4.0 million in aggregate principal amount. Since the 1999 Note did not commit
Actel to the financing, the Company's planning never included an expectation of
receiving those funds. The Company continued throughout 1999 to look for
alternative sources of financing, which created a drain on the time and
resources of its key employees. In the interim, the Company realized that much
more than $4 million was needed, and approached Actel earlier this year with the
merger suggestion. During the Merger negotiations it became apparent that
GateField was running out of funds faster than expected, due in part to a sudden
demand for payment of certain amounts due to the Company's chip fabricator and
in part to the length of time necessary to consummate the Merger.
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On May 23, 2000, the Company requested that Actel make an additional loan of
$4.0 million to the Company on the same terms as the 1999 Note. On May 24, 2000,
Actel informed the Company that Actel was unwilling to make an additional loan
on the terms requested. Actel advised the Company that it denied the request for
two major reasons: (i) the Company continued to miss milestones for the
production of the 0.25-micron product and (ii) the $4 million was contemplated
at a per share conversion price of $6.50, which was excessive in light of the
market price of the Common Stock, the missed milestones and the agreed upon
Merger Consideration. SEE "SPECIAL FACTORS--BACKGROUND OF THE MERGER AT PAGE 10
BELOW. Although it was disappointing that Actel declined to provide the entire
$4 million in financing, the Company was well involved in merger negotiations
with Actel at the time, and Actel's refusal did not have further material impact
on the Company's business or prospects. The parties did agree, however, on
interim financing on different terms, and the Company's immediate cash crisis
was averted.
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 1999 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 new
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 million (the "May 2000 Note"), and Actel loaned $1.0
million to the Company. The May 2000 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.
Due to the extraordinary length of time necessary to consummate the Merger,
the Company has once again run short of funds. Actel has loaned the Company an
additional $2.75 million (the "August 2000 Note") on substantially the same
terms as the May 2000 Note financing. More specifically, the loan bears interest
at the applicable federal rate, is convertible into 96,250 shares of Series C-2
Preferred which are in turn convertible into 523,810 shares of Common Stock, and
is secured by a lien against all of the Company's assets. The Company is in the
process of negotiating with Actel for additional financing through the expected
merger date.
BACKGROUND OF THE MERGER
In 1997, GateField was successfully producing a 0.72-micron product, but
competitors were able to bring to market a 0.35-micron product with better
performance and much lower cost. The Company turned to an outside chip
fabricator or "fab" to help develop and produce a 0.25-micron product with
embeddable FLASH technology, planning to reach market in early 1998. For a
variety of reasons, the fab was not able to keep to the development schedule,
and a test product was not produced until early 1999. A number of parts were
released to customers for "real world" testing at that time.
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. Nonetheless, 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 informally in a wide range of
forums, but did not lead to any material or substantial discussions. It was not
until March 2000 that any such inquiry received a positive response from the
other company or led to serious negotiations.
The Company continued to work with the fab to develop the 0.25-micron
product. Unfortunately, due to miscommunication at the fab, the second lot of
product did not perform as well as the first lot. A correction was made. The
third lot drew excess current, and thus did not function. A correction was made.
The fourth lot introduced new problems with etching and silicide. Corrections
were made in early 2000. During this time competitors announced work on 0.18 and
eventually 0.15-micron products. The Company
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realized that it needed additional resources to pursue a follow-on product at
the same time it was attempting to bring the 0.25-micron product to market. At
GateField's request, Actel agreed to loan the Company production personnel to
achieve this goal. In the first quarter of 2000, the Company finally achieved a
working 0.25-micron product, however, due to a change in manufacturing process
at the fab, the product's retention rate (the rate at which data is retained
after a chip is reprogrammed) was unreliable. Once again, corrections were made.
In the second quarter of 2000, new material was received, but again, product
retention was unpredictable or unacceptable. The timeframe for a successful
resolution of this problem, leading to commercial viability of the product,
could be as little as one (1) month or it may never be resolved.
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.
Actel became interested in acquiring the Company in March 2000 principally
because it had completed a strategic planning process that had stretched over
one and one-half years and included comprehensive strategic analysis and
discussions. Following the determination by Actel of its overall strategic
objectives, Actel's management concluded that the addition of the Company's
flash-based FPGA and embedded products would be consistent with and in
furtherance of those objectives, subject to an assessment of the financial and
technical risks.
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 $7.00 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 the lowest milestone if
the Company did not achieve either set of milestones. Second, the Company
experienced an increase in employee retention problems. 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 new technological problems arose,
it became apparent that the milestones leading to a higher range of per share
merger consideration would not be met. Failure to meet milestones leads to later
commercialization of products, which in turn leads to a lower valuation of the
Company. As a result of this meeting, the Company and Actel both concluded that
a fixed-price structure rather than the three-tiered range of prices
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would be more appropriate and would also 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.
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, that the acquisition
should take the form of a cash merger, and that the price should be negotiated
following a thorough technical review. The parties agreed to a cash merger
principally because it was the form of transaction that the parties believed
could be consummated most quickly. Actel proposed the structure because it had
significant available cash that it preferred to use rather than suffering
increased equity dilution. In addition, because the parties expected that the
merger consideration would be near the low end of GateField's historical trading
range, they believed that many GateField stockholders would incur a loss in the
proposed Merger. The parties therefore concluded that many GateField
stockholders would not likely receive any benefit from structuring the Merger as
a tax-free transaction and that some GateField stockholders might receive a
benefit from structuring the Merger as a taxable transaction, in that they would
be able to recognize an immediate capital loss. No analysis was made of actual
tax effects of this or alternate transactions on GateField stockholders. 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. The parties discussed the
technical progress made by the Company to date. A review of the technical
progress indicated that it was highly unlikely that the Company would achieve
the milestones. 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, $3.0 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.
In early May 2000, Actel provided the Company with a list of employees,
including Mr. Saxe, it would retain following the Merger. GateField then
provided a "reduction-in-force" notice to those employees who would not be
offered employment with Actel. Each such employee was offered a termination
package as incentive to remain in their positions until after the Merger was
consummated. Details of Mr. Boyd's package may be found at page 41.
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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, which is described
below under "REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF
DIRECTORS--OPINION OF FINANCIAL ADVISOR." Needham answered questions posed by
the Company's Board of Directors with respect to the results of the various
financial analyses presented. Needham noted, with respect to these questions,
the matters described below under "REASONS FOR THE MERGER; RECOMMENDATION OF THE
BOARD OF DIRECTORS--OPINION OF FINANCIAL ADVISOR" regarding, among other things,
the Company's substantial liquidity constraints and, with respect to the
Company's multiples and ratios for projected calendar 2000 and 2001 results, the
likelihood that the Company would not achieve these projected results due to the
Company's liquidity concerns and its performance to date in 2000. The Board also
noted, in its discussions with management and Needham, that the Company's need
for funds to continue operations beyond June 30, 2000 and its inability to
secure additional funds made it likely that management's projected results would
not be achieved. Needham 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 the 1999 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 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 1999 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 1999 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. This amendment and restatement added the Call
Option and a provision under which Actel can, under certain circumstances and at
its election, require the Company to borrow $3.0 million on the same terms as
the Call Option (the "Put Option"). On May 31, 2000, the Company and Actel also
entered into a security agreement, the Company executed and delivered the May
2000 Note, and Actel loaned $1.0 million to the Company. On August 1, 2000, the
Company and Actel entered into the August Note, and Actel loaned the Company an
additional $2.75 million. As with the 1999 Note, all assets of the Company are
pledged to secure these loans. The May 2000 Note 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. The August 2000 Note is
convertible into 96,250 shares of Series C-2 Preferred, which are in turn
convertible into 523,810 shares of Common Stock.
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As of September 20, 2000, the Company had not yet achieved the technical
milestones discussed by the parties during negotiations in March 2000. The
Company believes that these technical milestones may be met in the next few
months, but does not expect to complete the qualification phase leading to
commercial production prior to December 31, 2000. The Company believes it will
exhaust its capital resources on or about October 15, 2000 and is negotiating
with Actel for additional financing through the expected date of the Merger. For
further information as to the status of the Company's product development, see
"THE COMPANY--DESCRIPTION OF BUSINESS--CURRENT STATUS."
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, including the
Company's unaffiliated and affiliated stockholders other than Actel, and has
unanimously approved the Merger Agreement and the transactions contemplated
thereby, including the Merger. The Board of Directors adopted the analysis of
Needham relating to the fairness, from a financial point of view, of the
consideration to be paid to holders of Common Stock (other than Actel and its
affiliates) in the Merger, in addition to the various factors described below.
SEE "OPINION OF FINANCIAL ADVISORS." 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, the Board considered a number of factors, including the following:
(i) THE UNCERTAINTY OF THE COMPANY CONTINUING AS A GOING CONCERN DUE TO ITS
WEAK FINANCIAL CONDITION AND THE UNAVAILABILITY OF ADDITIONAL FUNDING. In the
past three years the Company has been in a constant state of raising funds to
continue its operations. In 1997 the Company sold some of its assets to fund the
development of its FLASH based technology. Then in 1998, when the Company was
running out of cash, it sought a potential purchaser. The Company approached all
the existing FPGA manufacturers and only Actel expressed any interest in
pursuing discussions with the Company. In 1998, the parties agreed to enter into
a strategic agreement that included the sale of the marketing rights to the
Company's 0.35-micron and below technology. During the first quarter ended
March 31, 2000 and the year ended December 31, 1999, the Company incurred net
losses of $1.3 million and $10.0 million, respectively. The Company currently
estimates it will exhaust all of its currently available capital resources on or
about October 15, 2000. The Company is in the process of negotiating with Actel
for financing through the expected date of the Merger. Failure to secure
additional funds would mean that the Company would have to curtail or cease
operations. The Company currently anticipates that capital in the aggregate
principal amount of $3.0 million to $6.0 million would meet its capital
requirements through 2000 and $6.0 million to $10.0 million would be needed
through 2001. An alternative way of looking at the problem is to consider how
much capital is required to reach commercial viability of the 0.25-micron
product. The Company defines "commercial viability" as market acceptance of the
product. To reach market acceptance, the Company must successfully complete the
development phase, leading to qualification of the product and must successfully
market the product. The product is already 18 months behind schedule, the
Company expects that it could take anywhere from 6 to 12 months more at a cost
range of $4.0 million to $8.0 million to complete the development phase. The
Company believes it could take an additional 18 months to attain a break-even
cash flow, at a cost of an additional $6.0 million. Thus a total investment of
$10.0 million to $14.0 million spread over the remainder of 2000 and all of 2001
would be a reasonable estimate of the amount needed to reach commercial
viability. These estimates are of course based on many assumptions about future
events.
From August 1998 until May 2000 the Company approached many potential
investors, including competitors of Actel, institutional investors including
Needham, buy-out funds and several venture capital firms, all of which (with the
exception of Mitsui Create USA, Inc.) declined to provide funding to the
Company. The potential investors expressed the following concerns: will the
technology perform; can the Company produce the technology in commercial
quantities at acceptable costs; will the products achieve
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sufficient sales volume to grow the Company; will the technology be successfully
introduced; and is the Company in control of its own destiny if Actel controls
the right to market its technology. Prior to entering into negotiations with
Actel, the Company informally reviewed with Needham, in its capacity as an
investment banker, the likelihood of obtaining additional funding from sources
other than Actel. Needham informed the Company that it did not believe it would
be successful in its efforts to market the Company to the investment community.
Concurrently with its negotiations with Actel, the Company approached a buy-out
fund in an effort to sell the Company. The buy-out fund reviewed the Company's
proposal but declined to purchase the Company. The Board also examined other
alternatives including sale of the technology, bankruptcy and downsizing. Since
the technology remained unproven even after great time, expense and effort, the
Board believed that its value would not exceed the Company's liabilities, and
sale of the technology would therefore result in little or no return on
stockholder's investment. If the Company pursued the alternative of bankruptcy,
it would be able sell its intellectual property relating to its 0.25-micron
products. However, given Actel's security interest in all of the assets of the
Company and the unlikelihood of a higher bidder emerging in a bankruptcy
procedure, it was believed that the Company's unaffiliated stockholders would
receive nothing if the Company pursued this option. The Board believed that
although the downsizing alternative could extend the life of the Company from
three to six months, the Company could not resolve the fabrication process of
its 0.25-micron products in this timeframe with the reduced staffing levels.
Based on a number of factors, including but not limited to the Company's
discussions with Needham, its prior financing efforts and the status of its
products and technology development, the Board of Directors concluded that the
Company would be unsuccessful in obtaining adequate and acceptable funding from
sources other than Actel. Nevertheless, before signing the letter of intent with
Actel, the Company held discussions with three other companies about the
possibility of either an investment or an acquisition. These discussions did not
result in any offers.
(ii) THE ABILITY OF THE COMPANY TO COMMERCIALIZE THE COMPANY'S 0.25-MICRON
PRODUCTS AND RELATED SOFTWARE. The Board considered that the major factors in
the competitive environment for the 0.25-micron products are performance, cost,
features, design flow and reprogrammability/volatility. The Board and management
each believe that the Company would have held the performance advantage if the
Company could have introduced the 0.25-micron product at the same time that its
competitors introduced their versions. Now that competitors are introducing
0.18-micron products, the Company is slightly behind in performance.
Cost is determined by a combination of die size and defect density. At
0.25-micron, the Board believes that the Company has a clear die size advantage
over other 0.25-micron competitors, a slight advantage over existing 0.18-micron
products and none over potential 0.15-micron products. Defect density at the fab
has not been reduced as fast as expected, which nullifies any die-size advantage
over competitors at 0.18-micron.
The Board also considered that competitors have introduced another
generation of designs with much improved input-output designs. The Company had
planned a follow-on design that would have kept its product competitive, but was
not able to bring it to fruition as all efforts were devoted to tracking down
and resolving problems with manufacturing processes on the existing product.
The 0.25-micron product and software were designed to support "ASIC" design
flow. While the competition has improved design flow, the Board believes that
ASIC designers still prefer the GateField flow.
Although 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. Unfortunately,
resolution of these problems has been time consuming and is attributable to
three main factors.
15
<PAGE>
The first factor is the lengthy period of time required to cycle the product
through the fab. It takes roughly three months for the fab to convert a raw
wafer into a finished wafer. Thus, even when a solution for a problem is
identified, it can take up to three months before the revised product is
available.
The second factor is that severe problems often hide underlying problems.
For example, in one lot a high voltage well implant was set to the wrong depth,
which made all of the high voltage circuitry useless. Without high voltage
circuitry the product cannot be configured and tested. The Company could not
perform further testing and identification of problems, and had to wait for
three months until a lot with the corrected implant was available before testing
and problem identification could resume.
The third factor is that the amount of time required to identify some
issues, particularly reliability issues, is lengthy. A particular example of
this is data retention. When voltages decay too far, the part will slow down,
and eventually cease to operate. In retention testing, the Company tries to
establish that each of the two million FLASH cells on a part will maintain
adequate voltage to assure correct operation at a given speed for the useful
lifetime of the part, which is 15 to 20 years. The Company's measurement system
allows it to measure changes in voltage that correspond to roughly 3,000
electrons, so the Company has to wait an additional two to three months before
it can say with certainty that a device meets the retention requirements.
In 1999, GateField struggled with the type of problems that directly
affected the functionality of the part. These problems, such as the high voltage
well problem, don't require a lot of test time to detect. With functionality
problems, all of the time is spent in understanding the problem, creating a cure
and implementing the cure. Normally, the Company would expect to cure all of
these problems in a three to four month period. In this instance, however, it
took 12 to15 months to resolve, since several of the problems were severe enough
that they masked underlying problems. Each problem could thus only be resolved
sequentially, and several of the problems took most of a three month processing
cycle to resolve. In the first and second quarters of this year, these problems
finally came under control, so that now the Company has received successive lots
that are functionally correct, which is to say that the functional yield has
stabilized at a useful level.
With the functional yield stabilized in mid-2000, the Company could then
turn its attention to reliability issues, given a now steady flow of material
that could be tested for reliability. The Company found that although the
conventional reliability tests passed, there was a new defect mechanism that
affected 0.25-micron devices in a way that hadn't shown up at 0.72-micron.
During testing for this in April 2000, the Company found that the defect did
exist on the material. Unfortunately, this particular problem is in fact a
retention problem, for which the test cycle is six to eight weeks. Accordingly,
the process of resolving the problem and testing that solution has been very
time-consuming. The first idea for a solution was tested during May and
June 2000, and improved, but did not cure, the problem. A second approach was
developed, and testing proceeded in July 2000. The preliminary results suggest
that that this solution is better than the last, but still may not meet
requirements. The Company will not have sufficient time and data to smooth out
the unavoidable measurement inaccuracies until late August 2000. While the
Company hopes that the August measurements will satisfactorily prove that the
product is reliable, it cannot be sure that this will be the result. The Company
has, therefore, decided on a third possible solution, and has set that solution
in motion so that, if it is needed, valuable time will have been saved. The
Company expects that it will evaluate the third solution by the end of
September 2000, and may have a fourth possibility underway, with evaluation
completed by the end of October 2000, if funding permits.
Once the reliability of the product is demonstrated, the Company will be
able to start engaging with customers to achieve design wins. The current
yields, however, cause the cost of the product to be roughly the same as the
expected sale price, and the Company does not expect the product to be
profitable until yield is improved. Profitability must be achieved before the
Company can expect to sell high volumes of product to customers.
16
<PAGE>
These delays mean that the Company has not been able to market a saleable
product, has not received profits from product sales and therefore has a
constant need to raise additional funds. In addition, the Company's competitors
continue to improve their products' features and process technology, which
simultaneously reduces the attractiveness of the Company's products and drives
down the average selling price, which further reduces the potential
profitability of the Company's products. At this time the Company's competitors
are launching competitive products in 0.18-micron technology, which reduces the
marketability of the Company's products and their ability to win designs.
(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. Since May 2000, the
Company has lost four research and development employees or 19% 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 FPGAs and, therefore, direct or indirect competitors of
Actel. As Actel owns 26.2% of the Common Stock 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. On May 23, 2000 the Board received and reviewed the opinion of
Needham, and determined that it was fair and accurate. On August 2, 2000, the
Board again reviewed the opinion, given the length of time that had passed since
the opinion was first delivered to the Board. The Board determined that, at this
juncture, there were no new facts or events that would cause the opinion to be
inaccurate, and that the considerable expense of updating the opinion was
unwarranted. Nevertheless, the Board agreed that if some unforeseen
circumstances arose which caused the opinion to become inaccurate, an updated
analysis would be performed. The full text of the written opinion is attached
hereto as ANNEX II. SEE "OPINION OF FINANCIAL ADVISOR" BELOW.
(vi) THE AVAILABILITY OF APPRAISAL RIGHTS UNDER DELAWARE AND CALIFORNIA LAW
FOR DISSENTING STOCKHOLDERS. Appraisal rights allow any stockholder who believes
that the $5.25 Merger Consideration is insufficient to so assert under Delaware
and/or 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 that 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 since the proposed
Merger was publicly announced.
17
<PAGE>
(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 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 otherwise have been
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 per share of the Company's Common Stock 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
of 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. In particular, the Board considered that
Mr. Saxe was likely to be employed by Actel; that each of Mr. Saxe,
Mr. Sandfort and Mr. Boyd held stock options that might be converted into Actel
stock options; and that Mr. Huberman is an affiliate of Idanta, a principal
stockholder of the Company. SEE "INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS
IN THE MERGER" AT PAGE 41 BELOW.
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 that the Merger is fair to the
unaffiliated stockholders and affiliated stockholders other than Actel.
INTERESTS OF AFFILIATED STOCKHOLDERS
ACTEL
Actel does not believe that it is under a fiduciary duty to either the
Company or the Company's stockholders with respect to the proposed Merger. The
purchase price was negotiated at arm's-length with the Company's management and
approved by the Board of Directors, including its independent members, and at
that time represented a significant premium over the trading price of the
Company's Common Stock. Nevertheless, based on its assessment of the Company's
technology, Actel believes that the proposed transaction is fair to the
Company's unaffiliated stockholders. Stockholders who do not agree that the
price is fair may exercise dissenter's rights under either California or
Delaware law. Actel has also adopted the analysis of Needham relating to the
fairness, from a financial point of view, of the consideration to be paid to
holders of Common Stock (other than Actel and its affiliates) of the
consideration to be paid in the Merger. Needham's fairness opinion does not
include an analysis of the value of the Company's technology.
18
<PAGE>
An immediate benefit of the proposed merger to Actel would be the retention
of the Company's key human resources. The principal near-term benefits of the
proposed merger to Actel would be the alignment of corporate and strategic
objectives and increased managerial flexibility and productivity. As long as
GateField is an independent corporation, it will owe fiduciary duties to its
public stockholders that may cause it to take corporate actions (such as in
ordering priorities or allocating resources) that are to some extent
inconsistent with Actel's strategic objectives. This includes the licensing of
the Company's technology as an embedded product. In addition, a great deal of
time and effort has been required to manage the interface between the Company
and Actel. Following the Merger, Actel will control the deployment of
GateField's resources, including the licensing of embedded products, which
should assist Actel in reaching its strategic objectives in a more efficient
manner. In the longer term, Actel would stand to benefit financially from the
Merger if GateField's technology is successful, since Actel would no longer be
required to share the profits with the Company.
The principal detriments of the Merger to Actel are adverse financial
effects and greater risk. Following the Merger, Actel will absorb the Company's
operating losses of approximately $1.5 million per quarter and goodwill
amortization estimated at $2.1 million per quarter. Together, these will have an
initial negative impact on Actel's quarterly earnings of approximately $0.12 per
share per quarter. In addition, to facilitate the consummation of the Merger,
Actel converted an $8 million note that was secured by all of GateField's assets
into Common Stock. Actel has since loaned the Company an additional
$3.75 million on a secured basis. In the event the Merger does occur, Actel will
also have increased its investment, and hence its risk in the event of failure,
by approximately $25 million.
The Merger will be treated for federal income tax purposes as a taxable
acquisition of the outstanding GateField stock. As such, Actel's basis in the
GateField stock it will own immediately after the Merger will equal the fair
market value of the consideration it has paid to acquire such stock. Actel's
shareholders will not be affected by the Merger. GateField's net operating loss
and other carryforwards will be subject to an annual limitation due to the
ownership change limitations provided by the Internal Revenue Code. The annual
limitation could result in the expiration of some or all of the carryforwards
before utilization by GateField or Actel.
IDANTA PARTNERS LTD.
Idanta's principal purpose for the transaction, given the Company's
inability to sustain its operations, is to achieve the maximum total return on
its investment in the Company. As a result of the transaction, Idanta will
receive $5.25 per share in cash for each share of Common Stock that it owns.
Idanta is not affiliated with Actel, and will not retain any interest in the
Company following the consummation of the Merger.
Idanta has concluded, based solely on the analysis and conclusions of the
Board of Directors of GateField as set forth in this Proxy Statement, the fact
that Needham delivered its fairness opinion to the Board, the fact that the
terms of the Merger Agreement were the result of negotiations between the
Company and its advisors and Actel and the fact that unaffiliated stockholders
will receive the same consideration per share to be received by Idanta, that the
merger consideration is fair to, and in the best interests of, the unaffiliated
stockholders of the Company. In reaching its conclusion, Idanta has adopted the
analysis of the factors referred to above as having been taken into account by
the Board, including without limitation, with respect to the value of the
Company's technology, and those discussed in Needham's fairness opinion. Idanta
did not find it practicable to, and did not, quantify or otherwise attach
relative weights to such factors independent of the Board's and Needham's
analysis in reaching its conclusion as to fairness. In addition, please note
that Needham's fairness opinion does not include analyses relating to the values
of the business or assets of the Company, including without limitation, its
technology, and does not purport to be an appraisal or necessarily reflect the
price at which such business or assets may actually be sold.
19
<PAGE>
Idanta has not received any report, opinion or appraisal from an outside
party that is materially related to the Merger.
Idanta is not aware of any reasons for the structure of the transaction,
other than those described elsewhere in this Proxy Statement. The structure of
the transaction was determined by negotiation between the Company and Actel. In
connection with the Merger, Idanta was asked to agree to convert its shares of
preferred stock into Common Stock and to vote its shares in favor of the Merger.
Idanta is not aware of any effects of the transaction on the Company, its other
affiliates or unaffiliated security holders, other than those described
elsewhere in this Proxy Statement.
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, Idanta and two entities affiliated with Idanta and the Company's
directors and executive officers collectively hold voting power over
approximately 37.7% of the outstanding shares of the Common Stock of the
Company, they 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. The Board
consists of three (3) members: Mr. Saxe, whose potential conflict of interest
was known to the Board; Mr. Sandfort, who is not otherwise affiliated with the
parties to the merger; and Mr. Huberman, who is an affiliate of Idanta. Idanta
has agreed to forego the preferential treatment it would otherwise have expected
to receive as a holder of Preferred Stock of GateField, and will instead receive
the same Merger Consideration as will all other unaffiliated stockholders. Thus,
under the simplest analysis, one director of the Company has interests that
might favor Actel, one director is neutral and one director has interests
aligned with the unaffiliated stockholders of the Company. Under these
circumstances, the Board believed that there was no need for an additional
unaffiliated stockholder representative. The Board further believes that the
Merger is fair to the Company's unaffiliated stockholders because the terms of
the Merger Agreement allows the Company to accept a proposal that is superior to
the Merger proposal of Actel and any stockholder who believes that the $5.25
merger consideration is insufficient may exercise dissenter's rights under
either California or Delaware law.
The principal detriment of the Merger to unaffiliated stockholders and
affiliated stockholders, other than Actel, would be the risk that the $5.25 per
share merger consideration paid by Actel would be inadequate if the Company was
able to successfully commercialize its 0.25-micron products and related
software. The principal benefit of the Merger to unaffiliated stockholders and
affiliated stockholders, other than Actel, would be that the Merger would give
these 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.
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 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
20
<PAGE>
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.
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 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; and
- reviewed the financial terms of selected other business combinations that
Needham deemed generally relevant.
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.
21
<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.
Needham delivered to the Company's Board written materials with respect to these
analyses. A copy of Needham's written materials has been filed as an exhibit to
the Schedule 13E-3 filed by Actel and the Company with the Commission and will
be available for inspection and copying at the principal executive offices of
the Company during regular business hours by any interested stockholder of the
Company or a representative of that stockholder who has been so designated in
writing.
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
Xilinx, Inc.
QuickLogic Corporation
</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 considered those multiples and ratios to be of very little
relevance because Needham believed, after discussions with the Company's Board
and management, that the Company would likely not achieve those projected
results due to its lack of capital resources and its performance to date in
2000, which fell substantially short of those projections.
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,
22
<PAGE>
- 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,
- 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.
23
<PAGE>
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.
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 Needham $300,000 for rendering the Needham opinion. 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 owners of 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
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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.
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 income tax consequences of
the Merger under federal, 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 stockholder 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 net
operating loss carry forwards.
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THE SPECIAL MEETING OF STOCKHOLDERS
DATE, PLACE AND TIME
The Special Meeting will be held at 8:00 a.m., local time, on ,
September , 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 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 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. will be paid
reasonable fees and 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 Record Date, the Company had outstanding 6,177,163 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.
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
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broker non-votes are counted for purposes of determining the presence or absence
of a quorum for the transaction of business. If you hold your shares of Common
Stock through a broker, bank or other nominee, generally the nominee may only
vote the Common Stock that it holds for you in accordance with your
instructions. Brokers generally will not have discretionary voting authority
with respect to the proposal to adopt the Merger Agreement and approve the
Merger.
SOLICITATION, REVOCATION AND USE OF PROXIES
Shares of Common Stock represented by a properly executed proxy by the
Company will, unless such proxy is properly revoked prior to the Special
Meeting, be voted at the Special Meeting in accordance with the instructions
thereon. Shares of Common Stock represented by properly executed proxies that do
not contain instructions to the contrary will be voted for adoption of Merger
Agreement and approval of the Merger and in the discretion of the proxy holder
as to any other matter that may properly come before the Special Meeting of any
adjournment or postponement thereof.
The Board of Directors knows of no business that will be presented for
consideration at the Special Meeting other than the proposal to adopt the Merger
Agreement and aprove the Merger. If other matters should properly come before
the Special Meeting, the proxy holders will vote on such matters in accordance
with their best judgments. Proxies are being solicited hereby on behalf of the
Board of Directors. The Special Meeting may be adjourned even if a quorum is
present if 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. The Special Meeting may
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. As of the Record Date, Actel owned 1,621,298 shares of Common
Stock, representing approximately 26.2% of the outstanding shares of Common
Stock, and intends to vote all of such shares in favor of the Merger, and Idanta
and two affiliated entities, the Dunn Family Trust and The Perscilla Faily
Trust, owned an aggregate of 517,723 shares of Common Stock, representing
approximately 8.4% of the outstanding shares of Common Stock, and intend to vote
all of such shares in favor of the Merger. In addition the Company's directors
and executive officers collectively hold voting power over 3.1% of the Common
Stock and may also vote these shares in favor of the Merger.
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.
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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.
EFFECTIVE TIME
As soon as practicable after the satisfaction or waiver of the conditions to
the Merger (including those 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 a 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 of the Surviving Corporation.
The directors and officers of Merger Sub immediately prior to the Effective
Time will become the directors and officers 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, or by the Company or 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 who perfects and does not withdraw or lose
such holder's right of appraisal 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 stockholders who have properly exercised and perfected appraisal rights
under either Section 262 of the DGCL or Sections 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 Sections 1300-1312 of the CGCL; provided, however,
that if any such holder fails to perfect or effectively withdraws or loses such
holder's right to appraisal or payment under the DGCL or CGCL, each of such
holder's shares of
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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 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 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 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. The fractional conversion rate of .16713 is achieved
by dividing the per share Merger Consideration of $5.25 by the average closing
price of one share of Actel common stock during the five business days
surrounding the announcement of the Merger, or an average per share price of
$31.4125 for the period of May 9 through 15, 2000. This conversion ratio is
designed to both fairly compensate
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employees with outstanding GateField options for the loss of those options and
to provide incentive to those employees scheduled to become employees of Actel.
Stock ownership and stock options are important components of employee
recruiting and retention at Actel. As such, it was deemed optimal to provide the
GateField employees with conversion rights as to their existing options. All
employees who are also GateField stockholders as of the Record Date will receive
the standard Merger Consideration of $5.25 per share of stock actually owned. 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.
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 relating, 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, among other things, 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 plans,
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.
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The Merger Agreement also contains certain covenants of Actel relating,
among other things, 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
Effective Time or the termination of the Merger Agreement, it will not, nor will
it authorize or permit any 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 and 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) that 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 consummation of the Merger is not subject to governmental review
under the Hart-Scott-Rodino Act of 1976.
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 arrangements with Timothy Saxe, Chief Executive
Officer of the Company, for employment with Actel following the Merger.
The obligation of the Company to consummate the Merger is subject to the
additional conditions 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.
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As of the date hereof, the Company is not aware of the occurrence of any
event that may prevent the consummation of the Merger.
TERMINATION
The Merger Agreement may be terminated 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 (or any supplement or amendment thereto), 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 any supplement or amendment thereto); or (c) if Actel sends
written notice to the Company;
(iv) by the Company 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. See "THE MERGER AGREEMENT--NO SOLICITATION."
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,
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are expected to total approximately $1.2 million. The Company has paid a total
of $558,960 in attorneys' fees and costs, solicitation expenses and fees to
Needham.
INDEMNIFICATION; INSURANCE
Pursuant to the Merger Agreement, all rights to indemnification (including
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 extent 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 also 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
GENERAL
The Company designs, develops and manufactures high-density field
programmable gate array ("FPGA") devices and related development software and
markets embedded programmable logic solutions. The Company was originally a
division of the Zycad Corporation, a company that was engaged 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 FPGA.
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 technology called ProASIC-TM-. Zycad introduced and first shipped its
0.72-micron ProASIC 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 Common
Stock and a warrant for $3.25 million. In addition, Infineon agreed to provide
the Company with early access and foundry service for Infineon's advanced
embedded flash technology for the Company's products at 0.25-micron 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.
See "SPECIAL FACTORS--PAST CONTACTS BETWEEN GATEFIELD AND ACTEL."
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
33
<PAGE>
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.
CURRENT STATUS
The Company believes that it will exhaust all of its currently available
capital resources on or about September 30, 2000. The Company estimates that it
will need an additional $3.0 million to $6.0 million to meet its capital
requirements through 2000 and $6.0 million to $10.0 million through 2001.
Development of the Company's 0.25-micron product is still not complete. In 1999,
the 0.25-micron product suffered from erratic and very low functional yield. By
the end of the second quarter of 2000, yield had become stable, allowing the
Company to focus on testing the reliability of the product. In the course of
doing so, the Company identified what appeared to be two significant problems.
Upon further investigation, one of these problems was demonstrated to be a
measurement issue, but the other, a retention issue, was determined to be
sufficiently severe to cause the product to fail qualification criteria. A
program to determine the root cause and to resolve the problem was initiated in
April 2000. Due to the lengthy time required to test for data retention, the
Company has identified four possible solutions to the problem and is pursuing
them simultaneously, to the extent practical. To date, the Company has shown
that the easiest solution, while helpful, is inadequate. The Company is testing
the second solution and has begun to test the third. Results of tests on the
second solution are expected in late August 2000; results on the third solution
are expected in late September 2000; and results on the fourth solution are
expected in late October 2000, funds permitting. Pre-production shipments can
begin when a solution has been demonstrated to fix the retention problems. After
that, the Company will need to demonstrate that several different lots can pass
all of the reliability tests, and then the product can be considered production
qualified. Before going into full production, however, the yield must also be
improved. During the initial engagement phase, customers typically purchase a
few parts for design development and debugging, and there are no volume
discounts, so it is acceptable for the manufacturing cost to be high. Later,
when the design goes into production and customers are purchasing in volume, the
price drops and the manufacturing cost must be kept low. At this time the
functional yield per lot is too low to allow volume pricing, but high enough to
allow low volume pricing and commencement of the engagement phase.
The current competitive situation also affects the Company. The Company's
competitors continue to improve their products, which makes the Company's
products less attractive. Some competitors are already launching products made
with 0.18-micron technology. While the Company's 0.25-micron products could have
enjoyed a substantial performance advantage over competitive 0.25-micron
products, their performance will be comparable to competitive 0.18-micron
products. The Company's 0.25-micron products enjoyed a substantial die size
advantage over competitive 0.25-micron products, however, the advantage in die
size is reduced by 50% when the competitors are using 0.18-micron technology.
Since die size translates into cost, this means that the ability to sustain
margins and profits is reduced. The Company believes that while the delays in
releasing the product to production have undoubtedly reduced the potential value
of the product, there will still be some customers who value the product for its
unique combination of non-volatility, re-programmability and ASIC-like design
flow. The commercial viability of the product rests on how soon the reliability
issues can be resolved, how many customers the product can attract, and how well
yield can be improved and costs reduced.
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 August 7, 2000, the Company had a total of 25 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 material legal proceedings with respect to the Company.
34
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------------
2000 1999 1999 1998 1997(C) 1996 1995
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues...................... $ 625 $ 1,114 $ 1,987 $ 7,700(b) $ 15,503(b) $ 33,577 $51,117(a)
Gross profit.................. $ 472 $ 407 $ 690 $ 393 $ 4,600 $ 16,569 $33,624
Operating income (loss)....... $(3,831) $(3,837) $(8,946) $(8,061) $(15,101) $(18,435) $ 2,324
Net income (loss)............. $(3,900) $(5,089) $(9,961) $(8,268) $(16,432) $(21,376) $ 1,957
Basic net income (loss) per
share:
Profit (loss) before
extraordinary item........ $ (0.78) $ (1.21) $ (2.30) $ (2.00) $ (7.15) $ (10.30) $ 0.90
Extraordinary item.......... (0.35)
------- ------- ------- ------- -------- -------- -------
Net income (loss) per
share..................... $ (0.78) $ (1.21) $ (2.30) $ (2.00) $ (7.50) $ (10.30) $ 0.90
Diluted net income (loss) per
share:
Profit (loss) before
extraordinary item........ $ (0.78) $ (1.21) $ (2.30) $ (2.00) $ (7.15) $ (10.30) $ 0.90
Extraordinary item.......... (0.35)
------- ------- ------- ------- -------- -------- -------
Net income (loss) per
share..................... $ (0.78) $ (1.21) $ (2.30) $ (2.00) $ (7.50) $ (10.30) $ 0.90
Basic weighted average shares
outstanding................. 5,001 4,215 4,332 4,125 3,030 2,066 1,939
Diluted weighted average
shares outstanding.......... 5,001 4,215 4,332 4,125 3,030 2,066 2,123
------- ------- ------- ------- -------- -------- -------
YEAR END FINANCIAL DATA:
Working capital (deficit)..... $(3,395) $ 1,212 $ (561) $(3,510) $ (47) $ (1,240) $ 6,741
Total assets.................. $ 2,405 $ 9,212 $ 7,085 $ 6,853 $ 11,256 $ 29,527 $28,980
Redeemable preferred stock.... $ 4 $ 3,084 $ 3,086 $ 3,083 $ 4,594 -- --
Long-term debt................ $ 1,000 $ 8,208 $ 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 the Company 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 the Company'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.
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS--SIX MONTHS ENDED JUNE 30, 2000 AND 1999
REVENUES
Total revenues for the six months ended June 30, 2000 and 1999 were $625,000
and $1,114,000, respectively, a decrease of 44%. Total ProASIC product revenues
accounted for the increase to $625,000 from $624,000 in the same time frame.
ProASIC product revenues in 2000 consisted entirely of deferred revenue from
license fees from Rohm Co. Ltd. that were collected in fiscal 1998. Revenues in
the year 2000, if any, will come from the Company's 0.25-micron products. The
Company began sampling its 0.25-micron product to initial customers in the first
quarter of 1999 and began shipping engineering samples in limited volumes in the
fourth quarter of 1999. The Company does not expect to begin shipment of
pre-production quality parts for this family until the third quarter of 2000 and
does not expect sales to reach a volume that could generate 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 six months ended June 30, 2000 and 1999 were zero
and $490,000, 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 six months ended June 30, 2000 and 1999 were $472,000
and $407,000, respectively. Gross profit as a percentage of total revenues was
76% in the six months ended June 30, 2000 and 37% in the six months ended
June 30, 1999.
Gross profit from ProASIC product revenues for the six months ended
June 30, 2000 was $472,000, as compared to a gross profit of $55,000 at
June 30, 1999. The increase in margin reflects slightly lower overhead costs
required to maintain the Company's manufacturing capabilities until product
sales could begin.
Gross profit from service revenues was $352,000 in the six months ended
June 30, 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 $219,000 for the six months ended
June 30, 2000 and $385,000 for the six months ended June 30, 1999. Expenses
incurred in the six months ended June 30, 2000 and 1999 related to the Company's
efforts to support strategic initiatives and product designs and the 43% decline
represents reduced head count and expenses associated with new designs in 1999.
RESEARCH AND DEVELOPMENT
Research and development expenses for the six months ended June 30, 2000
were $3,417,000 as compared with $2,426,000 for the six months ended June 30,
1999. The increase in expenses is due to an
36
<PAGE>
increase in the number of engineering lots produced in order to resolve process
related issues encountered in commercializing the manufacturing process for the
0.25-micron product.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the six months ended June 30, 2000
and 1999 were $667,000 and $1,433,000, respectively. The reduction is mainly due
to collection of a $720,000 debt in the first quarter of 2000 that was
previously written off.
OTHER INCOME AND EXPENSE
Other expense for the six months ended June 30, 2000 were $69,000 as
compared to other expense of $1,252,000 for the six months ended June 30, 1999.
This reduction reflects lower interest expense due to conversion of the 1999
Note to Common Stock.
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 the
0.25-micron product, which was originally 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. 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 due in part to 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 was largely due to volume differences
and the inventory write-down charge.
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
37
<PAGE>
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 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.
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
increased 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.
The 30% decrease in research and development costs in 1998 over 1997 was
principally due to reduced staffing levels resulting from the sale of the
verification businesses in 1997. Research and development expenses related to
ProASIC development remained relatively constant over the three-year period from
1997 to 1999.
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 $0.2 million related to 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 issued in May 1999 to 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.
38
<PAGE>
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 business unit to Actel.
This compares with 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 June 30, 2000, the Company had cash and cash equivalents of approximately
$879,000 and a working capital deficit of $3.4 million. During the six month
periods ended June 30, 2000 and 1999, the Company incurred net losses of
approximately $3.9 million and $5.1 million, respectively. The Company expects
to continue to generate such losses for at least the remainder of 2000. In
addition, at March 31, 2000, the Company had an outstanding payable due to
Infineon for $1.9 million, which has since been paid in full. In August 2000,
the Company entered into a $2.75 million convertible promissory note that the
Company expects will cover cash flow requirements through September 30, 2000.
However, the Company estimates it will have exhausted all of its currently
available capital resources on or about September 30, 2000. Thus, the Company
will be unable to continue as a going concern if sufficient funding is not
immediately available.
Cash used in operations was $5.3 million in the first six months of 2000
compared with the same amount of $5.3 million for the first six months of 1999.
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 by investing activities during the six month period ended June
30, 2000 was $139,000, for acquisition of equipment. The Company expects it
would need to invest a minimum of $700,000 and possibly as much as $1.5 million
in new mask sets for the 0.25-micron and smaller product during 2000, but does
not anticipate any other significant capital asset acquisitions.
Net cash provided by financing activities was $920,000 in the first six
months of 2000 which represents the net proceeds of the May 2000 Note. 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 the 1999 Note. 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, and the $4.6 million
redemption of the Company's Series B Preferred in December 1998. The 1997 figure
includes the sale of $4.6 million in Convertible Preferred Stock. SEE NOTE 9 OF
THE "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS."
39
<PAGE>
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:
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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<PAGE>
CERTAIN EFFECTS OF THE MERGER
Upon consumation of the Merger, Merger Sub will be merged with and into the
Company, the separate corporate existence of Merger Sub will cease, and the
Company will continue as the surviving corporation. Actel will own all of the
outstanding shares of common stock of the Surviving Corporation and will be
entitled to all of the benefits and detriments resulting from that interest.
After the Effective Time, the present stockholders of the Company, other than
Actel, will no longer have any equity interest in GateField or any right to vote
on corporate matters; instead the outstanding shares of Common Stock will be
converted into the right to receive the Merger Consideration. Because all of the
Company's Common Stock that is outstanding immediately prior to the consummation
of the Merger will be canceled and (except for shares owned by Actel) exchanged
for the right to receive payment of the Merger Consideration as a result of the
Merger, the Common Stock will no longer be traded on the OTC Bulletin Board and
the registration of the Common Stock under the Exchange Act will be terminated.
The termination of the registration of Common Stock under the Exchange Act will
eliminate the Company's obligation to file periodic financial and other
information with the Securities and Exchange Commission and will make most of
the provisions of the Exchange Act, such as the short-swing profit recovery
provisions of Section 16(b) and the requirement of furnishing a proxy or
information statement in connection with stockholders' meetings, no longer
applicable.
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 such record date. The
Company has never declared or paid any dividends on its capital stock and does
not anticipate paying a final dividend. Any other distributions by the Surviving
Corporation after completion of the Merger will be paid to Actel and not to the
Company's current stockholders.
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER
In considering the recommendations of the Board of Directors with respect to
the Merger, stockholders should be aware that certain directors and executive
officers of the Company have certain interests in the Merger that are in
addition to or different from the interests of the Company's unaffiliated
stockholders. 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 "SPECIAL FACTORS--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 to indemnify for six
years after the Effective Time 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 in effect at the time the Merger
Agreement was signed. SEE "THE MERGER AGREEMENT--INDEMNIFICATION; INSURANCE."
STOCK OPTION PLANS
Pursuant to the Merger Agreement, outstanding options to purchase Common
Stock (including unvested options) previously granted to executive officers and
employees of the Company will be assumed by Actel and become exercisable for a
certain number of shares of Actel stock. Certain options 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
41
<PAGE>
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.
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) 0(4)
</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.
(4) The 1995 Directors Plan will not be assumed by Actel in the Merger.
EMPLOYMENT WITH GATEFIELD
Mr. Saxe is an at-will employee of the Company. He will not receive
additional salary upon a change of control of 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 upon termination of Mr. Boyd's employment
following the change of control of the Company.
EMPLOYMENT AGREEMENT WITH ACTEL
Actel and Mr. Saxe have entered into an employment agreement pursuant to
which Mr. Saxe will serve as Actel's Vice President of Engineering Development,
FLASH-Based Products. Mr. Saxe will receive an annual salary of $225,000, a
signing bonus of $22,500 upon commencement of employment, and a retention bonus
of $225,000 upon completion of 18 months of service. In addition, Mr. Saxe will
receive an option to purchase 75,000 shares of Actel's common stock and will be
eligible to participate in Actel's standard bonus and benefit plans for
executives. The agreement provides for at-will employment except that Mr. Saxe
has agreed to provide consulting services to Actel should he terminate his
employment prior to May 31, 2001. Mr. Saxe has also agreed to certain
non-competition and non-solicitation covenants.
STOCKHOLDER VOTING OBLIGATION
Mr. Huberman is a general partner of Idanta. Pursuant to Section 5.17 of the
Merger Agreement, Idanta has converted all of its shares of Series B Preferred
into Common Stock prior to the Record Date and has agreed 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.
42
<PAGE>
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 the assets of the Company's Design Services business unit
as well as $3.0 million of the Company's Series C Preferred, which has been
converted 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, 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 business unit 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 incorporated in 1985.
MERGER SUB
Merger Sub is a newly formed Delaware corporation that 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.
INFORMATION CONCERNING IDANTA PARTNERS LTD.
Certain of the information contained in this Proxy Statement regarding
Idanta Partners Ltd. ("Idanta") and its general partners, including the
information contained in this section and the section captioned "Interests of
Affiliated Stockholders--Idanta Partners Ltd.," is being provided in response to
comments received by the Securities and Exchange Commission ("SEC"). The SEC has
indicated that Idanta is required to make certain disclosures to the
stockholders of the Company because it is engaged in the merger transaction
between the Company and Actel. You should be aware that Idanta is not affiliated
with Actel, and will not be treated differently in the Merger from any
unaffiliated stockholder of the Company. Under the Merger Agreement, Idanta
agreed to convert its shares of Series B Preferred into Common Stock and to vote
all shares over which Idanta or any of its general partners have voting and
investment power in favor of the transaction. Idanta does not have any other
agreement or understanding with the Company or Actel concerning the transaction.
Idanta is a limited partnership organized under the laws of the State of
Texas. Idanta's business address is 4660 La Jolla Village Drive, Suite 850, San
Diego, California 92122, and its telephone number is (858) 452-9690. Idanta is a
private venture capital partnership making strategic investments in public and
private enterprises primarily in the high-tech and healthcare sectors. Idanta
has or shares voting power and/or investment power, directly or indirectly, over
517,723 shares of Common Stock (approximately 8.4% of the shares of Common Stock
outstanding as of the Record Date), and one of its general partners, Jonathan S.
Huberman, is the Chairman of the Board of the Company.
43
<PAGE>
The name, current principal occupation, five-year employment history and
country of citizenship of each of the general partners of Idanta, together with
the names, principal businesses and addresses of any corporations or other
organizations in which such principal occupations are conducted, are set forth
in the following table:
<TABLE>
<S> <C>
DAVID J. DUNN, The Dunn Family Trust, a California trust, is a general
TRUSTEE OF THE DUNN partner of Idanta, and its address is 4660 La Jolla Village
FAMILY TRUST Drive, Suite 850, San Diego, California 92122. Mr. Dunn is
the trustee of the Dunn Family Trust, and has served as the
managing general partner of Idanta since 1971. Mr. Dunn has
served as Chairman of the Board of Iomega Corporation
("Iomega") since 1980. Mr. Dunn also served as President and
Chief Executive Officer of Iomega from August 1999 to
November 1999, and as its Chief Executive Officer until
January 2000. Mr. Dunn is a citizen of the United States of
America.
JONATHAN S. HUBERMAN Mr. Huberman joined Idanta in 1995 and has been a general
partner of Idanta since 1997. Mr. Huberman is the Chairman
of the Board of the Company. Mr. Huberman is a citizen of
the United States of America.
MAHESH KRISHNAMURTHY Mr. Krishnamurthy joined Idanta in 1997 and has been a
general partner of Idanta since January 2000.
Mr. Krishnamurthy was employed by AT&T Corporation from
June 1995 to June 1996, and by McKinsey & Company from 1991
to June 1995. Mr. Krishnamurthy is a citizen of the United
States of America.
</TABLE>
Idanta has not made any provision in connection with the transaction to
grant unaffiliated security holders access to its corporate files or to obtain
counsel or appraisal services at its expense.
Neither Idanta nor any of its general partners will acquire any shares of
the Company's Common Stock in the merger.
In December 1998, pursuant to Idanta's request, the Company redeemed 770,304
shares of Series B Preferred held by Idanta at a redemption price of $4.7335 per
share in accordance with the terms of the Company's Series B Preferred. In
May 1999, Idanta purchased 40,818 shares of Common Stock from the Company at a
purchase price of $6.50 per share. In June 2000, Idanta converted all of its
shares of the Company's Preferred Stock into an aggregate of 6,471 shares of
Common Stock without additional consideration. In December 1999, at the time
that Michael J. Kucha resigned as a director of the Company, Idanta requested
that the Company elect Jonathan S. Huberman, a general partner of Idanta, as a
director to replace Mr. Kucha on the Board of Directors and to appoint
Mr. Huberman as the Chairman of the Board of Directors.
The Company, Idanta, Dunn Family Trust and Perscilla Faily Trust are parties
to a Stock Purchase Agreement and a Registration Rights Agreement, each dated as
of November 10, 1997. The Stock Purchase Agreement provided for the issuance and
sale of preferred stock and common stock of the Company to Idanta and the other
parties to the agreement and includes certain covenants made by the Company in
favor of Idanta and such other parties. The Registration Rights Agreement
provides for customary registration rights in favor of Idanta and the other
parties to the agreement.
FINANCING OF THE TRANSACTION
Actel estimates that the total funds required to purchase all Common Stock
that is validly surrendered pursuant to the Merger Agreement, consummate the
Merger and pay all related costs and expenses will be approximately
$26 million. Actel intends to finance the payment of the Merger Consideration
and its share of costs and expenses with available cash.
44
<PAGE>
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
September 20, 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. 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 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
NUMBER OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES COMMON STOCK
------------------------------------ --------- -------------
<S> <C> <C>
Actel Corporation(2)
955 East Argues Avenue, Sunnyvale, CA 94086................. 2,335,584 37.8%
Idanta Partners Ltd.(3)
4660 La Jolla Village Drive, Suite 850, San Diego, CA
92122..................................................... 517,723 8.4%
Infineon(4)
Hofmannstr. 51, 81359 Munich, Germany....................... 402,375 6.5%
Mitsui(5)
1500 East Higgins Road, Unit B, Elk Grove Village, IL
60067..................................................... 307,696 5.0%
Timothy Saxe(6)............................................. 252,339 4.1%
Horst G. Sandfort(7)........................................ 2,250 --
Jonathan S. Huberman(8)..................................... 414,016 6.7%
James R. Fiebiger(9)........................................ 70,788 1.1%
James B. Boyd(10)........................................... 52,703 1.0%
All directors and executive officers as a group (4 persons)
(11)...................................................... 721,308 11.7%
</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
6,177,163 shares of Common Stock outstanding on the Record Date, 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 Actel is 955 East Argues Avenue, Sunnyvale, California
94086. Includes 190,476 shares of Common Stock issuable upon conversion of
35,000 shares of Series C-2 Preferred that Actel may acquire pursuant to
the conversion of the May 2000 Note and 523,810 shares of Common Stock
issuable upon conversion of 96,250 shares of Series C-2 Preferred that
Actel may acquire pursuant to the conversion of the August 2000 Note, which
shares of common stock are not issued and outstanding and are therefore not
eligible to be voted at the Special Meeting.
(3) Consists of 406,752 shares (6.6% of the shares outstanding on the Record
Date) held by Idanta, 103,707 shares (1.6% of the shares outstanding on the
Record Date) held by the Dunn Family Trust, a general partner of Idanta,
and 7,264 shares (less than 1% of the shares outstanding on the Record
Date) held by the Perscilla Faily Trust. David J. Dunn is the trustee of
the Dunn Family Trust and the
45
<PAGE>
Perscilla Faily is the trustee of the Perscilla Faily Trust. Pursuant to a
power of attorney granted by Ms. Faily, Mr. Dunn and Jonathan S. Huberman,
a general partner of Idanta, share voting power over the shares held by the
Perscilla Faily Trust. Mahesh Krishnamurthy is a general partner of Idanta
and may be deemed to beneficially own the shares held by Idanta. Idanta
disclaims beneficial ownership of the shares held by the Dunn Family Trust
and the Perscilla Faily Trust. The address of each general partner of
Idanta is 4660 La Jolla Village Drive, Suite 850, San Diego, CA 92122.
(4) 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.
(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) Consists of 406,752 shares held by Idanta and 7,264 shares held by The
Perscilla Faily Trust. Mr. Huberman shares voting power over the shares
held by The Perscilla Faily Trust. See footnote 3 above.
(9) Includes 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.
(10) Includes 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.
(11) Includes shares described in the notes above, as applicable.
46
<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.
The following table sets forth for the periods indicated the high and low
sales prices for the Common Stock as adjusted for the 1-for-10 reverse stock
split in June 1999:
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
Second Quarter............................... $ 5.25 $ 4.00 373,200 100
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 were approximately 1,128 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 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
DELAWARE GENERAL CORPORATION LAW ("DGCL") AND THE CALIFORNIA GENERAL CORPORATION
LAW ("CGCL"), ACTEL WILL MAKE A "FAIR VALUE" OR "FAIR MARKET VALUE" PAYMENT
UNDER ONLY ONE OF SUCH STATE COURT REMEDIES. THE PARTIES ARE NOT AWARE OF ANY
LAW OR LEGAL PRECEDENT WHICH WOULD CAUSE THE LAWS OF EITHER DELAWARE OR
CALIFORNIA TO GOVERN THESE MATTERS TO THE EXCLUSION OF THE LAWS OF THE OTHER
STATE AND BELIEVE THAT THE COURTS WOULD ULTIMATELY DETERMINE WHICH STATE LAWS
WOULD GOVERN IN THE EVENT OF A CONFLICT.
47
<PAGE>
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 Sections 1300-1312 of the CGCL,
respectively. This discussion and each of ANNEX III and ANNEX IV should be
reviewed carefully 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 Sections 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 DELIVERED TO THE COMPANY PRIOR TO THE SPECIAL MEETING.
SECTIONS 1300-1312 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 WITHIN 30 DAYS FOLLOWING THE
SPECIAL MEETING.
NOTICE TO THE 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 to the Company, in a timely fashion and in accordance with DGCL
Section 262 and/or CGCL Sections 1300-1312, a written demand for appraisal of
his or her shares of Common Stock (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 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
48
<PAGE>
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 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 ANNUAL 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 must be received
by the Secretary of the Company no later than December 28, 2000 for inclusion in
the Company's Proxy Statement and form of Proxy.
OTHER MATTERS
The Board of Directors knows of no other matters that may properly be
presented for consideration at the Special Meeting. If any other matters are
properly brought before the Special Meeting the persons named in the
accompanying Proxy may vote on such other 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 that you hold. You are, therefore, urged to
execute and return, at your earliest convenience, the accompanying Proxy in the
envelope which has been enclosed.
49
<PAGE>
GATEFIELD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ -------------
(UNAUDITED) (AUDITED)
(IN THOUSANDS, EXCEPT SHARE
AMOUNTS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 879 $ 5,418
Accounts receivable, less allowance for doubtful accounts
of $12 in 2000 and $536 in 1999......................... 27 33
Other current assets...................................... 143 205
--------- --------
Total current assets.................................... 1,049 5,656
Property and equipment, net................................. 1,285 1,423
Other assets................................................ 71 6
--------- --------
Total assets............................................ $ 2,405 $ 7,085
========= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current portion of long-term obligations.................. $ 202 $ 244
Accounts payable.......................................... 595 1,586
Accrued expenses.......................................... 647 825
Deferred revenues......................................... 2,959 3,562
--------- --------
Total current liabilities............................... 4,403 6,217
Long-term obligations....................................... 1,000 8,079
--------- --------
Total liabilities....................................... 5,403 14,296
Redeemable Preferred Stock
$0.10 par value; 2,000,000 shares authorized; shares
issued and outstanding: 0 in 2000 and 318,000 in 1999... -- 3,086
Stockholders' deficit
Common stock
$0.10 par value; 65,000,000 shares authorized; shares
issued and outstanding: 6,157,173 in 2000 and
4,693,000 in 1999..................................... 616 469
Additional paid-in capital.............................. 97,339 86,307
Accumulated other comprehensive loss...................... (469) (489)
Accumulated deficit....................................... (100,544) (96,584)
--------- --------
Total stockholders' deficit............................. (2,998) (10,297)
--------- --------
Total liabilities and stockholders' deficit............. $ 2,405 $ 7,085
========= ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
50
<PAGE>
GATEFIELD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
2000 1999
-------- --------
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Revenues
Product................................................... $ 625 $ 624
Service................................................... -- 490
------- -------
Total revenues.......................................... 625 1,114
------- -------
Cost of revenues
Product................................................... 153 569
Service................................................... -- 138
------- -------
Total cost of revenues.................................. 153 707
------- -------
Gross profit............................................ 472 407
------- -------
Operating expenses
Sales and marketing....................................... 219 385
Research and development.................................. 3,417 2,426
General and administrative................................ 667 1,433
------- -------
Total operating expenses................................ 4,303 4,244
------- -------
Operating loss.............................................. (3,831) (3,837)
------- -------
Other expense
Interest expense, net..................................... (81) (1,221)
Other expense, net........................................ 12 (31)
------- -------
Total other expense..................................... (69) (1,252)
Net loss.................................................... $(3,900) $(5,089)
Other comprehensive loss
Currency translation adjustments.......................... $ (20) $ (36)
======= =======
Comprehensive loss.......................................... $(3,920) $(5,053)
Loss attributable to common stockholders.................... $(3,901) $(5,090)
======= =======
Basic and diluted net loss per share........................ $ (0.78) $ (1.21)
======= =======
Basic and diluted weighted average shares outstanding....... 5,001 4,215
======= =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
51
<PAGE>
GATEFIELD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Operating activities:
Net loss.................................................. $(3,900) $(5,089)
Reconciliation to net cash used in operating activities:
Depreciation and amortization........................... 288 480
Noncash subordinated convertible debt interest.......... -- 1,231
Changes in assets and liabilities:
Accounts receivable................................... 6 213
Inventories........................................... -- 108
Other assets.......................................... (3) (544)
Accounts payable and accrued expenses................. (1,128) (1,185)
Deferred revenues..................................... (603) (478)
------- -------
Net cash used in operating activities............... (5,340) (5,264)
------- -------
Investing activities:
Property and equipment purchases.......................... (139) --
------- -------
Net cash used in investing activities............... (139) --
------- -------
Financing activities:
Proceeds from issuance of convertible note................ -- 8,000
Principal payments on long term debt and capital lease
obligations............................................. (80) (228)
Proceeds from issuance of common stock.................... 1,000 161
------- -------
Net cash provided by financing activities........... 920 7,933
Effect of exchange rate changes on cash and cash
equivalents............................................... 20 (78)
------- -------
Net change in cash and cash equivalents..................... (4,539) 2,591
Cash and cash equivalents, beginning of period.............. 5,418 3,832
------- -------
Cash and cash equivalents, end of period.................... $ 879 $ 6,423
======= =======
Supplemental disclosure of cash flow information:
Noncash activities:
Accrued dividends on preferred stock.................... $ 1 $ 1
Cash activities:
Cash paid during the year for interest.................. $ 18 $ 25
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
52
<PAGE>
GATEFIELD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 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 June 30, 2000 and 1999, the Company
incurred net losses of approximately $2,621,000 and $2,847,000, respectively.
Additionally, the Company had stockholders' deficits of approximately $3,043,000
at June 30, 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
June 30, 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
June 30, 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. AGREEMENT AND PLAN OF MERGER
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. On May 24, 2000 the Company, Actel, Idanta, and Merger
Sub entered into an Agreement and Plan of Merger which was amended and restated
on May 31, 2000. The Merger is subject to several conditions, including approval
by GateField's stockholders at a special meeting. Pursuant to the Merger
Agreement, Actel converted its $8.0 million 1999 Note into Series C-2 Preferred
and Actel and Idanta Partners, Ltd. converted their Series C-2 Preferred into
Common Stock. Actel and Idanta also agreed to vote their shares of Common Stock
for approval of the Merger.
53
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of GateField Corporation:
We have audited the accompanying consolidated balance sheets of GateField
Corporation and its subsidiaries at December 31, 1999 and 1998, and the related
consolidated statements of operations and comprehensive loss, stockholders'
deficit, and cash flows for each of the three years in the period ended
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the GateField Corporation and
its subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's recurring losses from operations, working
capital deficit, and stockholders' deficiency raise substantial doubt about its
ability to continue as a going concern. Management's plans concerning these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
DELOITTE & TOUCHE, LLP
San Jose, California
February 19, 2000
54
<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.
55
<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.
56
<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.
57
<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)
----- ---- ------- ----- -------- --------
Balances, December 31, 1998.................... 4,193 $419 $81,900 $(737) $(86,620) $ (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.
58
<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.
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.
59
<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)
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 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.
60
<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)
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," and SOP No. 98-9, "Modification of SOP No. 97-2" 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 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. When
arrangements include multiple elements and vendor specific objective evidence
exists for all undelivered elements, the Company accounts for the delivered
elements in accordance with the residual method prescribed by SOP 98-9.
Maintenance has to date been the only
61
<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)
undelivered element for which vendor specific objective evidence is determined
by reference to the price customers are required to pay when renewing
maintenance. 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 accounting. SFAS No. 133 will be effective for the Company's
fiscal year ending December 31, 2001.
62
<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)
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 second $1.0 million fee upon commercial qualification of the
0.25-micron product. The Company has received the initial $1.0 million fee and
deferred the revenue recognition until the delivery of pre-production quality
parts to Actel. The second $1.0 million fee has not been received nor recognized
as revenue and will only be recorded as revenue when commercial qualification of
the 0.25-micron product has been achieved.
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. The fair value of
common stock issued was $761,000 and the fair value of the warrant of $900,000
was determined by using a Black-Scholes model with the following assumptions:
volatility of 65%, no dividends during the expected term, risk-free interest
rate of 5.52% and a life of 5 years. The residual
63
<PAGE>
GATEFIELD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 2: STRATEGIC ALLIANCES (CONTINUED)
$1,589,000 remaining under this agreement was attributed to the licensed
technology, software, engineering services and related equipment. In 1997, the
Company received $1,500,000, of which $761,000 was allocated to the shares 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 to IKOS for $2,200,000. In a separate agreement, all
of the assets of the Attest division were sold to Test Systems Strategies, Inc.,
a subsidiary of Credence Systems Corporation 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 to IKOS 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.
64
<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.
65
<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
66
<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.
67
<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>
68
<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
69
<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.
70
<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
71
<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.
72
<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>
73
<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
74
<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.
75
<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.
76
<PAGE>
SIGNATURE
By Order of the Board of Directors
Lynne M. Bennett
SECRETARY
September , 2000
77
<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--Sections 1300-1312 of the CGCL
78
<PAGE>
ANNEX I
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 31st 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
I-1
<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
I-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
I-3
<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
I-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
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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
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<PAGE>
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 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;
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(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
(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
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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 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
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<PAGE>
With copies to:
Bay Venture Counsel, LLP
1999 Harrison Street, Suite 1300
Oakland, CA 94612
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: /s/ TIMOTHY SAXE
---------------------------------------
Timothy Saxe, PRESIDENT
ACTEL CORPORATION
By: /s/ FARES N. MUBARAK
---------------------------------------
Fares N. Mubarak, VICE PRESIDENT OF ENGINEERING
GATEFIELD ACQUISITION
CORPORATION
By: /s/ FARES N. MUBARAK
---------------------------------------
Fares N. Mubarak, VICE PRESIDENT OF ENGINEERING
As to Section 5.17 only
IDANTA PARTNERS LTD.
By: /s/ JONATHAN S. HUBERMAN
---------------------------------------
Jonathan S. Huberman, GENERAL PARTNER
</TABLE>
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<PAGE>
ANNEX II
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
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<PAGE>
GateField Corporation
May 23, 2000
Page 2
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 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,
/s/ NEEDHAM & COMPANY, INC.
NEEDHAM & COMPANY, INC.
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ANNEX III
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
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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.
(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
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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 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
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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, 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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ANNEX IV
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
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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 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.
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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
(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
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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
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
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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.
(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.
IV-5
<PAGE>
2100-SM2PS-00
<PAGE>
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
TUESDAY, AUGUST 15, 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 July 25, 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 Tuesday, August 15, 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.
1. 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
2. To adjourn the Special Meeting to a future date, if necessary to seek
additional votes, and to transact such other business as may properly come
before the Special Meeting.
/ / 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 AND IN THE DISCRETION OF THE
NAMED PROXIES WITH RESPECT TO ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
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 August 15, 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.
