<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1997
REGISTRATION NO. 333-28833
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
QUICKLOGIC CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 3674 77-0188504
(Prior to reincorporation) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
DELAWARE CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
(After reincorporation)
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
</TABLE>
1277 ORLEANS DRIVE
SUNNYVALE, CALIFORNIA 94089
(408) 990-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
E. THOMAS HART
CHIEF EXECUTIVE OFFICER
QUICKLOGIC CORPORATION
1277 ORLEANS DRIVE
SUNNYVALE, CALIFORNIA 94089
(408) 990-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
LARRY W. SONSINI JOSHUA L. GREEN
AARON J. ALTER JEFFREY Y. SUTO
WILSON SONSINI GOODRICH & ROSATI VENTURE LAW GROUP
PROFESSIONAL CORPORATION 2800 SAND HILL ROAD
650 PAGE MILL ROAD MENLO PARK, CALIFORNIA 94025
PALO ALTO, CALIFORNIA 94304 (415) 854-4488
(415) 493-9300
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 18, 1997
[LOGO OF QUICKLOGIC]
- --------------------------------------------------------------------------------
3,000,000 SHARES
COMMON STOCK
- --------------------------------------------------------------------------------
Of the 3,000,000 shares of Common Stock, par value $.001 per share ("Common
Stock"), of QuickLogic Corporation ("QuickLogic" or the "Company") offered
hereby, 1,800,000 shares are being offered by the Company and 1,200,000
shares are being offered by a stockholder of the Company (the "Selling
Stockholder"). The Company will not receive any proceeds from the sale of
shares by the Selling Stockholder. See "Principal and Selling Stockholders."
Prior to this offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be
between $11.00 and $13.00 per share. See "Underwriting" for a discussion of
the factors to be considered in determining the initial public offering
price. The Company has applied to have the Common Stock approved for listing
on the Nasdaq National Market under the trading symbol "QWIK."
FOR INFORMATION CONCERNING CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" COMMENCING ON PAGE 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDER(3)
<S> <C> <C> <C> <C>
Per Share $ $ $ $
Total $ $ $ $
</TABLE>
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of this offering estimated at $750,000, payable
by the Company.
(3) The Selling Stockholder has granted to the Underwriters a 30-day option
to purchase up to an additional 450,000 shares of Common Stock for the
purpose of covering over-allotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discount and Proceeds to
Selling Stockholder will be $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them, and subject to
approval of certain legal matters by counsel and certain other conditions.
The Underwriters reserve the right to withdraw, cancel or modify such offer
and to reject orders in whole or in part. Delivery of the shares of Common
Stock offered hereby to the Underwriters is expected to be made in New York,
New York on or about , 1997.
DEUTSCHE MORGAN GRENFELL
UBS SECURITIES
COWEN & COMPANY
The date of this Prospectus is , 1997.
<PAGE>
COMPANY ARTWORK
Title: QuickLogic logo, "The High Performance Programmable Logic Solution"
Text underneath title: "QuickLogic's FPGA products are used in complex,
high-performance electronics systems such as video, graphics and imaging,
telecommunications and data communications, instrumentation and test,
high-performance computers and military systems"
Graphic: QuickLogic FPGA device in the middle, surrounded by end market
application products (digital projector, cell phone with satellite dish and
microwave antenna, computer workstation, data networking multiplexer, etc.),
with each end market picture accompanied by a title (video, graphics and
imaging, telecommunications and data communications, instrumentation and test,
high-performance computers and military systems).
ViaLink, pASIC, QuickLogic and the QuickLogic logo are registered trademarks
of QuickLogic Corporation. QuickTools and QuickWorks are trademarks of
QuickLogic Corporation. All other trademarks or service marks appearing in
this Prospectus are the property of their respective companies.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DISCUSSION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
Unless otherwise indicated, the information in this Prospectus (i) assumes
no exercise of the Underwriters' over-allotment option, (ii) reflects the
conversion of all outstanding preferred stock into Common Stock and the
exercise of all outstanding Common Stock warrants, (iii) reflects a 7-for-1
reverse split of the Company's Common Stock effected through the
reincorporation of the Company in Delaware prior to the date of this offering
and (iv) reflects the authorization of 10,000,000 shares of undesignated
preferred stock upon the closing of this offering.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the information
appearing elsewhere in this Prospectus.
THE COMPANY
QuickLogic develops, markets and supports advanced field programmable gate
array ("FPGA") semiconductors and software design tools. QuickLogic products
enable designers of complex electronic systems to achieve rapid time to market
by optimizing design speed, design flexibility and cost. The Company's products
target complex, high-performance electronics systems in rapidly changing
markets including video, graphics and imaging, telecommunications and data
communications, instrumentation and test, high-performance computers and
military systems. The key components of the QuickLogic solution are the
Company's ViaLink proprietary antifuse technology and pASIC architectures, and
its software design tools. The Company's fabless manufacturing strategy allows
the Company to focus its resources on product design, development and marketing
rather than on manufacturing expenditures. The Company has a foundry
relationship with Cypress Semiconductor Corporation ("Cypress") for its
existing products and has entered into a memorandum of understanding with TSMC,
Ltd. ("TSMC") for the production of its anticipated 0.35(mu) CMOS products.
QuickLogic sells its products through independent sales representatives,
distributors and a direct sales force in North America, Europe and Asia. The
Company's customers include Alcatel Alsthom, Compaq, Honeywell, IBM, McDonnell
Douglas, NEC, Northern Telecom, Rockwell, Saab, Silicon Graphics, Sony, Texas
Instruments, 3Com and Toshiba.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered.......... 3,000,000 shares (including 1,800,000 shares by
the Company and 1,200,000 shares by the Selling
Stockholder)(1)
Common Stock to be outstanding
after the offering........... 13,817,422 shares(2)
Use of proceeds............... For working capital, capital expenditures and
other general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National
Market symbol................ QWIK
</TABLE>
SUMMARY FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
DECEMBER 31, MARCH 31,
------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................... $ 6,024 $15,148 $23,758 $ 5,154 $ 6,268
Gross profit..................... 1,971 7,409 12,600 2,591 3,455
Contract termination and other
expense(3)..................... -- (2,700) (4,125) -- (23,009)
Loss from operations............. (5,609) (4,660) (3,897) (136) (23,200)
Net income (loss)................ (5,828) (4,707) (3,597) 21 (23,103)
Pro forma net income (loss) per
share(4)........................ $ (0.29) $ -- $ (1.83)
Net income (loss) excluding
contract termination and other
expense(3)...................... (5,609) (1,960) $ 528 $ 21 $ (947)
======= ======= ========
Pro forma net income (loss) per
share excluding contract
termination and other
expense(3)(4)................... $ 0.04 $ -- $ (0.01)
======= ======= ========
Shares used in pro forma net
income (loss) per share......... 12,612 12,438 12,612
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1997
----------------------
ACTUAL AS ADJUSTED(5)
------- --------------
<S> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash.................................... $10,366 $28,780
Total assets............................ 21,476 39,890
Long-term obligations................... 1,658 1,658
Stockholders' equity.................... 8,059 26,473
</TABLE>
- -------
(1) Assumes no exercise of the Underwriters' over-allotment option to purchase
up to an additional 450,000 shares of Common Stock.
(2) Based on Common Stock outstanding at May 31, 1997. Excludes 1,604,750
shares of Common Stock issuable upon exercise of outstanding options under
the Company's 1989 Stock Option Plan (the "Option Plan") and 714,478 shares
reserved for future grant under the 1989 Plan as of May 31, 1997. See
"Management--Benefit Plans" and Note 7 of Notes to Financial Statements.
(3) See Notes 8 and 11 of Notes to Financial Statements, "Risk Factors--Actel
Litigation" and "Business--Cypress Transaction."
(4) See Note 1 of Notes to Financial Statements.
(5) As adjusted to reflect the sale of 1,800,000 shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of $12.00
per share and receipt of the estimated proceeds therefrom (after deducting
underwriting discount and offering expenses payable by the Company) of
$18,330,000 and to reflect the exercise of a warrant to purchase 18,750
shares of Common Stock at $4.48 per share. See "Use of Proceeds" and
"Capitalization."
3
<PAGE>
THE COMPANY
QuickLogic develops, markets and supports advanced FPGA semiconductors and
software design tools. QuickLogic products enable designers of complex
electronic systems to achieve rapid time to market by optimizing design speed,
design flexibility and cost. The Company's products target complex, high-
performance electronic systems in rapidly changing markets including video,
graphics and imaging, telecommunications and data communications,
instrumentation and test, high-performance computers and military systems. The
key components of the QuickLogic solution are the Company's proprietary
ViaLink antifuse technology and pASIC architectures, and its software design
tools.
QuickLogic's proprietary ViaLink antifuse technology places logic
interconnects between the metal layers of an FPGA device instead of on the
silicon substrate, thereby minimizing die size and cost. The ViaLink antifuse
technology offers lower resistance and lower capacitance than competing
interconnect technologies, thereby optimizing a device's performance. The
Company's pASIC architectures facilitate full routability and utilization of a
device's logic cells, enabling a high degree of design flexibility.
QuickLogic's QuickTools software design tools place and route logic cells on
an FPGA device, and the QuickWorks design software suite incorporates
QuickTools and industry-leading design tools for hardware description language
("HDL")/schematic entry, synthesis and simulation. In addition, QuickWorks
incorporates Institute of Electrical and Electronic Engineers ("IEEE")
standard design languages Verilog HDL and VHDL.
QuickLogic's fabless manufacturing strategy allows the Company to focus its
resources on product design, development and marketing rather than on
manufacturing expenditures. The Company has a foundry relationship with
Cypress for its existing products and has entered into a memorandum of
understanding with TSMC for the production of its anticipated 0.35^ CMOS
products. QuickLogic sells its products through independent sales
representatives, distributors and a direct sales force in North America,
Europe and Asia. The Company's customers include Alcatel Alsthom, Compaq
Computer Corporation, Honeywell, Inc., International Business Machines
Corporation, McDonnell Douglas Corp., NEC Corporation, Northern Telecom Ltd.,
Rockwell International Corp., Saab Automobile AB, Silicon Graphics, Inc., Sony
Corp., Texas Instruments Incorporated, 3Com Corporation and Toshiba
Corporation.
In March 1997, the Company became the exclusive supplier of all of its
products worldwide, which affords significant advantages in supply, pricing,
and quality control. From October 1992 to March 1997, the Company had granted
to Cypress certain technology development, manufacturing and marketing rights
to the Company's products, making it a second source of such products. In
exchange for the termination of this arrangement in March 1997, the Company
paid Cypress $4.5 million in cash and agreed to issue 2,603,817 shares of
Common Stock to Cypress, increasing the aggregate number of shares of Common
Stock of the Company held by Cypress to 3,339,783, prior to the sale of any
shares by Cypress in this offering. In addition, the Company granted Cypress
certain contractual rights as to the shares of the Company's stock, including
the right to sell shares in this offering. The parties also entered into a new
foundry agreement and a cross-license agreement. See "Business--Cypress
Transaction" and "Principal and Selling Stockholders."
The Company was incorporated in California in April 1988 as Peer
Semiconductor, Inc., and changed its name in May 1988 to Peer Research, Inc.
and in February 1991 to QuickLogic Corporation. The Company intends to
reincorporate in Delaware prior to the date of this offering. Unless the
context requires otherwise, references in this Prospectus to the "Company" or
"QuickLogic" refer to the Delaware corporation and its California predecessor
corporation. The address of the Company's corporate headquarters is 1277
Orleans Drive, Sunnyvale, California 94089. The Company's telephone number is
(408) 990-4000. The Company's Web site is located at
http://www.quicklogic.com. Neither the information contained in the Company's
Web site nor Web sites linked to the Company's Web site shall be deemed to be
a part of this Prospectus.
4
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such forward-looking statements
may be found in this section and under the sections entitled "Prospectus
Summary," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business--Industry Background," "--Strategy," "--
Sales, Support and Marketing," "--Research and Development," "--Manufacturing"
and "--Actel Litigation." Actual events or results could differ materially
from those discussed in the forward-looking statements as a result of various
factors, including, without limitation, the risk factors set forth below and
elsewhere in the Prospectus. The following risk factors should be considered
carefully before purchasing the Common Stock offered hereby.
LIMITED OPERATING HISTORY; NO ASSURANCE OF FUTURE PROFITABILITY. The Company
was incorporated in 1988 and did not begin shipping products in volume until
1992. Accordingly, the Company has a limited operating history upon which
investors may evaluate the Company and its prospects. The Company had an
accumulated deficit of $50.9 million as of March 31, 1997. Although the
Company has experienced revenue growth in each of the past five fiscal years,
and first achieved profitability in the fourth quarter of 1995, this growth
rate should not be considered to be indicative of future revenue growth, if
any, nor is there any assurance that the Company will be profitable in any
future period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
FLUCTUATIONS IN OPERATING RESULTS. Fluctuations in the Company's operating
results have occurred in the past and may occur in the future due to a variety
of factors, any of which may have a material adverse effect on the Company's
operating results. In particular, the Company's quarterly results of
operations may vary significantly due to general business conditions in the
semiconductor industry, fluctuations in manufacturing yields at the Company's
wafer suppliers, the availability of foundry capacity, cancellations or delays
of deliveries of products to the Company, new product introductions by the
Company or its competitors, product obsolescence, price erosion for maturing
products, competition, changes in the mix of products sold, seasonal
fluctuations in demand, changes in distributor inventory levels, availability
of wafer supply, increases in the costs of materials, cancellations or delays
of product orders, developments in the Company's litigation with Actel
Corporation ("Actel"), the ability to safeguard intellectual property in a
rapidly evolving market, changing customer product requirements, changes in
demand for customers' products and fluctuations in foreign currency exchange
rates. A large portion of the Company's operating expenses is fixed and
difficult to reduce or modify. If revenue does not meet the Company's
expectations, the adverse effect of any such revenue shortfall will be
magnified by the fixed nature of these operating expenses. In addition, the
Company's quarterly operating results can vary due to the volume and timing of
product orders received and delivered during a quarter, the ability of the
Company and its key suppliers to respond to changes made in customer orders,
and the timing of new product introductions by the Company and its
competitors. All of the above factors are difficult for the Company to
forecast, and these and other factors could have a material adverse effect on
the Company's business, financial condition and results of operations. As a
result, the Company believes that period-to-period comparisons are not
necessarily meaningful and should not be relied upon as indicative of future
operating results. See "--Actel Litigation" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
ACTEL LITIGATION. On January 20, 1994, Actel, a competitor of the Company,
filed a lawsuit against the Company entitled Actel Corporation v. QuickLogic
Corporation in the United States District Court for the Northern District of
California (the "Court"), Case No. C-94 20050JW (PVT). The original complaint
alleged infringement by the Company of four U.S. patents held by Actel: U.S.
Patent 4,873,459 (the "'459 Patent") issued October 10, 1989 and entitled
"Programmable Interconnect
5
<PAGE>
Architecture;" U.S. Patent 4,758,745 (the "'745 Patent") issued July 19, 1988
and entitled "User Programmable Integrated Circuit Interconnect Architecture
and Test Method;" U.S. Patent 5,055,718 (the "'718 Patent") issued October 8,
1991 and entitled "Logic Module With Configurable Combinational and Sequential
Blocks;" and U.S. Patent 5,198,705 (the "'705 Patent") issued March 30, 1993
and entitled "Logic Modular and Configurable Combinational and Sequential
Blocks." In each of March 1995 and March 1996, Actel added a claim that an
additional Actel patent was infringed: U.S. Patent 5,367,208 (the "'208
Patent") issued November 22, 1994 and entitled "Reconfigurable Programmable
Interconnect Architecture" and U.S. Patent 5,479,113 (the "'113 Patent")
issued December 26, 1995 and entitled "User Configurable Logic Circuits
Comprising Antifuses and Multiplexer-Based Logic Modules." The '459, '745,
'208 and '113 Patents all relate to user programmable interconnect
architectures and are based upon the same application. Actel's '705 and '718
Patents relate to logic modules for use in FPGAs. As to the '745 and '459
Patents, Actel asserts that QuickLogic's programmable interconnect circuits
and architecture found in its pASIC 1 and pASIC 2 product families infringe
one or more claims of these patents. As to the '705 and '718 Patents, Actel
asserts that QuickLogic's programmable logic module used in its pASIC1 and
pASIC2 product families infringes one or more claims of each patent. As to
Actel's '113 patent, Actel asserts that QuickLogic's control circuit
controlling the program voltage within QuickLogic's user programmable
interconnect architecture infringes one or more claims. As to each patent-in-
suit, Actel seeks an injunction preventing QuickLogic from further use of the
claimed inventions, damages for past infringement of the inventions, Actel's
attorneys' fees and treble damages for willful infringement. Sales of the
Company's pASIC products have accounted for substantially all of the Company's
revenue to date and are expected to account for substantially all of the
Company's revenue for the foreseeable future. Fees from licenses of the
QuickWorks and QuickTools software design tools have accounted for
substantially all of the remainder of the Company's revenue. The Company has
filed answers to each of these complaints and counter-claims seeking
declarations that the Actel patents at issue are not infringed by the Company,
are invalid, and are unenforceable. On April 19, 1994, QuickLogic moved to
stay proceedings pending reexamination by the United States Patent and
Trademark Office (the "USPTO") of two of the patents involved in the
litigation, the '745 Patent and the '459 Patent. The Court granted this stay
on July 21, 1994. The USPTO confirmed the patentability of these two patents
on November 15, 1994 and January 10, 1995, respectively, which Actel may argue
will increase the burden upon QuickLogic to prove the invalidity of the two
reexamined patents. The Court lifted the stay on November 8, 1994.
On November 15, 1994, Actel filed a motion for summary judgment with respect
to the Company's infringement of claim 1 of the '705 Patent. Actel's '705
Patent relates to an interconnect structure, programming structures, and logic
circuits wherein a multiplicity of logic circuits are arranged in a regular
pattern on the semiconductor substrate. The logic circuits (logic modules)
contain circuitry which ultimately determines the function that the FPGA could
perform. The '705 Patent covers a logic module, and its structure and its
connections to the interconnect structure. Actel has referred to this
technology as its "nested three multiplexer" architecture, which involves
three dual input, single output multiplexers. The logic module, as claimed in
the '705 Patent, includes two multiplexers wherein each output is coupled to
one of the pair of inputs of a third multiplexer. The first and second
multiplexers have four inputs which are "connected to" four respective "data
nodes." The output of the third multiplexer may be connected to a sequential
logic circuit. First and second multiplexers are controlled by a "single level
logic gate" at their select inputs as is the third multiplexer which is
similarly controlled by a second "single level logic gate." The Court
appointed a Special Master to assist in determining certain issues related to
this litigation, and the Special Master recommended on October 4, 1996 that
the Court find that the Company's pASIC 1 products infringe claim 1 of the
'705 Patent. On April 14, 1997, the Court adopted the recommendation of the
Special Master and granted Actel's motion for summary judgment that the
Company's pASIC 1 products infringe claim 1 of the '705 Patent. Any appeal of
the summary judgment motion on infringement of the '705 Patent cannot be made
until after there is a final judgment. If the '705 Patent is finally
6
<PAGE>
adjudicated to be valid and enforceable, and the summary judgment motion is
upheld on appeal, then Actel would be entitled to damages for past
infringement and potentially would be entitled to an injunction on future
infringement. Such an injunction and/or the payment of damages would have a
material adverse effect on the Company's business, financial condition and
results of operations, and could potentially render it insolvent and unable to
sell its products.
On April 12, 1995, QuickLogic filed a counterclaim alleging that Actel has
infringed two U.S. patents held by the Company, U.S. Patent Nos. 5,220,213
(the "'213 Patent") and 5,396,127 (the "'127 Patent"). The '127 Patent recites
a logic module having three multiplexers wherein each output of two of the
multiplexers is connected to one of the pair of inputs of the third. The
output of the third multiplexer is connected to a flip flop. The '213 Patent
recites logic gates coupled to the data inputs of the first two multiplexers.
As to each patent-in-suit in the counterclaim, the Company alleges
infringement of one or more claims and seeks an injunction preventing Actel
from further infringement of the claimed inventions. The Company also seeks
damages for past infringement of the inventions and the Company's attorneys'
fees based on the alleged infringement and increased damages for willful
infringement. On January 18, 1996, Actel filed a motion for summary judgment
declaring the '213 and '127 Patents to be invalid. Actel's motion is based on
an "on-sale bar" defense, i.e. that the Actel products which the Company
claims infringe these patents were offered for sale more than one year before
the filing dates of the '213 and '127 Patents which, if proven under patent
law, would invalidate these patents. Discovery is currently in progress to
allow QuickLogic to file its opposition to this motion, which the Company
believes will be filed in 1997, with the hearing on this motion to be
scheduled thereafter. On February 5, 1996, QuickLogic filed a motion for
summary judgment of infringement by Actel of claim 1 of the '213 Patent. Actel
has opposed this motion, and discovery is currently in progress. Actel also
requested a separate trial on the "on-sale bar" defense, which request was
denied by the Special Master on June 4, 1997 in a Notice of Intention to Rule.
After the issuance of a formal recommendation by the Special Master, the Court
must then decide whether to adopt this recommendation.
On January 14, 1997, an additional U.S. patent was issued to the Company,
U.S. Patent No. 5,594,364 (the "'364 Patent"). On February 28, 1997, the
Company filed a motion to add a counterclaim for Actel's infringement of this
patent. A hearing on this motion was held on May 19, 1997 before the Special
Master, who granted the Company's motion on June 4, 1997 in a Notice of
Intention to Rule. After the issuance of a formal recommendation by the
Special Master, the Court must then decide whether to adopt this
recommendation.
On June 4, 1997, the Special Master also notified the parties of his intent
to accept the parties' stipulation that Actel be allowed to amend its
complaint to add a claim alleging QuickLogic's infringement of an additional
patent, U.S. Patent No. 5,610,534 (the "'534 Patent"), issued March 11, 1997
and entitled "Logic Module For A Programmable Logic Device." Actel alleges
that the Company has infringed one or more claims of this patent and is likely
to seek both monetary and injunctive relief, but has not yet filed or served
an amended complaint. After the issuance of a formal recommendation by the
Special Master, the Court must then decide whether to adopt this
recommendation.
In addition to the patent infringement actions, Actel amended its claims
against the Company to include a claim against the Company and one of its
employees on June 14, 1995 alleging misappropriation of trade secrets, breach
of contract, breach of confidential relationship, and unfair competition.
Actel has sought assignment of certain issued and future patents of the
Company, two of which are part of this lawsuit, unspecified money damages, a
doubling of the damages for willful and malicious misappropriation, attorneys'
fees and other remedies. These claims are based on allegations that this
employee, who had once been a consultant to Actel and is a named inventor of
some of QuickLogic's patents, had misappropriated confidential information
from Actel related to logic
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cells, which the Company then incorporated into its pASIC products. The
employee and the Company have filed answers denying each of these claims.
Discovery is ongoing at this time and no dispositive motions have been filed
or heard.
Trial on the patent infringement and trade misappropriation claims is
currently scheduled for September 1998. However, there can be no assurance
that the trial will occur at such time and may be delayed significantly. As
the outcome of any litigation is inherently uncertain, the Company is unable
to predict the outcome of this litigation. Therefore, there can be no
assurance that the Company will prevail in the trial on its defenses to the
patent infringement claims and its counter-claims, the trial on the alleged
misappropriation of intellectual property, or hearings on any motions related
to such proceedings or any appeals. The timing of the filing of any motions by
Actel, hearings on motions by either Actel or the Company, the issuance of
rulings on such motions, the issuance of recommendations by the Special Master
and the adoption or rejection of such recommendations by the Court are not
within the Company's control and could occur at any time. The announcement of
any rulings or recommendations, or the adoption or rejection of
recommendations, that are adverse to the Company, will likely have a material
adverse effect upon the market price for the Company's stock.
The semiconductor industry is characterized by frequent litigation regarding
patent and other intellectual property rights, which involve highly technical
and subjective analysis. Discovery and litigation of such issues are time-
consuming and costly, and Actel possesses more personnel and greater financial
resources than the Company and is able to conduct extensive and protracted
litigation at less of a relative detriment to its current business. While
patent infringement litigation in the semiconductor industry has at times
resulted in voluntary settlements by the parties, often involving cross-
licensing of the patents involved, there can be no assurance that such a
result will be reached in this case. In addition, the terms of any settlement
may require the Company to stop selling all or certain of its products, pay
damages or royalties or other forms of consideration or grant licenses to all
or a portion of its intellectual property portfolio, any or all of which could
have a material adverse effect on the Company's business, financial condition
and results of operations. Patent infringement litigation in the semiconductor
industry has also resulted in court orders to pay significant damages and/or
injunctions preventing a party from making, using or offering to sell, selling
or importing any products that incorporate technology covered by such patents.
As referenced above, sales of the allegedly infringing products by the Company
have accounted for substantially all of the Company's past revenue and are
expected to account for substantially all of the Company's revenue for the
foreseeable future. This litigation could result in the Company being required
to cease selling its products and/or could also result in the Company paying
significant damages, including treble damages for willful infringement, either
of which would have a material adverse effect on the Company's business,
financial condition and results of operations and could potentially render it
insolvent.
There can be no assurance that the Company will prevail in its claims or
defenses or that it would be able to obtain a license under any Actel patents
that are found to be infringed, or if such a license were obtained, that it
would be on terms that would not have an adverse effect on the Company's
business, financial condition and results of operations. The current
litigation and any future litigation, whether or not determined in the
Company's favor or settled by the Company, has been and will continue to be
costly and will divert the efforts and attention of the Company's management
and technical personnel from normal business operations, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. It is expected that legal fees and other litigation-
related expenses will continue to adversely affect the Company's operating
results for the foreseeable future. Any adverse determinations in this
litigation or a settlement could result in
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the loss of the Company's proprietary rights, subject the Company to
significant liabilities, require the Company to seek licenses from or to grant
licenses to third parties, prevent the Company from licensing its technology or
enjoin the Company from sale of its products, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
INDUSTRY PRESSURES. The semiconductor industry in general and the
programmable logic device ("PLD") segment of this industry, in particular, are
characterized by rapid technological change, intense competitive pressure and
fluctuating demand. The semiconductor industry has historically been cyclical
and subject to significant downturns at various times, characterized by
diminished product demand, accelerated erosion of average selling prices
("ASPs") and production over-capacity. to general semiconductor industry
conditions. ASPs typically decrease rapidly over the first three to six months
following product introduction and continue to decline thereafter. Therefore,
the Company must develop and introduce new products which incorporate features
that can be sold at higher ASPs on a timely basis. In addition, the Company's
ability to maintain desired gross margins depends upon its ability to achieve
manufacturing efficiencies and material cost reductions, such as manufacturing
its products in smaller product geometries on larger wafers. Failure to achieve
any or all of the foregoing could cause the Company's revenue and gross margins
to decline, which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion of Financial Condition and Results of Operations."
DEPENDENCE ON INDEPENDENT WAFER MANUFACTURERS. The Company does not
manufacture the wafers used to produce its products. In the past, wafer foundry
capacity in the semiconductor industry has been very limited and may become
limited in the future. To date, wafers have been manufactured for the Company
principally by Cypress and in limited quantities by TSMC. In the future, the
Company expects its wafers to be manufactured principally by TSMC. The Company
depends on these suppliers to produce wafers at acceptable yields and prices
and to deliver them to the Company in a timely manner. The process used to
manufacture the Company's semiconductors can be performed in only a limited
number of foundries, increasing the Company's dependence on Cypress and TSMC.
Although the Company has a supply contract with Cypress and is negotiating a
new supply contract for its future products with TSMC, either Cypress or TSMC
could allocate capacity to the manufacture of other products and reduce
deliveries to the Company on short notice.
Under its wafer supply arrangements, the Company is obligated to provide
rolling forecasts of anticipated purchases and place binding purchase orders
months prior to shipment. Forecasts for monthly purchases may not increase or
decrease by more than a certain percentage from the previous month's forecast
without the supplier's consent. Thus, the Company must make forecasts and place
purchase orders for wafers before it receives purchase orders from its own
customers. This limits the Company's ability to react to fluctuations in demand
for its products, which could cause the Company to have an excess or a shortage
of wafers for a particular product. Any delays in obtaining an adequate supply
of wafers at acceptable yields and prices would have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company's long-term growth will depend substantially on the Company's ability
to obtain increased wafer fabrication capacity at acceptable prices from
Cypress, TSMC and other suppliers. The Company's current supply contract with
Cypress expires in 2001. The inability of the Company to obtain increased wafer
fabrication capacity at acceptable prices, or any delay or interruption in
supply, could reduce the Company's supply of wafers or increase the Company's
cost of such wafers and could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Manufacturing."
DEPENDENCE ON CUSTOMIZED MANUFACTURING PROCESSES. The Company's products are
manufactured using customized steps which are added to the standard
manufacturing processes of
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its wafer suppliers. There is considerably less operating history for the
Company's customized process steps than for the foundries' standard
manufacturing processes. The Company's dependence on customized processing
steps means that, in contrast to competitors using only a standard
manufacturing process, the Company has more difficulty establishing
relationships with suppliers, takes longer to qualify a new supplier, must pay
more for wafers and may not obtain access as early as competitors to state-of-
the-art processes. Any of the above could be a material disadvantage for the
Company versus a competitor using a standard manufacturing process without
customized steps and could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
planned future products that the Company anticipates will be supplied by TSMC
will involve production of new products utilizing 0.35^ CMOS technology and on
8-inch wafers, which is a manufacturing process that has not previously been
used by the Company. Accordingly, the development of this manufacturing
process is subject to the risks and uncertainties inherent in the technology
and equipment necessary for such manufacturing. This manufacturing process may
not be able to be implemented for any of the Company's products by TSMC, or by
any other wafer manufacturer, or may be delayed substantially due to
development or implementation difficulties. Even if this manufacturing process
is successfully implemented by TSMC for the Company's products, the Company
will continue to be subject to unforeseen problems or delays as this new
process is developed. See "Business--Manufacturing."
PRODUCTION YIELD FLUCTUATIONS. The manufacture of semiconductor products is
a highly complex and precise process. Defects in masks, impurities in the
materials used, contamination of the manufacturing environment, equipment
failure and other difficulties in the fabrication process can cause a
substantial percentage of wafers to be rejected or numerous die on each wafer
to be nonfunctional. Yields can decline without warning, resulting in
substantially higher product costs and inventory shortages. Yield problems may
take substantial time to analyze and correct, particularly for the Company
because it utilizes independent facilities for all of its manufacturing. The
Company has from time to time experienced lower than anticipated production
yields, and there can be no assurance that the Company will not experience
production yield problems in the future, or that any such problem will not
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Manufacturing."
NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE. The market for the
Company's products is characterized by rapidly changing technology.
Accordingly, the Company's future performance depends on a number of factors,
including its ability to identify emerging technological trends in its target
markets, to develop and maintain competitive products, to enhance its products
by adding innovative features that differentiate its products from those of
competitors, to introduce products to market on a timely basis at competitive
prices, to properly identify target markets and to respond effectively to new
technological changes or new product announcements by others. The Company
recently introduced new products within its pASIC family of FPGAs and
currently is in the process of introducing new versions of its software design
tool suites. No assurance can be given that the Company's design and
introduction schedules for its pASIC families of products or any other new
products will be met, that these products will achieve market acceptance, or
that these products will be able to be sold at ASPs that are acceptable to the
Company. In evaluating new product decisions, the Company must anticipate well
in advance both the future demand and the technology that will be available to
supply such demand. The Company must also continue to make significant
investments in research and development in order to develop new products and
achieve market acceptance for such products. The failure of the Company to
accomplish any or all of the foregoing could have a material adverse effect on
its business, financial condition and results of operations. See "Business--
Products."
COMPETITION. The semiconductor industry is intensely competitive and is
characterized by constant technological change, rapid rates of product
obsolescence and price erosion. The Company's existing competitors include
suppliers of conventional gate arrays, complex programmable logic
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devices ("CPLDs") and FPGAs, particularly Xilinx, Inc. ("Xilinx"), a supplier
of static random access memory ("SRAM")-based FPGAs, Actel, an antifuse FPGA
supplier, and Altera Corporation ("Altera"), a supplier of CPLDs. The Company
also faces competition from companies that offer standard gate arrays, which
can be obtained at a lower cost for high volumes and may have gate densities
and performance equal or superior to the Company's products. In addition, the
Company expects significant competition in the future from major domestic and
international semiconductor suppliers, and the Company's patents may not bar
competitors from manufacturing similar products. The Company also may face
competition from suppliers of products based on new or emerging technologies.
The PLD market is dominated by Xilinx and Altera, which together control
over 55% of the market, according to Pace Technologies, a semiconductor market
research firm. The Xilinx products dominate the FPGA segment of the market
while Altera dominates the CPLD segment of the market. In addition, the
Company expects significant competition in the future from major domestic and
international suppliers which have entered or are considering entering the PLD
market. Such suppliers include Lucent Technologies, Vantis
Corporation/Advanced Micro Devices, Inc., Motorola, Inc. and Atmel
Corporation. Most of the Company's current and prospective competitors offer
broader product lines and have significantly greater financial, technical,
manufacturing and marketing resources than the Company. In particular,
companies such as Lucent Technologies, Motorola, Inc. and others have
proprietary wafer manufacturing ability, preferred vendor status with many of
the Company's customers, extensive marketing power and name recognition,
greater financial resources than the Company, and other significant advantages
over the Company. Certain of the current and prospective competitors of the
Company are or may become customers as well. There can be no assurance that
such customers will continue to buy the Company's products if they are
offering their own competing products, which could have a material adverse
effect on the Company's business, financial condition and results of
operations. The Company believes that important competitive factors in its
market are length of development cycle, price, performance, installed base of
development systems, adaptability of products to specific applications, ease
of use and functionality of development system software, reliability and
technical service and support, wafer fabrication capacity and sources of raw
materials, and protection of products by effective utilization of intellectual
property laws. Failure of the Company to compete successfully in any of these
or other areas could have a material adverse effect on its operating results.
In addition, the Company's competitive position is substantially dependent
upon industry competition for effective sales and distribution channels. There
can be no assurance that the Company's products will be competitive. The
failure of the Company to develop and market products that compete
successfully with those of other companies in the market would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Competition."
DEPENDENCE UPON DESIGN WINS. The Company's success depends upon its ability
to convince a customer to incorporate the Company's FPGA into the customer's
circuit board during the design phase of a product. Accordingly, the Company
devotes substantial resources, which it may not recover through product sales,
in support of potential customer design efforts and in persuading potential
customers to incorporate the Company's FPGAs into new or updated products. The
typical engineer designing a circuit board will make an FPGA decision only
three or four times during the year. Accordingly, the Company's sales force
has limited windows of opportunity within which to successfully sell the
Company's products to design engineers. Sales efforts may be targeted at a
particular customer or market segment for several months and may not be
successful or, if successful, may not generate revenue for a year or longer
after the initial design win until the customer's products using the Company's
devices are being produced in volume. In addition, the Company may achieve a
design win with a customer, but the designed product may not ever be produced
and therefore not generate revenue. The value of any design win depends in
large part upon the ultimate success of the customer's product. No assurance
can be given that the Company will
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win sufficient designs or that any design win will result in significant
revenue. The failure of the Company to achieve design wins in sufficient
number or the failure of a substantial number of such products to be produced
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Sales, Support and
Marketing."
PROTECTION OF INTELLECTUAL PROPERTY. Since its inception, the Company has
devoted significant resources to research and development. The Company relies
primarily on a combination of nondisclosure agreements, mask work rights and
other contractual provisions and patent, trademark, trade secret, and
copyright law to protect its proprietary rights. Failure of the Company to
enforce its patents, trademarks, mask work rights or copyrights or to protect
its trade secrets could have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that such intellectual property rights can be successfully asserted
in the future or will not be invalidated, circumvented or challenged. From
time to time, third parties, including competitors of the Company, may assert
patent, copyright and other intellectual property rights to technologies that
are important to the Company. There can be no assurance that third parties
will not assert infringement claims against the Company in the future, that
assertions by third parties will not result in costly litigation or that the
Company would prevail in any such litigation or be able to license any valid
and infringed patents from third parties on commercially reasonable terms.
Litigation, regardless of the outcome, could result in substantial cost and
diversion of resources of the Company. Any infringement claim or other
litigation against or by the Company could materially adversely affect the
Company's business, financial condition and results of operations. See "--
Actel Litigation."
In addition, there can be no assurance that competitors of the Company, many
of which have substantial resources and have made substantial investments in
competing technologies, do not have, or will not seek to apply for and obtain,
patents that will prevent, limit or interfere with the Company's ability to
make, use or sell its products either in the United States or in international
markets. There can be no assurance that the Company will not in the future
become subject to patent infringement claims and litigation or interference
proceedings declared by the USPTO to determine the priority of inventions. The
defense and prosecution of intellectual property suits, USPTO interference
proceedings and related legal and administrative proceedings are both costly
and time consuming. Any such suit or proceeding involving the Company could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "--Actel Litigation."
ORDER AND SHIPMENT UNCERTAINTIES. The Company's sales are generally made
pursuant to individual purchase orders that may be canceled or deferred by
customers on short notice without significant penalty. Cancellation or
deferral of product orders could result in excess inventory to the Company,
which could have a material adverse effect on the Company's profit margins and
restrict its ability to fund its operations. The Company sells to domestic
distributors under agreements which allow certain rights of return and price
adjustments on unsold inventory. The Company recognizes revenue from such
sales to domestic distributors upon shipment of products to the end-user.
Revenue from all other products is recognized at the time of shipment by the
Company. Delays or difficulties in collecting receivable accounts could result
in significant charges against income, which could have a material adverse
effect on the Company's business, financial condition and results of
operations.
RISKS OF GROWTH AND EXPANSION. The Company has recently experienced and
expects to continue to experience growth in the number of its employees and
the scope of its operations, resulting in increased responsibilities for
management personnel. To manage recent and potential future growth
effectively, the Company will need to continue to hire, train, motivate and
manage a growing number of employees. The future success of the Company will
also depend on its ability to attract and retain qualified technical,
marketing, and management personnel. In particular, the current availability
of qualified design, process, and test engineers is limited, and competition
among
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companies for skilled experienced engineering personnel is very intense. The
Company has been attempting to hire a number of engineering personnel and has
experienced delays in filling such positions. During strong business cycles,
the Company expects to experience continued difficulty in filling its needs
for qualified engineers and other personnel. No assurance can be given that
the Company will be able to achieve or manage effectively any growth, and the
failure to do so could delay product development and introductions and
otherwise have a material adverse effect on the Company's business, financial
condition and results of operations.
RELIANCE ON DISTRIBUTORS. Approximately 53.3% and 68.8%, respectively, of
the Company's worldwide sales were made through independent distributors in
1996 and the first quarter of 1997, respectively. In these periods, most of
the Company's sales outside the United States were made through independent
distributors. No assurance can be given that future sales by these or other
distributors will continue at current levels or that the Company will be able
to retain its current distributors on terms that are acceptable to the
Company. The Company's distributors generally offer products of several
different companies, including products that are competitive with the
Company's products. Accordingly, there is a risk that these distributors may
give higher priority to products of other suppliers, thus reducing their
efforts to sell the Company's products. In addition, the Company's agreements
with its distributors are generally terminable at the distributor's option.
The Company recently terminated its distribution relationships with Seymour
Electronics and Reptron Electronics Inc. The failure of the Company to
successfully transition from the termination of these relationships, a
reduction in sales efforts by one or more of the Company's current
distributors, or a termination of any other distributor relationship with the
Company could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's distributors have
on occasion increased inventories in anticipation of substantial growth in
sales and, when such growth did not occur as rapidly as anticipated,
substantially decreased the amount of products ordered from the Company in
subsequent periods. Such a slowdown in sales would adversely affect the
Company's future revenue. No assurance can be given that one or more of the
Company's distributors will not experience financial difficulties. The failure
of one or more of the Company's distributors to pay for products ordered from
the Company or to continue operations because of financial difficulties or for
other reasons could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Sales, Support
and Marketing."
RISKS ASSOCIATED WITH INTERNATIONAL BUSINESS ACTIVITIES. Sales to customers
located outside the United States accounted for approximately 29.6% and 46.7%
of revenue in 1996 and the first quarter of 1997, respectively. The Company
expects that revenue derived from international sales will continue to
represent a significant portion of its total revenue. International sales are
subject to a variety of risks, including those arising from currency exchange
fluctuations, taxes, export license requirements, reduced protection for
intellectual property rights in some countries, the difficulty in enforcing
contractual rights, the impact of general business conditions of economies
outside the United States and generally longer periods for receivables
collection. Because all of the Company's foreign sales are denominated in U.S.
dollars, the Company's products become less price competitive in countries
whose currencies are declining in value against the dollar. The Company's
business is also subject to the risks associated with the imposition of
legislation and regulations relating to the import or export of semiconductor
products. In order to expand international sales and service capabilities, the
Company must maintain and expand existing foreign operations or establish new
foreign operations. Significant management attention and financial resources
of the Company will be necessary to hire additional personnel and maintain or
expand existing relationships with international distributors and sales
representatives. There can be no assurance that the Company will be able to
maintain or expand existing foreign operations, establish new foreign
operations or preserve and develop its relationships with international
distributors or sales representatives. The failure to take any of such
measures could have a material adverse effect on the Company's business,
financial condition and results of operations.
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The Company has entered into a memorandum of understanding with TSMC to
manufacture its products at TSMC's foundries in the Republic of China
(Taiwan), and TSMC is currently producing research and development wafers for
the Company. The research and development of the technology that is planned to
be used at the TSMC foundry, negotiation of a manufacturing agreement with
TSMC, and any production by TSMC, are subject to the risk of political
instability in Taiwan, including but not limited to the potential for conflict
between Taiwan and the People's Republic of China. In addition, the United
States has had disputes with China relating to trade and human rights issues
and has also considered trade sanctions against Japan. If trade sanctions were
imposed, Japan or China could enact trade sanctions in response. Because the
Company plans to manufacture the majority of its products at the TSMC facility
in the future, and because a number of the Company's current and prospective
customers and suppliers are located in Japan and China, trade sanctions, if
imposed, could have a material adverse effect on the Company's business,
financial condition and results of operations. Similarly, protectionist trade
legislation in either the United States or foreign countries could have a
material adverse effect on the Company's ability to manufacture or to sell its
products in foreign markets. See "Business--Manufacturing."
KEY PERSONNEL; RECENT MANAGEMENT ADDITIONS. The Company's future success
depends substantially on the continued service of its key management,
engineering, marketing, and sales and support employees, many of whom have
worked together for only a short period of time. In particular, two of the
Company's executive officers joined the Company in late 1996, and two of the
Company's executive officers joined the Company in early 1997. Competition for
qualified personnel is intense in the semiconductor industry, and the loss of
any of the Company's current key employees, or the inability of the Company to
attract and retain other qualified personnel, could have a material adverse
effect on the Company's business, financial condition and results of
operations. The Company has not entered into any employment agreements with
any of its employees, nor does it have "key person" insurance on any of its
employees.
POSSIBLE VOLATILITY OF STOCK PRICE. The Company believes that factors such
as announcements of developments related to the Company's business, including
the Actel litigation, announcements by competitors, quarterly fluctuations in
the Company's financial results and general conditions in the semiconductor
industry or the national and international economies in which the Company
conducts business, and release of reports by securities analysts, among other
factors, could cause the price of the Company's Common Stock to fluctuate,
perhaps substantially. In addition, in recent years the stock market in
general, and the market for shares of technology stocks in particular, have
experienced extreme price fluctuations, which have often been unrelated to the
operating performance of affected companies. Such fluctuations could have a
material adverse effect on the price of the Company's Common Stock.
DISCRETIONARY USE OF PROCEEDS OF THIS OFFERING. The Company has no current
specific plans for the use of the net proceeds of this offering. As a
consequence, the Company's management will retain broad discretion in the
allocation of the net proceeds of this offering. The Company ultimately
expects to use the net proceeds from this offering for general corporate
purposes, including working capital and capital expenditures. There can be no
assurance that the proceeds will be utilized in a manner that the stockholders
deem optimal or that the proceeds can or will be invested to yield a
significant return upon the completion of this offering. Substantially all of
the net proceeds to the Company from the sale of the 1,800,000 shares of
Common Stock offered by the Company hereby which are estimated to be
$18,330,000, assuming an initial public offering price of $12.00 per share and
after deducting the underwriting discount and estimated offering expenses
payable by the Company, will be invested in U.S. short-term or medium-term,
investment-grade, interest-bearing securities for an indefinite period. See
"Use of Proceeds."
FUTURE CAPITAL NEEDS. In order to secure additional foundry capacity,
finance ongoing litigation, finance research and development, acquire new
technologies or businesses, satisfy personnel needs,
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or for other general corporate purposes, the Company has considered and will
continue to consider various possible transactions, which could include,
without limitation, equity investments in, prepayments to, non-refundable
deposits with, or loans to, foundries in exchange for guaranteed capacity,
"take or pay" contracts that commit the Company to purchase specified
quantities of wafers over extended periods, joint ventures or other
partnership relationships with foundries, private or public financings or
borrowings, or licenses of the Company's technology. There can be no assurance
that the Company will be able to make any such arrangement in a timely fashion
or at all, that the Company will not require additional issuances of equity or
debt in order to raise capital for any such arrangements or that any such
financing would be available to the Company on acceptable terms or at all. The
failure to obtain additional capital when necessary, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
EFFECT OF ANTITAKEOVER PROVISIONS. Certain provisions of the Company's
Restated Certificate of Incorporation and Bylaws and of Delaware law could
discourage potential acquisition proposals and could delay or prevent a change
in control of the Company. Such provisions could diminish the opportunities
for a stockholder to participate in tender offers, including tender offers at
a price above the then current market value of the Common Stock. Such
provisions may also inhibit fluctuations in the market price of the Common
Stock that could result from takeover attempts. In addition, the Restated
Certificate of Incorporation authorizes 10,000,000 shares of undesignated
preferred stock. The Board of Directors of the Company, without further
stockholder approval, may issue this preferred stock with such terms as the
Board of Directors may determine, which could have the effect of delaying or
preventing a change in control of the Company. The issuance of preferred stock
could also adversely affect the voting power of the holders of Common Stock,
including the loss of voting control to others. Such preferred stock could be
utilized to implement, without stockholder approval, a stockholders' rights
plan that could be triggered by certain change in control transactions, which
could delay or prevent a change in control of the Company or could impede a
merger, consolidation, takeover or other business combination involving the
Company, or discourage a potential acquiror from making a tender offer or
otherwise attempting to obtain control of the Company. The Company's charter
documents also provide that one-third of the directors will be elected each
year which could prevent or delay an attempt to change the composition of the
Board. See "Description of Capital Stock."
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS. An important element of the
Company's strategy is to review acquisition prospects that would complement
its existing product offerings, augment its market coverage or enhance its
technological capabilities or that may otherwise offer growth opportunities.
While the Company has no current agreements or negotiations underway with
respect to any such acquisitions, the Company may make acquisitions of
businesses, products or technologies in the future. Future acquisitions by the
Company could result in potentially dilutive issuances of equity securities,
the incurrence of debt and contingent liabilities and amortization expenses
related to goodwill and other intangible assets, any of which could materially
adversely affect the Company's operating results and/or the price of the
Company's Common Stock. Acquisitions entail numerous risks, including
difficulties in the assimilation of acquired operations, technologies and
products, diversion of management's attention to other business concerns,
risks of entering markets in which the Company has no or limited prior
experience and potential loss of key employees of acquired organizations. No
assurance can be given as to the ability of the Company to successfully
integrate any businesses, products, technologies or personnel that might be
acquired in the future, and the failure of the Company to do so could have a
material adverse effect on the business, financial condition and results of
operations of the Company. See "Use of Proceeds."
CONTROL BY PRINCIPAL STOCKHOLDERS. A substantial majority of the Company's
capital stock is held by a limited number of stockholders. At the completion
of this offering, Cypress and the Company's seven largest stockholders
(including Cypress) will own approximately 15.5% and 60.7%,
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respectively, of the shares of Common Stock outstanding or issuable upon
conversion of convertible securities. Accordingly, such stockholders are
likely, for the foreseeable future, to continue to be able to control major
decisions of corporate policy and determine the outcome of any major
transaction or other matter submitted to the Company's stockholders or Board
of Directors, including potential mergers or acquisitions involving the
Company, amendments to the Company's Certificate of Incorporation or Bylaws,
and the like. Stockholders other than such principal stockholders are
therefore likely to have little or no influence on decisions regarding such
matters. See "Principal and Selling Stockholders."
DILUTION. Investors participating in this offering will incur immediate and
substantial dilution in the net tangible book value of their shares of Common
Stock in the amount of approximately $10.01 per share, at an assumed initial
public offering price of $12.00 per share, after deducting the underwriting
discount and commissions and estimated offering expenses payable by the
Company. Additional dilution will occur upon the exercise of outstanding stock
options. See "Dilution."
ABSENCE OF DIVIDENDS. The Company has not declared or paid cash dividends on
its capital stock to date. The Company presently intends to retain future
earnings, if any, for use in the operation and expansion of its business and
does not anticipate paying cash dividends with respect to the Common Stock in
the foreseeable future. See "Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE. Sales of the Company's Common Stock in the
public market after this offering could adversely affect the market price of
the Company's Common Stock. Upon completion of this offering, the Company will
have approximately 13,817,422 shares of Common Stock outstanding, of which
approximately 3,000,000 shares (approximately 3,450,000 if the Underwriters'
over-allotment option is exercised in full) will be freely transferable
without restriction or registration under the Securities Act of 1933, as
amended (the "Securities Act"), unless such shares are held by "affiliates" of
the Company, as that term is defined in Rule 144 under the Securities Act.
Upon completion of this offering, Cypress will continue to hold approximately
2,139,783 shares (1,689,783 shares if the Underwriters' over-allotment option
is exercised in full), and will be eligible to sell these shares in the public
market pursuant to Rule 144, subject to certain contractual restrictions on
resale, including lock-up agreements under which the Company, officers and
directors of the Company and Cypress have agreed, subject to certain
exceptions, not to sell or otherwise dispose of any of their shares for a
period of 180 days after the date of this offering (the "Lock Up Period"),
provided, however, that in the event that the Lock Up Period would expire in a
period where the Company's directors and officers are prevented from trading
because of the set "blackout" period between earnings releases provided in the
Company's insider trading policy, then, notwithstanding the 180-day limit set
forth above, the Lock Up Period shall not expire until the date that trading
can commence under the Company's insider trading policy. However, Deutsche
Morgan Grenfell may, in its sole discretion, at any time without notice,
release all or any portion of the shares subject to lock-up agreements. In
addition, Cypress will have certain rights with respect to registration of
such shares of Common Stock for sale to the public. Sales of Common Stock by
Cypress in the public market, or the availability of such shares for sale,
could adversely affect the market price of the Common Stock. In addition,
approximately 1,604,750 shares are issuable upon exercise of outstanding
options granted under the Company's stock option plans as of May 31, 1997. See
"Management--Benefit Plans," "Description of Capital Stock--Registration
Rights" and "Shares Eligible for Future Sale."
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,800,000 shares of
Common Stock offered by the Company hereby are estimated to be $18,330,000,
assuming an initial public offering price of $12.00 per share and after
deducting the underwriting discount and estimated offering expenses payable by
the Company. The principal purposes of this offering are to obtain additional
capital, to create a public market for the Company's Common Stock, to enhance
the Company's ability to use its Common Stock as consideration for
acquisitions and as a means of attracting and retaining key employees, to
provide increased visibility and credibility in a marketplace where many of
the Company's current and potential competitors are or will be publicly held
companies, and to facilitate future access by the Company to public equity
markets. As of the date of this Prospectus, the Company has no specific plans
as to the use of the net proceeds of this offering. However, the Company
ultimately expects to use the net proceeds from this offering for general
corporate purposes, including working capital and capital expenditures,
including at least $2.0 million of capital expenditures in 1997. A portion of
the proceeds may also be used to make strategic acquisitions of complementary
businesses, technologies or products. Although the Company evaluates such
potential acquisitions from time to time, the Company currently has no
understanding, commitment or agreement with respect to any such acquisitions.
Pending such uses, the Company intends to invest the net proceeds of this
offering in U.S. short-term or medium-term, investment grade, interest-bearing
securities. The Company will not receive any proceeds from the sale of the
shares of Common Stock offered by Cypress hereby. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
DIVIDEND POLICY
The Company has not and does not intend to pay any cash dividends on its
capital stock. The Company presently intends to retain future earnings, if
any, for use in the operation and expansion of its business and does not
anticipate paying cash dividends in the foreseeable future.
17
<PAGE>
CAPITALIZATION
The following table sets forth the long-term obligations and capitalization
of the Company at March 31, 1997 (i) on an actual basis and (ii) as adjusted
to give effect to the sale of 1,800,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $12.00 per
share, after deducting the underwriting discount and estimated offering
expenses payable by the Company, the conversion of all outstanding shares of
preferred stock into Common Stock, the issuance of 2,603,817 shares of Common
Stock to Cypress in connection with the contract termination and the exercise
of a warrant to purchase 18,750 shares of Common Stock. This table should be
read in conjunction with the Financial Statements and the Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------
ACTUAL AS ADJUSTED
----------- -------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Long-term obligations............................... $ 1,658 $ 1,658
----------- -----------
Stockholders' equity:
Preferred Stock, $.001 par value; 8,766,836 shares
authorized, 8,495,712 shares issued and
outstanding, actual; 10,000,000 shares
authorized, no shares issued and outstanding,
as adjusted...................................... 9 --
Common stock, $.001 par value; 12,142,857 shares
authorized; 860,957 shares issued and
outstanding, actual; 100,000,000 shares
authorized, 13,779,236 issued and outstanding, as
adjusted(1)...................................... 1 14
Additional paid-in capital.......................... 43,528 80,347
Common stock to be issued: 2,603,817 shares actual;
and no shares, as adjusted......................... 18,409 --
Stockholder note receivable......................... (119) (119)
Deferred compensation............................... (2,897) (2,897)
Accumulated deficit................................. (50,872) (50,872)
----------- -----------
Total stockholders' equity........................ 8,059 26,473
----------- -----------
Total capitalization.......................... $ 9,717 $ 28,131
=========== ===========
</TABLE>
- --------
(1) As of March 31, 1997, excludes 1,657,592 shares of Common Stock subject to
outstanding options under the Option Plan and 714,289 shares reserved for
future issuance thereunder. See "Management--Benefit Plans" and Note 7 of
Notes to Financial Statements.
18
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1997,
was approximately $8.1 million, or $0.67 per share of Common Stock. Pro forma
net tangible book value per share represents the amount of total tangible
assets of the Company reduced by the amount of its total liabilities and
divided by the total number of shares of Common Stock outstanding after giving
effect to the conversion of all outstanding shares of preferred stock into
Common Stock and the issuance of 2,603,817 shares of Common Stock to Cypress.
After giving effect to the sale by the Company of 1,800,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $12.00 per
share, after deducting the underwriting discount and estimated offering
expenses payable by the Company, and after giving effect to the exercise of a
warrant to purchase 18,750 shares of Common Stock, the pro forma net tangible
book value of the Company as of March 31, 1997, would have been $26,473,000,
or $1.92 per share. This amount represents an immediate increase in such net
tangible book value of $1.25 per share to existing stockholders and an
immediate dilution of $10.08 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $12.00
Pro forma net tangible book value per share as of March 31,
1997...................................................... $ 0.67
Increase per share attributable to new investors........... 1.25
------
Pro forma net tangible book value per share after the
offering.................................................... 1.92
------
Dilution per share to new investors.......................... $10.08
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1997,
the differences between the existing stockholders and the new investors with
respect to the number of shares of Common Stock purchased from the Company,
the total consideration paid to the Company and the average price paid per
share, based upon an assumed initial public offering price of $12.00 per share
(before deducting the underwriting discount and estimated offering expenses
payable by the Company) with respect to the 1,800,000 shares offered by the
Company hereby:
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
------------------ ------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 11,979,236 86.9% $62,031,000 74.2% $ 5.18
New investors(1).............. 1,800,000 13.1 21,600,000 25.8 12.00
---------- ----- ----------- -----
Total....................... 13,779,236 100.0% $83,631,000 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) The sale of shares of Common Stock by Cypress in the offering will reduce
the number of shares held by existing stockholders to 10,779,236 or 78.2%
of the total number of shares of Common Stock outstanding after the
offering, and will increase the number of shares to be purchased by the
new public investors to 3,000,000 or 21.8% of the total number of shares
of Common Stock outstanding after the offering. See "Principal and Selling
Stockholders."
The above computations assume that (i) no part of the Underwriters' over-
allotment option is exercised and (ii) no options are exercised after March
31, 1997. As of March 31, 1997, there were outstanding options to purchase an
aggregate of 1,657,592 shares of Common Stock at a weighted average exercise
price of $1.94 per share. To the extent the above options have been or are
exercised, there will be further dilution to new investors. See "Management--
Benefit Plans," "Description of Capital Stock" and Notes 5 and 7 of Notes to
Financial Statements.
19
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Financial Statements and Notes thereto included
elsewhere in this Prospectus. The balance sheet information as of December 31,
1995 and 1996 and the statement of operations data set forth below for 1994,
1995, and 1996 are derived from the audited financial statements included
elsewhere in this Prospectus. The balance sheet information as of December 31,
1992, 1993 and 1994 and the statement of operations data for 1992 and 1993 are
derived from unaudited financial statements of the Company not included
herein. The balance sheet information as of March 31, 1997 and the statement
of operations data for the quarters ended March 31, 1996 and 1997 are derived
from unaudited financial statements included herein. In the opinion of
management, such unaudited financial statements have been prepared on the same
basis as the audited financial statements referred to above and include all
adjustments, consisting of normal recurring adjustments, necessary for the
fair presentation of the financial position of the Company and the results of
operations for the indicated periods. Operating results for the quarter ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for the full year.
<TABLE>
<CAPTION>
QUARTER QUARTER
YEAR ENDED DECEMBER 31, ENDED ENDED
------------------------------------------- MARCH 31, MARCH 31,
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................. $ 1,325 $ 4,141 $ 6,024 $15,148 $23,758 $5,154 $ 6,268
Cost of revenue......... 1,191 2,889 4,053 7,739 11,158 2,563 2,813
------- ------- ------- ------- ------- ------ --------
Gross profit............ 134 1,252 1,971 7,409 12,600 2,591 3,455
------- ------- ------- ------- ------- ------ --------
Operating expenses:
Research and
development........... 2,389 2,762 3,172 3,599 4,642 1,042 1,333
Sales, general and
administrative........ 2,232 2,625 4,408 5,770 7,730 1,685 2,313
Contract termination
and other(1).......... -- -- -- 2,700 4,125 -- 23,009
------- ------- ------- ------- ------- ------ --------
Total operating
expenses.............. 4,621 5,387 7,580 12,069 16,497 2,727 26,655
------- ------- ------- ------- ------- ------ --------
Loss from operations.... (4,487) (4,135) (5,609) (4,660) (3,897) (136) (23,200)
Interest expense........ -- (223) (240) (200) (60) (7) (21)
Interest income and
other, net............. 30 60 21 153 360 164 118
------- ------- ------- ------- ------- ------ --------
Net income (loss)(2)... $(4,457) $(4,298) $(5,828) $(4,707) $(3,597) $ 21 $(23,103)
======= ======= ======= ======= ======= ====== ========
Pro forma net income
(loss) per
share (unaudited)(2)... $ (0.29) $ -- $ (1.83)
======= ====== ========
Shares used in pro forma
net income (loss) per
share calculation
(unaudited)............ 12,612 12,438 12,612
======= ====== ========
</TABLE>
- --------
(1) Includes a charge of $23.0 million in the quarter ended March 31, 1997 for
termination of the Existing Agreement (as defined herein) and charges of
$2.7 million and $4.1 million in the years ended December 31, 1995 and
1996, respectively, for expected costs of litigation. See "Risk Factors--
Actel Litigation" and Notes 8 and 11 of Notes to Financial Statements.
(2) Excluding the contract termination expense and charge for legal reserves,
net income (loss) and pro forma net income (loss) per share would have
been $(94,000) and $(0.01), respectively, for the quarter ended March 31,
1997 and $528,000 and $0.04, respectively, for the year ended December 31,
1996.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
------ ------ ------- ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash......................... $5,071 $2,836 $ 488 $ 3,856 $10,336 $10,366
Working capital (deficit).... 4,484 553 (4,792) 7,068 10,650 7,172
Total assets................. 7,076 4,696 2,531 12,199 22,577 21,476
Long-term obligations........ 534 383 509 137 602 1,658
Total stockholders' equity
(deficit)................... 5,255 956 (4,848) 7,149 11,799 8,059
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the Notes thereto included elsewhere in this Prospectus. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ significantly from
those discussed in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus.
OVERVIEW
From its inception in April 1988 through the third quarter of 1991,
QuickLogic was primarily engaged in product development. Accordingly, the
majority of the Company's operating expenses during such period were related
to research and development activities. The Company recorded revenue from its
first product family, pASIC 1, in August 1991. The pASIC 1 product family
includes logic devices consisting of 1-, 2-, 4- and 8-thousand usable ASIC
gates. The Company first recorded revenue from its pASIC 2 product family in
the third quarter of 1996. The pASIC 2 product family includes logic devices
consisting of 3-, 5-, 7- and 9-thousand usable ASIC gates. At March 31, 1997,
the Company had an accumulated deficit of $50.9 million.
Revenue from the Company's pASIC products represented over 90.0% of revenue
for each of 1994, 1995 and 1996 and the first quarter of 1997. The Company
derives the remainder of revenue from licenses of its QuickWorks and
QuickTools design software. One customer accounted for approximately 27.0% and
11.1% of revenue in 1996 and the first quarter of 1997, respectively. No other
customer accounted for more than 10% of revenue in 1994, 1995, 1996 or the
first quarter of 1997.
Sales through distributors represented 65.4%, 60.5% and 53.3% of revenue in
1994, 1995 and 1996, respectively, and 49.8% and 68.8% for the first quarters
of 1996 and 1997, respectively. The Company expects that these percentages
will increase over time. The Company's general policy is to defer recognition
of revenue on shipments to domestic distributors until the product is sold by
such distributors to the end-user. Revenue from all other products is
recognized at the time of shipment by the Company.
International revenue accounted for 30.0%, 29.4% and 29.6% of the Company's
revenue for 1994, 1995 and 1996, respectively and 47.1% and 46.7% for the
first quarters of 1996 and 1997, respectively. The Company expects that
revenue derived from purchases by international customers will continue to
represent a significant portion of its total revenue. All of the Company's
sales are denominated in U.S. dollars.
Average selling prices ("ASPs") for the Company's products typically decline
rapidly during the first six to 12 months after introduction, then decline
less rapidly as the product matures. To date, the Company has been able to
offset price declines by periodically introducing higher-priced, higher-
density products, which results in relatively constant overall ASPs. In
addition, the Company seeks to maintain acceptable gross margins through
manufacturing efficiencies and cost reductions, including manufacturing its
products using smaller product geometries on larger wafers. However, the
markets in which the Company competes are highly competitive, and there can be
no assurance that the Company will continue to successfully introduce higher-
density products, that overall ASPs can be maintained or that the Company will
continue to achieve manufacturing efficiencies or material cost reductions.
Any significant decline in the Company's overall ASPs or gross margins could
have a material adverse effect on the Company's business, financial condition
or results of operations. See "Risk Factors--Industry Pressures."
In March 1997, the Company and Cypress terminated the existing Technical
Transfer, Joint Development License and Foundry Supply Agreement between the
parties dated October 2, 1992 (the
21
<PAGE>
"Existing Agreement") related to the Company's FPGA products, and replaced it
with a new arrangement whereby the Company's FPGA products will no longer be
second sourced by Cypress. In exchange for the termination of the Existing
Agreement and the reversion of the rights to the intellectual property
developed thereunder to the Company, the Company paid $4.5 million in cash and
agreed to issue 2,603,817 shares of Common Stock to Cypress, resulting in a
charge of approximately $23 million in the first quarter of 1997. In addition,
the Company granted Cypress certain contractual rights as to the shares of the
Company's stock held by Cypress, including the right to sell shares in this
offering. The parties also entered into a new foundry agreement and a cross-
license agreement. See "Business--Cypress Transaction."
Under its wafer supply arrangements, the Company is obligated to provide
rolling forecasts of anticipated purchases and place binding purchase orders
months prior to shipment. Forecasts for monthly purchases may not increase or
decrease by more than a certain percentage from the previous month's forecast
without the supplier's consent. Thus, the Company must typically make
forecasts and place purchase orders for wafers 60 to 90 days prior to
receiving purchase orders from its own customers. This limits the Company's
ability to react to fluctuations in demand for its products, which could cause
the Company to have an excess or a shortage of wafers for a particular
product. See "Risk Factors--Fluctuations in Operating Results" and "--
Dependence on Independent Wafer Manufacturers."
In 1995 and 1996, the Company recorded a $2.7 million and $4.1 million,
respectively, increase to its legal reserves for the Actel litigation (see
Note 11 of Notes to Financial Statements). The Company intends to continue to
reassess anticipated litigation costs and will adjust its reserve as
necessary. See "Risk Factors--Actel Litigation."
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenue for certain items
in the Company's statements of operations for the periods indicated:
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ---------------
1994 1995 1996 1996 1997
------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Revenue........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue................ 67.3 51.1 47.0 49.7 44.9
------- ------- ------- ------ -------
Gross margin................... 32.7 48.9 53.0 50.3 55.1
------- ------- ------- ------ -------
Operating expenses:
Research and development..... 52.6 23.8 19.5 20.2 21.2
Selling, general and
administrative.............. 73.2 38.1 32.5 32.7 36.9
Contract termination and
other expense............... -- 17.8 17.4 -- 367.1
------- ------- ------- ------ -------
Total operating expenses... 125.8 79.7 69.4 52.9 425.2
------- ------- ------- ------ -------
Operating loss................. (93.1) (30.8) (16.4) (2.6) (370.1)
Interest expense............... (3.9) (1.3) (0.2) (0.2) (0.3)
Interest income and other,
net........................... 0.3 1.0 1.5 3.2 1.9
------- ------- ------- ------ -------
Net income (loss).............. (96.7)% (31.1)% (15.1)% 0.4% (368.5)%
======= ======= ======= ====== =======
</TABLE>
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Revenue. Revenue for 1994, 1995 and 1996 was $6.0 million, $15.1 million and
$23.8 million, respectively, an increase of 151.5% in 1995 and 56.8% in 1996
over the respective prior year periods. The majority of the 1995 increase was
due to a substantial growth in sales of the Company's 4-thousand gate ("4K")
logic device products, first commercially shipped in the third quarter of
1994,
22
<PAGE>
the introduction of its 8-thousand gate ("8K") logic device products, first
commercially shipped in the second quarter of 1995, and increased sales to
customers in the data communications markets, primarily in North America and
Europe. The 1996 revenue growth was primarily attributable to increased
acceptance of the Company's 4K and 8K products in North America and Europe,
and a substantial increase in volume of sales to Texas Instruments. Increased
unit sales in 1995 and 1996 were partially offset by declining ASPs as newly
introduced products matured in 1995 and 1996. The Company expects rapid ASP
declines for a product during the first six to 12 months after introduction
and slowing declines thereafter, and seeks to increase revenue through the
introduction of new products and increased unit sales of its existing
products. However, no assurance can be given that the Company's efforts in
this regard will be successful.
Gross Profit. Gross profit was $2.0 million, $7.4 million and $12.6 million
in 1994, 1995 and 1996, respectively, which constituted 32.7%, 48.9% and 53.0%
of revenue for such periods. The improvement in 1995 gross margin was
primarily attributable to increased efficiencies as the Company's
manufacturing volume increased. The 1996 improvement resulted primarily from
continued volume-related efficiencies, wafer yield improvement and reductions
in wafer prices as foundry capacity constraints experienced in 1995 eased. The
improvement in margins in 1995 and 1996 was somewhat offset by yield
fluctuations as production began on the 8K products. The Company attempts to
offset declining ASPs as products mature through achieving manufacturing
efficiencies and material cost reductions as well as introducing new products
with higher prices. The Company's operating environment and resource
requirements necessitate managing a variety of factors such as general
business conditions in the semiconductor industry, fluctuations in
manufacturing yields at the Company's wafer suppliers, the availability of
foundry capacity, cancellations or delays of deliveries of products to the
Company, new product introductions by the Company or its competitors, product
obsolescence, price erosion for maturing products, competition, changes in the
mix of products sold, seasonal fluctuations in demand, changes in distributor
inventory levels, availability of wafer supply, increases in the costs of
materials, cancellations or delays of product orders, developments in the
Company's litigation with Actel, the ability to safeguard intellectual
property in a rapidly evolving market, changing customer product requirements,
changes in demand for customers' products and fluctuations in foreign currency
exchange rates. As a result of changes in these factors, the Company's past
results may not be indicative of future operating results. See "Risk Factors--
Fluctuations in Operating Results" and "--Industry Pressures."
Research and Development Expense. Research and development ("R&D") expense
includes personnel and other costs associated with product design and
development, process technology development and software development. R&D
expense was $3.2 million, $3.6 million, and $4.6 million in 1994, 1995 and
1996, respectively, which constituted 52.6%, 23.8% and 19.4% of revenue for
such periods. The increases in R&D expense in 1995 and 1996 were primarily due
to increases in headcount. The decline in R&D expense as a percentage of
revenue in 1995 and 1996 was primarily attributable to the increase in revenue
during those periods. The Company believes that continued investment in
process technology and product development are essential for it to remain
competitive in the markets it serves and expects to continue to increase R&D
expense in the future. The Company also expects R&D expense to increase as a
result of deferred compensation charges in future periods (see "--Deferred
Compensation") and costs associated with the migration to a new wafer
supplier.
Selling, General and Administrative Expense. Selling, general and
administrative ("SG&A") expense was $4.4 million, $5.8 million and $7.7
million in 1994, 1995 and 1996, respectively, which constituted 73.2%, 38.1%
and 32.5% of revenue for such periods, respectively. The increase in 1995 SG&A
expense over the year earlier period was primarily attributable to an increase
in personnel and increased sales and marketing efforts in support of existing
and new products. The increase in SG&A expense in 1996 was attributable to
increased sales commissions, marketing efforts and increased headcount. SG&A
expense decreased in 1995 and 1996 as a percentage of revenue primarily as a
23
<PAGE>
result of increased revenue. The Company anticipates that SG&A expense will
increase as a result of deferred compensation charges in future periods (see
"--Deferred Compensation") and as a result of costs associated with the
Company becoming a public company.
Deferred Compensation. The Company grants incentive stock options to hire,
incent and retain employees. With respect to the grant of certain stock
options to employees, the Company recorded aggregate deferred compensation of
approximately $851,000 and $2.2 million in 1996 and in the first quarter of
1997, respectively. Deferred compensation is presented as a reduction of
stockholders' equity and amortized ratably over the vesting period of the
applicable options, generally four years. The Company currently expects to
record amortization of deferred compensation of approximately $644,000,
$755,000, $755,000, $712,000 and $107,000 during the years ended 1997, 1998,
1999, 2000 and 2001, respectively. The amortization of deferred compensation
will be recorded as R&D and SG&A expense in such periods.
Interest Income and Other, Net. Interest and other income was $21,000,
$153,000 and $360,000 in 1994, 1995 and 1996, respectively. Interest and other
income increased in 1995 and 1996 as a result of increased interest income on
higher average cash and investment balances in 1995 and 1996. See "--Liquidity
and Capital Resources."
Interest Expense. Interest expense was $240,000, $200,000 and $60,000 in
1994, 1995 and 1996, respectively. Interest expense decreased in 1996 as a
result of the conversion to preferred stock of notes payable to stockholders
during 1995.
Provision for Income Taxes. No provision for income taxes has been recorded
in the years ended December 31, 1994, 1995 and 1996, as the Company incurred
net operating losses ("NOLs") in those years. At December 31, 1996, the
Company had NOL carryforwards for federal and state tax purposes of
approximately $16 million and $1 million respectively. These carryforwards, if
not utilized to offset future taxable income and income taxes payable, will
expire through the year 2010.
QUARTERS ENDED MARCH 31, 1996 AND MARCH 31, 1997
Revenue. Revenue was $5.2 million and $6.3 million for the first quarter of
1996 and 1997, respectively. Revenue increased 21.6% for the first quarter of
1997 compared to the year earlier period due to revenue from the sale of the
Company's first pASIC 2 product, which began shipping in the second quarter of
1996, as well as an expanded presence in the marketplace through the addition
of two significant distributors.
Gross Profit. Gross profit was $2.6 million and $3.5 million for the first
quarter of 1996 and 1997, respectively. Gross margins improved from 50.3% for
the first quarter of 1996 to 55.1% in the first quarter of 1997 due to yield
improvements on the 4K and 8K products, increased operating efficiencies due
to greater volumes of the Company's higher-ASP, higher-density products. Gross
margin improvements were partially offset by declining ASPs of the Company's
lower-density products.
Research and Development Expense. R&D expense was $1.0 million and $1.3
million for the first quarter of 1996 and 1997, respectively. The increase in
R&D expense was primarily due to the hiring of additional research and
development personnel, as well as $38,000 attributable to deferred
compensation charges in the first quarter of 1997 associated with the grant of
incentive stock options to employees. R&D expense increased as a percentage of
revenue from 20.2% in the first quarter of 1996 to 21.3% in the first quarter
of 1997.
Selling, General and Administrative Expense. SG&A expense was $1.7 million
and $2.3 million for the first quarter of 1996 and 1997, respectively. SG&A
expense increased as a percentage of revenue from 32.7% in the first quarter
of 1996 to 36.9% in the first quarter of 1997 due to hiring of additional
sales, marketing, finance and human resources personnel. In addition, SG&A
expense includes $38,000 attributable to deferred compensation charges in the
first quarter of 1997 associated with the grant of incentive stock options to
employees.
24
<PAGE>
Interest Income and Other, Net. Interest income and other, net for the first
quarter of 1996 was $164,000 compared to $118,000 for the first quarter of
1997. The decrease was due to lower average cash and investment balances in
the first quarter of 1997 compared to the first quarter of 1996.
Interest Expense. Interest expense was $7,000 and $21,000 in the first
quarter of 1996 and 1997, respectively. The increase was due to additional
financing of capital expenditures for furniture, test equipment and leasehold
improvements.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited statement of operations
data for the four quarters of each of 1995 and 1996 and the first quarter of
1997, as well as such data expressed as a percentage of the Company's revenue
for the periods indicated. This data has been derived from unaudited financial
statements that, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such information. The Company's quarterly results have been in
the past, and in the future may be, subject to fluctuations. See "Risk
Factors--Fluctuations in Operating Results." As a result, the Company believes
that results of operations for the interim periods are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $ 2,644 $2,715 $ 3,951 $5,838 $5,154 $6,286 $6,047 $ 6,271 $ 6,268
Cost of revenue......... 1,372 1,391 2,108 2,868 2,563 2,982 2,828 2,785 2,813
------- ------ ------- ------ ------ ------ ------ ------- --------
Gross profit............ 1,272 1,324 1,843 2,970 2,591 3,304 3,219 3,486 3,455
------- ------ ------- ------ ------ ------ ------ ------- --------
Operating expenses
Research and
development........... 784 942 749 1,124 1,042 1,131 1,127 1,342 1,333
Selling, general
and administrative.... 1,455 1,198 1,615 1,502 1,685 2,006 2,058 1,981 2,313
Contract termination
and other............. -- -- 2,700 -- -- 265 -- 3,860 23,009
------- ------ ------- ------ ------ ------ ------ ------- --------
Total operating
expenses.............. 2,239 2,140 5,064 2,626 2,727 3,402 3,185 7,183 26,655
------- ------ ------- ------ ------ ------ ------ ------- --------
Operating income
(loss)................. (967) (816) (3,221) 344 (136) (98) 34 (3,697) (23,200)
Interest expense........ (90) (67) (41) (2) (7) (6) (30) (17) (21)
Interest income and
other, net............. 2 37 65 49 164 146 57 (7) 118
------- ------ ------- ------ ------ ------ ------ ------- --------
Net income (loss)....... $(1,055) $ (846) $(3,197) $ 391 $ 21 $ 42 $ 61 $(3,721) $(23,103)
======= ====== ======= ====== ====== ====== ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUE
QUARTER ENDED
-------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue......... 51.9 51.2 53.3 49.1 49.7 47.4 46.8 44.4 44.9
----- ----- ----- ----- ----- ----- ----- ----- ------
Gross profit............ 48.1 48.8 46.7 50.9 50.3 52.6 53.2 55.6 55.1
----- ----- ----- ----- ----- ----- ----- ----- ------
Operating expenses
Research and
development........... 29.7 34.7 19.0 19.3 20.2 18.0 18.6 21.4 21.2
Selling, general
and administrative.... 55.0 44.1 40.9 25.7 32.7 31.9 34.0 31.6 36.9
Contract termination
and other............. -- -- 68.3 -- -- 4.2 -- 61.6 367.1
----- ----- ----- ----- ----- ----- ----- ----- ------
Total operating
expenses.............. 84.7 78.8 128.2 45.0 52.9 54.1 52.6 114.6 425.2
----- ----- ----- ----- ----- ----- ----- ----- ------
Operating income
(loss)................. (36.6) (30.0) (81.5) 5.9 (2.6) (1.5) 0.6 (59.0) (370.1)
Interest expense........ (3.4) (2.5) (1.0) -- (0.2) (0.1) (0.5) (0.3) (0.3)
Interest income and
other, net............. 0.1 1.4 1.6 0.8 3.2 2.3 0.9 (0.1) 1.9
----- ----- ----- ----- ----- ----- ----- ----- ------
Net income (loss)....... (39.9)% (31.1)% (80.9)% 6.7% 0.4% 0.7% 1.0% (59.4)% (368.5)%
===== ===== ===== ===== ===== ===== ===== ===== ======
</TABLE>
25
<PAGE>
Revenue increased and gross margin improved substantially from the third to
the fourth quarters of 1995 due to market acceptance of the Company's 4K
products as well as yield improvements and manufacturing efficiencies
attributable to greater volume production. Revenue declined in the first
quarter of 1996 due to a slowdown in demand affecting the entire semiconductor
industry. Revenue and gross margin declined in the first quarter of 1996
compared to the fourth quarter of 1995 due to a general slowdown in the
semiconductor industry, which resulted in relatively more rapid declines in
ASPs of the Company's pASIC 1 products. Revenue increased and gross margin
improved in the second quarter of 1996 due to market acceptance of the
Company's new 8K products. Quarter-to-quarter revenue has been relatively
constant since the second quarter of 1996 due to general semiconductor
industry conditions as well as demand for the Company's products partially
shifting to products with lower ASPs. Gross margins in the fourth quarter of
1995 and the first quarter of 1996 were also adversely affected by lower than
expected fabrication and test yields. Gross margins continued to increase
throughout 1996 due to manufacturing efficiencies and material cost reductions
and remained flat in the first quarter of 1997.
SG&A increased significantly in the third quarter of 1995 and the second
quarter of 1996 primarily as a result of higher commissions. The increase in
the first quarter of 1997 was due primarily to the hiring of additional
personnel. SG&A is expected to continue to increase due to increasing
commissions as revenue increases, additional costs associated with being a
public company, and deferred compensation charges related to certain option
grants. See "--Deferred Compensation."
Total operating expenses increased substantially in the third quarter of
1995 and the fourth quarter of 1996 due to charges for legal reserves. In the
first quarter of 1997, the Company incurred a $23.0 million charge in
connection with the termination of the Existing Agreement with Cypress. See
"Business--Cypress Transaction" and "--Actel Litigation."
Interest expense declined in the third quarter of 1995 as the Company
converted notes payable to stockholders to preferred stock and increased in
the third quarter of 1996 due to financing of capital acquisitions. Interest
and other income, net increased in the first quarter of 1996 due to higher
yields from investments and decreased in the third quarter of 1996 due to a
$4.5 million payment to Cypress. See "Business--Cypress Transaction." The
increase in the first quarter of 1997 was due to higher cash balances from the
issuance of preferred stock in December 1996.
Fluctuations in the Company's operating results have occurred in the past
and may occur in the future due to a variety of factors, any of which may have
a material adverse effect on the Company's operating results. In particular,
the Company's quarterly results of operations may vary significantly due to
general business conditions in the semiconductor industry, fluctuations in
manufacturing yields at the Company's wafer suppliers, the availability of
foundry capacity, cancellations or delays of deliveries of products to the
Company, new product introductions by the Company or its competitors, product
obsolescence, price erosion for maturing products, competition, changes in the
mix of products sold, seasonal fluctuations in demand, changes in distributor
inventory levels, availability of wafer supply, increases in the costs of
materials, cancellations or delays of product orders, developments in the
Company's litigation with Actel, the ability to safeguard intellectual
property in a rapidly evolving market, changing customer product requirements,
changes in demand for customers' products and fluctuations in foreign currency
exchange rates. A large portion of the Company's operating expenses is fixed
and difficult to reduce or modify. If revenue does not meet the Company's
expectations, the material adverse effect of any such revenue shortfall will
be magnified by the fixed nature of these operating expenses. In addition, the
Company's quarterly operating results can vary due to the volume and timing of
product orders received and delivered during a quarter, the ability of the
Company and its key suppliers to respond to changes made in customer orders,
and the timing of new product introductions by the Company and its
competitors. All of the above factors are difficult for the Company to
forecast, and these and other factors could have a material adverse effect on
the Company's business, financial condition and results of operations. As a
result, the Company believes
26
<PAGE>
that period-to-period comparisons are not necessarily meaningful and should
not be relied upon as indicative of future operating results. See "Risk
Factors--Fluctuations in Operating Results."
LIQUIDITY AND CAPITAL RESOURCES
The Company has primarily financed its operations and capital requirements
through sales of preferred stock, borrowings from stockholders and, in the
most recent two quarters, bank debt to finance its capital requirements. At
March 31, 1997, the Company had $10.4 million in cash, an increase of $2.5
million from cash and short-term investments held at December 31, 1995. This
increase was primarily attributable to the issuance of $8.9 million in
preferred stock in December 1996 and January 1997, offset in part by the
payment of $4.5 million to Cypress and increased cash used in operating
activities. As of March 31, 1997, the Company had an accumulated deficit of
$50.9 million. See "Business--Cypress Transaction" and Note 8 of Notes to
Financial Statements.
The Company currently has a $5.0 million bank facility which will increase
to $6.0 million upon the closing of this offering. Under this facility, the
Company has a $2.0 million domestic accounts receivable revolving line of
credit, a $2.0 million equipment term loan facility, and a $1.0 million
foreign accounts receivable and inventory revolving line of credit. The
domestic and foreign revolving lines of credit are available for general
working capital purposes, bear interest at the bank's prime rate and expire
August 7, 1997. The Company expects to renew these lines of credit. At March
31, 1997, the Company had utilized $1.8 million of the equipment term loan
facility, and has not drawn down under the other lines as of such time or to
date. The equipment term loan facility is available for drawdown through June
30, 1997, bears interest at prime plus 0.25% and is payable in equal monthly
installments from July 1997 through June 2000. See Note 4 of Notes to
Financial Statements.
Through March 31, 1997, the Company has purchased approximately $4.9 million
in capital assets, $1.9 million of which were purchased through bank financing
during 1996 and the first quarter of 1997. The Company intends to purchase
approximately $2.0 million of additional capital assets during the remainder
of 1997 but currently has no other significant commitments to acquire capital
equipment.
Net cash used in operations was $3.5 million, $5.0 million, $4.6 million and
$1.4 million in 1994, 1995, 1996 and the first quarter of 1997, respectively.
The increase in cash used in 1995 as compared to 1994 was primarily
attributable to a $2.6 million increase in accounts receivable, partially
offset by a $2.0 million increase in liabilities in 1995 and $122,000
reduction in accounts payable in 1995 compared to a $1.5 million increase in
accounts payable in 1994, partially offset by a $1.1 million decrease in net
loss in 1995 compared to 1994. The decline in cash used for operations
(excluding the increase in the charge for legal reserves) in 1996 as compared
to 1995 was due to net income of $528,000 in 1996 compared to a net loss of
$2.0 million in 1995, and a substantial increase in accounts payable in 1996,
offset in part by the $4.5 million payment to Cypress and a substantial
increase in inventory in 1996. Net cash used in operations during the first
quarter of 1997 resulted primarily from increases in accounts receivable and
inventory.
Net cash provided by (used for) investing activities was $(259,000), $(4.1)
million, $2.5 million and $(915,000) in 1994, 1995, 1996 and the first quarter
of 1997, respectively. In 1995, the Company invested $4.0 million in short-
term investments which were sold in 1996. The Company acquired $1.5 million
and $915,000 in property and equipment in 1996 and the first quarter of 1997,
respectively, primarily furniture, leasehold improvements and computer and
networking equipment as a result of its move to its new facility in December
of that year. The majority of these acquisitions were financed under the
Company's equipment term loan facility.
Net cash provided from financing activities was $1.4 million, $12.5 million,
$8.5 million and $2.3 million in 1994, 1995, 1996 and the first quarter of
1997, respectively, and resulted primarily from the issuance of $11.8 million
of preferred stock in 1995 and $8.1 million of preferred stock in 1996, and
27
<PAGE>
$1.5 million and $1.2 million in borrowings from stockholders in 1994 and
1995, respectively. In 1996 and the first quarter of 1997, the Company had
bank borrowings of $470,000 and $1.5 million, respectively.
The Company requires substantial working capital to fund its business,
particularly to finance inventories and accounts receivable. The Company's
future capital requirements will depend on many factors, including the rate of
sales growth, market acceptance of the Company's existing and new products,
the amount and timing of research and development expenditures, the timing of
the introduction of new products, expansion of sales and marketing efforts,
and the status of ongoing litigation. See "Risk Factors--Actel Litigation."
There can be no assurance that additional equity or debt financing, if
required, will be available on terms satisfactory to the Company. See "Risk
Factors--Future Capital Needs." The Company believes the net proceeds of this
offering combined with its existing capital resources and cash generated from
operations will be sufficient to meet the Company's needs for the next 12
months, although the Company could seek to raise additional capital during
that period.
28
<PAGE>
BUSINESS
QuickLogic develops, markets and supports advanced FPGA semiconductors and
software design tools. QuickLogic products enable designers of complex
electronic systems to achieve rapid time to market by optimizing design speed,
design flexibility and cost. The Company's products target complex, high-
performance electronic systems in rapidly changing markets including video,
graphics and imaging, telecommunications and data communications,
instrumentation and test, high-performance computers and military systems. The
key components of the QuickLogic solution are the Company's proprietary
ViaLink antifuse technology and pASIC architectures, and its software design
tools. QuickLogic's proprietary ViaLink antifuse technology places logic
interconnects between the metal layers of an FPGA device, instead of on the
silicon substrate, thereby minimizing die size and cost. The ViaLink antifuse
technology offers lower resistance and lower capacitance than competing
interconnect technologies, resulting in high speed. The Company's pASIC
architectures facilitate full routability and utilization of a device's logic
cells, enabling a high degree of design flexibility. QuickLogic's QuickTools
software design tools place and route logic cells on an FPGA device, and the
QuickWorks design software suite incorporates QuickTools and industry-leading
design tools for HDL/schematic entry, synthesis and simulation. In addition,
QuickWorks incorporates IEEE standard design languages Verilog and VHDL.
INDUSTRY BACKGROUND
Competitive pressures are forcing manufacturers of electronic systems to
bring increasingly complex products to market rapidly. Electronic systems such
as video, graphics and imaging, telecommunications and data communications,
instrumentation and test, high-performance computers and military systems
require improved functionality, performance and reliability, all at lower
cost. These requirements are addressed through combinations of advanced
semiconductors such as microprocessors, memory and logic devices, which enable
electronic systems to achieve greater competitive differentiation through
faster speed, smaller size, lower power consumption and lower cost.
These competitive pressures have driven the evolution of logic devices,
which are used in virtually every complex electronic system to coordinate the
functions of other semiconductor devices such as microprocessors and memory
devices. However, the inherent technological limitations of certain logic
devices typically force system manufacturers to make trade offs among speed,
density, design flexibility and cost.
The gate array is one of the most common types of logic devices, made up of
a matrix of uncommitted logic elements. The two most commonly used logic
solutions are mask-programmed or "standard" gate arrays and customer-
programmed PLDs. Standard gate arrays typically offer higher gate densities
and faster performance than PLDs. The logic elements of standard gate arrays
are configured by the device manufacturer during the manufacturing process for
a specific customer application. However, as standard gate arrays are
customized during the manufacturing process, these devices generally require
significant initial non-recurring engineering costs ("NREs"), and therefore
restrict design flexibility, cause longer device delivery times, and generate
dedicated custom product inventory that becomes obsolete when product life
cycles end. Therefore, standard gate arrays are effective in high-volume
applications where design changes are infrequent and time-to-market
considerations are less critical.
Unlike standard gate arrays which are semi-custom devices, PLDs are standard
products purchased by systems manufacturers in a "blank" state, which are then
rapidly configured by a system designer into specific logic circuits. This
approach shortens design cycles, and therefore enables faster time to market
for manufacturers of electronic systems. The PLD market consists of
29
<PAGE>
three product categories: low density simple PLDs ("SPLDs"), which are devices
with generally less than 1,000 gates; higher-density CPLDs; and FPGAs. CPLDs
and FPGAs are devices that integrate up to tens of thousands of gates. CPLDs
and FPGAs have different architectural models that allow them to more
effectively solve various functional problems on a circuit board. However, as
market requirements have become more stringent and competition more intense,
many systems manufacturers have found that typical PLDs, including traditional
higher-density FPGAs and CPLDs, have inherent architectural and technological
constraints.
Traditional CPLD and FPGA manufacturers have employed transistor-based
interconnect technologies such as SRAM, EPROM and Flash, but these
technologies often fail to achieve the optimal combination of high speed,
design flexibility and low cost. Device speed is slowed because transistor-
based interconnections have a relatively high electrical resistance. In
addition, transistor- based interconnects are placed on the silicon substrate,
consuming large amounts of silicon area, and therefore limiting the number of
programming elements for device routability. Design flexibility is
subsequently compromised because of limited device utilization, inability to
maintain pin-outs, and device timing uncertainties. These inadequacies often
require manual design to supplement the use of automatic software design
tools, thereby slowing time to market. End-users are also required to use the
proprietary software of the device manufacturer, which compels the customer to
use a specific device vendor, even if the vendor does not provide a device
that is optimal for a given application. In addition, the cost of the device
increases as die sizes increase, and additional design time is required.
Some device manufacturers have attempted to address the limitations of
transistor-based interconnects with antifuse technologies. Antifuse
interconnects are smaller than transistor-based interconnects and offer lower
electrical resistance and smaller die size, resulting in higher speed, greater
design flexibility and lower cost. However, traditional antifuse technology
still requires interconnects to be placed on the silicon substrate and retains
relatively high electrical resistance. Therefore, traditional antifuse
technology fails to fully address the die size, electrical resistance and
design flexibility problems of transistor-based interconnects.
THE QUICKLOGIC SOLUTION
QuickLogic produces FPGA semiconductors that offer high speed and design
flexibility at low cost. QuickLogic products enable designers of complex
electronic systems to achieve rapid time to market by optimizing design speed,
design flexibility and cost. The key components of the QuickLogic solution are
the Company's proprietary ViaLink antifuse technology and pASIC architectures,
and its software design tools.
ViaLink Antifuse Technology. QuickLogic's ViaLink antifuse technology places
logic interconnects between the metal layers of a chip, instead of on the
silicon substrate thereby minimizing die size and cost. The ViaLink antifuse
technology features lower resistance and capacitance than competing
interconnect technologies, thereby optimizing a device's performance.
pASIC Architectures. QuickLogic's pASIC architectures facilitate full
utilization of a device's logic cells and I/O pins. The architectures use
ViaLink antifuse technology to maximize interconnects at every routing wire
intersection. The abundance of wiring resources allows more paths between
logic cells and I/O pins. As a result, designers can maintain pin-out
assignments throughout the design cycle, and can achieve more complex designs
utilizing more of a device's circuit elements.
QuickWorks and QuickTools Software Design Tools. QuickLogic's QuickWorks
software design tools provide high-level design entry, schematic capture,
synthesis, simulation, and placement and routing on Windows, while QuickTools
place and route software operates on UNIX platforms. QuickWorks incorporates
IEEE standard design languages (Verilog and VHDL) and leading
30
<PAGE>
third-party software to offer a cost-effective solution for the rapid design
of complex logic devices. QuickTools integrates with all leading third-party
design environments to support QuickLogic's pASIC products. QuickLogic tools
also optimize the design for device utilization and in-system operating speed
and also transfer the design to its FPGA devices.
THE QUICKLOGIC STRATEGY
QuickLogic's objective is to be a leading provider of high-speed, flexible,
cost-effective FPGA solutions that allow customers to accelerate design cycles
to satisfy demanding time-to-market requirements. To achieve this objective,
the Company has adopted the following key strategies:
Target High-Performance, Rapidly Changing Markets. QuickLogic focuses its
design and marketing efforts on complex electronics systems that require high
speed, design flexibility, low cost and rapid time to market. These
electronics systems include video, graphics and imaging systems,
telecommunications and data communications, instrumentation and test, and
high-performance computers. Competition within these high-growth markets is
intense, and the Company's proprietary technologies allow customers to deliver
faster products and accelerate time to market.
Apply Proprietary Technology to High Density Applications. The Company
believes that future applications of PLDs will require logic density that will
be difficult to achieve using traditional FPGA technology. The placement of
the Company's ViaLink antifuse interconnects between metal layers maximizes
interconnect resources and minimizes die size. These attributes will become
increasingly critical as logic density requirements increase.
Optimize Product Offerings. The Company's current product offerings are
designed to address the segments of the logic market with the highest levels
of design activity. The Company's marketing efforts and product features will
continue to be determined by market demand. Based on market requirements for
devices that are faster, less costly and consume less power, the Company plans
to release its third generation of products utilizing 0.35(mu) CMOS technology
on 8-inch wafers during 1998.
Exploit Shift in Design Technologies. Historically, designers of electronic
systems have been tied to device-specific schematic design software offered by
FPGA device companies and have been reluctant to consider alternative vendors
because of the costs and difficulties associated with switching to new design
software. However, as logic densities increase and designs become more
complex, end-users are shifting to Verilog and VHDL, IEEE standard high level
design languages, to simplify the management of more complex design processes.
The Company offers software design products that are inexpensive and that
incorporate both Verilog and VHDL as well as leading third-party software for
use on Windows or Unix platforms. The Company believes the combination of its
design software and pASIC architectures enables customers using Verilog or
VHDL to choose FPGA devices based on speed, design flexibility and cost, while
minimizing the impact of switching design software.
Leverage Manufacturing Alliances. QuickLogic's manufacturing strategy is to
establish close relationships with third-party manufacturers for its wafer
requirements. This allows the Company to focus its resources on product
design, development and marketing rather than on manufacturing expenditures.
The Company has a foundry relationship with Cypress for its existing products
and has entered into a memorandum of understanding with TSMC for the
production of its anticipated 0.35(mu) CMOS products on 8-inch wafers.
31
<PAGE>
TECHNOLOGY
QuickLogic believes that its products have distinct advantages over
traditional FPGA solutions with regard to speed, design flexibility, cost and
time to market. QuickLogic's key technologies are the proprietary ViaLink
antifuse technology and pASIC architectures, and the QuickWorks and QuickTools
design software packages. The following table sets forth certain specific
features and benefits of each of these key technologies.
<TABLE>
VIALINK ANTIFUSE
- ---------------------------------------------------------------------------------------
<S> <C>
Features Benefits
.Interconnect resides between metal .More room on the silicon substrate for
layers logic cells; protection against
reverse engineering of end-user designs
.Smaller interconnect element .Smaller, less expensive die with dense
interconnect resources
.Lower resistance and capacitance .Faster performance
- ---------------------------------------------------------------------------------------
PASIC ARCHITECTURES
- ---------------------------------------------------------------------------------------
Features Benefits
.Dense interconnect resources .Design flexibility with pin-out stability
.Variable grain logic cell .High utilization of available logic
.Pin-out compatibility among product .Ease of migration among different
lines density devices
- ---------------------------------------------------------------------------------------
QUICKWORKS AND QUICKTOOLS DESIGN SOFTWARE
- ---------------------------------------------------------------------------------------
Features Benefits
.Windows and UNIX platform support .Choice of design platform
.Incorporates leading third-party tools .Easy-to-use, fast, low-cost software
.IEEE standard languages Verilog and .Choice of optimal silicon device
VHDL
</TABLE>
ViaLink Antifuse Technology
A key distinguishing feature of FPGAs is the programmable element. The
technology used to provide programmability determines practical parameters for
logic capacity, amount of interconnect resources, architecture and
performance.
QuickLogic's ViaLink antifuse is based on a patented amorphous silicon
antifuse technology. The ViaLink antifuse enables a vertical interconnect
architecture by placing programming elements above the substrate, between the
layers of metal routing tracks on the die. Removing interconnects from the
substrate allows more logic cells to reside in the die and results in a die
size reduction for a given number of logic cells. In addition, the location of
the ViaLink antifuse between metal layers helps to protect against
unauthorized reverse engineering of a PLD circuit design. The ViaLink "metal
to metal" connections also have lower resistance and capacitance, the primary
inhibitors of circuit performance, thereby optimizing speed and performance.
The Company believes that the ViaLink antifuse is scalable down to at least
0.18(mu). In addition, the ViaLink's programming algorithm produces a link
filament that tolerates operating voltage and current overloads, reducing the
likelihood of device malfunction.
32
<PAGE>
QuickLogic's proprietary ViaLink interconnect technology provides solutions
to the primary design problems inherent in using traditional FPGAs and CPLDs.
The large programmable elements created using traditional dielectric antifuse
and SRAM technologies reside on the die. Therefore, in order to minimize die
size, traditional technologies must limit the number of transistor
interconnections, thereby constraining flexibility and device utilization.
This increases the time and cost needed to design with traditional FPGAs and
CPLDs. The high resistance and capacitance of these transistor- based
technologies also limit devices to relatively low performance. To illustrate,
the resistance of a transistor-based SRAM interconnect is a maximum of 1,000
ohms, whereas a ViaLink interconnect presents a maximum of 50 ohms of
resistance.
Based upon published industry materials, the following table compares the
critical features of the Company's ViaLink antifuse technology with the
comparable features of competing dielectric antifuse and SRAM interconnect
technologies.
<TABLE>
<CAPTION>
VIALINK DIELECTRIC SRAM
PROGRAMMING TECHNOLOGY ANTIFUSE ANTIFUSE INTERCONNECT
---------------------- -------- ---------- ------------
<S> <C> <C> <C>
Relative Interconnect Performance
(Speed).................................. 1.0x 0.1x 0.05x
Relative Interconnect Density (Design
Flexibility)............................. 1.0x 0.8x 0.24x
Silicon Area Required (Cost).............. 1.0x 2.5x 12.50x
</TABLE>
The Company's ViaLink interconnect make it one time programmable. While
certain traditional FPGA devices allow reprogrammability, the use of SRAM
interconnect technologies in such devices compromises speed, design
flexibility and cost. The Company believes that in most customer applications
the benefit of reprogrammability is less important than time-to-market
pressures, speed, design flexibility and cost effectiveness. QuickLogic's
ViaLink antifuse and one time programmability also assure that after a fuse is
programmed it remains programmed. By contrast, SRAM-based interconnect
technologies require reprogramming each time the device is powered up.
Unlike dielectric antifuse technologies that require more complex
manufacturing processes, the amorphous silicon used to manufacture ViaLink
antifuses can be deposited by any plasma enhanced chemical vapor deposition
("CVD") system without affecting the underlying CMOS process and requires only
one additional mask. This allows the Company's devices to be produced at a
lower price and with greater yields than other antifuse processes. Because the
ViaLink technology creates a flat surface, additional metal layers and
interconnects can be stacked one above another yet retain a stable
architecture. The Company's next generation of pASIC products, which use a
four-layer metal process, are designed to take further advantage of this
feature. See "--Manufacturing: Relationship with TSMC."
pASIC Architectures
The Company's pASIC architectures incorporate more programmable elements and
routing wire resources than traditional FPGAs and offer pin-out compatibility
across the Company's product offerings. In addition, the pASIC 2 architecture
uses a variable grain logic cell that can be utilized for either a large,
single function or up to five independent functions. These features provide
users with greater design flexibility, a high utilization of available logic,
minimal need to change pin-out and the ability to move among product offerings
according to changing requirements.
The ViaLink antifuse allows the Company's pASIC devices to have a fully
populated interconnect scheme in combination with abundant routing tracks to
enable full design routability for the user. Typically, pASIC devices have
from four to six times the total number of programmable elements per usable
gate of logic than SRAM-based FPGAs. Full design routability allows complete
utilization of logic cells and I/O pins, reduces timing problems associated
with circuitous routing of logic paths, maintains pin-out stability and
eliminates the need for manual routing, thereby accelerating the
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development process to reduce time to market. By contrast, lack of full
routability may force more design iterations, require considerable manual
overrides of automated design tools and may cause designers to abandon their
selected FPGAs late in a design cycle for more expensive devices. In addition,
full routability is crucial to Verilog and VHDL users, who lose the
productivity offered by an HDL when large amounts of time are required to
relate HDL code to specific routing paths in an attempt to meet design
requirements through manual routing.
The routability and pin-out maintenance of the Company's products allow an
engineer to program a chip, designate pin-out and know that the device will be
automatically, fully routed while holding the set pin-out. This technology
also allows an engineer to alter the design of a chip and remain assured of
the designated pin-out that is required for the chip to function in the
circuit board. The Company designs its product architectures so that product
densities may be scaled up or down to create a family of standard products to
meet a wide variety of customer needs. This feature, combined with pin-out
compatibility between products, allows a customer to move among density
choices in the QuickLogic product lines to meet design requirements.
The pASIC 2 variable grain logic cell was engineered to operate as one large
cell for high performance or separated into as many as five independent logic
fragments for high utilization. A larger logic cell delivers higher
performance by consolidating multiple logic fragments to perform a specific
function. However, traditional HDL synthesis tools were originally designed
for the architecture used in standard gate arrays that chain smaller logic
fragments together to perform the same function, resulting in lower
performance when applied to the larger logic cells typical of FPGAs. As HDL
synthesis tools become more capable of utilizing larger logic cells, these
tools can utilize QuickLogic's pASIC 2 variable grain logic cell either as a
large cell for higher performance or as independent logic fragments for higher
utilization.
Software
QuickLogic offers software design tools that are inexpensive and incorporate
IEEE standard languages Verilog and VHDL and leading third-party software for
use on Windows and UNIX platforms. The use of devices with greater densities
to implement more complex designs, while reducing costs and meeting time-to-
market pressures, have led to increased reliance on HDLs. Verilog and VHDL as
well as sophisticated third-party software design tools have emerged as FPGA
industry standards because they make front-end design more efficient resulting
in accelerated design cycles. The Company's inclusion of these languages in
its software design tools helps customers migrate to QuickLogic easily and
inexpensively.
In addition, the Company believes that its software tools facilitate the use
of these languages more effectively than the software tools offered by the
Company's competitors. The Company's proprietary ViaLink technology and pASIC
architectures provide QuickLogic products with the abundance of interconnect
resources necessary for logic synthesis design tools to efficiently synthesize
designs. Accordingly, QuickLogic's products require less silicon to implement
the Verilog and VHDL code. The Company intends to exploit the market shift to
Verilog and VHDL and the competitive advantage that the Company's products
afford in implementing these languages.
The Company has developed software that maximizes the usability of VHDL and
Verilog, includes tutorials in these languages, optimizes the HDL output,
simulates and transfers the design to the lowest cost device. The
compatibility of the Company's QuickWorks and QuickTools software tools with
Verilog and VHDL fully supports engineers experienced in these design
languages and, when combined with the pASIC products, affords 100% placement
and routing, stable timing, and the ability to hold pin-out through all design
iterations. Engineers who are unfamiliar with these HDLs are able to train
themselves and program at their desktops simultaneously by utilizing the
bundled tutorial programs for Verilog and VHDL in the Company's software
tools. Software support for the pASIC
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families is available through two basic environments: QuickWorks and
QuickTools. A wide assortment of design environments is supported on both
Windows and UNIX platforms by combining QuickLogic's software packages with
design libraries from vendors such as Cadence, Mentor, Synario, Synopsys,
Veribest and Viewlogic. Interoperability is also provided for other third-
party vendors by supporting industry standard interfaces such as EDIF, OVI,
SDF and VITAL.
PRODUCTS
The Company has developed its pASIC products to address the primary
requirements of the FPGA market, including speed, design flexibility, cost and
time to market. The Company's current product line consists of two families of
FPGAs, and the QuickWorks and QuickTools design software. The Company's
product offerings are designed to address the segments of the logic market
with the highest levels of design activity. The Company's marketing efforts
and product parameters will continue to be determined by market demand. Based
on market requirements for devices that are faster, less costly and consume
less power, the Company plans to release its third generation of products
during 1998. The Company has entered into a memorandum of understanding with
TSMC to manufacture this third generation product family utilizing a 0.35(mu)
CMOS technology on 8-inch wafers. However, the projections regarding the
timing, and the type of, the releases of the Company's third generation family
of products are forward-looking statements that involve risks and
uncertainties. The completion and release of any new product family depends
upon the development of necessary technology, the Company's relationship with
its manufacturers, in particular TSMC, market conditions and other factors.
Accordingly, new products may not be released within the time frame stated or
at all. See "Risk Factors--New Product Development and Technological Change,"
"--Dependence on Independent Wafer Manufacturers" and "Dependence on
Customized Manufacturing Processes."
The following table describes the available usable gate densities of the
Company's two families of FPGAs, their product release dates and applicable
process technologies.
<TABLE>
<CAPTION>
PRODUCT FAMILY USABLE GATE DENSITIES
- -------------- --------------------------------------------------------------
<S> <C> <C> <C> <C>
pASIC 1 1K 2K 4K 8K
Product Release/Process Technology 1991/1.0(mu)* 1992/1.0(mu)* 1994/0.65(mu) 1995/0.65(mu)
1994/0.65(mu) 1994/0.65(mu)
pASIC 2 3K 5K 7K 9K
Product Release/Process Technology 1997+/0.65(mu) 1997/0.65(mu) 1996/0.65(mu) 1997/0.65(mu)
</TABLE>
- --------
* No Longer Offered
+ Anticipated Release Date
The Company offers devices in a range of speeds to address differing
customer performance and cost requirements. The Company also offers most of
its devices in commercial, industrial and military temperature ranges. A
variety of package types are available to satisfy varying customer demand for
I/O pin count and space constraints. Package styles include PLCC (plastic
leaded chip carrier), PQFP (plastic quad flat pack), TQFP (thin plastic quad
flat pack) and PBGA (plastic ball grid array). Military package styles include
CPGA (ceramic pin grid array) and CQFP (ceramic quad flat pack). The Company
plans to introduce additional package styles as customer demand warrants.
QuickWorks. The QuickWorks suite provides a complete FPGA software solution,
including design entry, logic synthesis, place and route, and simulation.
QuickWorks' fully integrated design solution consists of internally developed
and licensed third-party software operating on Microsoft Windows. QuickWorks
includes VHDL, Verilog, schematic, boolean and mixed mode entry for fast and
efficient logic design.
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QuickTools. The QuickTools package provides a solution for designers who use
Cadence, Mentor, Synario, Synopsys, Veribest, Viewlogic or other third-party
software tools for design entry, synthesis or simulation. QuickTools provides
optimization, place and route, timing analysis and back-annotation support for
all QuickLogic devices. QuickTools runs on Windows and UNIX platforms.
MARKETS AND APPLICATIONS
QuickLogic's FPGA solutions are well suited for applications that have
demanding requirements for high performance, design flexibility, low cost and
time to market. During the year ended December 31, 1996 and the quarter ended
March 31, 1997, Texas Instruments ("TI") accounted for 27.0% and 11.1% of
revenue, respectively. The examples below describe some typical applications
and the reasons for the selection of QuickLogic FPGAs.
Video, Graphics and Imaging
The video, graphics and imaging industries are characterized by the rapid
emergence of new, more complex and faster-performing technologies and by short
product life cycles. Applications for QuickLogic FPGAs include LCD display
panel controls, high speed image cameras, image editing and display hardware,
and audio processing/mixing systems. Manufacturers of these systems usually
require components that can meet extremely high performance standards as they
must quickly process large amounts of data. They also demand a fast design
cycle to help get their products to market as quickly as possible.
QuickLogic's FPGA products address these particularly demanding speed and
time-to-market requirements.
For example, in 1993, TI required an extremely high performance PLD for its
new Digital Light Processing video projector component. After evaluating a
number of alternatives, TI determined that the QuickLogic FPGA products were
the only solution that met the performance and design flexibility demands of
the Digital Light Processing system and, in particular, TI's requirement that
the device maintain pin-out assignments as TI refined its design. During the
following one-year period, TI determined that the QuickLogic products also
demonstrated superior ease-of-use, and QuickLogic FGPAs were subsequently
designed into every PLD socket in the TI Digital Light Processing system.
Telecommunications and Data Communications
Telecommunications and data communications equipment manufacturers are
forced to make product and design changes quickly to keep pace with new and
rapidly evolving industry standards and technologies. Applications include
satellite-based and Internet telephones, cable television equipment, wireless
Internet communications systems and networking equipment. New products in the
telecommunications and data communications industries often require high
performance components to handle the ever-increasing data rates and latest
digital communications standards. QuickLogic's products facilitate this
market's accelerating time-to-market goals and meet the high performance
demands of communications equipment manufacturers.
An example of the demanding time-to-market requirements in the data
communications industry is 3Com's large-bandwidth ISDN "superchannel" board,
the "143." After using competing devices, 3Com found that only QuickLogic's
FPGAs allowed simultaneous design of both the circuit board layout and the
circuitry within the FPGA. 3Com has stated that it found no other solution
that enabled full device utilization with rigidly fixed pin-out assignments.
Instrumentation and Test
Test equipment and industrial electronics manufacturers require components
that afford a high degree of reliability. Applications include aircraft
controls, semiconductor test and instrumentation circuit boards. The Company's
proprietary ViaLink antifuse technology creates stable, permanent
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<PAGE>
circuit connections unlike traditional reprogrammable FPGA solutions. In
addition, QuickLogic's range of device packages and operating temperatures
allow pASIC products to be designed into a variety of applications.
For example, Honeywell selected QuickLogic for its flight navigation and
control systems for business jets. QuickLogic products demonstrated
significant performance advantages when implementing Honeywell's industrial
temperature PCI-bus design. In addition, Honeywell determined that QuickLogic
designs could be fully implemented with VHDL without compromising system
performance. Honeywell subsequently designed QuickLogic products into five
additional circuit boards, including Honeywell's redundant CPU boards.
High-Performance Computers
The ability to bring new computer models to market as quickly as possible is
the hallmark of the computer industry. QuickLogic's FPGAs accelerate time to
market by allowing computer companies to manufacture hardware products
immediately upon the completion of the design, without waiting for production
quantities of a standard gate array. IBM, for example, uses QuickLogic's FPGAs
for the prototype and initial production of its display controllers for
ThinkPad laptop computers.
Military
Military systems manufacturers must meet demanding reliability and
performance requirements in system designs. Applications include weapons
control systems and navigational equipment. QuickLogic's permanently
programmed products are well-suited components for such systems. The Company's
proprietary ViaLink antifuse technology creates interconnects which are more
stable and reliable than traditional reprogrammable FPGA solutions. The range
of ceramic package options, which include both surface-mount and through-hole
packages, are also attractive to military systems designers. Hughes Aircraft,
for example, uses QuickLogic devices in a wide range of applications from
missile tail-fin controllers to helicopter instrumentation.
The following chart illustrates ways that certain of the Company's customers
use QuickLogic products.
<TABLE>
<CAPTION>
INDUSTRY CUSTOMER APPLICATION
-------- -------- -----------
<S> <C> <C>
Video, Graphics Digidesign (AVID) PC-based audio editing
and Imaging (used to edit "The Lion King" and other
movies)
Dome Imaging Medical imaging products
Fujitsu Stadium display controls
Hitachi DVD, MPEG image compression
Miro Computer Image editing PC hardware
Silicon Graphics Flat panel display controller
Texas Instruments Video display projectors
TV/Com Satellite TV signal encryption & compression
Telecommunications AG Communications Telephone networking equipment
Alcatel Alsthom Microwave communication systems
NEC PBX electronics
Northern Telecom Satellite-based telephone systems
Uniden Internet telephone
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
INDUSTRY CUSTOMER APPLICATION
-------- -------- -----------
<S> <C> <C>
Data Bay Networks/Xylogics ISDN networking and PC cards
Communications Compaq/Networth Networking equipment
Daewoo ATM switch, fiber optic equipment
EMC/McData Mainframe I/O communications
3Com Data-com boards
Instrumentation Analog Devices Integrated circuit testers
and Test Honeywell Aircraft navigation and flight controls
National Instruments PC-based instrumentation boards
Teradyne Semiconductor test equipment
Toshiba Mail sorting equipment
Unisys Test boards for VME applications
High-Performance Asea Brown Boveri Industrial control for power distribution
systems
Computers Colorbus/Concept Color copier add-ons for photographic quality
IBM Pre-production ThinkPad display controller
Mitsubishi Mobile PC Pen-input display controller
Sony MiniDisk editing equipment
Synopsys Hardware simulation accelerator
Military Systems Hughes Aircraft Helicopter and missile motor controls, radars
McDonnell Douglas C-17 flight controller
Rockwell Submarine navigational equipment
Saab Automobile Simulation systems for military training
</TABLE>
SALES, SUPPORT & MARKETING
QuickLogic sells its products through a network of Company sales managers,
independent sales representatives and electronics distributors in North
America, Europe and Asia. In addition to its corporate headquarters in
Sunnyvale, the Company has regional sales operations in Los Angeles, San Jose,
Dallas, Boston, Raleigh, Chicago and London. The Company's direct sales
organization consists of 18 sales managers, field application engineers and
administrative personnel. In North America, the Company's six sales managers
direct the activities of 19 independent manufacturers' representative firms
operating out of more than 40 offices totaling approximately 182 sales
representatives, as well as the activities of five distributor organizations
with more than 220 locations. Internationally, four sales managers direct the
activities of 11 distributors in Europe and nine distributors in Asia. All of
the foregoing numbers are as of May 31, 1997.
QuickLogic's major North American distributors include Anthem Electronics,
Bell Industries, Bell Microproducts, Future Electronics and Sterling
Electronics. The Company added Anthem Electronics as a distributor in March
1997. Future Electronics also distributes the Company's products in Europe and
Asia. During 1996 and the first quarter of 1997, 53.3% and 68.8%,
respectively, of the Company's revenue from the United States was realized
through distributors, while most of the Company's revenue from outside of
North America was realized through third-party distributors.
As of May 31, 1997, the Company's applications support organization included
four direct field application engineers and 140 application engineers employed
by the Company's distributors. These application engineers provide pre-sales
and on-site technical support to customers. Application support is also
provided by five factory-based customer engineers, who offer the majority of
post-sale support through a dedicated customer support hotline.
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Under its arrangement with Cypress, the Company provides support for former
Cypress FPGA customers. With the elimination of Cypress as an alternate source
of the Company's products, the Company no longer faces competition with
respect to its proprietary products. The Company's and Cypress' sales
organizations have transitioned most customer accounts to QuickLogic. See "--
Cypress Transaction."
As of May 31, 1997, the Company's marketing organization consisted of nine
employees that promote the performance and flexibility offered by the
Company's products. The Company believes that the opportunity for design wins
with individual design engineers arises several times throughout the year, and
uses various forms of advertising, seminars, shows and conferences to maintain
visibility with these engineers.
RESEARCH AND DEVELOPMENT
The Company's R&D efforts are focused on three areas: device architecture,
development tools, and foundry process development. As of May 31, 1997, the
research and development staff consisted of 47 employees. The device design
engineers endeavor to design products with the optimal combination of speed,
flexibility, HDL compatibility, testability and low cost. Devices are designed
so that their capacities can be quickly scaled up or down to create a family
of standard products that meet a diverse range of user needs. The Company's
software engineering group develops place and route tools (which fit the
design into specific logic cell elements within a device, then devise the
necessary interconnections), and delay modeling tools (which estimate the
timing of all the circuit paths for accurate simulation). The software group
also incorporates third-party software tools into the QuickWorks tool suite,
and develops the design libraries needed for the QuickTools product to
integrate with third-party design environments. The Company's process
engineering group maintains the Company's proprietary antifuse processes,
oversees product manufacturing and process development in its third-party
foundries, and is involved in ongoing process improvements to increase yields
and optimize device characteristics.
The Company's R&D expense for 1994, 1995 and 1996 and for the first quarter
of 1997 was $3.2 million, $3.6 million, $4.6 million and $1.3 million,
respectively. The Company anticipates that it will continue to commit
substantial resources to research and development in the future.
MANUFACTURING
The Company's manufacturing strategy is to establish close relationships
with third-party manufacturers for its wafer fabrication and package assembly
requirements. This allows the Company to focus its resources on product
design, development and marketing rather than on manufacturing expenditures.
Assembly of the Company's devices is primarily performed by Anam/Amkor in
Korea. Final testing is primarily performed by the Company internally, and the
Company is exploring additional outsourcing of its testing.
The Company's relationships with wafer foundries are intended to provide the
Company with stability in the supply of its products, while seeking to
maintain its position as a technology leader. The current pASIC 1 and pASIC 2
product wafers are fabricated by Cypress. The Company expects that its future
products, utilizing smaller product geometries and larger wafer sizes, will be
fabricated by TSMC, which is one of the world's largest dedicated
semiconductor foundries. See "Risk Factors--Dependence on Independent Wafer
Manufacturers" and "--Dependence on Customized Manufacturing Process."
Relationship with Cypress
In connection with the Company's new relationship with Cypress, the
companies entered into a new foundry agreement effective through the year
2001. This agreement guarantees weekly wafer
39
<PAGE>
starts at established prices and yields for the Company's pASIC 1 and pASIC 2
product families, which are fabricated using a 0.65(mu) three-layer metal CMOS
process on 6-inch wafers. These products will continue to be manufactured at
Cypress' Round Rock, Texas facility, and will continue to utilize the
Company's proprietary ViaLink amorphous silicon antifuse technology.
Relationship with TSMC
In October 1996, the Company entered into a memorandum of understanding with
TSMC to co-develop a 0.35(mu) four-layer metal CMOS process for 8-inch wafers
using the Company's ViaLink antifuse technology. The memorandum of
understanding contemplates that the parties will enter into a "take or pay"
contract substantially similar to that offered to TSMC's current customers,
which would be effective for three years following the date of the contract
with successive automatic one-year renewal terms. TSMC's foundries are located
in Hsin Chu, Taiwan.
TSMC is now processing R&D wafers for the Company's FPGA products.
QuickLogic intends that its 9-thousand usable gate pASIC 2 device will be the
first Company product manufactured at TSMC. The high density members of
QuickLogic's third generation pASIC FPGA family are intended to be in
production at TSMC during 1998. The Company anticipates migrating selected
other pASIC 2 devices (which are also currently in production on a 0.65(mu)
process) to the 0.35(mu) CMOS process at TSMC during 1998.
The projections regarding the timing and type of releases of the Company's
third generation family of products are forward-looking statements that
involve risks and uncertainties. The completion and release of any new product
family depend upon the development of necessary technologies, the Company's
relationship with its manufacturers, in particular TSMC, market conditions and
other factors. Accordingly, new products may not be released within the time
frame stated or at all. See "Risk Factors--Dependence on Independent Wafer
Manufacturers," "--Dependence on Customized Manufacturing Processes" and "--
Risks Associated with International Business Activities."
CYPRESS TRANSACTION
In March 1997, the Existing Agreement related to the Company's FPGA products
was terminated and replaced with a new arrangement whereby the Company's FPGA
products will no longer be second sourced by Cypress. In addition, Cypress
agreed to not compete with the Company with respect to antifuse FPGAs or
products that are pin-compatible with the Company's existing pASIC 1 and pASIC
2 products. QuickLogic has commenced support for Cypress's FPGA customers, and
Cypress assisted the Company in the transition of these customers to the
Company. In exchange for the termination of the Existing Agreement and the
reversion of the rights to the intellectual property developed thereunder to
the Company, the Company paid $4.5 million in cash and agreed to issue
2,603,817 shares of Common Stock to Cypress, increasing the aggregate number
of shares of Common Stock of the Company held by Cypress to 3,339,785, prior
to the sale of any shares by Cypress in this offering. In addition, the
Company granted Cypress, including the right to sell shares of Common Stock in
this offering, certain contractual rights as to the shares of the Company's
stock held by Cypress. The parties also entered into a new foundry agreement
and a cross-license agreement. The terms of the new foundry agreement are
discussed under "--Manufacturing: Relationship with Cypress."
Under the terms of the cross-license agreement, Cypress granted to the
Company a royalty-free, non-exclusive, non-sublicensable license to make, have
made, use, offer for sale, sell and distribute programmable logic products
under patents that are currently issued to Cypress or are issued prior to
March 2007. In the event of an acquisition of the Company, the license
continues only as to those products that were commercially available as of the
acquisition or the design of which is in the layout stage and subsequently
become commercially available within one year after the acquisition. The
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Company granted a reciprocal right to Cypress under its patent portfolio,
except that the license does not extend to antifuse FPGAs or products that are
pin-compatible with the Company's existing pASIC 1 and pASIC 2 products. The
parties also licensed to each other the intellectual property rights developed
under the Existing Agreement, within the scope of the patent licenses set
forth above.
The shares issued to Cypress in connection with the termination of the
Existing Agreement were provided with the same contractual rights as the other
shares of the Company's stock held by Cypress and the other holders of the
Company Common Stock issuable upon conversion of the Preferred Stock. In
addition, the Company granted registration rights to Cypress that are in
addition to those held by other stockholders of the Company. See "Description
of Capital Stock--Registration Rights." First, Cypress may sell a minimum of
one-third of the shares in this offering, and any subsequent public offerings
of the Company's stock. Second, the Company is obligated to file a
registration statement with respect to all of the shares of Common Stock held
by Cypress and not sold in this offering, with such registration statement
being effective upon the expiration of the lockup period imposed by the
Underwriters in connection with this offering. The Company must keep this
registration statement effective until the earlier of (i) the date all of such
shares held by Cypress are sold; (ii) three years from the closing of this
offering; or (iii) the date all such shares are able to be sold in a three-
month period pursuant to Rule 144. Notwithstanding the foregoing, the Company
has the right to suspend Cypress's ability to sell under such registration
statement under certain circumstances. Finally, Cypress has the individual
right to require registration of its shares that is separate from a similar
right held by the other holders of registration rights. The other stockholders
of the Company do not have the right to require inclusion of their shares in
these separate Cypress registrations.
COMPETITION
The semiconductor industry is intensely competitive and is characterized by
constant technological change, rapid rates of product obsolescence and price
erosion. The Company's existing competitors include suppliers of conventional
gate arrays, CPLDs and FPGAs, particularly Xilinx, a supplier of SRAM-based
FPGAs, Actel, an anti-fuse FPGA supplier, and Altera, a supplier of CPLDs. The
Company also faces competition from companies that offer standard gate arrays,
which can be obtained at a lower cost for high volumes and may have gate
densities and performance equal or superior to the Company's products. In
addition, the Company expects significant competition in the future from major
domestic and international semiconductor suppliers, and the Company's patents
may not bar competitors to which it has not granted a license from
manufacturing similar products. The Company also may face competition from
suppliers of products based on new or emerging technologies.
The PLD market is dominated by Xilinx and Altera, which together control
over 55% of the market, according to Pace Technologies, a semiconductor market
research firm. The Xilinx products dominate the FPGA segment of the market
while Altera dominates the CPLD segment of the market. In addition, the
Company expects significant competition in the future from major domestic and
international suppliers which have entered or are considering entering the PLD
market. Such suppliers include Lucent Technologies, Vantis
Corporation/Advanced Micro Devices, Inc., Motorola, Inc. and Atmel
Corporation. Most of the Company's current and prospective competitors offer
broader product lines and have significantly greater financial, technical,
manufacturing and marketing resources than the Company. In particular,
companies such as Lucent Technologies, Motorola, Inc. and others have
proprietary wafer manufacturing ability, preferred vendor status with many of
the Company's customers, extensive marketing power and name recognition,
greater financial resources than the Company, and other significant advantages
over the Company. Certain of the current and prospective competitors of the
Company are or may become customers as well. There can be no assurance that
such customers will continue to buy the Company's products if they are
offering their own competing products, which could have a material adverse
effect on the Company's business, financial condition and results of
operations. The Company believes that important competitive factors in its
market are
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<PAGE>
length of development cycle, price, performance, installed base of development
systems, adaptability of products to specific applications, ease of use and
functionality of development system software, reliability and technical
service and support, wafer fabrication capacity and sources of raw materials,
and protection of products by effective utilization of intellectual property
laws. Failure of the Company to compete successfully in any of these or other
areas could have a material adverse effect on its operating results. In
addition, the Company's competitive position is substantially dependent upon
industry competition for effective sales and distribution channels. There can
be no assurance that the Company's products will be competitive. The failure
of the Company to develop and market products that compete successfully with
those of other companies in the market would have a material adverse effect on
the Company's business, financial condition and results of operations.
INTELLECTUAL PROPERTY
The Company holds 30 U.S. patents and has filed 19 applications for
additional U.S. patents containing claims covering various aspects of
programmable integrated circuits, programmable interconnect structures,
programmable antifuse devices, as well as methods and apparatus for
programming antifuse devices. In addition, the Company has two patent
applications pending in Japan. The Company's patents expire between June 2009
and March 2015. The Company has also registered four of its trademarks in the
United States with applications to register an additional two trademarks now
pending. See "Risk Factors--Protection of Intellectual Property."
ACTEL LITIGATION
On January 20, 1994, Actel, a competitor of the Company, filed a lawsuit
against the Company entitled Actel Corporation v. QuickLogic Corporation in
the United States District Court for the Northern District of California (the
"Court"), Case No. C-94 20050JW (PVT). The original complaint alleged
infringement by the Company of four U.S. patents held by Actel: U.S. Patent
4,873,459 (the "'459 Patent") issued October 10, 1989 and entitled
"Programmable Interconnect Architecture;" U.S. Patent 4,758,745 (the "'745
Patent") issued July 19, 1988 and entitled "User Programmable Integrated
Circuit Interconnect Architecture and Test Method;" U.S. Patent 5,055,718 (the
"'718 Patent") issued October 8, 1991 and entitled "Logic Module With
Configurable Combinational and Sequential Blocks;" and U.S. Patent 5,198,705
(the "'705 Patent") issued March 30, 1993 and entitled "Logic Modular and
Configurable Combinational and Sequential Blocks." In each of March 1995 and
March 1996, Actel added a claim that an additional Actel patent was infringed:
U.S. Patent 5,367,208 (the "'208 Patent") issued November 22, 1994 and
entitled "Reconfigurable Programmable Interconnect Architecture" and U.S.
Patent 5,479,113 (the "'113 Patent") issued December 26, 1995 and entitled
"User Configurable Logic Circuits Comprising Antifuses and Multiplexer-Based
Logic Modules." The '459, '745, '208 and '113 Patents all relate to user
programmable interconnect architectures and are based upon the same
application. Actel's '705 and '718 Patents relate to logic modules for use in
FPGAs. As to the '745 and '459 Patents, Actel asserts that QuickLogic's
programmable interconnect circuits and architecture found in its pASIC 1 and
pASIC 2 product families infringe one or more claims of these patents. As to
the '705 and '718 Patents, Actel asserts that QuickLogic's programmable logic
module used in its pASIC1 and pASIC2 product families infringes one or more
claims of each patent. As to Actel's '113 patent, Actel asserts that
QuickLogic's control circuit controlling the program voltage within
QuickLogic's user programmable interconnect architecture infringes one or more
claims. As to each patent-in-suit, Actel seeks an injunction preventing
QuickLogic from further use of the claimed inventions, damages for past
infringement of the inventions, Actel's attorneys' fees and treble damages for
willful infringement. Sales of the Company's pASIC products have accounted for
substantially all of the Company's revenue to date and are expected to account
for substantially all of the Company's revenue for the foreseeable future.
Fees from licenses of the QuickWorks and QuickTools software design tools have
accounted for substantially all of the remainder of the Company's revenue. The
Company has filed answers to each
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of these complaints and counter-claims seeking declarations that the Actel
patents at issue are not infringed by the Company, are invalid, and are
unenforceable. On April 19, 1994, QuickLogic moved to stay proceedings pending
reexamination by the United States Patent and Trademark Office (the "USPTO")
of two of the patents involved in the litigation, the '745 Patent and the '459
Patent. The Court granted this stay on July 21, 1994. The USPTO confirmed the
patentability of these two patents on November 15, 1994 and January 10, 1995,
respectively, which Actel may argue will increase the burden upon QuickLogic
to prove the invalidity of the two reexamined patents. The Court lifted the
stay on November 8, 1994.
On November 15, 1994, Actel filed a motion for summary judgment with respect
to the Company's infringement of claim 1 of the '705 Patent. Actel's '705
Patent relates to an interconnect structure, programming structures, and logic
circuits wherein a multiplicity of logic circuits are arranged in a regular
pattern on the semiconductor substrate. The logic circuits (logic modules)
contain circuitry which ultimately determines the function that the FPGA could
perform. The '705 Patent covers a logic module, and its structure and its
connections to the interconnect structure. Actel has referred to this
technology as its "nested three multiplexer" architecture, which involves
three dual input, single output multiplexers. The logic module, as claimed in
the '705 Patent, includes two multiplexers wherein each output is coupled to
one of the pair of inputs of a third multiplexer. The first and second
multiplexers have four inputs which are "connected to" four respective "data
nodes." The output of the third multiplexer may be connected to a sequential
logic circuit. First and second multiplexers are controlled by a "single level
logic gate" at their select inputs as is the third multiplexer which is
similarly controlled by a second "single level logic gate." The Court
appointed a Special Master to assist in determining certain issues related to
this litigation, and the Special Master recommended on October 4, 1996 that
the Court find that the Company's pASIC 1 products infringe claim 1 of the
'705 Patent. On April 14, 1997, the Court adopted the recommendation of the
Special Master and granted Actel's motion for summary judgment that the
Company's pASIC 1 products infringe claim 1 of the '705 Patent. Any appeal of
the summary judgment motion on infringement of the '705 Patent cannot be made
until after there is a final judgment. If the '705 Patent is finally
adjudicated to be valid and enforceable, and the summary judgment motion is
upheld on appeal, then Actel would be entitled to damages for past
infringement and potentially would be entitled to an injunction on future
infringement. Such an injunction and/or the payment of damages would have a
material adverse effect on the Company's business, financial condition and
results of operations, and could potentially render it insolvent and unable to
sell its products.
On April 12, 1995, QuickLogic filed a counterclaim alleging that Actel has
infringed two U.S. patents held by the Company, U.S. Patent Nos. 5,220,213
(the "'213 Patent") and 5,396,127 (the "'127 Patent"). The '127 Patent recites
a logic module having three multiplexers wherein each output of two of the
multiplexers is connected to one of the pair of inputs of the third. The
output of the third multiplexer is connected to a flip flop. The '213 Patent
recites logic gates coupled to the data inputs of the first two multiplexers.
As to each patent-in-suit in the counterclaim, the Company alleges
infringement of one or more claims and seeks an injunction preventing Actel
from further infringement of the claimed inventions. The Company also seeks
damages for past infringement of the inventions and the Company's attorneys'
fees based on the alleged infringement and increased damages for willful
infringement. On January 18, 1996, Actel filed a motion for summary judgment
declaring the '213 and '127 Patents to be invalid. Actel's motion is based on
an "on-sale bar" defense, i.e. that the Actel products which the Company
claims infringe these patents were offered for sale more than one year before
the filing dates of the '213 and '127 Patents which, if proven under patent
law, would invalidate these patents. Discovery is currently in progress to
allow QuickLogic to file its opposition to this motion, which the Company
believes will be filed in 1997, with the hearing on this motion to be
scheduled thereafter. On February 5, 1996, QuickLogic filed a motion for
summary judgment of infringement by Actel of claim 1 of the '213 Patent. Actel
has opposed this motion, and discovery is currently in progress. Actel also
requested a separate trial on the "on-sale bar" defense, which
43
<PAGE>
request was denied by the Special Master on June 4, 1997 in a Notice of
Intention to Rule. After the issuance of a formal recommendation by the
Special Master, the Court must then decide whether to adopt this
recommendation.
On January 14, 1997, an additional U.S. patent was issued to the Company,
U.S. Patent No. 5,594,364 (the "'364 Patent"). On February 28, 1997, the
Company filed a motion to add a counterclaim for Actel's infringement of this
patent. A hearing on this motion was held on May 19, 1997 before the Special
Master, who granted the Company's motion on June 4, 1997 in a Notice of
Intention to Rule. After the issuance of a formal recommendation by the
Special Master, the Court must then decide whether to adopt this
recommendation.
On June 4, 1997, the Special Master also notified the parties of his intent
to accept the parties' stipulation that Actel be allowed to amend its
complaint to add a claim alleging QuickLogic's infringement of an additional
patent, U.S. Patent No. 5,610,534 (the "'534 Patent"), issued March 11, 1997
and entitled "Logic Module For A Programmable Logic Device." Actel alleges
that the Company has infringed one or more claims of this patent and is likely
to seek both monetary and injunctive relief, but has not yet filed or served
an amended complaint. After the issuance of a formal recommendation by the
Special Master, the Court must then decide whether to adopt this
recommendation.
In addition to the patent infringement actions, Actel amended its claims
against the Company to include a claim against the Company and one of its
employees on June 14, 1995 alleging misappropriation of trade secrets, breach
of contract, breach of confidential relationship, and unfair competition.
Actel has sought assignment of certain issued and future patents of the
Company, two of which are part of this lawsuit, unspecified money damages, a
doubling of the damages for willful and malicious misappropriation, attorneys'
fees and other remedies. These claims are based on allegations that this
employee, who had once been a consultant to Actel and is a named inventor of
some of QuickLogic's patents, had misappropriated confidential information
from Actel related to logic cells, which the Company then incorporated into
its pASIC products. The employee and the Company have filed answers denying
each of these claims. Discovery is ongoing at this time and no dispositive
motions have been filed or heard.
Trial on the patent infringement and trade misappropriation claims is
currently scheduled for September 1998. However, there can be no assurance
that the trial will occur at such time and may be delayed significantly. As
the outcome of any litigation is inherently uncertain, the Company is unable
to predict the outcome of this litigation. Therefore, there can be no
assurance that the Company will prevail in the trial on its defenses to the
patent infringement claims and its counter-claims, the trial on the alleged
misappropriation of intellectual property, or hearings on any motions related
to such proceedings or any appeals. The timing of the filing of any motions by
Actel, hearings on motions by either Actel or the Company, the issuance of
rulings on such motions, the issuance of recommendations by the Special Master
and the adoption or rejection of such recommendations by the Court are not
within the Company's control and could occur at any time. The announcement of
any rulings or recommendations, or the adoption or rejection of
recommendations, that are adverse to the Company, will likely have a material
adverse effect upon the market price for the Company's stock.
The semiconductor industry is characterized by frequent litigation regarding
patent and other intellectual property rights, which involve highly technical
and subjective analysis. Discovery and litigation of such issues are time-
consuming and costly, and Actel possesses more personnel and greater financial
resources than the Company and is able to conduct extensive and protracted
litigation at less of a relative detriment to its current business. While
patent infringement litigation in the
44
<PAGE>
semiconductor industry has at times resulted in voluntary settlements by the
parties, often involving cross-licensing of the patents involved, there can be
no assurance that such a result will be reached in this case. In addition, the
terms of any settlement may require the Company to stop selling all or certain
of its products, pay damages or royalties or other forms of consideration or
grant licenses to all or a portion of its intellectual property portfolio, any
or all of which could have a material adverse effect on the Company's business,
financial condition and results of operations. Patent infringement litigation
in the semiconductor industry has also resulted in court orders to pay
significant damages and/or injunctions preventing a party from making, using or
offering to sell, selling or importing any products that incorporate technology
covered by such patents. As referenced above, sales of the allegedly infringing
products by the Company have accounted for substantially all of the Company's
past revenue and are expected to account for substantially all of the Company's
revenue for the foreseeable future. This litigation could result in the Company
being required to cease selling its products and/or could also result in the
Company paying significant damages, including treble damages for willful
infringement, either of which would have a material adverse effect on the
Company's business, financial condition and results of operations and could
potentially render it insolvent.
There can be no assurance that the Company will prevail in its claims or
defenses or that it would be able to obtain a license under any Actel patents
that are found to be infringed, or if such a license were obtained, that it
would be on terms that would not have an adverse effect on the Company's
business, financial condition and results of operations. The current litigation
and any future litigation, whether or not determined in the Company's favor or
settled by the Company, has been and will continue to be costly and will divert
the efforts and attention of the Company's management and technical personnel
from normal business operations, which could have a material adverse effect on
the Company's business, financial condition and results of operations. It is
expected that legal fees and other litigation-related expenses will continue to
adversely affect the Company's operating results for the foreseeable future.
Any adverse determinations in this litigation or a settlement could result in
the loss of the Company's proprietary rights, subject the Company to
significant liabilities, require the Company to seek licenses from or to grant
licenses to third parties, prevent the Company from licensing its technology or
enjoin the Company from sale of its products, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors--Actel Litigation."
EMPLOYEES
As of May 31, 1997, the Company had a total of 144 employees worldwide, with
45 people in operations, 47 people in research and development, 18 people in
sales, 14 people in marketing, 18 people in general and administrative and two
people in management information systems. The Company believes that its future
success will depend in part on its continued ability to attract, hire and
retain qualified personnel. Competition for such personnel is intense, and
there can be no assurance that the Company will be able to identify, attract
and retain such personnel in the future. None of the Company's employees is
represented by a labor union, and management believes its employee relations
are good.
FACILITIES
The Company's principal administrative, sales, marketing, research and
development and final testing facility is located in a building of
approximately 42,624 square feet in Sunnyvale, California. This facility is
leased through the 2003 with an option to renew through 2006. In addition, the
Company leases sales offices in London, England. The London offices are leased
through December 1997. The Company believes that its existing facilities are
adequate for its current needs.
45
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company as of May 31, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
E. Thomas Hart................... 55 President, Chief Executive Officer and
Director
John M. Birkner.................. 53 Vice President, Computer-Aided Engineering
Andrew K. Chan................... 46 Vice President, Product Development
Donald F. Faria.................. 37 Vice President, Marketing
Richard C. Johnson............... 45 Vice President, Worldwide Sales
Vincent A. McCord................ 50 Vice President, Finance, Chief Financial
Officer and Secretary
Philip J. Ong.................... 46 Vice President, Operations
Scott D. Ward.................... 43 Vice President, Engineering
Ronald D. Zimmerman.............. 49 Vice President, Human Resources
Irwin Federman(1)(2)............. 61 Chairman and Director
Hua-Thye Chua(1)(2).............. 62 Director
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
E. THOMAS HART has served as President and Chief Executive Officer and a
director of the Company since June 1994. Prior to joining the Company, Mr.
Hart was Vice President and General Manager of the Advanced Networks Division
at National Semiconductor Corp., a semiconductor manufacturing company, where
he worked from September 1992 to June 1994. Prior to joining National
Semiconductor Corporation, Mr. Hart was a private consultant from February
1986 to September 1992 with Hart Weston International, a technology-based
management consulting firm. Mr. Hart earned a B.S.E.E. degree from the
University of Washington.
JOHN M. BIRKNER, a co-founder of the Company, has served with the Company
since April 1988, most recently as Vice President of Computer-Aided
Engineering. As a fellow at Monolithic Memory Inc. ("MMI"), a semiconductor
manufacturing company, from September 1975 to June 1986, he co-invented the
PAL device and helped to lead its development and marketing efforts. Mr.
Birkner holds a B.S.E.E. degree from the University of California at Berkeley
and an M.S.E.E. degree from the University of Akron.
ANDREW K. CHAN, a co-founder of the Company, has served with the Company
since April 1988, most recently as Vice President of Product Development.
Prior to joining the Company, Mr. Chan was a design engineering manager at
MMI. Mr. Chan earned a B.S.E.E. degree from Washington State University and an
M.S.E.E. degree from the University of New York at Stony Brook.
DONALD F. FARIA joined the Company in April 1997 as Vice President of
Marketing. Prior to joining QuickLogic, Mr. Faria was Director of FPGA
Solutions at Synopsys, Inc., a computer automated design technology company,
from September 1995 to March 1997. From January 1995 to August 1995, he was
director of Product Marketing at Chip Express Corporation, a laser
programmable gate array company. Mr. Faria was employed by Altera Corporation,
a CPLD company, from July 1984 until December 1994. While at Altera, Mr. Faria
held several positions including Director of Marketing for Development Tools
and Special Projects, Director of Applications and Product Planning, Product
Planning Manager and Application Manager. Mr. Faria received a B.S.E.E. degree
from the University of Massachusetts.
46
<PAGE>
RICHARD C. JOHNSON has served as Vice President of Worldwide Sales for the
Company since August 1995. From June 1992 to July 1995, Mr. Johnson was Vice
President of Sales and Corporate Marketing at Integrated Information
Technology, a semiconductor manufacturing company. He received a B.S. degree
in Marketing and an M.B.A. degree from the University of Southern California.
VINCENT A. MCCORD joined the Company in November 1996 as Vice President,
Finance, Chief Financial Officer and Secretary. From July 1996 to October
1996, Mr. McCord was a business and financial consultant. From April 1996 to
June 1996, Mr. McCord was Chief Financial Officer at Exergy, Inc., an energy
company. Prior to joining Exergy, Inc., Mr. McCord was Vice President and
Corporate Controller at LSI Logic, Inc., a semiconductor manufacturing
company, from September 1991 to April 1996. Mr. McCord received a B.S. degree
in Applied Mathematics from the Georgia Institute of Technology and an M.B.A.
degree from Harvard University.
PHILIP J. ONG joined the Company in December 1994 as Vice President of
Operations. Prior to joining the Company, he held a series of director
positions at Advanced Micro Devices, Inc. ("AMD"), a semiconductor
manufacturing company, from November 1989 to December 1994. From June 1992 to
December 1994, Mr. Ong was Director of Operations for AMD's Submicron
Development Center and prior to that was Director of Fab Operations at one of
AMD's facilities. Prior to joining AMD, Mr. Ong worked at a variety of
companies including MMI. Mr. Ong received a B.S. degree in Chemical
Engineering from the University of California at Berkeley.
SCOTT D. WARD joined the Company in April 1997 as Vice President of
Engineering. From June 1980 to March 1997, Mr. Ward was employed by National
Semiconductor Corporation. While at National Semiconductor Corporation, Mr.
Ward held several positions, including Product Line Director--New Venture
Start-Up, Product Line Director--Automotive Systems Group, Product Line
Director--Amplifier Products Group, Product Line Manager for SLIC, Senior
Product Engineering Manager and Section Head--MOS 1, where he was responsible
for product engineering. Mr. Ward obtained a B.S.E.T. degree from California
Polytechnic University at San Luis Obispo.
RONALD D. ZIMMERMAN joined the Company in October 1996 as Vice President of
Human Resources with more than 15 years experience in the human resources
industry. From August 1988 to October 1996, Mr. Zimmerman was the group human
resources director of the Analog Products Group at National Semiconductor
Corporation. Also during his eight years at National Semiconductor
Corporation, he was group human resources director of the corporate technology
and quality/reliability organizations and the human resources director of
corporate administration. Mr. Zimmerman received a B.A. degree in Sociology
and Psychology and an M.A. in Psychology from San Jose State University.
IRWIN FEDERMAN has served as a director of the Company since September 1989.
Mr. Federman has been a general partner of U.S. Venture Partners, a venture
capital company, since 1990. From 1988 to 1990, he was a Managing Director of
Dillon Read & Co., an investment banking firm, and a general partner in its
venture capital affiliate, Concord Partners. Mr. Federman serves on the Boards
of Directors of TelCom Semiconductor, Inc., a semiconductor company, SanDisk
Corporation, a semiconductor company, Western Digital Corporation, a disk
drive manufacturer, Komag Incorporated, a thin film media manufacturer,
NeoMagic Corporation, a developer of multimedia accelerators, and Check Point
Software Technologies, Ltd, a network security software company. He is on the
Dean's Advisory Board of Santa Clara University's Leavy School of Business. He
received a B.S. degree in Accounting from Brooklyn College, is a Certified
Public Accountant, and was awarded an honorary Doctorate of Engineering
Science from Santa Clara University.
HUA-THYE CHUA, a co-founder of the Company, served as Vice President of
Technology Development from April 1989 to December 1996. He has been a
director since the Company's inception in April 1988. During the prior 25
years, Mr. Chua worked at semiconductor companies Fairchild Semiconductor
Corporation, Intel Corporation and MMI where he was involved in the design
47
<PAGE>
of bipolar and CMOS integrated circuits. While at MMI, Mr. Chua co-invented
the PAL device. Mr. Chua holds a B.S.E.E. degree from Ohio University and an
M.S.E.E. degree from the University of California at Berkeley.
There are no family relationships among any of the Company's directors or
executive officers.
AUDIT COMMITTEE
The Audit Committee was first formed in June 1995 and currently consists of
Messrs. Federman and Chua. The Audit Committee makes recommendations to the
Board regarding the selection of independent accountants, reviews the results
and scope of the audit and other services provided by the Company's
independent accountants and reviews and evaluates the Company's internal audit
and control functions.
COMPENSATION COMMITTEE; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
The Compensation Committee was first formed in June 1995 and currently
consists of Messrs. Federman and Chua. The Compensation Committee administers
the Company's stock option plans and makes recommendations to the Board
concerning salaries and incentive compensation for employees, directors and
consultants of the Company. No member of the Compensation Committee or
executive officer of the Company has a relationship that would constitute an
interlocking relationship with executive officers or directors of another
entity. In addition to serving as a director of the Company, Mr. Chua was an
employee of the Company until December 1996.
DIRECTOR COMPENSATION
The Company's non-employee directors currently do not receive any cash
compensation for attending board meetings, including the meetings of any
committees on which they sit. Board members will be reimbursed for their out-
of-pocket expenses incurred in attending Board of Directors and committee
meetings. The directors will be eligible to receive stock option grants under
the Company's 1997 Director Option Plan.
48
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal year ended December 31, 1996,
all compensation earned for services rendered to the Company by the Company's
Chief Executive Officer and each of the other four most highly compensated
executive officers of the Company and a former executive officer of the
Company each of whose total salary and bonus compensation for 1996 exceeded
$100,000 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
IN 1996 AWARDS
------------------ ---------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTION GRANTS(#) COMPENSATION($)
- --------------------------- --------- -------- ---------------- ---------------
<S> <C> <C> <C> <C>
E. Thomas Hart............. 171,635 33,731 -- $8,515(1)
Chief Executive Officer
and President
Richard C. Johnson......... 140,865 39,585 -- 6,581(2)
Vice President, Sales
Philip J. Ong.............. 116,255 26,244 28,571 --
Vice President, Operations
Nim Cho Lam(3)............. 62,234 59,932 -- 4,133(4)
Vice President,
Engineering
Andrew K. Chan............. 107,885 -- -- --
Vice President,
Product Development
John M. Birkner............ 102,981 -- -- --
Vice President, Computer-
Aided Engineering
</TABLE>
- --------
(1) Represents reimbursement of automobile lease payments.
(2) Represents automobile allowance.
(3) Mr. Lam was employed at the Company until July 1996.
(4) Represents compensation for vacation time not taken.
Vincent A. McCord, the Company's Vice President, Finance, Chief Financial
Officer and Secretary was employed by the Company beginning in November 1996
and received $18,846 in salary in 1996. On an annualized basis, his salary for
1996 would have been $140,000. Ronald D. Zimmerman, the Company's Vice
President, Human Resources, was employed by the Company beginning in October
1996 and received $20,000 in salary and $25,000 in a sign-on bonus in 1996. On
an annualized basis, his salary for 1996 would have been $130,000.
49
<PAGE>
OPTION GRANTS IN FISCAL YEAR 1996
The following table sets forth certain information with respect to stock
options granted to each of the Company's Named Executive Officers during the
fiscal year ended December 31, 1996.
OPTION GRANTS IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
------------------------------------------ VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM(2)
OPTIONS IN FISCAL PRICE PER EXPIRATION ---------------------
NAME GRANTED 1996 SHARE(3) DATE 5% 10%
---- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
E. Thomas Hart.......... -- -- -- -- -- --
Richard C. Johnson...... -- -- -- -- -- --
Philip J. Ong........... 28,571 9.0% $1.05 10/14/2006 $ 17,968 $ 45,535
Nim Cho Lam(4).......... -- -- -- -- -- --
Andrew K. Chan.......... -- -- -- -- -- --
John M. Birkner......... -- -- -- -- -- --
</TABLE>
- --------
(1) All options are fully exercisable, subject to the Company's right to
repurchase any unvested shares at the original exercise price in the event
of the optionee's termination. Shares generally vest at the rate of 12.5%
after six months of service from the date of grant and 6.25% of the total
number of shares each three month period of service thereafter.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5% and 10% rates of stock price appreciation are mandated by rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price. Actual gains, if
any, on stock option exercises are dependent on the future finalized
performance of the Company, overall conditions and the option holder's
continued employment through the vesting period and option term. This
table does not take into account any appreciation in the fair market value
of the Common Stock from the date of grant to the date of this offering,
other than the columns reflecting assumed rates of appreciation of 5% and
10%.
(3) The exercise price per share of options granted represented the fair
market value of the underlying shares of Common Stock on the dates the
respective options were granted as determined by the Company's Board of
Directors.
(4) Mr. Lam was employed at the Company until July 1996.
Mr. McCord was employed by the Company beginning in November 1996. If he
were a Named Executive Officer, the information set forth opposite his name in
the above table would have been 92,857; 29.3%; $1.05; 11/14/2006; $65,960; and
$147,990. Mr. Zimmerman was employed by the Company beginning in October 1996.
If he were a Named Executive Officer, the information set forth opposite his
name in the above table would have been 57,143; 9.0%; $1.05; 10/14/2006;
$35,937; and $91,071.
50
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth for each of the Named Executive Officers
certain information concerning the number of shares subject to both
exercisable and nonexercisable stock options at December 31, 1996. Also
reported are values for "in-the-money" options that represent the positive
spread between the respective exercise prices of outstanding stock options and
the fair value of the Company's Common Stock as of December 31, 1996, as
determined by the Board of Directors.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED VALUE OPTIONS AT FISCAL YEAR END: AT FISCAL YEAR END (1):
ON REALIZED ---------------------------- ----------------------------
NAME EXERCISE ($) EXERCISABLE(2) UNEXERCISABLE EXERCISABLE(2) UNEXERCISABLE
---- -------- -------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
E. Thomas Hart.......... -- -- 342,857 -- $1,704,000 --
Richard C. Johnson...... -- -- 178,571 -- 887,500 --
Philip J. Ong........... -- -- 78,571 -- 380,500 --
Nim Cho Lam(3).......... 19,197 $40,314(4) 19,197 -- 6,719 --
Andrew K. Chan.......... -- -- -- -- 67,452 --
John M. Birkner......... -- -- 12,679 -- 67,452 --
</TABLE>
- --------
(1) Calculated by determining the difference between the fair value of the
securities underlying the option at December 31, 1996 as determined by the
Company's Board of Directors ($5.67 per share) and the weighted average
exercise price of the Named Executive Officer's option.
(2) Options granted under the 1989 Stock Plan may be exercised immediately
upon grant and prior to full vesting subject to the optionee's entering a
Restricted Stock Purchase Agreement with the Company with respect to
unvested shares. Any exercises of unvested shares are subject to
repurchase by the Company at the original exercise price until fully
vested. Shares generally vest at the rate of 12.5% after six months of
service from the date of grant and 6.25% of the total number of shares
each three-month period of service thereafter.
(3) Mr. Lam was employed at the Company until July 1996.
(4) Calculated by determining the differences between the fair value of the
securities underlying the option at the time of exercise and the exercise
price.
Mr. McCord was employed by the Company beginning in November 1996. He had
92,857 shares subject to unexercised options at fiscal year end having value
at fiscal year end of $429,000. Mr. Zimmerman was employed by the Company
beginning in October 1996. He had 57,143 shares subject to unexercised options
at fiscal year end having value at fiscal year end of $264,000.
BENEFIT PLANS
Option Plan
The Option Plan was adopted by the Board of Directors and approved by its
stockholders in October 1989. In February 1996, the Board of Directors amended
the Option Plan to increase the number of shares of Common Stock reserved for
issuance thereunder from 1,385,714 shares to 2,100,000 shares, which increase
was approved by the Company's stockholders in March 1996. In July 1996, the
Board of Directors amended the Option Plan to allow employees to exercise
unvested stock options (prior to vesting), and to have those exercised
unvested shares deposited with an escrow agent until the shares are fully
vested and the Company's repurchase option lapses. In March 1997, the Board of
Directors amended the Option Plan to increase the number of shares of Common
Stock reserved for issuance thereunder to a total of 2,814,286 shares. The
amendment will be submitted to the stockholders for approval in June 1997. As
of May 31, 1997, options to purchase a total of 1,604,750 shares at a weighted
average exercise price of $2.00 per share were outstanding, and 714,478 shares
remained available for future option grants.
51
<PAGE>
The Option Plan provides for the grant to employees (including officers and
employee-directors) of "incentive stock options" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), and for the
grant to employees, consultants and directors of nonstatutory stock options.
The Option Plan may be administered by the Board of Directors or a committee
of the Board (as applicable, the "Administrator") and is currently
administered by the Compensation Committee. The Administrator determines the
terms of options granted under the Option Plan, including the number of shares
subject to option, the exercise price and the exercisability of the option.
The exercise price of all incentive stock options granted under the Option
Plan must be at least equal to the fair market value of the Common Stock of
the Company on the date of grant. The exercise price of all nonstatutory stock
options must equal at least 85% of the fair market value of the Common Stock
on the date of grant. The exercise price of any incentive stock option granted
to an optionee who owns stock representing more than 10% of the voting power
of the Company's outstanding capital stock must equal at least 110% of the
fair market value of the Common Stock on the date of grant. Payment of the
exercise price may be made in cash, check, certain other shares of the
Company's stock, promissory notes or other consideration determined by the
Administrator.
The Administrator determines the term of options. The term of an incentive
stock option may not exceed ten years; provided, however, that the term of an
incentive stock option granted to an optionee who, at the time of grant, owns
stock representing more than 10% of the voting power of the Company's
outstanding capital stock may not exceed five years. No options may be
transferred by the optionee other than by will or the laws of descent or
distribution. Each option may be exercised during the lifetime of the optionee
only by such optionee. Options granted to each employee under the Option Plan
generally become exercisable cumulatively as to 12.5% of the shares subject to
the option six months after the vesting start date, and as to 6.25% of the
shares subject to the option at the end of each succeeding three-month period.
As of July 16, 1996, options granted to employees under the Option Plan became
immediately exercisable, subject to the provisions of the Exercise Notice and
Restricted Stock Agreement for Unvested Shares signed by optionees at the time
of exercise pursuant to which any unvested shares are subject to repurchase by
the Company at the original exercise price.
In the event the Company merges with or into another corporation, all
outstanding options shall be assumed or an equivalent option substituted by
the successor corporation. In the event that such successor corporation does
not agree to assume such options or to substitute an equivalent option,
options granted prior to February 1996 may be exercised in full, including
shares as to which would not otherwise be exercisable. Options granted
subsequent to February 1996 may be exercised for a period of 15 days to the
extent vested upon the expiration of such period, after which any such options
not exercised will terminate immediately. The Administrator has the authority
to amend or terminate the Option Plan as long as such action does not
adversely affect any outstanding option, and provided that stockholder
approval shall be required for an amendment to increase the number of shares
subject to the Option Plan, to change the designation of the class of persons
eligible to be granted options, or to materially increase benefits accruing to
participants under the Option Plan if the Company is registered under Section
12 of the Exchange Act. Unless terminated earlier, the Option Plan will
terminate in October 1999.
1997 Stock Plan
The Company's 1997 Stock Plan (the "1997 Plan") was approved by the Board of
Directors in May 1997 and will be submitted to the stockholders for approval
in June 1997. The 1997 Plan is intended to be a successor to the Option Plan.
Upon stockholder approval of the 1997 Plan, the remaining shares reserved for
issuance pursuant to the Option Plan will roll over and be reserved for
issuance pursuant to the 1997 Plan. The 1997 Plan provides for the grant of
incentive stock options
52
<PAGE>
to employees (including officers and employee directors) and for the grant of
nonstatutory stock options and stock purchase rights ("SPRs") to employees,
directors and consultants. A total of 1,000,000 shares of Common Stock,
including the remaining shares reserved under the Option Plan, are currently
reserved for issuance pursuant to the 1997 Plan, plus annual increases equal to
the lesser of (i) 800,000 shares, (ii) 5% of the outstanding shares, or (iii) a
lesser amount determined by the Board of Directors. Unless terminated sooner,
the 1997 Plan will terminate automatically in May 2007.
The 1997 Plan may be administered by the Board of Directors or a committee of
the Board (as applicable, the "Administrator"). It is currently contemplated
that the 1997 Plan will be administered by the Compensation Committee of the
Board of Directors. The Administrator has the power to determine the terms of
the options or SPRs granted, including the exercise price of the option or SPR,
the number of shares subject to each option or SPR, the exercisability thereof,
and the form of consideration payable upon such exercise. In addition, the
Administrator has the authority to amend, suspend or terminate the 1997 Plan,
provided that no such action may affect any share of Common Stock previously
issued and sold or any option previously granted under the 1997 Plan.
Options and SPRs granted under the 1997 Plan are not generally transferable
by the optionee, and each option and SPR is exercisable during the lifetime of
the optionee only by such optionee. Options granted under the 1997 Plan must
generally be exercised within 90 days after the end of optionee's status as an
employee, director or consultant of the Company, or within 12 months after such
optionee's termination by death or disability, but in no event later than the
expiration of the option's ten year term. In the case of SPRs, unless the
Administrator determines otherwise, the Restricted Stock Purchase Agreement
shall grant the Company a repurchase option exercisable upon the voluntary or
involuntary termination of the purchaser's employment with the Company for any
reason (including death or disability). The purchase price for shares
repurchased pursuant to the Restricted Stock Purchase Agreement shall be the
original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option shall lapse
at a rate determined by the Administrator. The exercise price of all incentive
stock options granted under the 1997 Plan must be at least equal to the fair
market value of the Common Stock on the date of grant. The exercise price of
nonstatutory stock options and SPRs granted under the 1997 Plan is determined
by the Administrator, but with respect to nonstatutory stock options intended
to qualify as "performance-based compensation" within the meaning of Section
162(m) of the Internal Revenue Code of 1986, as amended, the exercise price
must at least be equal to the fair market value of the Common Stock on the date
of grant. With respect to any participant who owns stock possessing more than
10% of the voting power of all classes of the Company's outstanding capital
stock, the exercise price of any incentive stock option granted must equal at
least 110% of the fair market value on the grant date and the term of such
incentive stock option must not exceed five years. The term of all other
options granted under the 1997 Plan may not exceed ten years.
The 1997 Plan provides that in the event of a merger of the Company with or
into another corporation, or a sale of substantially all of the Company's
assets, each option shall be assumed or an equivalent option substituted for by
the successor corporation. If the outstanding options are not assumed or
substituted for by the successor corporation, the Administrator shall provide
for the optionee to have the right to exercise the option or SPR as to all of
the optioned stock, including shares which would not otherwise be exercisable.
If the Administrator makes an option or SPR exercisable in full in the event of
a merger or sale of assets, the Administrator shall notify the optionee that
the option or SPR shall be fully exercisable for a period of 15 days from the
date of such notice, and the option or SPR will terminate upon the expiration
of such period.
53
<PAGE>
1997 Director Option Plan
The 1997 Director Option Plan (the "Director Plan") was adopted by the Board
of Directors in May 1997 and will be submitted to the stockholders for
approval in June 1997. The Director Plan provides for the grant of
nonstatutory stock options to non-employee directors. The Director Plan has a
term of ten years, unless terminated sooner by the Board. A total of 500,000
shares of Common Stock have been reserved for issuance under the Director
Plan, plus annual increases equal to (i) 25,000 shares or (ii) a lesser amount
determined by the Board.
The Director Plan provides for the automatic grant of 30,000 shares of
Common Stock (the "First Option") to each non-employee director on the later
of (i) the effective date of the Director Plan, or (ii) the date on which the
non-employee director was appointed to the Board, unless immediately prior to
becoming a non-employee director, such person was an employee director of the
Company. In addition to the First Option, each non-employee director shall
automatically be granted an option to purchase 6,000 shares (a "Subsequent
Option") on the first day of May of each year, if on such date he or she shall
have served on the Board for at least six months. Each First Option and each
Subsequent Option shall have a term of ten years. The shares subject to the
First Option and to the Subsequent Option shall vest as to 25% of the optioned
stock one year from the date of grant, and 1/48 of the optioned stock shall
vest each month thereafter, provided the person continues to serve as a
Director on such dates. The exercise price of each First Option and each
Subsequent Option shall be 100% of the fair market value per share of the
Common Stock, generally determined with reference to the closing price of the
Common Stock as reported on the Nasdaq National Market, on the last trading
day prior to date of grant.
In the event of a merger of the Company or the sale of substantially all of
the assets of the Company, each option granted under the Director Plan may be
assumed or an equivalent option substituted for by the successor corporation.
If an option is assumed or substituted for by the successor corporation, it
shall continue to vest as provided in the Director Plan. However, if a non-
employee director's status as a director of the Company or the successor
corporation, as applicable, is terminated other than upon a voluntary
resignation by the non-employee director, each option granted to such non-
employee director shall become fully vested and exercisable. If the successor
corporation does not agree to assume or substitute for the option, each option
shall become fully vested and exercisable for a period of 15 days from the
date the Board notifies the optionee of the option's full exercisability,
after which period the option shall terminate. Options granted under the
Director Plan must be exercised within three months of the end of the
optionee's tenure as a director of the Company, or within 12 months after such
director's termination by death or disability, but in no event later than the
expiration of the option's ten-year term. No option granted under the Director
Plan is transferable by the optionee other than by will or the laws of descent
and distribution, and each option is exercisable, during the lifetime of the
optionee, only by such optionee.
1997 Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan (the "1997 Purchase Plan")
was adopted by the Board of Directors in May 1997 and will be submitted to the
stockholders in June 1997. A total of 750,000 shares of Common Stock has been
reserved for issuance under the 1997 Purchase Plan, plus annual increases
equal to the lesser of (i) 500,000 shares, (ii) 3% of the outstanding shares
on such date or (iii) a lesser amount determined by the Board.
The 1997 Purchase Plan, which is intended to qualify under Section 423 of
the Internal Revenue Code of 1986, as amended, contains consecutive,
overlapping, 24-month offering periods. Each offering period includes four
six-month purchase periods. The offering periods generally start on the first
trading day on or after the first of October and the first of April of each
year, except for the first such offering period which commences on the first
trading day on or after the date of this offering and ends on the last trading
day on or before April 1, 1999.
54
<PAGE>
Employees are eligible to participate if they are customarily employed by
the Company or any participating subsidiary for at least 20 hours per week and
more than five months in any calendar year. However, any employee who (i)
immediately after grant owns stock possessing 5% or more of the total combined
voting power or value of all classes of the capital stock of the Company, or
(ii) whose rights to purchase stock under all employee stock purchase plans of
the Company accrues at a rate which exceeds $25,000 worth of stock for each
calendar year may be not be granted an option to purchase stock under the 1997
Purchase Plan. The 1997 Purchase Plan permits participants to purchase Common
Stock through payroll deductions of up to 20% of the participant's
"compensation." Compensation is defined as the participant's base straight
time gross earnings and commissions but excludes payments for overtime, shift
premium, incentive compensation, incentive payments, bonuses and other
compensation. The maximum number of shares a participant may purchase during a
single purchase period is 2,500 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of Common Stock at the end of each purchase period. The price of stock
purchased under the 1997 Purchase Plan is 85% of the lower of the fair market
value of the Common Stock at the beginning of the offering period or at the
end of the purchase period. In the event the fair market value at the end of a
purchase period is less than the fair market value at the beginning of the
offering period, the participants will be withdrawn from the current offering
period following exercise and automatically re-enrolled in a new offering
period. The new offering period will use the lower fair market value as of the
first date of the new offering period to determine the purchase price for
future purchase periods. Participants may end their participation at any time
during an offering period, and they will be paid their payroll deductions to
date. Participation ends automatically upon termination of employment with the
Company.
Rights granted under the 1997 Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the 1997 Purchase Plan. The 1997 Purchase Plan
provides that, in the event of a merger of the Company with or into another
corporation or a sale of substantially all of the Company's assets, each
outstanding option may be assumed or substituted for by the successor
corporation. If the successor corporation refuses to assume or substitute for
the outstanding options, the offering period then in progress will be
shortened and a new exercise date will be set prior to the date of any such
Merger. The 1997 Purchase Plan will terminate in April 2007. The Board of
Directors has the authority to amend or terminate the 1997 Purchase Plan,
except that no such action may adversely affect any outstanding rights to
purchase stock under the 1997 Purchase Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for (i)
any breach of their duty of loyalty to the corporation or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) unlawful payments of dividends
or unlawful stock repurchase or redemptions or (iv) any transaction from which
the director derived an improper personal benefit.
The Company's Bylaws provide that the Company shall indemnify its directors
and executive officers and may indemnify its other officers and employees and
other agents to the fullest extent permitted by law. The Company believes that
indemnification under its Bylaws covers at least negligence and gross
negligence on the part of indemnified parties. The Company's Bylaws also
permit it to secure insurance on behalf of any officer, director, employee or
other agent for any liability arising out of his or her actions in such
capacity, regardless of whether the Bylaws would permit indemnification.
55
<PAGE>
The Company intends to enter into agreements to indemnify its directors and
executive officers, in addition to indemnification provided for in the
Company's Bylaws. These agreements, among other things, will indemnify the
Company's directors and executive offices for certain expenses (including
attorneys' fees), judgments, fines and settlement amounts incurred by any such
person in any action or proceeding, including any action by or in the right of
the Company, arising out of such person's services as a director or executive
officer of the Company, any subsidiary of the Company or any other company or
enterprise to which the person provides services at the request of the
Company. The Company believes that these provisions and agreements are
necessary to attract and retain qualified persons as directors and executive
officers.
56
<PAGE>
CERTAIN TRANSACTIONS
SERIES E PREFERRED FINANCING; ISSUANCE AND CONVERSION OF PROMISSORY NOTES
From December 1993 through February 1995, the Company issued promissory
notes at varying interest rates to certain investors in exchange for an
aggregate principal amount of $4,639,693. In June 1995 the Company issued and
sold shares of its Series E Preferred Stock ("Series E Preferred") convertible
into an aggregate of 3,410,481 shares of Common Stock at a price per common
equivalent share of $4.90. The Company sold the shares pursuant to a preferred
stock purchase agreement and a registration rights agreement under which,
among other things, it made standard representations, warranties and
covenants, and provided the purchasers with registration rights and
information rights. As part of the Series E Preferred financing, the holders
of the outstanding promissory notes issued by the Company converted the notes,
including accrued but unpaid interest, into shares of Series E Preferred Stock
convertible into an aggregate of 989,786 shares of Common Stock. See "Shares
Eligible for Future Sale--Registration Rights." The purchasers of the Series E
Preferred included, among others, the following principal stockholders,
directors and affiliated entities:
<TABLE>
<CAPTION>
COMMON
EQUIVALENT AGGREGATE
STOCKHOLDERS, DIRECTORS AND AFFILIATED ENTITIES(1) SHARES PURCHASE PRICE
-------------------------------------------------- ---------- --------------
<S> <C> <C>
Cypress Semiconductor Corporation..................... 289,537 $1,418,740
Morgenthaler Venture Partners III..................... 290,289 $1,422,420
New Enterprise Associates and affiliated funds........ 653,061 $3,200,000
Sequoia Capital and affiliated funds.................. 312,427 $1,530,897
Technology Venture Investors and affiliated funds..... 562,121 $2,754,396
U.S. Venture Partners and affiliated funds............ 588,785 $2,885,050
Vertex Investments and affiliated funds............... 282,161 $1,382,590
</TABLE>
- --------
(1) See "Principal and Selling Stockholders."
SERIES F PREFERRED FINANCING
In November 1996 and January 1997, the Company sold shares of its Series F
Preferred Stock ("Series F Preferred") convertible into an aggregate of
1,102,303 shares of Common Stock at a price per common equivalent share of
$8.12. The Company sold the shares pursuant to a preferred stock purchase
agreement and a registration rights agreement under which, among other things,
it made standard representations, warranties and covenants, and provided the
purchasers with registration rights and information rights. See "Shares
Eligible for Future Sale--Registration Rights." The purchasers of the Series F
Preferred included, among others, the following principal stockholders,
directors and affiliated entities:
<TABLE>
<CAPTION>
COMMON
EQUIVALENT AGGREGATE
STOCKHOLDERS, DIRECTORS AND AFFILIATED ENTITIES(1) SHARES PURCHASE PRICE
-------------------------------------------------- ---------- --------------
<S> <C> <C>
Hua-Thye Chua(2)...................................... 14,284 $ 116,000
Morgenthaler Venture Partners III..................... 78,869 $ 640,416
New Enterprise Associates and affiliated funds........ 113,183 $ 919,050
Sequoia Capital and affiliated funds.................. 30,788 $ 250,000
Technology Venture Investors and affiliated funds..... 123,152 $1,000,000
U.S. Venture Partners and affiliated funds............ 73,891 $ 600,000
Vertex Investments and affiliated funds............... 184,729 $1,500,000
</TABLE>
- --------
(1) See "Principal and Selling Stockholders."
(2) Includes 3,571 shares beneficially owned by Mr. Chua for Bryan Shyang-Ming
Chua; 3,571 shares beneficially owned by Mr. Chua for Caroline Siok-Yau
Chua; 3,571 shares beneficially owned by Mr. Chua for Cathleen Siok-Syuan
Chua; and 3,571 shares beneficially owned by Mr. Chua for Christine Siok-
Pee Chua.
57
<PAGE>
CYPRESS TRANSACTION
In March 1997, the Company and Cypress terminated the Existing Agreement
related to the Company's FPGA products and replaced it with a new arrangement
whereby the Company's FPGA products will no longer be second sourced by
Cypress. In addition, Cypress agreed to not compete with the Company with
respect to antifuse FPGAs or products that are pin-compatible with the
Company's existing pASIC 1 and pASIC 2 products. QuickLogic has commenced
support for Cypress's FPGA customers, and Cypress assisted the Company in the
transition of these customers to the Company. In exchange for the termination
of the Existing Agreement and the reversion of the rights to the intellectual
property developed thereunder to the Company, the Company paid $4.5 million in
cash and agreed to issue 2,603,817 shares of Common Stock to Cypress,
increasing the aggregate number of shares of Common Stock of the Company held
by Cypress to 3,339,785, prior to the sale of any shares by Cypress in this
offering. In addition, the Company granted Cypress, including the right to
sell shares of Common Stock in this offering, certain contractual rights as to
the shares of the Company's stock held by Cypress. The parties also entered
into a new foundry agreement and a cross-license agreement.
Under the terms of the cross-license agreement, Cypress granted to the
Company a royalty-free, non-exclusive, non-sublicensable license to make, have
made, use, offer for sale, sell and distribute programmable logic products
under patents that are currently issued to Cypress or are issued prior to
March 2007. In the event of an acquisition of the Company, the license
continues only as to those products that were commercially available as of the
acquisition or the design of which is in the layout stage and subsequently
become commercially available within one year after the acquisition. The
Company granted a reciprocal right to Cypress under its patent portfolio,
except that the license does not extend to antifuse FPGAs or products that are
pin-compatible with the Company's existing pASIC 1 and pASIC 2 products. The
parties also licensed to each other the intellectual property rights developed
under the Existing Agreement, within the scope of the patent licenses set
forth above.
The shares issued to Cypress in connection with the termination of the
Existing Agreement were provided with the same contractual rights as the other
shares of the Company's stock held by Cypress and the other holders of the
Company Common Stock issued upon conversion of the Preferred Stock. In
addition, the Company granted registration rights to Cypress that are in
addition to those held by other stockholders of the Company. See "Description
of Capital Stock--Registration Rights." First, Cypress may sell a minimum of
one-third of the shares of Common Stock offered hereby, and in any subsequent
public offerings of the Company's stock. Second, the Company is obligated to
file a registration statement with respect to all of the shares of Common
Stock held by Cypress and not sold in this offering, with such registration
statement being effective upon the expiration of the lockup period imposed by
the underwriters in connection with this offering. The Company must keep this
registration statement effective until the earlier of (i) the date all of such
shares held by Cypress are sold; (ii) three years from the closing of this
offering; or (iii) the date all such shares are able to be sold in a three-
month period pursuant to Rule 144 promulgated under the Securities Act of
1933, as amended. Notwithstanding the foregoing, the Company has the right to
suspend Cypress's ability to sell under such registration statement under
certain circumstances. Finally, Cypress has the right to require registration
of its shares that is separate from a similar right held by the other holders
of registration rights. The other stockholders of the Company do not have the
right to require inclusion of their shares in these separate Cypress
registrations.
Payments to Cypress under the Existing Agreement were $554,143, $5,850,944,
$12,101,598 and $2,335,914 for 1994, 1995, 1996 and the first quarter of 1997,
respectively.
LOANS TO JOHN BIRKNER
From time to time, the Company has made loans to John Birkner, an officer of
the Company. Mr. Birkner's current loan obligation to the Company totals
$125,300 plus interest at annual rates ranging from 6.7% to 8.5%, and is
evidenced by demand promissory notes from Mr. Birkner to the Company secured
by a pledge of Mr. Birkner's shares of the Company's stock. The largest amount
outstanding under these loans since December 1, 1994 is $125,300, the current
amount. These loans were approved by the Company's Board of Directors.
The Company and Mr. Birkner are co-parties in litigation with Actel. The
Company's legal counsel in connection with the litigation is also representing
Mr. Birkner. The Company has borne and expects to continue to bear all fees
and expenses related to the litigation. See "Risk Factors--Actel Litigation."
58
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding Common Stock as of May 31, 1997, and as
adjusted to reflect the sale of the securities offered by the Company and the
Selling Stockholder in the offering made hereby, (i) by each person (or group
of affiliated persons) who is known by the Company to own beneficially more
than 5% of the Company's Common Stock or Common Stock equivalents, (ii) each
of the Company's directors and executive officers and (iii) all directors and
executive officers as a group. Except as indicated in the footnotes to this
table and subject to applicable community property laws, the persons named in
the table, based on information provided by such persons, have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF NUMBER OF BENEFICIALLY OWNED(1)
SHARES SHARES -------------------------
NAMES AND ADDRESS, IF REQUIRED, BENEFICIALLY BEING BEFORE THE AFTER THE
OF BENEFICIAL OWNER OWNED(1) OFFERED OFFERING OFFERING
- ------------------------------- ------------ --------- ----------- ----------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS
Technology Venture 1,441,748 -- 12.0% 10.4%
Investors(2)..............
3000 Sand Hill Road
Bldg. 4, Suite 280
Menlo Park, CA 94025
U.S. Venture Partners(3)... 1,205,669 -- 10.0% 8.7%
2180 Sand Hill Road
Suite 300
Menlo Park, CA 94025
Vertex Investments(4)...... 1,166,458 -- 9.7% 8.4%
3 Lagoon Drive, Ste. 220
Redwood City, CA 94065
Sequoia Capital(5)......... 962,093 -- 8.0% 7.0%
3000 Sand Hill Road
Bldg. 4, Suite 280
Menlo Park, CA 94025
New Enterprise 766,244 -- 6.4% 5.5%
Associates(6).............
1119 St. Paul Street
Baltimore, MD 21202
Morgenthaler Venture 703,980 -- 5.9% 5.1%
Partners III..............
2730 Sand Hill Road
Suite 280
Menlo Park, CA 94025
Cypress Semiconductor 3,339,783 1,200,000 27.8% 15.5%
Corporation...............
3901 N. First Street
San Jose, CA 95134
EXECUTIVE OFFICERS AND
DIRECTORS
E. Thomas Hart(7).......... 428,571 -- 3.4% 3.0%
Vincent A. McCord(8)....... 107,142 -- * *
Richard C. Johnson(9)...... 185,713 -- 1.5% 1.3%
Philip J. Ong(10).......... 102,033 -- * *
Andrew K. Chan(11)......... 171,424 -- 1.4% 1.2%
John M. Birkner(12)........ 157,141 -- 1.3% 1.1%
Hua-Thye Chua(13).......... 171,426 -- 1.4% 1.2%
Ronald D. Zimmerman(14).... 62,856 -- * *
Donald F. Faria(15)........ 100,000 -- * *
Scott D. Ward(16).......... 100,000 -- * *
Irwin Federman(17)......... 1,205,669 -- 10.0% 8.7%
All executive officers and
directors as a group
(11 persons).............. 3,339,783 -- 21.3% 18.7%
</TABLE>
59
<PAGE>
- --------
* Under 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants held by
that person that are currently exercisable or will become exercisable
within 60 days after May 31, 1997 are deemed outstanding, while such
shares are not deemed outstanding for purposes of computing percentage
ownership of any other person.
(2) Includes 1,368,252 shares held by Technology Investors-IV; 72,112 shares
held by Technology Venture Investors-3, L.P.; and 1,384 shares held by
TVI Management-3, L.P.
(3) Includes 802,676 shares held by U.S. Venture Partners III; 308,463 shares
held by U.S.V. Entrepreneur Partners; 38,803 shares held by Second
Ventures II, L.P.; 25,083 shares held by Second Ventures Limited
Partnership; 19,558 shares held by U.S. Venture Partners IV, L.P.; and
11,086 shares held by U.S.V.P. Entrepreneur Partners II, L.P.
(4) Includes 879,688 shares held by Vertex Investment Pte. Ltd.; 184,134
shares held by Vertex Investment (II) Limited; 82,094 shares held by
Vertex Asia Limited; and 20,542 shares held by HWH Investment Pte. Ltd.
(5) Includes 874,188 shares held by Sequoia Capital V; 47,828 shares held by
Sequoia Technology Partners V; 15,419 shares hold by Sequoia XXI; 10,923
shares held by Sequoia XXIV; 6,643 shares held by Sequoia Capital XXI;
4,285 shares held by Sequoia XX; and 2,807 shares held by Sequoia XXIII.
(6) Includes 735,456 shares held by New Enterprise Associates VI, Limited
Partnership and 30,788 shares held by New Venture Partners III L.P.
(7) Includes 428,571 shares issuable pursuant to stock options exercisable
within 60 days of May 31, 1997.
(8) Includes 107,142 shares issuable pursuant to stock options exercisable
within 60 days of May 31, 1997.
(9) Includes 185,713 shares issuable pursuant to stock options exercisable
within 60 days of May 31, 1997.
(10) Includes 57,141 shares issuable pursuant to stock options exercisable
within 60 days of May 31, 1997.
(11) Includes 125,714 shares beneficially owned by Mr. Chan as trustee for
Andrew Ka-Lab Chan and Amy Shuk-Chun Chan, Trustees or successor(s), U/a
of trust dated January 30, 1991; 4,285 shares beneficially owned by Mr.
Chan for Michael P. Gamboa, Trustee under Erica H. Chan trust agreement
dated May 14, 1992; 4,285 shares beneficially owned by Mr. Chan for
Michael P. Gamboa, Trustee under Rebecca H. Chan trust agreement dated
May 14, 1992; 4,285 shares beneficially owned by Mr. Chan for Michael P.
Gamboa, Trustee under Vicki H. Chan trust agreement dated May 14, 1992;
2,142 shares beneficially owned by Mr. Chan for Clement Chan and Susie
S.J. Chan, Trustees under Nicholas Chan trust agreement dated July 3,
1996; 2,142 shares beneficially owned by Mr. Chan for Clement Chan and
Susie S.J. Chan, Trustees under Phillip Chan trust agreement dated
July 3, 1996; and 28,571 shares issuable pursuant to stock options and
exercisable within 60 days of May 31, 1997.
(12) Includes 26,963 shares issuable pursuant to stock options exercisable
within 60 days of May 31, 1997.
(13) Includes 30,179 shares beneficially owned by Mr. Chua, as trustee for
H.T. Chua & Jessie Chua TTEES for the H.T. Chua Trust Agreement dated
December 20, 1974; 17,857 shares beneficially owned by Mr. Chua, as
custodian for Bryan Shyang-Ming Chua; 17,857 shares beneficially owned by
Mr. Chua, as custodian for Caroline Siok-Yau Chua; 17,857 shares
beneficially owned by Mr. Chua, as custodian for Cathleen Siok-Syuan
Chua; 17,857 shares beneficially owned by Mr. Chua, as custodian for
Christine Siok-Pee Chua; and 14,285 shares issuable pursuant to stock
options exercisable within 60 days of May 31, 1997.
(14) Includes 62,856 shares issuable pursuant to stock options exercisable
within 60 days of May 31, 1997.
(15) Includes 100,000 shares issuable pursuant to stock options exercisable
within 60 days of May 31, 1997.
(16) Includes 100,000 shares issuable pursuant to stock options exercisable
within 60 days of May 31, 1997.
(17) Includes 1,205,669 shares held by U.S. Venture Partners. Mr. Federman is
a general partner of U.S. Venture Partners. See Footnote 3 above. Mr.
Federman disclaims beneficial ownership of all shares held by U.S.
Venture Partners Entities except to the extent of his pecuniary interest
therein.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of this offering, the Company will be authorized to
issue 100,000,000 shares of Common Stock, $0.001 par value, and 10,000,000
shares of undesignated Preferred Stock, $0.001 par value. Immediately after
the completion of this offering, the Company estimates there will be an
aggregate of 13,817,422 shares of Common Stock outstanding, 1,604,750 shares
of Common Stock will be issuable upon exercise of outstanding options, no
shares of Common Stock will be issuable upon exercise of outstanding warrants,
and no shares of Preferred Stock will be issued and outstanding. As of May 31,
1997, there were 228 stockholders of the Company.
The following description of the Company's capital stock does not purport to
be complete and is subject to and qualified in its entirety by the Company's
Amended and Restated Certificate of Incorporation and Bylaws and by the
provisions of applicable Delaware law.
The Amended and Restated Certificate of Incorporation and Bylaws contain
certain provisions that are intended to enhance the likelihood of continuity
and stability in the composition of the Board of Directors and which may have
the effect of delaying, deferring, or preventing a future takeover or change
in control of the Company unless such takeover or change in control is
approved by the Board of Directors. See "Risk Factors--Effect of Antitakeover
Provisions."
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. Holders of Common Stock do not have
cumulative voting rights under the Company's Bylaws or Certificate of
Incorporation, and, therefore, holders of a majority of the shares voting for
the election of directors can elect all of the directors. In such event, the
holders of the remaining shares will not be able to elect any directors.
Holders of the Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the rights of preferred stockholders and the
terms of any existing or future agreements between the Company and its
debtholders. The Company has never declared or paid cash dividends on its
capital stock, expects to retain future earnings, if any, for use in the
operation and expansion of its business, and does not anticipate paying any
cash dividends in the foreseeable future. In the event of the liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets legally available for distribution
after payment of all debts and other liabilities and subject to the prior
rights of any holders of Preferred Stock then outstanding.
PREFERRED STOCK
Effective prior to the closing of this offering, the Company will be
authorized to issue 10,000,000 shares of undesignated Preferred Stock. The
Board of Directors has the authority to issue the Preferred Stock in one or
more series and to fix the price, rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting a series or the designation
of such series, without any further vote or action by the Company's
stockholders. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of delaying, deferring or preventing a change
in control of the Company without further action by the stockholders and may
adversely affect the market price of, and the voting and other rights of, the
holders of Common Stock. The issuance of Preferred Stock with voting and
conversion rights may adversely affect the voting power of the holders of
Common Stock, including the loss of voting control to others. The Company has
no current plans to issue any shares of Preferred Stock.
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<PAGE>
WARRANTS
As of May 31, 1997, the Company had one outstanding warrant to purchase
18,750 shares of its Common Stock with an exercise price of $4.48 per share.
The warrant to purchase the shares expires on the earlier to occur of this
offering or January 1999.
TRANSFER AGENT AND REGISTRAR
The Company's transfer agent and registrar is Bank of Boston, N.A.
LISTING
The Company has applied to designate its Common Stock for quotation on the
Nasdaq National Market System under the trading symbol "QWIK." The Company has
not applied to list its Common Stock on any other exchange or quotation
system.
REGISTRATION RIGHTS
Following the closing of this offering, the holders of approximately
9,899,413 shares of Common Stock (the "Registrable Securities") will be
entitled to certain rights with respect to the registration of such shares
under the Securities Act. In the event that the Company proposes to register
any of its securities under the Securities Act, either for its own account or
for the account of other security holders, the holders of Registrable
Securities are entitled to notice of such registration and are entitled to
include their Registrable Securities in such registration, subject to certain
marketing and other limitations. Beginning six months after the closing of
this offering, the holders of at least 30% of the Registrable Securities have
the right to require the Company, on not more than two occasions, to file a
registration statement under the Securities Act in order to register all or
any part of their Registrable Securities. The Company may in certain
circumstances defer such registrations and the underwriters have the right,
subject to certain limitations, to limit the number of shares included in such
registrations. Further, holders of Registrable Securities may require the
Company to register all or a portion of their shares on Form S-3, when such
form becomes available to the Company, subject to certain conditions and
limitations.
In connection with the Company's transaction with Cypress, Cypress was
granted registration rights in addition to those held by other stockholders of
the Company. First, Cypress may sell a minimum of one-third of the shares of
Common Stock offered hereby, and in any subsequent public offerings of the
Company's stock. Second, the Company is obligated to file a registration
statement with respect to all shares of Common Stock held by Cypress and not
sold in this offering, with such registration statement being effective upon
the expiration of the lockup period imposed by the underwriters in connection
with this offering. The Company must keep this registration statement
effective until the earlier of (i) the date all of such shares held by Cypress
are sold; (ii) three years from the closing of this offering; or (iii) the
date all such shares are able to be sold in a three-month period pursuant to
Rule 144 promulgated under the Securities Act of 1933, as amended.
Notwithstanding the foregoing, the Company has the right to suspend Cypress's
ability to sell under such registration statement under certain circumstances.
Finally, Cypress has the right to require registration of its shares that is
separate from a similar right held by the other holders of registration
rights. The other stockholders of the Company do not have the right to require
inclusion of their shares in these separate Cypress registrations.
DELAWARE ANTITAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
could discourage potential acquisition proposals and could delay or prevent a
change in control of the Company. Such provisions could diminish the
opportunities for a stockholder to participate in tender offers, including
tender offer at a price above the then current market value of the Common
Stock. Such provisions may also inhibit fluctuations in the market price of
the Common Stock that could result from takeover
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<PAGE>
attempts. The Company is also afforded the protections of Section 203 of the
Delaware General Corporation Law, which could delay or prevent a change in
control of the Company or could impede a merger, consolidation, takeover or
other business combination involving the Company or discourage a potential
acquiror from making a tender offer or otherwise attempting to obtain control
of the Company. In addition, the Board of Directors has authority to issue up
to 10,000,000 shares of Preferred Stock and to fix the rights, preferences,
privileges and restrictions, including voting rights, of these shares without
any further vote or action by the stockholders. The rights of the holders of
the Company's Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third-party to acquire a
majority of the outstanding voting stock of the Company, thereby delaying,
deferring or preventing a change in control of the Company. Furthermore, such
Preferred Stock may have other rights, including economic rights, senior to
the Common Stock, and as a result, the issuance of such Preferred Stock could
have a material adverse effect on the market value of the Common Stock. The
Company has no present plan to issue shares of Preferred Stock. The Company's
Certificate of Incorporation provides that, so long as the Board of Directors
consists of more than two directors, the Board of Directors will be divided
into three classes of directors serving staggered three-year terms. As a
result, only one of the three classes of the Company's Board of Directors will
be elected each year, which could have the effect of delaying a change in the
composition of the Board of Directors. See "Risk Factors--Effect of
Antitakeover Provisions."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company. Therefore, future sales of substantial amounts of Common Stock in the
public market could adversely affect the prevailing market price from time to
time. Furthermore, because only a limited number of shares will be available
for sale shortly after this offering because of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock of the Company in the public market after the restrictions lapse
could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon completion of this offering, the Company will have outstanding an
aggregate of approximately 13,817,422 shares of Common Stock, assuming no
exercise of outstanding options under the Option Plan. Of these outstanding
shares of Common Stock, the 3,000,000 shares sold in this offering will be
freely tradeable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), unless purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act. The remaining 10,817,422 shares of Common Stock outstanding
upon completion of this offering and held by existing stockholders will be
"restricted securities" as that term is defined in Rule 144 under the
Securities Act ("Restricted Shares").
The holders of 9,394,856 Restricted Shares, including all officers and
directors of the Company, are subject to "lock up" agreements with the
Representatives of the Underwriters and/or the Company providing that they
will not offer, sell, contract to sell or grant any option to purchase or
otherwise dispose of the shares of Common Stock owned by them or that could be
purchased by them through the exercise of options to purchase Common Stock of
the Company for a period of at least 180 days after the effective date of this
offering (the "Lock Up Period") without the prior written consent of Deutsche
Morgan Grenfell, UBS Securities LLC, Cowen & Company and/or the Company, as
applicable. The lock up agreements provide that the Lock Up Period will be
extended in the event that the Lock Up Period would expire in a period where
the Company's directors and officers are prevented from trading because of the
set "blackout" period between earnings releases provided in the Company's
insider trading policy, until the date that trading will commence under the
Company's insider trading policy. The Company has agreed with Representatives
of the Underwriters not to release any holders from such agreements without
the prior written consent of Deutsche Morgan Grenfell. Such lock up agreements
may be released at any time as to all or any portion of the shares subject to
such agreements at the sole discretion of Deutsche Morgan Grenfell. Of the
10,817,422 Restricted Shares that first become eligible for sale in the public
market 180 days after the date of this Prospectus (depending upon the duration
of the lock-up), 2,312,780 shares will be immediately eligible for sale
without restriction under Rule 144(k) or Rule 701, and 6,896,873 shares will
be immediately eligible for sale subject to certain volume and other
restrictions pursuant to Rule 144. All 10,817,422 shares will be eligible for
sale pursuant to Rule 144 upon the expiration of one-year holding periods, all
of which will expire on or before March 31, 1998, subject in some cases to
Rule 144's volume and other restrictions.
In general, under Rule 144, beginning 90 days after the date of this
Prospectus, a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least one year, including persons
who may be deemed to be "affiliates" of the Company, would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of: (i) one percent of the number of shares of Common Stock then
outstanding (which will equal approximately 138,174 shares immediately after
this offering); or (ii) the average weekly trading volume of the Common Stock
as reported through the Nasdaq National Market during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale. Sales under Rule
144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about the
Company. Under Rule 144(k), a person who is not deemed to have been an
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<PAGE>
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned for at least two years the Restricted Shares
proposed to be sold (including the holding period of any prior owner except an
affiliate), is entitled to sell such shares without complying with the manner
of sale, public information, volume limitation or notice provisions of Rule
144.
Subject to certain limitations on the aggregate offering price of a
transaction and certain other conditions, Rule 701 permits resales of shares
issued prior to the date the issuer becomes subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), pursuant to certain compensatory benefit plans and contracts commencing
90 days after the issuer becomes subject to the reporting requirements of the
Exchange Act, in reliance upon Rule 144 but without compliance with certain
restrictions, including the holding period requirements, contained in Rule
144. In addition, the Securities and Exchange Commission has indicated that
Rule 701 will apply to typical stock options granted by an issuer before it
becomes subject to the reporting requirements of the Exchange Act, along with
the shares acquired upon exercise of such options (including exercises after
the date of this offering). Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this Prospectus, may be sold by
persons other than affiliates subject only to the manner of sale provisions of
Rule 144 and by affiliates under Rule 144 without compliance with its two-year
minimum holding period requirements.
Except with respect to (a) the shares of Common Stock to be sold hereunder
and (b) any shares of such Common Stock sold by the Company pursuant to the
Company's 1997 Purchase Plan or upon the exercise of an option or warrant, or
the conversion of a security outstanding on the date hereof, the Company
hereby agrees that, without the prior written consent of Deutsche Morgan
Grenfell Inc., it will not, during the Lock Up Period (and any extension
thereof), (x) offer, pledge, sell, contract to sell, sell any option, or
contract to purchase, purchase any option or contract to sell, grant any
option, right, or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for such Common Stock or (y)
enter into any swap or similar agreement that transfers, in whole or in part,
the economic risk of ownership of the Common Stock, whether any such
transaction described in (x) or (y) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The foregoing
prohibitions shall not prevent the Company from granting options and other
rights under its existing equity compensation plans.
The Company intends to file a registration statement under the Securities
Act covering approximately 1,000,000 shares of Common Stock subject to
outstanding options or reserved for issuance under the 1997 Plan and 750,000
shares of Common Stock reserved for issuance under the 1997 Purchase Plan. See
"Management--Benefit Plans." Such registration statement is expected to be
filed simultaneously with the effectiveness of the registration statement
covering the shares of Common Stock offered in this offering and will
automatically become effective upon filing. Accordingly, shares registered
under such registration statement will, subject to Rule 144 volume limitations
applicable to affiliates and the lapsing of the Company's repurchase options,
be available for sale in the open market, except to the extent that such
shares are subject to vesting restrictions with the Company or the contractual
restrictions described above.
In addition, the Company granted registration rights to Cypress that are in
addition to those held by other stockholders of the Company. See "Description
of Capital Stock--Registration Rights." First, Cypress may sell a minimum of
one-third of the shares of Common Stock offered hereby, and any subsequent
public offerings of the Company's stock. Second, the Company is obligated to
file a registration statement with respect to all of the shares of Common
Stock held by Cypress and not sold in this offering, with such registration
statement being effective upon the expiration of the lockup period imposed by
the underwriters in connection with this offering. The Company must keep this
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<PAGE>
registration statement effective until the earlier of (i) the date all of such
shares held by Cypress are sold; (ii) three years from the closing of this
offering; or (iii) the date all such shares are able to be sold in a three-
month period pursuant to Rule 144 promulgated under the Securities Act of
1933, as amended. Notwithstanding the foregoing, the Company has the right to
suspend Cypress's ability to sell under such registration statement under
certain circumstances. Finally, Cypress has the individual right to require
registration of its shares that is separate from a similar right held by the
other holders of registration rights. The other stockholders of the Company do
not have the right to require inclusion of their shares in these separate
Cypress registrations.
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<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Deutsche Morgan
Grenfell Inc., UBS Securities LLC and Cowen & Company are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions contained in the underwriting agreement (the form of
which is filed as an exhibit to the Company's Registration Statement, of which
this Prospectus is a part, (the "Underwriting Agreement"), purchase from the
Company and the Selling Stockholder the number of shares of Common Stock set
forth below opposite their respective names:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Deutsche Morgan Grenfell Inc....................................
UBS Securities LLC..............................................
Cowen & Company.................................................
---
Total.........................................................
===
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
thereunder are subject to approval of certain legal matters by counsel and to
various other conditions.
The Representatives have advised the Company and the Selling Stockholder
that the Underwriters propose initially to offer the Common Stock to the
public on the terms set forth on the cover page of this offering. The
Underwriters may allow to selected dealers (who may include the Underwriters)
a concession of not more than $ per share. The selected dealers may reallow
a concession of not more than $ per share to certain other dealers. After
the initial public offering, the price and concessions and re-allowances to
dealers and other selling terms may be changed by the Representatives. The
Common Stock is offered subject to receipt and acceptance by the Underwriters,
and to certain other conditions, including the right to reject orders in whole
or in part. The Underwriters do not intend to sell any of the shares of Common
Stock offered hereby to accounts for which they exercise discretionary
authority.
The Selling Stockholder has granted an option to the Underwriters to
purchase up to a maximum of 450,000 additional shares of Common Stock to cover
over-allotments, if any, at the public offering price, less the underwriting
discount set forth on the cover page of this Prospectus. Such option may be
exercised at any time until 30 days after the date of the Underwriting
Agreement. To the extent the Underwriters exercise this option, each of the
Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in
the above table. The Underwriters may purchase such shares only to cover over-
allotments made in connection with the offering.
In connection with the offering, the Company and the directors, executive
officers and certain stockholders of the Company have agreed not to offer or
sell any Common Stock until the expiration of 180 days following the closing
of this offering without the prior written consent of Deutsche Morgan Grenfell
Inc.
The Underwriting Agreement provides that the Company and the Selling
Stockholder will indemnify the several Underwriters against certain
liabilities, including civil liabilities under the Securities Act, as amended,
or will contribute to payments the Underwriters may be required to make in
respect thereof.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiation
between the Company and the Representatives. The principal factors to be
considered in determining the public offering price include the information
set forth in this offering and otherwise available to the Representatives; the
history and the prospects for
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<PAGE>
the industry in which the Company will compete; the ability of the Company's
management; the prospects for future earnings of the Company; the present
state of the Company's development and its current financial condition; the
general condition of the securities markets at the time of this offering; and
the recent market prices of, and the demand for, publicly traded common stock
of generally comparable companies. Each of the Representatives has informed
the Company that it currently intends to make a market in the shares
subsequent to the effectiveness of this offering, but there can be no
assurance that the Representatives will take any action to make a market in
any securities of the Company.
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting of any purchase for the purpose of pegging,
fixing or maintaining the price of the Common Stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created
in connection with this offering. A penalty bid means an arrangement that
permits the Underwriters to reclaim a selling concession from a syndicate
member in connection with this offering when shares of Common Stock sold by
the syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq Stock Market, in the over-the-
counter market, or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.
The Underwriters have reserved for sale, at the initial public offering
price, up to 5% of the Common Stock offered hereby for employees and directors
of the Company and certain other individuals who have expressed an interest in
purchasing such shares of Common Stock in the offering. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased
will be offered by the Underwriters to the general public on the same basis as
other shares offered hereby.
LEGAL MATTERS
Certain legal matters relating to the legality of the Common Stock offered
hereby will be passed upon for the Company by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California. Certain legal matters
in connection with the offering will be passed upon for the Underwriters by
Venture Law Group, A Professional Corporation, Menlo Park, California. As of
the date of this Prospectus, three investment partnerships composed of certain
members of and persons associated with Wilson Sonsini Goodrich & Rosati
beneficially owned an aggregate of 16,152 shares of Common Stock of the
Company and a member of Wilson Sonsini Goodrich & Rosati owned 644 shares of
Common Stock of the Company.
EXPERTS
The financial statements of the Company as of December 31, 1996 and 1995 and
for each of the three years in the period ended December 31, 1996 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
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<PAGE>
CHANGE IN INDEPENDENT ACCOUNTANTS
Effective January 23, 1996, Price Waterhouse LLP was engaged as the
Company's principal independent accountants. Prior to December 28, 1995,
Deloitte and Touche LLP ("Deloitte & Touche") had been the Company's
independent accountants. The decision to change independent accountants was
approved by the Company's Board of Directors. In the period from January 1994
through December 28, 1995, there were no disagreements with Deloitte & Touche
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures which disagreements if not
resolved to the satisfaction of Deloitte & Touche would have caused them to
make reference thereto in their report on the financial statements. The report
of Deloitte & Touche on the financial statements of the Company as of and for
the year ended December 31, 1994, the most recent financial statements audited
by such firm, contained no adverse opinion or disclaimer of opinion and was
not qualified or modified as to uncertainty, audit scope, or accounting
principle. Prior to January 23, 1996, the Company had not consulted with Price
Waterhouse LLP on either the application of accounting principles to a
specified transaction, either complete or proposed, or on the type of opinion
that might be rendered on the Company's financial statements.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1, including amendments thereto, under the
Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules filed therewith. For further information with respect
to the Company and the Common Stock offered hereby, reference is hereby made
to such Registration Statement and to the exhibits and schedules filed
therewith. Statements contained in this Prospectus regarding the contents of
any contract or other document referred to are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement, including the exhibits and schedules thereto, may be inspected
without charge at the principal office of the Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all
or any part thereof may be obtained from such office upon the payment of the
prescribed fees. Such materials may also be obtained from the Commission's web
site at http://www.sec.gov. Information concerning the Company is also
available for inspection at the offices of the Nasdaq National Market, Reports
Section, 1735 K Street, N.W., Washington, D.C. 20006.
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by its independent
auditors and quarterly reports containing unaudited consolidated financial
information.
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QUICKLOGIC CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-2
Balance Sheet as of December 31, 1995, December 31, 1996 and March
31,1997 (unaudited)..................................................... F-3
Statement of Operations for the Years Ended December 31, 1994, 1995 and
1996 and for the Quarters Ended March 31, 1996 (unaudited) and 1997
(unaudited)............................................................. F-4
Statement of Stockholders' Equity (Deficit) for the Years Ended December
31, 1994, 1995 and 1996 and for the Quarter Ended March 31, 1997
(unaudited)............................................................. F-5
Statement of Cash Flows for the Years Ended December 31, 1994, 1995 and
1996 and for the Quarters Ended March 31, 1996 (unaudited) and 1997
(unaudited)............................................................. F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
QuickLogic Corporation
The reincorporation described in Note 12 to the financial statements has not
been consummated at June 9, 1997. When it has been consummated, we will be in
a position to furnish the following report:
"In our opinion, the accompanying balance sheet and the related
statements of operations, stockholders' equity (deficit) and cash flows
present fairly, in all material respects, the financial position of
QuickLogic Corporation at December 31, 1995 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. These 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above."
Price Waterhouse LLP
San Jose, California
June 9, 1997
F-2
<PAGE>
QUICKLOGIC CORPORATION
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
------------------ MARCH 31, MARCH 31,
1995 1996 1997 1997
-------- -------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash............................. $ 3,856 $ 10,336 $ 10,366
Short term investments........... 4,000 -- --
Accounts receivable, less
allowance for doubtful accounts
and sales returns and allowances
of $982, $2,084, and $2,284..... 2,680 2,609 3,653
Inventory........................ 1,324 3,248 4,667
Other current assets............. 121 4,633 245
-------- -------- --------
Total current assets........... 11,981 20,826 18,931
Property and equipment, net........ 218 1,708 2,502
Other assets....................... -- 43 43
-------- -------- --------
$ 12,199 $ 22,577 $ 21,476
======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable................. $ 1,610 $ 3,044 $ 3,159
Accrued and other liabilities.... 3,228 6,929 7,995
Current portion of long-term
obligations..................... 75 203 605
-------- -------- --------
Total current liabilities...... 4,913 10,176 11,759
Long-term obligations.............. 137 602 1,658
-------- -------- --------
5,050 10,778 13,417
-------- -------- --------
Commitments and contingencies
(Notes 10 and 11)
Stockholders' equity:
Preferred stock, $0.001 par
value; 8,093, 8,767, and 8,767
shares authorized, 10,000 shares
authorized pro forma; 7,390,
8,394, and 8,496 shares issued
and outstanding, no shares
issued and outstanding pro
forma........................... 7 8 9 $ --
Common stock, $0.001 par value;
10,714, 12,143, and 12,143
shares authorized; 100,000
shares authorized pro forma;
551, 722, and 861 shares issued
and outstanding; 9,357 shares
issued and outstanding pro
forma........................... 1 1 1 10
Additional paid-in capital....... 31,432 40,486 43,528 43,528
Common stock to be issued:
2,604 shares.................... -- -- 18,409 18,409
Stockholder note receivable...... (119) (119) (119) (119)
Deferred compensation............ -- (808) (2,897) (2,897)
Accumulated deficit.............. (24,172) (27,769) (50,872) (50,872)
-------- -------- -------- --------
Total stockholders' equity..... 7,149 11,799 8,059 $ 8,059
-------- -------- -------- ========
$ 12,199 $ 22,577 $ 21,476
======== ======== ========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
QUICKLOGIC CORPORATION
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue......................... $ 6,024 $15,148 $23,758 $ 5,154 $ 6,268
Cost of revenue................. 4,053 7,739 11,158 2,563 2,813
------- ------- -------- ------- --------
Gross profit.................... 1,971 7,409 12,600 2,591 3,455
------- ------- -------- ------- --------
Operating expenses:
Research and development...... 3,172 3,599 4,642 1,042 1,333
Selling, general and
administrative............... 4,408 5,770 7,730 1,685 2,313
Contract termination and
other........................ -- 2,700 4,125 -- 23,009
------- ------- -------- ------- --------
Loss from operations............ (5,609) (4,660) (3,897) (136) (23,200)
Interest expense................ (240) (200) (60) (7) (21)
Interest and other income, net.. 21 153 360 164 118
------- ------- -------- ------- --------
Net income (loss)............... $(5,828) $(4,707) $(3,597) $ 21 $(23,103)
======= ======= ======== ======= ========
Pro forma net income (loss) per
share (unaudited).............. $ (.29) $ -- $ (1.83)
======== ======= ========
Shares used in pro forma net
income (loss) per share
calculation (unaudited)........ 12,612 12,438 12,612
======== ======= ========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
QUICKLOGIC CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
PREFERRED STOCK COMMON STOCK TO BE ISSUED ADDITIONAL STOCKHOLDER STOCKHOLDERS'
---------------- ------------- -------------- PAID-IN NOTE DEFERRED ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE COMPENSATION DEFICIT (DEFICIT)
------- ------- ------ ------ ------ ------- ---------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1993............. 3,983 $ 4 417 $ 1 -- $ -- $14,726 $(119) $ -- $(13,637) $ 975
Common stock
issued under
stock option
plan............ -- -- 100 -- -- -- 31 -- -- -- 31
Net loss........ -- -- -- -- -- -- -- -- -- (5,828) (5,828)
------- ------- --- ---- ----- ------- ------- ----- ------- -------- --------
Balance at
December 31,
1994............. 3,983 4 517 1 -- -- 14,757 (119) -- (19,465) (4,822)
Common stock
issued under
stock option
plan............ -- -- 34 -- -- -- 17 -- -- -- 17
Issuance of
Series E
preferred stock
for cash and
conversion of
notes payable to
stockholders,
net of issuance
cost............ 3,407 3 -- -- -- -- 16,658 -- -- -- 16,661
Net loss........ -- -- -- -- -- -- -- -- -- (4,707) (4,707)
------- ------- --- ---- ----- ------- ------- ----- ------- -------- --------
Balance at
December 31,
1995............. 7,390 7 551 1 -- -- 31,432 (119) -- (24,172) 7,149
Common stock
issued under
stock option
plan, net of
repurchases..... -- -- 171 -- -- -- 99 -- -- -- 99
Issuance of
Series E
preferred stock
in exchange for
services........ 4 -- -- -- -- -- 15 -- -- -- 15
Issuance of
Series F
preferred stock
for cash, net of
issuance cost... 1,000 1 -- -- -- -- 8,089 -- -- -- 8,090
Deferred
compensation.... -- -- -- -- -- -- 851 -- (851) -- --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- 43 -- 43
Net loss........ -- -- -- -- -- -- -- -- -- (3,597) (3,597)
------- ------- --- ---- ----- ------- ------- ----- ------- -------- --------
Balance at
December 31,
1996............. 8,394 8 722 1 -- -- 40,486 (119) (808) (27,769) 11,799
Common stock
issued under
stock option
plan, net of
repurchases
(unaudited)..... -- -- 139 -- -- -- 110 -- -- -- 110
Issuance of
Series F
preferred stock
for cash, net of
issuance cost
(unaudited)..... 102 1 -- -- -- -- 767 -- -- -- 768
Common stock to
be issued in
exchange for
contract
termination
(unaudited)..... -- -- -- -- 2,604 18,409 -- -- -- -- 18,409
Deferred
compensation
(unaudited)..... -- -- -- -- -- -- 2,165 -- (2,165) -- --
Amortization of
deferred
compensation
(unaudited)..... -- -- -- -- -- -- -- -- 76 -- 76
Net loss
(unaudited)..... -- -- -- -- -- -- -- -- -- (23,103) (23,103)
------- ------- --- ---- ----- ------- ------- ----- ------- -------- --------
Balance at March
31, 1997
(unaudited)...... 8,496 $ 9 861 $ 1 2,604 $18,409 $43,528 $(119) $(2,897) $(50,872) $ 8,059
======= ======= === ==== ===== ======= ======= ===== ======= ======== ========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
QUICKLOGIC CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- -------- ------ --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............... $(5,828) $(4,707) $ (3,597) $ 21 $(23,103)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and other non-cash
charges....................... 562 320 235 60 121
Provision for doubtful
accounts...................... 34 912 1,102 372 200
Amortization of deferred
compensation.................. -- -- 43 -- 76
Contract termination and
other......................... -- 2,700 4,125 -- 23,009
Changes in assets and
liabilities:
Accounts receivable........... (602) (2,567) (1,031) (1) (1,244)
Inventory..................... 185 (880) (1,924) 145 (1,419)
Other assets.................. 5 -- (4,555) (214) (212)
Accounts payable.............. 1,472 (122) 1,434 469 115
Accrued and other
liabilities.................. 674 (673) (409) (378) 1,066
------- ------- -------- ------ --------
Net cash provided by (used
in) operating activities.... (3,498) (5,017) (4,577) 474 (1,391)
------- ------- -------- ------ --------
Cash flows from investing
activities:
Capital expenditures for
property and equipment......... (259) (85) (1,478) (192) (915)
Proceeds on sale of
investments.................... -- -- 4,000 -- --
Investments in short-term
instruments.................... -- (4,000) -- -- --
------- ------- -------- ------ --------
Net cash provided by (used
in) investing activities.... (259) (4,085) 2,522 (192) (915)
------- ------- -------- ------ --------
Cash flows from financing
activities:
Repayment of debt and capital
leases......................... (148) (770) (124) (21) (38)
Proceeds from issuance of common
stock, net..................... 31 17 99 -- 110
Proceeds from issuance of
preferred stock, net........... -- 11,811 8,090 -- 768
Borrowings on notes payable to
stockholders................... 1,526 1,198 -- -- --
Borrowings from bank............ -- 214 470 100 1,496
------- ------- -------- ------ --------
Net cash provided by
financing activities........ 1,409 12,470 8,535 79 2,336
------- ------- -------- ------ --------
Net increase (decrease) in cash.. (2,348) 3,368 6,480 361 30
Cash at beginning of period...... 2,836 488 3,856 3,856 10,336
------- ------- -------- ------ --------
Cash at end of period............ $ 488 $ 3,856 $10,336 $4,217 $ 10,366
======= ======= ======== ====== ========
Supplemental information:
Conversion of notes payable to
stockholder into Series E
preferred stock................. $ -- $ 4,850 $ -- $ -- $ --
======= ======= ======== ====== ========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. THE COMPANY AND BASIS OF PRESENTATION:
QuickLogic Corporation ("QuickLogic" or the "Company") was incorporated in
California in April 1988. The Company develops, markets, and supports field
programmable gate arrays (FPGAs) and software design tools.
The FPGA business is highly cyclical and has been subject to significant
downturns at various times that have been characterized by diminished product
demand, production overcapacity and accelerated erosion of average selling
prices. The selling price that the Company is able to command for its products
is highly dependent on industry-wide production capacity and demand. Both of
these factors could result in rapid changes in product pricing and could
adversely affect the Company's operating results.
The Company's fiscal year ends on the Sunday closest to December 31. For
presentation purposes the financial statements and notes refer to December 31
as year end and March 31 as quarter end. Certain reclassifications have been
made to the 1995 financial statements to conform to the 1996 presentation.
Such reclassifications had no effect on the results of operations or the
accumulated deficit.
Use of Estimates
The preparation of these 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 the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from those estimates, particularly
in relation to sales returns and allowances, product obsolescence and
litigation. (See Note 11--Contingencies)
Interim Results (unaudited)
The accompanying balance sheet as of March 31, 1997, the statements of
operations and of cash flows for the quarter ended March 31, 1996 and 1997 and
the statement of stockholders' equity (deficit) for the quarter ended March
31, 1997 are unaudited. In the opinion of management, these statements have
been prepared on the same basis as the audited financial statements and
include all adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentation of the results of the interim periods. The
data disclosed in these financial statements, including notes to the financial
statements, at such date and for such periods are unaudited. Operating results
for the quarter ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the full year.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES:
Short Term Investments
All short term investments are classified as available for sale and are
accounted for at fair value with unrealized gains and losses, if any, reported
as a separate component of stockholders' equity. Management determines the
appropriate classification of investments at the time of purchase and
reassesses the classification at each reporting date. Short-term investments
represent high grade marketable corporate debt securities and one government
agency security at December 31, 1995.
F-7
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Fair Value of Financial Instruments
The estimated fair values of financial instruments are determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required to interpret and
analyze the available data and to develop estimates. Accordingly, estimates
could differ significantly from the amounts the Company would realize in a
current market exchange. The estimated fair values of all financial
instruments at December 31, 1995 and 1996, approximate the amounts presented
in the balance sheet.
Inventory
Inventory is 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 less accumulated depreciation.
Depreciation is calculated on a straight-line basis over the assets estimated
useful life of three to seven years. Amortization of leasehold improvements is
computed on a straight-line basis over the shorter of the facility lease term
or the estimated useful lives of the improvements.
Revenue Recognition
The Company sells to certain domestic distributors under agreements which
allow certain rights of return and price adjustments on unsold inventory. Such
sales are not recognized until the inventory is sold by the distributor.
Amounts billed to such distributors for shipments are included as accounts
receivable, inventory is relieved and the related gross profit is deferred and
recorded as a current liability until the inventory is resold by the
distributor. Revenue from all other products is recognized upon shipment.
Software revenue is recognized upon shipment by the Company, provided that no
significant Company obligations remain and collection of the resulting
receivables is probable.
Stock-Based Compensation
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which
establishes a fair value method of accounting for stock-based compensation
plans and requires additional disclosures for those companies who elect not to
adopt the new method of accounting. The Company has elected to continue to
measure compensation costs using the intrinsic value method prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees" and to comply with
the pro forma disclosure requirements of SFAS 123.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, short-term
investments and accounts receivable. Cash and short-term investments are
maintained with high quality institutions. The Company's accounts receivable
are derived primarily from sales to customers located in North America,
Europe, Japan and Korea. The Company performs ongoing credit evaluations of
its customers and generally does not require collateral.
F-8
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1996, accounts receivable from four customers represented
24%, 12%, 11% and 10%, respectively, of the Company's accounts receivable. At
December 31, 1995, accounts receivables from three customers represented 12%,
10% and 10%, respectively, of the Company's accounts receivable.
Software Development Costs
Software development costs incurred prior to the establishment of
technological feasibility are included in research and development and are
expensed as incurred. Development costs incurred subsequent to the
establishment of technological feasibility through the period of general
market availability are capitalized, if material. To date, all software
development costs have been expensed as incurred due to their immateriality.
Pro Forma Stockholders' Equity (Unaudited)
If the offering contemplated by this Prospectus is consummated, unaudited
pro forma stockholders' equity would be adjusted for the conversion of
8,496,000 shares of preferred stock outstanding into 8,496,000 shares of
common stock.
The pro forma effect of this transaction has been reflected in the
accompanying unaudited pro forma stockholders' equity as of March 31, 1997.
Pro Forma Net Income (Loss) Per Share (Unaudited)
Pro forma net income (loss) per share is computed using the weighted average
number of common and common equivalent shares outstanding during the periods.
Common equivalent shares consist of preferred stock (using the "as if
converted" method) and stock options and warrants (using the "treasury stock"
method). Common equivalent shares are excluded from the computation if their
effect is antidilutive. Pursuant to a Securities and Exchange Commission Staff
Accounting Bulletin, preferred stock (using the "as if converted" method) and
common and common equivalent shares (using the "treasury stock" method and the
assumed initial public offering price) issued subsequent to May 1996 have been
included in the computation as if they were outstanding for all periods
presented.
Prior period loss per share data have not been presented since such amounts
are not deemed to be meaningful.
F-9
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Recent Accounting Pronouncements (Unaudited)
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share." This
statement is effective for the Company's fiscal year ending December 31, 1997.
The Statement defines the calculation of earnings per share under generally
accepted accounting principles. Under the new standard, primary earnings per
share is replaced by basic earnings per share and fully diluted earnings per
share is replaced by diluted earnings per share. If the Company had adopted
this Statement for the year ended December 31, 1996 and for the quarters ended
March 31, 1996 and 1997, the Company's pro forma earnings (loss) per share
would have been as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, --------------
1996 1996 1997
------------ ------ -------
<S> <C> <C> <C>
Pro forma basic earnings (loss) per share...... $ (.44) $ -- $(2.49)
Pro forma diluted earnings (loss) per share.... $ (.29) $ -- $(1.83)
</TABLE>
NOTE 3. BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) ---------------- MARCH 31,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Inventory:
Raw materials................................... $ 533 $ 1,693 $ 2,013
Work-in-process................................. 512 1,268 2,225
Finished goods.................................. 279 287 429
------- ------- -------
$ 1,324 $ 3,248 $ 4,667
======= ======= =======
Property and equipment:
Equipment....................................... $ 1,755 $ 2,323 $ 3,033
Software........................................ 492 601 642
Furniture and fixtures.......................... 23 555 693
Leasehold improvements.......................... 18 519 545
------- ------- -------
2,288 3,998 4,913
Accumulated depreciation........................ (2,070) (2,290) (2,411)
------- ------- -------
$ 218 $ 1,708 $ 2,502
======= ======= =======
Accrued and other liabilities:
Accrued employee compensation................... $ 320 $ 731 $ 1,070
Accrued legal costs............................. 2,200 4,860 4,600
Deferred income................................. 318 662 1,629
Other liabilities............................... 390 676 696
------- ------- -------
$ 6,929
$ 3,228 $ 7,995
======= ======= =======
</TABLE>
F-10
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. DEBT FACILITIES:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) ------------- MARCH 31,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Installment notes payable to bank..................... $212 $580 $2,038
====== ====== ======
</TABLE>
At December 31, 1996, the Company had outstanding installment notes totaling
$210,000. The notes bear interest at prime plus 0.25% (8.5% as of December 31,
1996), and are secured by the specific equipment financed. Principal payments
are due in equal monthly installments over the term of the notes which mature
between 1998 and 1999.
At December 31, 1996, the Company had a $5.0 million bank facility which
includes a $2.0 million equipment term loan, a $1.0 million export/import
revolving line of credit and a $2.0 million revolving line of credit. At
December 31, 1996, $370,000 had been drawn down under the equipment line and
no borrowings were outstanding against the revolving lines of credit.
Borrowings under the equipment term loan bear interest at prime plus 0.25%
(8.5% as of December 31, 1996) and are secured by the specific equipment
financed. Principal payments are due in equal monthly installments over the
term of the note which matures in the year 2000. The revolving line of credit
bears interest at prime (8.25% as of December 31, 1996).
During the quarter ended March 31, 1997, the Company drew down an additional
$1.5 million under the equipment term loan.
In conjunction with the bank facility, the Company must comply with certain
financial covenants related to profitability, tangible net worth, working
capital, debt leverage and liquidity. The Company was in breach of certain
financial covenants as of March 31, 1997, for which it has obtained a waiver
from the bank.
The Company paid $126,000, $103,000, $56,000 and $24,000 in interest during
1994, 1995, 1996, and the quarter ended March 31, 1997, respectively.
F-11
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. STOCKHOLDERS' EQUITY:
Preferred Stock
Preferred stock consists of the following at December 31, 1995 and 1996 and
March 31, 1997 (in thousands, except per share data):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- MARCH 31,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Series A, par value $0.001 per share; 358 shares
designated, issued and outstanding................. $ -- $ -- $ --
Series B, par value $0.001 per share; 1,468 shares
designated, issued and outstanding................. 1 1 1
Series C, par value $0.001 per share; 1,729 shares
designated, 1,711 shares issued and outstanding.... 2 2 2
Series D, par value $0.001 per share; 446 shares
designated, issued and outstanding................. 1 1 1
Series E, par value $0.001 per share; 3,411 shares
designated, 3,407, 3,411 and 3,411 shares issued
and outstanding.................................... 3 3 4
Series F, par value $0.001 per share; 1,355 shares
designated, 1,000 and 1,102 shares issued and
outstanding........................................ -- 1 1
------ ------ -----
$ 7 $ 8 $ 9
====== ====== =====
</TABLE>
The holders of the outstanding Series A, Series B, Series C, Series D,
Series E and Series F preferred stock shall be entitled to an annual dividend
of $.0233, $.0289, $0.448, $0.448, $0.49 and $0.812 per share, respectively,
when and if declared by the Board of Directors. Such dividends are payable
prior to any payment of dividends on the shares of common stock. No dividends
have been declared or paid as of December 31, 1996.
In the event of liquidation, dissolution or winding up of the Company, the
holders of Series F preferred stock shall be entitled to receive $8.12 per
share plus declared but unpaid dividends thereon, prior to any distribution to
holders of Series A, Series B, Series C, Series D and Series E preferred stock
and holders of common stock. The holders of Series A, Series B, Series C,
Series D and Series E preferred stock shall be entitled to receive $2.331,
$2.891, $4.48, $4.48 and $4.90 per share, respectively, plus declared but
unpaid dividends thereon, prior to any distribution to holders of common
stock. As of December 31, 1996, the aggregate liquidation preference of Series
A, Series B, Series C, Series D, Series E and Series F preferred stock is
approximately $39.6 million.
Each share of preferred stock is convertible at the option of the holder
into one share of common stock, subject to adjustment for dilutive events, as
defined. Each share of preferred stock will be automatically converted into
common stock upon the earlier of (i) closing of an underwritten public
offering of the Company's common stock, the aggregate gross proceeds of which
exceed $15,000,000, at a per share issuance price of at least $8.75 or (ii)
upon the vote or written consent of holders of at least two-thirds of the
total number of shares of Series A, Series B, Series C, Series D, Series E and
Series F preferred stock then outstanding.
The holders of the preferred shares have voting rights equivalent to the
number of common shares into which the preferred shares are convertible. The
Company must obtain the approval of the holders of at least two-thirds of such
outstanding preferred shares, voting together as a single class,
F-12
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
to alter the preferences, rights or privileges of the preferred stock; create
a new class of stock having preference over the Series A, Series B, Series C,
Series D, Series E and Series F preferred stock, or increase the authorized
number of shares of Series A, Series B, Series C, Series D, Series E or
Series F preferred stock.
In December 1991, in conjunction with the issue of Series C preferred stock,
the Company issued warrants to purchase 18,750 shares of Series C preferred
stock at $4.48 per share. The warrants expire seven years from date of
issuance or upon the closing of the Company's initial public offering,
whichever is sooner.
In January 1997, the Company issued 101,593 shares of Series F preferred
stock at $8.12 per share for cash of $0.8 million.
Common Stock
In November 1996, in conjunction with the issuance of Series F preferred
stock, the Company authorized an additional 1,428,571 shares of common stock.
NOTE 6. INCOME TAXES:
No provision for federal or state income taxes has been recorded for the
years ended December 31, 1994, 1995, and 1996 as the Company incurred net
operating losses.
Deferred tax balances comprise the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward.......................... $ 6,149 $ 5,742
Accruals and reserves.................................... 2,431 2,355
Credit carryforward...................................... 772 1,159
Capitalized research and development..................... 554 692
------- -------
9,906 9,948
Valuation allowances..................................... (9,906) (9,948)
------- -------
Deferred tax asset....................................... $ -- $ --
======= =======
</TABLE>
Management believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realizability
of the deferred tax assets such that a full valuation allowance has been
recorded. These factors include the Company's history of losses, the fact that
the market in which the Company competes is intensely competitive and
characterized by rapidly changing technology, the lack of carryback capacity
to realize deferred tax assets, and uncertainty regarding market acceptance of
the Company's products. The Company will continue to assess the realizability
of the deferred tax assets in future periods.
At December 31, 1996, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $16 million and $1
million, respectively. These carryforwards, if not utilized to offset future
taxable income and income taxes payable, will expire through the year 2010.
F-13
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Under the Tax Reform Act of 1986, the amount of and the benefit from net
operating losses that can be carried forward may be impaired in certain
circumstances. Events which may cause changes in the Company's tax carryovers
include, but are not limited to, a cumulative ownership change of more than
50% over a three year period. The issuance of Series A and Series C preferred
stock resulted in an annual limitation of the Company's ability to utilize net
operating losses incurred prior to that date. The limitation is insignificant.
Net operating losses incurred between the time of the Series C preferred stock
issuance and March 31, 1997, had not been subject to any annual limitations as
of March 31, 1997.
NOTE 7. EMPLOYEE BENEFIT PLANS:
Stock Option Plan
As of December 31, 1996, under the Company's 1989 Stock Option Plan, as
amended in 1996, (the "Plan"), incentive and nonqualified stock options to
purchase up to 2,100,000 shares of common stock may be granted to key
employees, directors and consultants of the Company. Options are granted at an
exercise price equal to the fair market value of the Company's common stock
(as determined by the Board of Directors) at the date of grant and generally
vest over four years, and expire up to ten years from the date of grant.
In July 1996, the 1989 Stock Option Plan was amended to allow options to be
exercised prior to vesting. Unvested shares must be deposited with an escrow
agent and the Company has a right to repurchase such shares at their initial
issuance price if the optionee is terminated from service prior to vesting.
The following table summarizes the Company's stock option activity and
related weighted average exercise price for each of the years ended December
31, 1994, 1995 and 1996 and the quarter ended March 31, 1997 (in thousands,
except per share data):
<TABLE>
<CAPTION>
OPTIONS EXERCISE
OUTSTANDING PRICE
----------- --------
<S> <C> <C>
Balance at December 31, 1993............................ 366 $0.39
Granted............................................... 470 $0.70
Canceled.............................................. (139) $0.41
Exercised............................................. (100) $0.36
-----
Balance at December 31, 1994............................ 597 $0.64
Granted............................................... 635 $0.70
Canceled.............................................. (24) $0.64
Exercised............................................. (34) $0.51
-----
Balance at December 31, 1995............................ 1,174 $0.67
Granted............................................... 317 $0.98
Canceled.............................................. (200) $0.70
Exercised............................................. (193) $0.62
-----
Balance at December 31, 1996............................ 1,098 $0.77
Granted (unaudited)................................... 706 $3.52
Canceled (unaudited).................................. (5) $0.71
Exercised (unaudited)................................. (142) $0.78
-----
Balance at March 31, 1997 (unaudited)................... 1,657 $1.94
=====
</TABLE>
F-14
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1996, 674,000 options were vested, 697,660 shares were
available for grant and 14,317 unvested shares had been exercised and remain
subject to the Company's buyback rights.
In March 1997, an additional 714,286 shares were authorized for issuance
under the 1989 Stock Option Plan.
At March 31, 1997, 735,671 options were vested and 714,289 shares were
available for grant.
Related weighted average exercise price and contractual life information at
December 31, 1996 are as follows (share amounts in thousands):
<TABLE>
<CAPTION>
OPTIONS WITH OUTSTANDING EXERCISABLE REMAINING
EXERCISE PRICES OF: SHARES SHARES LIFE (YEARS)
------------------- ----------- ----------- ------------
<S> <C> <C> <C>
$0.35.............................. 43 43 3.3
$0.70.............................. 802 802 8.0
$1.05.............................. 253 253 9.8
</TABLE>
The weighted average estimated grant date fair value, as defined by SFAS
123, for options granted during 1995 and 1996 was $ 0.70 and $ 3.71 per
option, respectively. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option pricing model. The Black-Scholes
model, as well as other currently accepted option valuation models, was
developed to estimate the fair value of freely tradable, fully transferable
options without vesting restrictions, which significantly differ from the
Company's stock option awards.
The following weighted average assumptions are included in the estimated
grant date fair value calculations for grants in 1995 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
------ ------
<S> <C> <C>
Expected life (years)........................................ 4.5 5.0
Risk-free interest rate...................................... 5.99% 6.05%
Volatility................................................... -- --
Dividend yield............................................... -- --
</TABLE>
Had the Company recorded compensation cost based on the estimated grant date
fair value, as defined by SFAS 123, for awards granted under its stock option
plan, the Company's net income (loss) and income (loss) per share would have
been as follows for the years ended December 31, 1995 and 1996 (in thousands
except per share data):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1995 1996
------- -------
<S> <C> <C>
Pro forma net income (loss)................................ $(4,715) $(3,676)
Pro forma net income (loss) per share...................... -- (.29)
</TABLE>
The pro forma effect on net income (loss) for 1995 and 1996 is not
representative of the pro forma effect on net income (loss) in future years
because it does not take into consideration pro forma compensation expense
related to grants made prior to 1995 and because the determination of the fair
value of all options granted after the Company becomes a public entity will
include an expected volatility factor.
F-15
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Deferred Compensation
During the year ended December 31, 1996 and the quarter ended March 31,
1997, the Company granted options and recorded related deferred compensation
of $851,000 and $2,165,000, respectively. Such deferred compensation will be
amortized ratably over the vesting period of the options.
NOTE 8. RELATED PARTY TRANSACTIONS:
Technology Development and Foundry Supply Agreement
In October 1992, in conjunction with the issuance of Series D preferred
stock, the Company entered into a Technical Transfer, Joint Development
License and Foundry Supply Agreement (the Existing Agreement) with Cypress
Semiconductor Corporation ("Cypress"). Cypress owns 100% of the Company's
Series D preferred stock. The agreement provides that the Company and Cypress
share processing technologies and licenses to market developed FPGA products
and that Cypress guarantees the Company a certain wafer start capacity. The
Company purchased all of its wafer requirements under this agreement during
1995 and 1996.
In March 1997, the Company and Cypress terminated the Existing Agreement,
and replaced it with a new arrangement whereby the Company's FPGA products
will no longer be second sourced by Cypress. In exchange for the termination
of the Existing Agreement and the reversion of the rights to the intellectual
property developed thereunder to the Company, the Company paid $4.5 million in
cash and agreed to issue 2,603,817 shares of Common Stock to Cypress,
resulting in a charge of approximately $23 million in the first quarter of
1997. In addition, the Company granted Cypress certain contractual rights as
to the shares of the Company's stock held by Cypress, including the right to
sell shares in this offering. The parties also entered into a new foundry
agreement and a cross-license agreement.
Notes Receivable From Stockholder
As of December 31, 1996, the Company has $119,000 of demand promissory notes
from a stockholder. The notes bear interest at rates ranging from 6.7% to
8.02% per annum, and are secured by shares of the Company's common stock held
by the stockholder.
NOTE 9. GEOGRAPHIC REPORTING AND CUSTOMER CONCENTRATION:
<TABLE>
<CAPTION>
NORTH
AMERICA EUROPE ASIA TOTAL
------- ------ ------ -------
<S> <C> <C> <C> <C>
Net revenue (in thousands):
Year ended December 31, 1994................ $ 4,217 $ 865 $ 942 $ 6,024
Year ended December 31, 1995................ $10,694 $2,779 $1,675 $15,148
Year ended December 31, 1996................ $16,726 $4,124 $2,908 $23,758
</TABLE>
During the year ended December 31, 1996, one customer accounted for
approximately 27% of revenue. All sales are made from the United States and
are denominated in U.S. dollars.
F-16
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. COMMITMENTS:
The Company leases its primary facility under a noncancelable operating
lease which expires in 2003, and includes an option to renew through 2006. The
lease is secured by a $300,000 standby letter of credit which expires in June
1997. Rent expense for the years ended December 31, 1994, 1995 and 1996 was
approximately $314,000, $358,000 and $358,000, respectively.
The Company also leases certain equipment and leasehold improvements under
capital leases which expire in 1997 and 2003. At December 31, 1996, $232,000
of assets acquired under capital leases were included in plant and equipment.
Future minimum lease commitments, excluding property taxes and insurance,
are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASES LEASES
------------------------ --------- -------
<S> <C> <C>
1997..................................................... $ 523 $ 57
1998..................................................... 523 45
1999..................................................... 546 45
2000..................................................... 563 45
2001 and thereafter...................................... 1,694 136
------ -----
$3,849 328
======
Less amount representing interest........................ (103)
-----
Present value of capital lease obligations............... 225
Less current portion..................................... (33)
-----
Long term portion of capital lease obligations........... $ 192
=====
</TABLE>
In October 1996, the Company executed a memorandum of understanding with
TSMC Ltd., which contemplates that the parties will enter into a three year
"take or pay" wafer manufacturing agreement.
NOTE 11. CONTINGENCIES:
During 1994, Actel Corporation ("Actel"), a competitor of the Company, filed
a lawsuit seeking unspecified damages and alleging that the Company's products
infringe upon its patents. During 1995 and 1996, the suit was amended to
include a trade misappropriation claim and additional patent infringement
claims. The Company has filed answers to each of these complaints seeking that
the Actel patents are invalid, void, not enforceable and are not infringed and
denying the trade misappropriation. Additionally, the Company has filed
counterclaims against Actel claiming that Actel has infringed upon the
Company's patents.
In April 1997, the court adopted the recommendation of the Special Master
and granted Actel's motion for summary judgment that the Company's products
infringe on one claim of one of the patents. If the patent is finally found to
be valid and enforceable, and the summary judgment motion is upheld on appeal,
then Actel would be entitled to significant damages and an injunction
preventing the sale of products incorporating the infringing patent. Such an
injunction and/or the payment of damages could have a material adverse effect
on the Company's business, financial condition and results of operations and
could potentially render it insolvent.
F-17
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
Trial on the patent infringement and trade misappropriation claims is
currently scheduled for September 1998. However, there can be no assurance
that the trial will occur at such time and may be delayed significantly. As
the outcome of any litigation is inherently uncertain, the Company is unable
to predict the outcome of this litigation. Therefore, there can be no
assurance that the Company will prevail in the trial on the patent
infringement claims and counter-claims, the trial on the alleged trade
misappropriation, or hearings on any motions related to such proceedings. The
timing of the filing of any motions by Actel, hearings on motions by either
Actel or the Company, the issuance of rulings on such motions, the issuance of
recommendations by the Special Master and the adoption or rejection of such
recommendations by the Court are not within the Company's control and could
occur at any time. The announcement of any rulings or recommendations, or the
adoption or rejection of recommendations, that are adverse to the Company,
will likely have a material adverse effect upon the market price for the
Company's stock.
Due to the inherent uncertainty of litigation, management cannot estimate
the possible loss, if any, that may ultimately be incurred in connection with
the allegations. Any adverse determinations in this litigation or a settlement
could result in the loss of the Company's proprietary rights, subject the
Company to significant liabilities, require the Company to seek or to grant
licenses with third parties, require the Company to cease selling its products
or prevent the Company from licensing its technology, any of which could have
a material adverse effect on the Company's business, financial condition and
results of operations.
Management intends to vigorously defend itself against the allegations that
the Company's products infringe upon Actel's patents as well as pursue its
claims that Actel's products infringe upon the Company's patents. Accordingly,
the Company recorded charges of $2.7 million and $4.1 million in the years
ended December 31, 1995 and 1996, respectively, in conjunction with the Actel
litigation. As of March 31, 1997, the Company has accrued $4.6 million for
this litigation.
NOTE 12. SUBSEQUENT EVENTS:
In May 1997, the Board of Directors authorized the reincorporation of the
Company in Delaware and, in conjunction with such reincorporation a 7-for-1
reverse stock split (the "Stock Split") of the Company's preferred stock and
common stock. All references to the number of shares of preferred stock,
common stock and per share amounts have been retroactively restated in the
accompanying financial statements to reflect the effect of the Stock Split.
The Board of Directors also approved a recapitalization that would increase
the total of authorized shares of common stock to one hundred million and
authorized ten million shares of undesignated stock. In addition the Board of
Directors approved the adoption of the 1997 Employee Stock Purchase Plan, the
1997 Stock Plan and the 1997 Director Option Plan. Adoption of these plans is
subject to stockholder approval.
All of the above items will be effected prior to the date of the offering.
F-18
<PAGE>
Title: The QuickLogic Solution
Graphic: Three rows, with text on the left column and a corresponding graphic on
the right column accompanied by a short description of the graphic.
<TABLE>
<CAPTION>
Left Column Text Graphic Description of graphic (presented as a caption)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
"ViaLink Antifuse Cross section of a ViaLink "Cross Section of a metal-layer ViaLink
QuickLogic's interconnect as photographed by connection as photographed by a scanning
interconnect a scanning electron microscope electron microscope (SEM)"
technology enables
high speed
connections"
- ---------------------------------------------------------------------------------------------------------------------------
"pASIC Architecture Two graphics for this row
Programmable Diagram of the silicon substrate "Wiring resources and ViaLink interconnects are
interconnects are with the logic gates, and the metal located above the silicon substrate, allowing
placed between the layers floating above more logic cells to reside on the die"
metal layers above the
silicone substrate,
maximizing wiring "ViaLink interconnects are placed at every
resources and possible intersection of routing wires"
minimizing die size Zoom in of picture above, showing
and cost" a small cross section of the chip,
with the silicon substrate on the
bottom and three layers of metal
routing wires above it
- ---------------------------------------------------------------------------------------------------------------------------
"QuickWorks and Picture of a PC [none]
QuickTools Design A box of software with QuickLogic
Software logo on the cover as well as the
A comprehensive titles "QuickWorks" and
software design tool "QuickTools"
solution that supports CD-ROM disk with the QuickLogic
schematic entry and logo
IEEE standard design
languages Verilog and
VHDL, and operates
on Windows and UNIX
platforms"
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, THE COM-
MON STOCK IN ANY JURISDICTION WHERE, TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IM-
PLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................................................... 3
The Company............................................................ 4
Risk Factors........................................................... 5
Use of Proceeds........................................................ 17
Dividend Policy........................................................ 17
Capitalization......................................................... 18
Dilution............................................................... 19
Selected Financial Data................................................ 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 21
Business............................................................... 29
Management............................................................. 46
Certain Transactions................................................... 57
Principal and Selling Stockholders..................................... 59
Description of Capital Stock........................................... 61
Shares Eligible for Future Sale........................................ 64
Underwriting........................................................... 67
Legal Matters.......................................................... 68
Experts................................................................ 68
Change in Independent Accountants...................................... 69
Additional Information................................................. 69
Index to Financial Statements.......................................... F-1
</TABLE>
UNTIL , 1997 (25 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICI-
PATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
[LOGO OF QUICKLOGIC CORP.]
3,000,000 SHARES
COMMON STOCK
DEUTSCHE MORGAN GRENFELL
UBS SECURITIES
COWEN & COMPANY
PROSPECTUS
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated costs and expenses payable by
the Registrant in connection with the sale of the Common Stock being
registered hereby, other than underwriting commissions and discounts which are
not applicable under this offering.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- --------
<S> <C>
SEC Registration Fee............................................... $ 13,591
NASD Filing Fee.................................................... 4,985
Nasdaq National Market Listing Fee................................. 50,000
Blue Sky Fees and Expenses......................................... 5,000
Printing and Engraving Expenses.................................... 150,000
Legal Fees and Expenses............................................ 250,000
Accounting Fees and Expenses....................................... 225,000
Transfer Agent and Registrar Fees.................................. 3,000
Miscellaneous...................................................... 48,424
--------
Total............................................................ $750,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 145 of the Delaware General Corporation Law (the
"DGCL"), the Registrant's Certificate of Incorporation provides that each
person who is or was or who had agreed to become a director or officer of the
Registrant or who had agreed at the request of the Registrant's Board of
Directors or an officer of the Registrant to serve as an employee or agent of
the Registrant or as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall be
indemnified by the Registrant to the full extent permitted by the DGCL or any
other applicable laws. Such Certificate of Incorporation also provides that
the Registrant may enter into one or more agreements with any person which
provides for indemnification greater of different than that provided in such
Certificate, and that no amendment or repeal of such Certificate shall apply
to or have any effect on the right to indemnification permitted or authorized
thereunder for or with respect to claims asserted before or after such
amendment or repeal arising from acts or omissions occurring in whole or in
part before the effective date of such amendment or repeal.
The Registrant's Bylaws provide that the Registrant shall indemnify to the
full extent authorized by law any person made or threatened to be made a party
to an action or a proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he, his testator or intestate was or
is a director, officer or employee of the Registrant or any predecessor of the
Registrant or serves or served any other enterprise as a director, officer or
employee at the request of the Registrant or any predecessor of the
Registrant.
The Registrant intends to enter into indemnification agreements with its
directors and certain of its officers.
The Registrant intends to purchase and maintain insurance on behalf of any
person who is or was a director or officer against any loss arising from any
claim asserted against him and incurred by him in any such capacity, subject
to certain exclusions.
See also the undertakings set out in response to Item 17 herein.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since June 1, 1994, the Registrant has issued and sold the following
securities:
1. From June 1, 1994 through May 31, 1997, the Registrant issued and sold
432,927 shares of Common Stock to employees of the Registrant at prices
ranging from $0.35 to $2.10 per share upon exercise of stock options
pursuant to Registrant's 1989 Stock Option Plan, as amended.
2. On June 1, 1995 and June 9, 1995, the Registrant issued and sold to
certain private investors 3,410,481 shares of Series E Preferred Stock
convertible into an aggregate of 3,410,481 shares of Common Stock at a
purchase price per share of $4.90.
3. On November 27, 1996 and January 24, 1997, the Registrant issued and
sold to certain private investors an aggregate of 1,102,279 shares of
Series F Preferred Stock convertible into an aggregate of 1,102,279 shares
of Common Stock at a purchase price per share of $8.12.
4. On March 29, 1997, the Registrant agreed to issue an aggregate of
2,603,816 shares of Common Stock to Cypress as partial consideration for
the termination of the Existing Agreement and the reversion to the Company
of certain intellectual property rights developed thereunder.
The above share and dollar amounts reflect the 7-for-1 reverse stock split
to be effected upon the reincorporation of the Company in Delaware. The sales
of the above securities were deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section
3(b) of the Securities Act as transactions by an issuer not involving a public
offering or transactions pursuant to compensatory benefit plans and contracts
relating to compensation as provided under such Rule 701. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed
to the share certificates and warrants issued in such transactions. All
recipients had adequate access, through their relationships with the Company,
to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
a. EXHIBITS.
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Articles of Incorporation of the Registrant (California).
3.2* Certificate of Incorporation of the Registrant (Delaware) to be
effective prior to the closing of the offering.
3.3* Amended and Restated Certificate of Incorporation of the Registrant to
be effective upon closing of the offering.
3.4** Bylaws of the Registrant (California).
3.5* Bylaws of the Registrant (Delaware) to be effective prior to the
closing of the offering.
4.1* Specimen Common Stock certificate of the Registrant.
5.1** Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Form of Indemnification Agreement for directors and executive officers.
10.2** 1989 Stock Option Plan.
10.3** 1991 Sales Representative Stock Purchase Plan.
10.4** 1997 Stock Plan.
10.5** 1997 Employee Stock Purchase Plan.
10.6** 1997 Director Option Plan.
10.7** Series E Preferred Stock Purchase Agreement dated June 1, 1995 and June
9, 1995 by and among the Registrant and the Purchasers named therein.
10.8** Series F Preferred Stock Purchase Agreement dated November 27, 1996 and
January 24, 1997 by and among the Registrant and the Purchasers named
therein.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.9+ Termination Agreement dated March 29, 1997 between the Registrant and
Cypress Semiconductor Corporation ("Cypress").
10.10 Cross License Agreement dated March 29, 1997 between the Registrant
and Cypress.
10.11+ Wafer Fabrication Agreement March 29, 1997 between the Registrant and
Cypress.
10.12** Sixth Amended and Restated Shareholders Rights Agreement dated March
29, 1997 by and among the Registrant, Cypress and certain
stockholders.
10.13** Sixth Amended and Restated Registration Rights Agreement dated March
29, 1997 by and among the Registrant, Cypress and certain
stockholders.
10.14 Technical Transfer, Joint Development License and Foundry Supply
Agreement, dated October 2, 1992, between the Registrant and Cypress.
10.15** Lease dated June 17, 1995, as amended, between Kairos, LLC and Moffet
Orchard Investors as Landlord and the Registrant for the Registrant's
facility located in Sunnyvale, California.
10.16** Business Loan Agreement dated August 9, 1995 between the Registrant
and Silicon Valley Bank, as amended.
10.17** Loan and Security Agreement dated August 8, 1996 between the
Registrant and Silicon Valley Bank, as amended.
10.18** Export-Import Bank Loan and Security Agreement dated August 8, 1996
between the Registrant and Silicon Valley Bank.
10.19+ Memorandum of Understanding dated October 28, 1996, between the
Registrant and TSMC, Ltd.
10.20 First Amended and Restated Common Stock Purchase Agreement dated June
13, 1997 between the Registrant and Cypress.
11.1 Statement regarding calculation of earnings per share.
16.1 Letter of Deloitte & Touche LLP, independent accountants, dated June
9, 1997 regarding change in certifying accountant.
23.1 Consent of Price Waterhouse LLP, independent accountants (see page II-
6).
23.2** Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(See Exhibit 5.1).
24.1** Power of Attorney (see page II-4).
27.1 Financial Data Schedule (EDGAR filed version only).
</TABLE>
- --------
* Documents to be filed by amendment.
** Previously filed.
+ Certain information in these exhibits has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential
treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and
230.406.
b. FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted because they are inapplicable or the requested
information is shown in the financial statements of the Registrant or notes
thereto.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that: (1) for purposes of
determining any liability under the Securities Act, the information omitted
from the form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in the form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as of the time
it was declared effective; and (2) for the purpose of determining any
liability under the Securities Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
SUNNYVALE, STATE OF CALIFORNIA, ON THE 18TH DAY OF JUNE 1997.
QuickLogic Corporation
By: /s/ Vincent A. McCord
------------------------------
VINCENT A. MCCORD,
VICE PRESIDENT, FINANCE, CHIEF
FINANCIAL OFFICER
AND SECRETARY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
President, Chief June 18, 1997
* Executive Officer
- ------------------------------------- and Director
E. THOMAS HART (Principal
Executive Officer)
/s/ Vincent A. McCord Vice President,
- ------------------------------------- Finance, Chief June 18, 1997
VINCENT A. MCCORD Financial Officer
and Secretary
(Principal
Financial and
Accounting Officer)
Director
June , 1997
- -------------------------------------
IRWIN FEDERMAN
Director
* June 18, 1997
- -------------------------------------
HUA-THYE CHUA
Vincent A. McCord
*By: /s/
----------------------------------
VINCENT A. MCCORD
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated June 9, 1997, relating
to the financial statements of QuickLogic Corporation, which appears in such
Prospectus. We also consent to the references to us under the headings
"Experts" in such Prospectus.
Price Waterhouse LLP
San Jose, California
June 17, 1997
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
1.1* Form of Underwriting Agreement.
3.1** Articles of Incorporation of the Registrant
(California).
3.2* Certificate of Incorporation of the Registrant
(Delaware) to be effective prior to the closing of the
offering.
3.3* Amended and Restated Certificate of Incorporation of
the Registrant to be effective upon closing of the
offering.
3.4** Bylaws of the Registrant (California).
3.5* Bylaws of the Registrant (Delaware) to be effective
prior to the closing of the offering.
4.1* Specimen Common Stock certificate of the Registrant.
5.1** Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation.
10.1 Form of Indemnification Agreement for directors and
executive officers.
10.2** 1989 Stock Option Plan.
10.3** 1991 Sales Representative Stock Purchase Plan.
10.4** 1997 Stock Plan.
10.5** 1997 Employee Stock Purchase Plan.
10.6** 1997 Director Option Plan.
10.7** Series E Preferred Stock Purchase Agreement dated June
1, 1995 and June 9, 1995 by and among the Registrant
and the Purchasers named therein.
10.8** Series F Preferred Stock Purchase Agreement dated
November 27, 1996 and January 24, 1997 by and among
the Registrant and the Purchasers named therein.
10.9+ Termination Agreement dated March 29, 1997 between the
Registrant and Cypress Semiconductor Corporation
("Cypress").
10.10 Cross License Agreement dated March 29, 1997 between
the Registrant and Cypress.
10.11+ Wafer Fabrication Agreement March 29, 1997 between the
Registrant and Cypress.
10.12** Sixth Amended and Restated Shareholders Rights
Agreement dated March 29, 1997 by and among the
Registrant, Cypress and certain stockholders.
10.13** Sixth Amended and Restated Registration Rights
Agreement dated March 29, 1997 by and among the
Registrant, Cypress and certain stockholders.
10.14 Technical Transfer, Joint Development License and
Foundry Supply Agreement, dated October 2, 1992,
between the Registrant and Cypress.
10.15** Lease dated June 17, 1995, as amended, between Kairos,
LLC and Moffet Orchard Investors as Landlord and the
Registrant for the Registrant's facility located in
Sunnyvale, California.
10.16** Business Loan Agreement dated August 9, 1995 between
the Registrant and Silicon Valley Bank, as amended.
10.17** Loan and Security Agreement dated August 8, 1996
between the Registrant and Silicon Valley Bank, as
amended.
10.18** Export-Import Bank Loan and Security Agreement dated
August 8, 1996 between the Registrant and Silicon
Valley Bank.
10.19+ Memorandum of Understanding dated October 28, 1996
between the Registrant and TSMC, Ltd.
10.20 First Amended and Restated Common Stock Purchase
Agreement dated June 13, 1997 between the Registrant
and Cypress.
11.1 Statement regarding calculation of earnings per share.
16.1 Letter of Deloitte & Touche LLP, independent
accountants, dated June 9, 1997 regarding change in
certifying accountant.
23.1 Consent of Price Waterhouse LLP, independent
accountants (see page II-6).
23.2** Consent of Wilson Sonsini Goodrich & Rosati,
Professional Corporation (See Exhibit 5.1).
24.1** Power of Attorney (see page II-4).
27.1 Financial Data Schedule (EDGAR filed version only).
</TABLE>
- -------
* Documents to be filed by amendment.
** Previously filed.
+ Certain information in these exhibits has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential
treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and
230.406.
<PAGE>
EXHIBIT 10.1
QUICKLOGIC CORPORATION
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of __________,
1997 by and between QuickLogic Corporation, a Delaware corporation (the
"Company"), and _______________ ("Indemnitee").
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and its related
entities;
WHEREAS, in order to induce Indemnitee to continue to provide services to
the Company, the Company wishes to provide for the indemnification of, and the
advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, the Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for the Company's directors, officers, employees,
agents and fiduciaries, the significant increases in the cost of such insurance
and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited; and
WHEREAS, in view of the considerations set forth above, the Company desires
that Indemnitee shall be indemnified and advanced expenses by the Company as set
forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below.
1. Certain Definitions.
-------------------
(a) "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportions as their ownership of stock of the Company, becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing more than 50% of the total
voting power represented by the Company's then outstanding Voting Securities,
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company and
any new director whose election by the
<PAGE>
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 80% of the total voting
power represented by the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of related transactions) all or substantially all of the
Company's assets.
(b) "Claim" shall mean with respect to a Covered Event: any
threatened, pending or completed action, suit, proceeding or alternative dispute
resolution mechanism, or any hearing, inquiry or investigation that Indemnitee
in good faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other.
(c) References to the "Company" shall include, in addition to
QuickLogic Corporation any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger to which QuickLogic
Corporation (or any of its wholly owned subsidiaries) is a party which, if its
separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees, agents or fiduciaries, so that if
Indemnitee is or was a director, officer, employee, agent or fiduciary of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee, agent or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise, Indemnitee shall stand in the same position under the provisions of
this Agreement with respect to the resulting or surviving corporation as
Indemnitee would have with respect to such constituent corporation if its
separate existence had continued.
(d) "Covered Event" shall mean any event or occurrence related to the
fact that Indemnitee is or was a director, officer, employee, agent or fiduciary
of the Company, or any subsidiary of the Company, or is or was serving at the
request of the Company as a director, officer, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust or other enterprise, or
by reason of any action or inaction on the part of Indemnitee while serving in
such capacity.
(e) "Expenses" shall mean any and all expenses (including attorneys'
fees and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, to be a witness in or to participate in, any
action, suit, proceeding, alternative dispute resolution mechanism, hearing,
inquiry or investigation), judgments, fines, penalties and amounts paid in
settlement (if such
-2-
<PAGE>
settlement is approved in advance by the Company, which approval shall not be
unreasonably withheld) of any Claim and any federal, state, local or foreign
taxes imposed on the Indemnitee as a result of the actual or deemed receipt of
any payments under this Agreement.
(f) "Expense Advance" shall mean a payment to Indemnitee pursuant to
Section 3 of Expenses in advance of the settlement of or final judgement in any
action, suit, proceeding or alternative dispute resolution mechanism, hearing,
inquiry or investigation which constitutes a Claim.
(g) "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(d) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other Indemnitees under similar
indemnity agreements).
(h) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
(i) "Reviewing Party" shall mean, subject to the provisions of
Section 2(d), any person or body appointed by the Board of Directors in
accordance with applicable law to review the Company's obligations hereunder and
under applicable law, which may include a member or members of the Company's
Board of Directors, Independent Legal Counsel or any other person or body not a
party to the particular Claim for which Indemnitee is seeking indemnification.
(j) "Section" refers to a section of this Agreement unless otherwise
indicated.
(k) "Voting Securities" shall mean any securities of the Company that
vote generally in the election of directors.
2. Indemnification.
---------------
(a) Indemnification of Expenses. Subject to the provisions of Section
---------------------------
2(b) below, the Company shall indemnify Indemnitee for Expenses to the fullest
extent permitted by law if Indemnitee was or is or becomes a party to or witness
or other participant in, or is threatened to be made a party to or witness or
other participant in, any Claim (whether by reason of or arising in part out of
a Covered Event), including all interest, assessments and other charges paid or
payable in
-3-
<PAGE>
connection with or in respect of such Expenses.
(b) Review of Indemnification Obligations. Notwithstanding the
-------------------------------------
foregoing, in the event any Reviewing Party shall have determined (in a written
opinion, in any case in which Independent Legal Counsel is the Reviewing Party)
that Indemnitee is not entitled to be indemnified hereunder under applicable
law, (i) the Company shall have no further obligation under Section 2(a) to make
any payments to Indemnitee not made prior to such determination by such
Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees to reimburse the Company) for all Expenses
theretofore paid to Indemnitee to which Indemnitee is not entitled hereunder
under applicable law; provided, however, that if Indemnitee has commenced or
-------- -------
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee is entitled to be indemnified hereunder
under applicable law, any determination made by any Reviewing Party that
Indemnitee is not entitled to be indemnified hereunder under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expenses theretofore paid in indemnifying Indemnitee until a
final judicial determination is made with respect thereto (as to which all
rights of appeal therefrom have been exhausted or lapsed). Indemnitee's
obligation to reimburse the Company for any Expenses shall be unsecured and no
interest shall be charged thereon.
(c) Indemnitee Rights on Unfavorable Determination; Binding Effect.
--------------------------------------------------------------
If any Reviewing Party determines that Indemnitee substantively is not entitled
to be indemnified hereunder in whole or in part under applicable law, Indemnitee
shall have the right to commence litigation seeking an initial determination by
the court or challenging any such determination by such Reviewing Party or any
aspect thereof, including the legal or factual bases therefor, and, subject to
the provisions of Section 15, the Company hereby consents to service of process
and to appear in any such proceeding. Absent such litigation, any determination
by any Reviewing Party shall be conclusive and binding on the Company and
Indemnitee.
(d) Selection of Reviewing Party; Change in Control. If there has not
-----------------------------------------------
been a Change in Control, any Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control (other than a Change
in Control which has been approved by a majority of the Company's Board of
Directors who were directors immediately prior to such Change in Control), any
Reviewing Party with respect to all matters thereafter arising concerning the
rights of Indemnitee to indemnification of Expenses under this Agreement or any
other agreement or under the Company's Certificate of Incorporation or Bylaws as
now or hereafter in effect, or under any other applicable law, if desired by
Indemnitee, shall be Independent Legal Counsel selected by Indemnitee and
approved by the Company (which approval shall not be unreasonably withheld).
Such counsel, among other things, shall render its written opinion to the
Company and Indemnitee as to whether and to what extent Indemnitee would be
entitled to be indemnified hereunder under applicable law and the Company agrees
to abide by such opinion. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to indemnify fully such counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or its engagement
pursuant hereto. Notwithstanding any
-4-
<PAGE>
other provision of this Agreement, the Company shall not be required to pay
Expenses of more than one Independent Legal Counsel in connection with all
matters concerning a single Indemnitee, and such Independent Legal Counsel shall
be the Independent Legal Counsel for any or all other Indemnitees unless (i) the
Company otherwise determines or (ii) any Indemnitee shall provide a written
statement setting forth in detail a reasonable objection to such Independent
Legal Counsel representing other Indemnitees.
(e) Mandatory Payment of Expenses. Notwithstanding any other
-----------------------------
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim, Indemnitee shall be indemnified against all Expenses incurred by
Indemnitee in connection therewith.
3. Expense Advances.
----------------
(a) Obligation to Make Expense Advances. Upon receipt of a written
-----------------------------------
undertaking by or on behalf of the Indemnitee to repay such amounts if it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
therefore by the Company hereunder under applicable law, the Company shall make
Expense Advances to Indemnitee.
(b) Form of Undertaking. Any obligation to repay any Expense Advances
-------------------
hereunder pursuant to a written undertaking by the Indemnitee shall be unsecured
and no interest shall be charged thereon.
(c) Determination of Reasonable Expense Advances. The parties agree
--------------------------------------------
that for the purposes of any Expense Advance for which Indemnitee has made
written demand to the Company in accordance with this Agreement, all Expenses
included in such Expense Advance that are certified by affidavit of Indemnitee's
counsel as being reasonable shall be presumed conclusively to be reasonable.
4. Procedures for Indemnification and Expense Advances.
---------------------------------------------------
(a) Timing of Payments. All payments of Expenses (including without
------------------
limitation Expense Advances) by the Company to the Indemnitee pursuant to this
Agreement shall be made to the fullest extent permitted by law as soon as
practicable after written demand by Indemnitee therefor is presented to the
Company, but in no event later than thirty (30) business days after such written
demand by Indemnitee is presented to the Company, except in the case of Expense
Advances, which shall be made no later than ten (10) business days after such
written demand by Indemnitee is presented to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to Indemnitee's right to be indemnified or Indemnitee's
right to receive Expense Advances under this Agreement, give the Company notice
in writing as soon as practicable of any Claim made against
-5-
<PAGE>
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
Agreement (or such other address as the Company shall designate in writing to
Indemnitee). In addition, Indemnitee shall give the Company such information and
cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) No Presumptions; Burden of Proof. For purposes of this Agreement,
--------------------------------
the termination of any Claim by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere, or its
---------------
equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by this Agreement or applicable
law. In addition, neither the failure of any Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by any
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
this Agreement under applicable law, shall be a defense to Indemnitee's claim or
create a presumption that Indemnitee has not met any particular standard of
conduct or did not have any particular belief. In connection with any
determination by any Reviewing Party or otherwise as to whether the Indemnitee
is entitled to be indemnified hereunder under applicable law, the burden of
proof shall be on the Company to establish that Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the Company
------------------
of a notice of a Claim pursuant to Section 4(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
--------------------
hereunder to provide indemnification for or make any Expense Advances with
respect to the Expenses of any Claim, the Company, if appropriate, shall be
entitled to assume the defense of such Claim with counsel approved by Indemnitee
(which approval shall not be unreasonably withheld) upon the delivery to
Indemnitee of written notice of the Company's election to do so. After delivery
of such notice, approval of such counsel by Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees or expenses of separate counsel subsequently retained by
or on behalf of Indemnitee with respect to the same Claim; provided that, (i)
Indemnitee shall have the right to employ Indemnitee's separate counsel in any
such Claim at Indemnitee's expense and (ii) if (A) the employment of separate
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense,
or (C) the Company shall not continue to retain such counsel to defend
-6-
<PAGE>
such Claim, then the fees and expenses of Indemnitee's separate counsel shall be
Expenses for which Indemnitee may receive indemnification or Expense Advances
hereunder.
5. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. The Company hereby agrees to indemnify the Indemnitee to
-----
the fullest extent permitted by law, notwithstanding that such indemnification
is not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its board of directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 10(a) hereof.
(b) Nonexclusivity. The indemnification and the payment of Expense
--------------
Advances provided by this Agreement shall be in addition to any rights to which
Indemnitee may be entitled under the Company's Certificate of Incorporation, its
Bylaws, any other agreement, any vote of stockholders or disinterested
directors, the General Corporation Law of the State of Delaware, or otherwise.
The indemnification and the payment of Expense Advances provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though subsequent thereto
Indemnitee may have ceased to serve in such capacity.
6. No Duplication of Payments. The Company shall not be liable under this
--------------------------
Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder.
7. Partial Indemnification. If Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion of
Expenses incurred in connection with any Claim, but not, however, for all of the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion of such Expenses to which Indemnitee is entitled.
8. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
-7-
<PAGE>
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
9. Liability Insurance. To the extent the Company maintains liability
-------------------
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
10. Exceptions. Notwithstanding any other provision of this Agreement,
----------
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify or make Expense
----------------------------
Advances to Indemnitee with respect to Claims arising out of acts, omissions or
transactions for which Indemnitee is prohibited from receiving indemnification
under applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or make Expense
------------------------------
Advances to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, counterclaim or crossclaim, except (i)
with respect to actions or proceedings brought to establish or enforce a right
to indemnification under this Agreement or any other agreement or insurance
policy or under the Company's Certificate of Incorporation or Bylaws now or
hereafter in effect relating to Claims for Covered Events, (ii) in specific
cases if the Board of Directors has approved the initiation or bringing of such
Claim, or (iii) as otherwise required under Section 145 of the Delaware General
Corporation Law, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, Expense Advances, or insurance recovery, as
the case may be.
(c) Lack of Good Faith. To indemnify Indemnitee for any Expenses
------------------
incurred by the Indemnitee with respect to any action instituted (i) by
Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each of
the material assertions made by the Indemnitee as a basis for such action was
not made in good faith or was frivolous, or (ii) by or in the name of the
Company to enforce or interpret this Agreement, if a court having jurisdiction
over such action determines as provided in Section 13 that each of the material
defenses asserted by Indemnitee in such action was made in bad faith or was
frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee for Expenses
--------------------------
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
-8-
<PAGE>
12. Binding Effect; Successors and Assigns. This Agreement shall be
--------------------------------------
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This Agreement
shall continue in effect regardless of whether Indemnitee continues to serve as
a director, officer, employee, agent or fiduciary (as applicable) of the Company
or of any other enterprise at the Company's request.
13. Expenses Incurred in Action Relating to Enforcement or Interpretation.
---------------------------------------------------------------------
In the event that any action is instituted by Indemnitee under this Agreement or
under any liability insurance policies maintained by the Company to enforce or
interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be
indemnified for all Expenses incurred by Indemnitee with respect to such action
(including, without limitation, attorneys' fees), regardless of whether
Indemnitee is ultimately successful in such action, unless as a part of such
action a court having jurisdiction over such action makes a final judicial
determination (as to which all rights of appeal therefrom have been exhausted or
lapsed) that each of the material assertions made by Indemnitee as a basis for
such action was not made in good faith or was frivolous; provided, however, that
until such final judicial determination is made, Indemnitee shall be entitled
under Section 3 to receive payment of Expense Advances hereunder with respect to
such action. In the event of an action instituted by or in the name of the
Company under this Agreement to enforce or interpret any of the terms of this
Agreement, Indemnitee shall be entitled to be indemnified for all Expenses
incurred by Indemnitee in defense of such action (including without limitation
costs and expenses incurred with respect to Indemnitee's counterclaims and
cross-claims made in such action), unless as a part of such action a court
having jurisdiction over such action makes a final judicial determination (as to
which all rights of appeal therefrom have been exhausted or lapsed) that each of
the material defenses asserted by Indemnitee in such action was made in bad
faith or was frivolous; provided, however, that until such final judicial
-------- -------
determination is made, Indemnitee shall be entitled under Section 3 to receive
payment of Expense Advances hereunder with respect to such action.
14. Period of Limitations. No legal action shall be brought and no cause
---------------------
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two year period; provided, however, that if any shorter
-------- -------
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
-9-
<PAGE>
15. Notice. All notices, requests, demands and other communications under
------
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
16. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
17. Severability. The provisions of this Agreement shall be severable in
------------
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including without limitation each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
18. Choice of Law. This Agreement, and all rights, remedies, liabilities,
-------------
powers and duties of the parties to this Agreement, shall be governed by and
construed in accordance with the laws of the State of Delaware as applied to
contracts between Delaware residents entered into and to be performed entirely
in the State of Delaware without regard to principles of conflicts of laws.
19. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
20. Amendment and Termination. No amendment, modification, termination or
-------------------------
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed to be or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.
21. Integration and Entire Agreement. This Agreement sets forth the
--------------------------------
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
-10-
<PAGE>
22. No Construction as Employment Agreement. Nothing contained in this
---------------------------------------
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
QuickLogic Corporation
By: _______________________________
Name: _____________________________
Title: ____________________________
Address: 1277 Orleans Drive
Sunnyvale, California 94089
AGREED TO AND ACCEPTED
INDEMNITEE:
___________________________________
(signature)
Name: _____________________________
Address: __________________________
-11-
<PAGE>
EXHIBIT 10.9
TERMINATION AGREEMENT
This Termination Agreement (the "Agreement") is made as of March 29, 1997,
---------
by and between Cypress Semiconductor Corporation, a Delaware corporation
("Cypress"), and QuickLogic Corporation, a California corporation
-------
("QuickLogic").
----------
A. Cypress and QuickLogic are parties to that certain Technical
Transfer, Joint Development License and Foundry Supply Agreement dated October
2, 1992 (the "Existing Agreement").
------------------
B. The parties desire to terminate the Existing Agreement in its
entirety and enter into this Agreement, a new wafer fabrication and license
agreements, and certain other arrangements.
C. Under the Existing Agreement, Cypress holds certain tangible and
intangible rights and intellectual property rights, including, without
limitation, patents, patent applications, mask work rights and trade secrets
(collectively, the "Rights") to antifuse field cell programmable gate array
------
("FPGA") technology (the "FPGA Technology").
---- ---------------
D. In connection with the termination of the Existing Agreement and
subject to the License Agreement (as defined in Section 3.4 below), Cypress will
relinquish to QuickLogic all of the Rights to the FPGA Technology, and
QuickLogic will acquire from Cypress all inventories of products incorporating
the FPGA Technology (the "FPGA Products") and certain other assets. QuickLogic
-------------
will also assume certain specified obligations of Cypress.
E. Cypress and QuickLogic have entered into a binding Letter of
Intent dated February 7, 1997 (the "Letter of Intent") reflecting their mutual
----------------
understanding regarding the transactions contemplated by this Agreement
(collectively, the "Transactions).
------------
F. This Agreement, and the other agreements referenced herein (with
the exception of the Existing Agreement, supersede the Letter of Intent in its
entirety, and the Letter of Intent shall be of no further force or effect.
NOW, THEREFORE, in consideration of the mutual agreements, representations
and warranties contained in this Agreement, the parties agree as follows:
ARTICLE I
TERMINATION OF PRIOR AGREEMENT AND TRANSFER OF ASSETS
1.1. Termination of Existing Agreement. Effective as of the Closing Date
---------------------------------
(as defined below), the Existing Agreement is terminated in its entirety and
shall have no further force or effect.
- --------------
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
1.2. Transfer. Subject to the terms and conditions contained in this
--------
Agreement, at the Closing (as defined below) or as provided in Article XI,
Cypress shall assign, grant, transfer and convey to QuickLogic, free and clear
of all liens, claims, interests and encumbrances, and QuickLogic agrees to
acquire from Cypress, all of Cypress's rights, title and interest in and to the
assets listed on Exhibit A (the "Transferred Assets"), and Cypress shall deliver
--------- ------------------
good, clear and marketable title to each and every Transferred Asset, together
with such bills of sale, assignments and other instruments of conveyance as may
be reasonably requested by QuickLogic to permit such delivery. Without limiting
the foregoing, the Transferred Assets shall be deemed to include only the
following:
(a) All right, title and interest in the Equipment and Inventory (each
as defined in Exhibit A), and all claims and rights of Cypress with respect
---------
thereto, including, without limitation, all rights against suppliers thereof
under warranties listed and described in Schedule 1.1(a) hereto (to the extent
---------------
transferable by Cypress), including, without limitation, all of Cypress's rights
under manufacturers' warranties and guarantees (to the extent transferable by
Cypress) relating to the Equipment and all benefits and proceeds with respect to
the Equipment as of and after the Closing under any policy of insurance;
(b) All books and records, whether originals or copies, whether
financial or otherwise, relating to the Transferred Assets and which do not
primarily relate to areas of Cypress's business other than the Transferred
Assets; provided that Cypress shall be entitled, at Cypress's expense, to make
and retain photocopies of such records for the purpose of accounting and tax
compliance;
(c) All licenses, permits, authorizations and other approvals from any
federal, state, local or foreign governmental, public or self-regulatory body or
authority relating to the Transferred Assets or the Assumed Obligations (as
defined below), all of which are listed in Exhibit A (collectively, the
---------
"Permits");
-------
(d) The computer software and hardware specifically used in connection
with the Equipment, including all documentation and source code, to the extent
they are legally transferable by Cypress;
(e) All rights of indemnification, claims or causes of action in favor
of Cypress, to the extent they arise out of or relate to the Transferred Assets
after the Closing Date including, without limitation, those against any person
under any purchase or other agreement pursuant to which Cypress acquired any
portion of the Transferred Assets or those arising by operation of law or equity
or otherwise; and
(f) Those other assets that relate to the Transferred Assets and are
listed in Exhibit A.
---------
Except as otherwise expressly stated in this Section 1.2, no other
assets are transferred to QuickLogic pursuant to this Agreement.
-2-
<PAGE>
1.3. FPGA Technology. Subject to the terms and conditions contained in this
---------------
Agreement, at the Closing (as defined below) Cypress shall assign, transfer and
convey to QuickLogic all of Cypress's rights, title and interest in and to the
FPGA Technology, a descriptive (but not necessarily comprehensive) list of which
is set forth in Exhibit A-1 and which are part of the Transferred Assets, and
-----------
Cypress shall deliver such assignments and other instruments of conveyance as
may be reasonably requested by QuickLogic to permit such transfer.
1.4. Obligations. Except as expressly provided herein, QuickLogic shall
-----------
not assume, or take title to the Transferred Assets subject to, or in any way be
liable or responsible for, any liabilities or obligations of any kind of Cypress
and Cypress shall continue to remain responsible for the same. Those
liabilities and obligations that QuickLogic expressly assumes are set forth in
Exhibit B (the "Assumed Obligations"). Without limiting the generality of the
- --------- -------------------
foregoing, QuickLogic shall not assume or take title to the Transferred Assets
subject to any of the following:
(a) Any obligations of Cypress arising or created prior to the Closing
Date (as defined below) or outstanding on the Closing Date or arising after the
Closing Date.
(b) Any liability or obligation of Cypress arising from claims for
personal injury (including death) or damage to property, including (without
limitation) in respect of any negligence or other wrongful action in connection
therewith;
(c) Any liability or obligation of Cypress based upon or arising under
any contract or agreement existing prior to or at the time of Closing;
(d) Except as specifically included in the Assumed Obligations, any
lien, encumbrance, security interest or charge of any nature whatsoever;
(e) Any liability or obligation of Cypress, or any of its employees,
for any federal, state, local or foreign income tax; or
(f) Any liabilities or obligations arising from litigation to which
Cypress is or would be a party that is pending, threatened or based upon facts
that arise prior to the Closing.
1.5. Closing and Closing Date. Unless otherwise agreed by the parties, the
------------------------
consummation of the transactions contemplated by this Agreement shall take place
at a closing (the "Closing") to be held at the offices of Venture Law Group,
-------
counsel to QuickLogic, located at 2800 Sand Hill Road, Menlo Park, CA 94025, on
March 29, 1997, or such other time or date as Cypress and QuickLogic shall
mutually agree, such time and date being referred to herein as the "Closing
-------
Date."
-3-
<PAGE>
1.6. Actions at the Closing. At the Closing, Cypress and QuickLogic shall
----------------------
take such actions and execute and deliver such agreements, bills of sale and
other instruments and documents as necessary or appropriate to effect the
transactions contemplated by this Agreement in accordance with its terms,
including without limitation the following:
(a) Bill of Sale. Cypress shall deliver to QuickLogic a general bill
------------
of sale in substantially the form attached as Exhibit C (the "Bill of Sale")
--------- ------------
with respect to the Transferred Assets, duly executed by Cypress, assigning to
QuickLogic all of Cypress's right, title and interest in and to the Transferred
Assets.
(b) Consideration. QuickLogic shall deliver the Consideration to
-------------
Cypress in accordance with the provisions of Article II.
(c) Title. Subject to Section 3.2 herein, Cypress shall deliver to
-----
QuickLogic evidence of valid title to such of the Transferred Assets and the
FPGA Technology as QuickLogic may reasonably request prior to the Closing and
assignments of the Transferred Assets and FPGA Technology in form and substance
reasonably satisfactory to QuickLogic (including, but not limited to,
assignments of patents, patent applications, copyrights and mask work rights).
(d) Third Party Consents and Assignments. Cypress shall deliver to
------------------------------------
QuickLogic all assignments and required consents to assignment that it has
obtained in respect of the assignment of the Transferred Assets, duly executed
by the appropriate parties having the authority so to assign or consent to
assign, in form and substance as QuickLogic shall reasonably request.
(e) Transaction Agreements. The Transaction Agreements (as defined
----------------------
below) shall have been executed by QuickLogic, Cypress and any other parties to
such Transaction Agreements and delivered to QuickLogic and Cypress.
(f) Post Closing Actions. Subsequent to the Closing Date, Cypress
--------------------
shall from time to time use reasonable efforts to execute and deliver, upon the
request of QuickLogic, all such other and further materials and documents and
instruments of conveyance, transfer or assignment as may be requested by
QuickLogic to effect, record or verify the transfer to, and vesting in
QuickLogic, of Cypress's right, title and interest in and to the Transferred
Assets, free and clear of all liens and encumbrances, in accordance with the
terms of this Agreement.
1.7. Delivery of Transferred Assets. Title to the Transferred Assets shall
------------------------------
pass to QuickLogic as of the Closing, or at such other transfer dates provided
herein, at Cypress's place of business. Following the Closing, Cypress will put
QuickLogic in control of the Transferred Assets pursuant to the Transition Plan
(as defined in Article XI). All tangible assets constituting a part of the
Transferred Assets will be delivered to QuickLogic's place of business in
Sunnyvale, California at Cypress's cost and by means of delivery reasonably
determined by
-4-
<PAGE>
Cypress. All other assets constituting a part of the Transferred Assets will be
made available to QuickLogic at the business location of Cypress, provided that,
if requested by QuickLogic, Cypress, to the extent practicable, will arrange for
the electronic transmission of any software or electronic data related to the
Transferred Assets to QuickLogic.
ARTICLE II
CONSIDERATION; TERMS OF PAYMENT
2.1. Consideration. The consideration for the Transactions (the
-------------
"Consideration") shall consist of the following:
- --------------
(a) $4.5 million in cash, which is currently in the possession of
Cypress.
(b) An aggregate of 18,226,716 (the "Original Share Number") shares of
unregistered Common Stock of QuickLogic (the "Shares") shall be issued to
------
Cypress, subject to potential additional issuances pursuant to Section 2.5
below. The Shares shall be delivered to Cypress by QuickLogic in accordance with
that certain Common Stock Purchase Agreement between Cypress and QuickLogic in
substantially the form attached hereto as Exhibit D (the "Stock Purchase
---------
Agreement").
(c) The assumption of the Assumed Obligations by QuickLogic.
2.2. Allocation of Consideration. The Consideration shall be allocated as
---------------------------
provided in Schedule 2.2 hereto for purposes of complying with the requirements
------------
of Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code").
Each party hereto agrees to prepare its federal and state income tax returns for
all current and future tax reporting periods and file Form 8594 (and
corresponding state forms) with respect to this transaction in a manner
consistent with the allocations set forth in said Schedule 2.2. If any state or
------------
federal taxing authority challenges such allocation, the party receiving notice
of such challenge shall give the other prompt written notice of such challenge,
and the parties shall cooperate in good faith in responding to it in order to
preserve the effectiveness of such allocation, and shall take no position in any
tax proceeding inconsistent therewith.
2.3. Acquisition of Transferred Assets. In addition to the Consideration,
---------------------------------
QuickLogic shall also pay to Cypress the following amounts for its acquisition
of the Transferred Assets:
(a) A promissory note payable to Cypress by QuickLogic, in the form
attached hereto as Exhibit E (the "Note"). The Note shall be issued in
--------- ----
consideration for the Inventory, where the eventual aggregate principal amount
of the Note will represent QuickLogic's standard cost of such finished and work-
in-progress inventory, discounted by $1,000,000. Such amount (prior to the
$1,000,000 discount) as of February 28, 1997 is estimated by Cypress to be
[ * ]. The Inventory will be transferred to QuickLogic in accordance with
Article XI below. Upon the initial shipment of Inventory, the Note will be
issued to
- ----------
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
-5-
<PAGE>
Cypress, in a principal amount representing QuickLogic's standard cost of such
finished and work-in-progress inventory being shipped, discounted by $1,000,000.
Upon subsequent transfers of Inventory pursuant to Article XI, the principal
amount of the Note will be increased by an amount equal to QuickLogic's standard
cost of such finished and work-in-progress inventory being shipped.
(b) The Equipment shall be purchased from Cypress [*] for
the Hewlett-Packard Tester and at the prices listed on Exhibit A for all other
Equipment items. Payment for the Equipment will be made by QuickLogic within
thirty (30) days after delivery of all the Equipment.
2.4. Taxes Arising from Transfer. [ * ] shall pay any sales, use,
---------------------------
recordation, transfer, excise or other similar taxes, if any, arising out of the
transfer of the Transferred Assets, or otherwise as a consequence of the
transactions contemplated by this Agreement.
2.5. Potential Additional Issuance of Common Stock upon Certain Dilutive
-------------------------------------------------------------------
Issuances. If, after the Closing, there is an adjustment to the Conversion Price
- ---------
(as defined in the Amended Articles) for any series of QuickLogic's Preferred
Stock pursuant to Article III.C.(4)(d)(iv) of the Amended Articles, then
QuickLogic shall issue to Cypress, without payment of any additional
consideration and pursuant to the delivery provisions of the Stock Purchase
Agreement, that additional number of fully paid and nonassessable shares of
QuickLogic Common Stock (the "Additional Shares"), as calculated as follows
(mathematical operations in listed order):
a) $1.16
divided by
b) The new Conversion Price for the Series F Preferred Stock (or, if the
adjustment to the Series F Preferred Stock Conversion Price has been waived by
the holders of Series F Preferred Stock, what such Conversion Price would have
been had the adjustment not been waived)
minus
c) 1
multiplied by
4) the Original Share Number
rounded to the nearest whole number
The Original Share Number shall be increased by the Additional Shares for
purposes for future calculations pursuant to this Section 2.5.
- ---------
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
-6-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CYPRESS
Except as set forth on the Cypress Disclosure Schedule attached hereto as
Schedule 3, Cypress represents and warrants to QuickLogic that:
- ----------
3.1. Organization. Cypress is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware and has
the requisite corporate power and authority to own, lease and operate its
properties and to transact its business as it is now being conducted and to
carry out this Agreement and the transactions contemplated herein. Cypress is
duly qualified or licensed to do business and is in good standing in each place
and jurisdiction where the nature of the business conducted by it with respect
to the Transferred Assets makes such qualification necessary except where the
failure to so qualify does not in the aggregate have a material adverse effect
on Cypress's business as a whole.
3.2. Title to Transferred Assets. Cypress has and will convey on the
---------------------------
Closing Date (or on any other transfer dates provided herein) full, absolute,
good and marketable title to the Transferred Assets, free and clear of all
security interests, mortgages, liens (including, but not limited to, liens with
respect to taxes), attachments, orders of court, rights of redemption, debts,
claims, indebtedness, liabilities, charges, or other encumbrances of any kind
whatsoever and not subject to any continuing commission, profit or revenue
sharing or other compensation contract or obligation that could apply to
QuickLogic or the Transferred Assets. No liens affecting any of the Transferred
Assets or the FPGA Technology will arise or would, with notice or lapse of time
or both, arise as a result of the transactions contemplated by this Agreement or
by any agreement contemplated by this Agreement. No other person has any direct
or indirect interest in the Transferred Assets or the FPGA Technology, other
than QuickLogic or pursuant to the License Agreement (as defined below), except
to the extent of existing non-exclusive license agreements. No restrictions
created by Cypress or known by Cypress exist on QuickLogic's right to sell or
resell products using any of the Transferred Assets, nor will any restrictions
be imposed as a consequence of the transactions contemplated by this Agreement.
3.3. Contracts with Respect to the Transferred Assets. No Transferred
------------------------------------------------
Asset is subject to any contract, license or agreement, and no person other than
Cypress owns any right, title or interest in or to any such Transferred Assets,
except as expressly set forth in the Cypress Disclosure Statement.
3.4. Due Authority; Valid and Binding Agreements. Cypress has the power
-------------------------------------------
and authority to enter into and be bound by the terms and conditions of this
Agreement, the Stock Purchase Agreement, the Sixth Amended and Restated
Registration Rights Agreement attached hereto as Exhibit F (the "Registration
--------- ------------
Rights Agreement"), the Sixth Amended and Restated Shareholders Agreement
- ----------------
attached hereto as Exhibit G (the "Shareholders Agreement"), the Wafer
--------- ----------------------
Fabrication Agreement attached hereto as Exhibit H, (the "Wafer Fabrication
--------- -----------------
Agreement") and the Cross-License Agreement attached hereto as Exhibit I (the
- --------- ---------
"License Agreement" and collectively with the Stock Purchase Agreement, the
- ------------------
Registration Rights Agreement, the
-7-
<PAGE>
Shareholders Agreement and the Wafer Fabrication Agreement, the "Transaction
-----------
Agreements"), and to carry out its obligations pursuant hereto and thereto. The
- ----------
consummation by Cypress of the transactions contemplated by this Agreement and
by the Transaction Agreements has been duly authorized by all necessary
corporate action by of Cypress, and no other act or proceeding on the part of or
on behalf of Cypress is necessary to approve the execution of this Agreement and
the Transaction Agreements. Each of this Agreement and the Transaction
Agreements is a legal, valid and binding obligation of Cypress enforceable
against Cypress in accordance with its terms, subject to limitations imposed by
general principles of equity upon the availability of equitable remedies and the
enforcement of such provisions, and, with respect to the Registration Rights
Agreement , except as the enforceability of Section 7 thereof may be limited by
public policy.
3.5. No Conflicts or Violations. Neither the execution and delivery of
--------------------------
this Agreement and the Transaction Agreements nor the consummation of the
transactions contemplated hereby and thereby will (i) conflict with or result in
any violation of or constitute a default under any agreement, mortgage, bond,
indenture, franchise or other instrument or obligation to which Cypress is a
party or by which it is bound, where such conflict, violation or default would
have a material adverse effect upon the Transferred Assets or the FPGA
Technology, (ii) conflict with, violate or result in any breach of the material
terms, conditions or provisions of the certificate of incorporation or bylaws of
Cypress, (iii) result in the creation of any lien or other encumbrance upon any
Transferred Asset or the FPGA Technology pursuant to the terms of any such
mortgage, bond, indenture, franchise or other instrument or obligation, (iv)
violate any judgment, order, injunction, decree or award of any court,
administrative agency or governmental body against, or binding upon, either
Cypress or upon any of the Transferred Assets or the FPGA Technology, (v)
constitute a violation by Cypress of any law or regulation of any jurisdiction
in which Cypress conducts its business, where such violation would have a
material adverse effect upon the Transferred Assets or the FPGA Technology, or
(vi) result in the breach of any of the terms or conditions of, or constitute a
default under, or otherwise cause any impairment of, any permit or license or
other governmental authorization held by Cypress, where such breach, default or
impairment would have a material adverse effect upon the Transferred Assets or
the FPGA Technology.
3.6. Equipment. The list of the Equipment set forth in Exhibit A is a
--------- ---------
complete and accurate list of all such Equipment as agreed to by Cypress and
QuickLogic. The Equipment is being sold "as is", and Cypress makes no warranty
whatsoever with respect thereto, except as set forth in the previous sentence.
CYPRESS EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE EQUIPMENT.
3.7. Inventory. The Inventory set forth in Exhibit A is of a type and
--------- ---------
quality useable and saleable in the ordinary course of business; provided, that
Cypress expressly makes no representation or warranty as to the resulting yield
of the Inventory.
-8-
<PAGE>
3.8. No Violation of Law. Cypress has conducted its business as it relates
-------------------
to the Transferred Assets in compliance with all applicable laws and regulations
of federal, state, local and foreign governmental authorities, except where any
such violation would not have a material adverse effect upon the Transferred
Assets or the FPGA Technology. Cypress possesses, and is in compliance with,
all licenses, permits, approvals and other governmental authorizations that are
material to and necessary to the conduct of its business as it relates to the
Transferred Assets and the FPGA Technology.
3.9. Litigation, etc. There are no suits, actions or administrative,
---------------
arbitration, unfair labor practice, worker's compensation or other proceedings,
pending or, to Cypress's knowledge, threatened, nor, to Cypress's knowledge, is
there any governmental investigation against or relating, directly or
indirectly, to the Transferred Assets, or the FPGA Technology, which could
result in a lien on or impair QuickLogic's ownership of the Transferred Assets
or the FPGA Technology and none which questions the validity of this Agreement
or the Transaction Agreements, and there are no judgments, orders, injunctions,
decrees, stipulations or awards (whether rendered by a court, administrative
agency or by arbitration, pursuant to a grievance or other procedure) against or
relating to either Cypress or the Transferred Assets that could result in a
material adverse effect, or any lien or other encumbrance, on the Transferred
Assets or the FPGA Technology.
3.10. No Brokers. Cypress is not obligated nor has Cypress obligated
----------
QuickLogic for the payment of fees or expenses of any broker or finder in
connection with the origin, negotiation or execution of this Agreement or in
connection with any transaction contemplated hereby.
3.11. Taxes. All sales and use taxes, real and personal property taxes,
-----
gross receipts taxes, documentary transfer taxes, employment taxes, withholding
taxes, unemployment insurance contributions and other taxes or governmental
charges of any kind, however denominated, for which QuickLogic could become
liable as a result of acquiring the Transferred Assets or the FPGA Technology or
which could result in a lien on or charge against the Transferred Assets or the
FPGA Technology (collectively, "Taxes") have been or will be paid for all
-----
periods prior to and including the Closing Date. Cypress has duly and timely
filed (or will file prior to the Closing Date) all returns and reports of Taxes
required to be filed prior to such date. To Cypress's knowledge, there are not,
and as of the Closing will not be, any liens for Taxes on any of the Transferred
Assets or the FPGA Technology (other than liens for Taxes not yet due and
payable). To Cypress's knowledge, there are no pending or threatened
proceedings with respect to Taxes.
3.12. Environmental Matters. To the extent that the failure to do so or
---------------------
be so would have a material adverse effect upon the Transferred Assets, Cypress
is in compliance with all federal, state, local and foreign laws related to
environment and hazardous materials practices that are applicable to Cypress or
its business related to the Transferred Assets, and Cypress has conducted its
business relating to the Transferred Assets in compliance with the foregoing
laws.
-9-
<PAGE>
3.13. Fair Consideration; No Fraudulent Conveyance; Bulk Sales. After due
--------------------------------------------------------
inquiry and negotiation, the sale and purchase of the Transferred Assets
pursuant to this Agreement is made in exchange for fair and equivalent
consideration. Cypress is not entering into this Agreement with the intent to
defraud, delay or hinder its creditors and the consummation of the transactions
contemplated by this Agreement will not have any such effect. The transactions
contemplated in this Agreement will not constitute a fraudulent conveyance or
any act with similar consequences or potential consequences, or otherwise give
rise to any right of any creditor of Cypress whatsoever to lodge any claim
against any of the Transferred Assets in the hands of Cypress after the Closing.
The transfer of the Transferred Assets is not a "bulk transfer," as defined in
Division 6 of the Uniform Commercial Code of the State of California.
3.14. Full Disclosure. Cypress is not aware of any infringement by the
---------------
FPGA Technology on the rights of third parties or any infringement by third
parties of the FPGA Technology. Cypress is not aware of any facts pertaining to
the Transferred Assets that it believes materially affect, or are likely in the
future to materially affect, the Transferred Assets in a material adverse
manner. Neither this Agreement, nor any representation or warranty contained in
this Agreement, nor any other agreement (including the Transaction Agreements),
exhibit, schedule, or certificate being entered into or delivered pursuant
hereto, when read as a whole, contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the statements
contained herein or therein not misleading, provided that except as expressly
provided in other Sections of this Article III, Cypress makes no representation
and warranty as to the value of the Transferred Assets or the FPGA Technology to
QuickLogic.
3.15. Knowledge. As used in this Article III, the terms "to Cypress's
---------
knowledge" or "to the knowledge of Cypress" shall mean the actual knowledge of
all Cypress personnel at the director level or above, and Fred Bialek.
3.16. Reliance. The representations and warranties of QuickLogic
--------
contained in Article V and in the Stock Purchase Agreement constitute the sole
and exclusive representations and warranties of QuickLogic to Cypress in
connection with this Agreement and the transactions contemplated hereby, and
Cypress acknowledges that all other representations and warranties are
specifically disclaimed and may not be relied upon or serve as a basis for a
claim against QuickLogic.
3.17. Governmental Approvals. Except for compliance with Hart-Scott-
----------------------
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or as
disclosed in the Cypress Disclosure Schedule, no governmental authorization,
consent, approval, license, exemption of or filing or registration with any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, under any applicable laws, rules or
regulations currently in effect, is or will be necessary for, or in connection
with, the execution or delivery by Cypress of this Agreement.
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<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF QUICKLOGIC
Except as set forth on the QuickLogic Disclosure Schedule attached hereto
as Schedule 4 (the "QuickLogic Disclosure Schedule"), QuickLogic hereby
----------
represents and warrants to Cypress that:
4.1. Due Authority; Valid and Binding Agreements. QuickLogic has the power
-------------------------------------------
and authority to enter into and be bound by the terms and conditions of this
Agreement and the Transaction Agreements, and to carry out its obligations
pursuant hereto and thereto. The consummation by QuickLogic of the transactions
contemplated by this Agreement and by the Transaction Agreements has been duly
authorized by all necessary corporate action by of QuickLogic, and no other act
or proceeding on the part of or on behalf of QuickLogic is necessary to approve
the execution of this Agreement and the Transaction Agreements. Each of this
Agreement and the Transaction Agreements is a legal, valid and binding
obligation of QuickLogic enforceable against QuickLogic in accordance with its
terms, subject to limitations imposed by general principles of equity upon the
availability of equitable remedies and the enforcement of such provisions, and,
with respect to the Registration Rights Agreement, except as the enforceability
of Section 7 thereof may be limited by public policy.
4.2. No Conflicts or Violations. Neither the execution and delivery of
--------------------------
this Agreement and the Transaction Agreements nor the consummation of the
transactions contemplated hereby and thereby will (i) conflict with or result in
any violation of or constitute a default under any agreement, mortgage, bond,
indenture, franchise or other instrument or obligation to which QuickLogic is a
party or by which it is bound, where such conflict, violation or default would
have a material adverse effect upon the business of QuickLogic, taken as a
whole, (ii) conflict with, violate or result in any breach of the material
terms, conditions or provisions of the articles of incorporation or bylaws of
QuickLogic, (iii) violate any judgment, order, injunction, decree or award of
any court, administrative agency or governmental body against, or binding upon,
QuickLogic, where such violation would have a material adverse effect upon the
business of QuickLogic, taken as a whole, (iv) constitute a violation by
QuickLogic of any law or regulation of any jurisdiction in which QuickLogic
conducts its business, where such violation would have a material adverse effect
upon the business of QuickLogic, taken as a whole, or (v) result in the breach
of any of the terms or conditions of, or constitute a default under, or
otherwise cause any impairment of, any permit or license or other governmental
authorization held by QuickLogic, where such breach, default or impairment would
have a material adverse effect upon the business of QuickLogic, taken as a
whole.
4.3. No Brokers. QuickLogic is not obligated nor has QuickLogic obligated
----------
Cypress for the payment of fees or expenses of any broker or finder in
connection with the origin, negotiation or execution of this Agreement or in
connection with any transaction contemplated hereby.
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<PAGE>
4.4. Governmental Approvals. Except for compliance with Hart-Scott-Rodino
----------------------
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), or as referenced
in the Stock Purchase Agreement or disclosed in the QuickLogic Disclosure
Schedule, no governmental authorization, consent, approval, license, exemption
of or filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, under
any applicable laws, rules or regulations currently in effect, is or will be
necessary for, or in connection with, the execution or delivery by QuickLogic of
this Agreement.
4.5 Reliance. The representations and warranties of Cypress contained in
--------
Article III, in the Stock Purchase Agreement, and in the Wafer Fabrication
Agreement constitute the sole and exclusive representations and warranties of
Cypress to QuickLogic in connection with this Agreement and the transactions
contemplated hereby, and QuickLogic acknowledges that all other representations
and warranties are specifically disclaimed and may not be relied upon or serve
as a basis for a claim against Cypress. QUICKLOGIC ACKNOWLEDGES THAT CYPRESS
DISCLAIMS ALL WARRANTIES OTHER THAN THOSE EXPRESSLY CONTAINED IN THIS AGREEMENT
AS TO THE TRANSFERRED ASSETS, OR ANY OF THEM, EITHER EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE V
INTERIM AGREEMENTS
5.1. Access; Confidentiality. Prior to the Closing at the reasonable
-----------------------
request of QuickLogic, Cypress agrees to promptly make available all books,
records, facilities, employees and information necessary for QuickLogic to
evaluate the Transferred Assets, and verify the FPGA Technology, and QuickLogic
agrees prior to the Closing at the reasonable request of Cypress to make
promptly available all books, records, facilities, employees and information
necessary for Cypress to fulfill its obligations hereunder. Except as provided
below, each party hereto shall keep confidential and shall not make use of any
information treated by the other party as confidential (including, without
limitation, the terms and conditions of this Agreement and the Transaction
Agreements), obtained from the other party concerning the assets, properties,
business or operations of the other party other than to legal counsel, auditors,
board members, consultants, financial advisers, key employees, lenders and
investment bankers where such disclosure is related to the performance of
obligations under this Agreement or the consummation of the transactions
contemplated under this Agreement (all of whom shall be similarly bound by the
provisions of this Section 5.1), except as may be required to be disclosed by
applicable law, and except as provided for in the Transaction Agreements.
Notwithstanding the foregoing, the foregoing confidentiality restrictions shall
not apply to (i) information that was in the receiving party's possession prior
to receipt from the disclosing party, (ii) information that becomes generally
available to the public other than as a result of the receiving party's fault or
action, (iii) information that becomes available to the receiving party from
some source other than the disclosing party, provided that such source is under
no non-disclosure obligation, or
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<PAGE>
(iv) information that is developed independently by the receiving party without
reference to the disclosing party's information. Neither party will use any
information provided pursuant to this Section 5.1 to compete with the other
party as their businesses are constituted after the Transactions have been
consummated. In the event the Transactions are not consummated, each party will
return to the other any materials containing information provided pursuant to
this Section 5.1, or will certify in writing that all such materials or copies
of such materials have been destroyed.
5.2. Public Announcements. The parties hereto agree that all disclosures
--------------------
and public announcements with respect to this Agreement and the Transaction
Agreements or any of the transactions contemplated hereby and thereby shall be
mutually agreed to between Cypress and QuickLogic and that no such disclosure or
announcement shall be made by any party without the prior written consent of the
other; provided, however, that nothing herein contained shall restrict Cypress
or QuickLogic from making any public announcement of the transactions
contemplated by this Agreement and the Transaction Agreements to the extent that
it, in its sole discretion reasonably exercised, is of the view that such
announcement is required or deemed advisable in order to meet its obligations
under the securities laws or stock exchange requirements in the United States;
provided further that prior to making such announcement, the party making it
shall provide particulars thereof to the other party and use reasonable efforts
to seek confidential treatment from disclosure if reasonably requested by the
other party. Notwithstanding the foregoing, either party may disclose this
Agreement and the Transaction Agreements and the transactions contemplated
hereby, to the extent reasonably necessary, in connection with (a) a private or
public offering of securities, and (b) any filing and disclosure obligations
under the Securities Act or the Exchange Act, including without limitation the
filing of this Agreement and all exhibits with the Securities and Exchange
Commission.
5.3. Occurrence of Conditions. Each party hereto shall use its reasonable
------------------------
best efforts, or where appropriate cooperate in the efforts of the other party,
to cause the occurrence of the conditions specified in Section 7 and Section 8
of this Agreement.
5.4. Other Negotiations.
------------------
(a) Between the date of this Agreement and the Closing Date or such
earlier date as QuickLogic and Cypress mutually agree to discontinue discussions
of the Transaction, Cypress will not (and it will use its reasonable best
efforts to assure that its officers, directors, employees, stockholders, its and
each of their affiliates and legal, accounting and financial advisors do not on
its behalf) take any action to solicit, initiate, seek, encourage or support any
inquiry, proposal or offer from, furnish any information to, or participate in
any negotiations with, any corporation, partnership, person or other entity or
group (other than negotiations with QuickLogic) regarding any acquisition of the
Transferred Assets.
(b) Cypress agrees that any such negotiations (other than negotiations
with QuickLogic) in progress as of the date of this Agreement will be suspended
between the date of this Agreement and the Closing Date and that, in no event,
will Cypress accept or enter into an agreement concerning any such third party
acquisition transaction during such period. Cypress
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<PAGE>
represents and warrants that it has the legal right to terminate or suspend any
such pending negotiations with third parties and agrees to indemnify QuickLogic,
its officers, directors, employees, stockholders and its and their affiliates
and advisors from and against any claims by any party to such negotiations based
upon or arising out of the discussion or any consummation of the Transaction as
contemplated by this Agreement.
5.5. Update to Disclosure. Without limiting either party's right to rely
--------------------
on the representations and warranties as set forth herein, each of Cypress and
QuickLogic shall provide the other party with updates to the disclosures
provided or made available to the other party as to material facts which arises
between the date of this Agreement and the Closing Date and which, if they had
occurred and been known prior to the date of this Agreement, would have been
required to have been disclosed in order to make the representations and
warranties contained in Articles III and IV true and correct as of the date of
this Agreement. In addition (i) Cypress shall provide QuickLogic with updates
if, between the date hereof and the Closing Date, there is a change in the
condition of the Transferred Assets or the FPGA Technology which may be
reasonably expected to have a materially adverse effect on the condition of the
Transferred Assets or the FPGA Technology and (ii) QuickLogic shall provide
Cypress with updates if, between the date hereof and the Closing Date, there is
a change in the condition (financial or otherwise) of the business, prospects,
employees, operations, obligations or liabilities of QuickLogic which, in the
aggregate, have or may be reasonably expected to have a materially adverse
effect on the condition (financial or otherwise) of the business, operations,
obligations or liabilities of QuickLogic.
5.6. Government Approvals. As soon as practicable but no later than
--------------------
promptly following the execution of this Agreement, Cypress and QuickLogic shall
each file a Premerger Notification and Report Form and all documentary
attachments thereto to be filed with the United States Federal Trade Commission
(the "FTC") and the Antitrust Division of the United States Department of
Justice (the "DOJ") pursuant to the HSR Act. Each party shall pay its own
filing fees required by the HSR Act in connection with the transactions
contemplated by this Agreement. Cypress and QuickLogic shall file any
additional information requested by the FTC or the DOJ in connection with this
Agreement or the transactions contemplated hereby as soon as practicable after
receipt of any request for such information. Neither Cypress nor QuickLogic
shall unreasonably take or fail to take any action which reasonably could be
expected to have the effect of delaying, impairing or impeding the receipt of
approval under the HSR Act as contemplated by this Section 5.9, provided,
however, that this sentence shall not be construed to require either party to
transfer or assign rights or other assets to a third party.
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<PAGE>
ARTICLE VI
CONDUCT OF BUSINESS
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Closing Date, the parties
acknowledge and agree that Cypress will be transitioning the business relating
to the Transferred Assets, and the relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with it
regarding such business. Notwithstanding the foregoing, Cypress agrees (except
to the extent expressly contemplated by this Agreement or as consented to in
writing by QuickLogic), to carry on its business with regard to the Transferred
Assets in the usual, regular and ordinary course in substantially the same
manner as heretofore, but conducted in a manner consistent with and giving due
regard to the transitioning of such business, to pay debts and Taxes when due
subject to good faith disputes over such debts or Taxes and to pay or perform
other obligations when due, and to use all reasonable efforts consistent with
past practice and policies to keep available the services of its officers and
key employees with respect to such business. Cypress agrees to promptly notify
QuickLogic of any material event or occurrence not in the ordinary course of its
business regarding the Transferred Assets, and of any event which could have a
material effect on the FPGA Technology or the Transferred Assets. Without
limiting the foregoing, except as expressly contemplated by this Agreement,
Cypress shall not do, cause or permit any of the following, or allow, cause or
permit any of its subsidiaries to do, cause or permit any of the following,
without the prior written consent of QuickLogic:
(a) Contracts. Enter into any new contract or commitment regarding
---------
the FPGA Technology or the Transferred Assets, or violate, amend or otherwise
modify or waive any of the terms of any existing contracts or commitments
regarding the FPGA Technology or the Transferred Assets, other than in the
ordinary course of business consistent with past practice;
(b) Intellectual Property. Transfer to any person or entity any of
---------------------
the Rights other than in the ordinary course of business consistent with past
practice;
(c) Rights. Enter into or amend any agreements pursuant to which any
------
other party is granted marketing or other rights of any type or scope with
respect to any of its products or technology relating to the FPGA Technology or
the Transferred Assets;
(d) Indebtedness. Incur any indebtedness for borrowed money or
------------
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others in such a way that would affect the FPGA
Technology or the Transferred Assets;
(e) Insurance. Materially reduce the amount of any material insurance
---------
coverage provided by existing insurance policies that materially affects the
FPGA Technology or the Transferred Assets;
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<PAGE>
(f) Termination or Waiver. Terminate or waive any right of
---------------------
substantial value regarding the FPGA Technology or the Transferred Assets, other
than in the ordinary course of business;
(g) Lawsuits. Commence a lawsuit regarding the FPGA Technology or the
--------
Transferred Assets other than (i) for the routine collection of bills, (ii) in
such cases where it in good faith determines that failure to commence suit would
result in the material impairment of a valuable aspect of the FPGA Technology or
the Transferred Assets, provided that it consults with QuickLogic prior to the
filing of such a suit, or (iii) for a breach of this Agreement;
(h) Other. Take or agree in writing or otherwise to take, any of the
-----
actions described in Sections 10.1(a) through (i) above, or any action which
would make any of its representations or warranties contained in this Agreement
untrue or incorrect or prevent it from performing or cause it not to perform its
covenants hereunder.
Cypress also agrees in good faith to use its reasonable best efforts to
maintain intact all of its current business relationships relating to the FPGA
Technology, including, without limitation, all customer relationships prior to
the Closing.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF QUICKLOGIC
Absent a waiver in writing, all obligations of QuickLogic under this
Agreement, except the obligations set forth in Sections 5, 9, 10 and 12 hereof,
are subject to the satisfaction of the following conditions, to QuickLogic's
reasonable satisfaction, on or before the completion of the Closing on the
Closing Date:
7.1. Representations, Warranties and Performance. The representations and
-------------------------------------------
warranties of Cypress contained herein shall be deemed to have been made again
at and as of the Closing Date and shall then be true and correct with the same
force and effect as if such representations and warranties have been made at and
as of the Closing Date; Cypress shall have performed and complied with all
agreements, conditions and covenants required by this Agreement and the Stock
Purchase Agreement to be performed or complied with by Cypress prior to or at
the Closing Date; and Cypress shall have furnished to QuickLogic an officer's
certificate dated the Closing Date, verifying, in such detail as QuickLogic may
reasonably request, the fulfillment of the foregoing conditions.
7.2. Absence of Adverse Changes. There shall not have been any material
--------------------------
adverse change in or to the Transferred Assets.
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<PAGE>
7.3. Litigation. There shall not be pending any litigation before any
----------
court or governmental agency (i) the outcome of which could reasonably be
expected to have a material adverse effect on the Transferred Assets, or (ii) to
restrain or prohibit or to obtain damages or other relief in connection with, or
which is related to or arises out of, this Agreement, the Transaction Agreements
or the transactions contemplated hereby or thereby.
7.4 Amended and Restated Articles. The Amended and Restated Articles of
------------------------------
QuickLogic in the form attached hereto as Exhibit J (the "Amended Articles")
--------- ----------------
shall have been filed and approved by the California Secretary of State.
7.5. Transaction Agreements. Cypress shall have executed and delivered
----------------------
each of the Transaction Agreements to which it is a party.
7.6. Approvals. All consents, approvals and filings required under any
---------
applicable law, rule or regulation to be completed or obtained prior to the
transactions contemplated by this Agreement and the Transaction Agreements shall
have been so completed or obtained, as the case may be, including without
limitation compliance with the HSR Act. All necessary consents of the Board of
Directors and the shareholders of both Cypress and QuickLogic shall have been
obtained.
7.7. No Injunctions. No temporary restraining order, preliminary or
--------------
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or prohibition preventing
the consummation of the Transaction or limiting or restricting QuickLogic's
conduct or operation of the business of QuickLogic after the Transaction shall
have been issued, nor shall any proceeding brought by a domestic administrative
agency or commission or other domestic governmental entity, seeking any of the
foregoing be pending; nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Transaction which makes the consummation of the Transaction illegal.
7.8. Consummation of Acquisition. The Closing of the Transaction shall
----------------------------
occur no later than April 30, 1997 unless mutually agreed to by QuickLogic and
Cypress.
7.9. Legal Opinion. QuickLogic shall have received a legal opinion from
-------------
Wilson Sonsini Goodrich & Rosati, counsel to Cypress, substantially in the form
attached hereto as Exhibit K.
---------
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF CYPRESS
Absent a waiver in writing, all obligations of Cypress under this
Agreement, except the obligations set forth in Sections 5, 9, 10 and 12 hereof,
are subject to the satisfaction of the following conditions, to Cypress's
reasonable satisfaction, on or before the completion of the Closing on the
Closing Date:
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<PAGE>
8.1. Representations, Warranties and Performance The representations and
-------------------------------------------
warranties of QuickLogic shall be deemed to have been made again at and as of
the Closing Date and shall then be true and correct with the same force and
effect as if such representations and warranties had been made at and as of the
Closing Date; QuickLogic shall have performed and complied with all agreements,
conditions and covenants required by this Agreement and the Stock Purchase
Agreement to be performed or complied with by it prior to or at the Closing
Date, and QuickLogic shall have furnished to Cypress an officer's certificate
dated the Closing Date, verifying, in such detail as Cypress may reasonably
request, to the fulfillment of the foregoing conditions.
8.2. Absence of Adverse Changes. There shall not have been any material
--------------------------
adverse change in or to the business of QuickLogic.
8.3. Litigation. There shall not be pending any litigation before any
----------
court or government agency that has not been previously set forth in the
QuickLogic Disclosure Schedule (i) the outcome of which could be reasonably be
expected to have a material adverse effect on the business of QuickLogic, or
(ii) to restrain or prohibit or to obtain damages or other relief in connection
with, or which is related to or arises out of, this Agreement, the Transaction
Agreements or the transactions contemplated hereby or thereby.
8.4. Transaction Agreements. QuickLogic shall have executed and delivered
----------------------
each of the Transaction Agreements to which it is a party.
8.5. Approvals. All consents, approvals and filings required under any
---------
applicable law, rule or regulation to be completed or obtained prior to the
transactions contemplated by this Agreement and the Transaction Agreements shall
have been so completed or obtained, as the case may be, including without
limitation compliance with the HSR Act and the Exchange Act. All necessary
consents of the Board of Directors and the shareholders of both QuickLogic and
Cypress shall have been obtained.
8.6. No Injunctions. No temporary restraining order, preliminary or
--------------
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or prohibition preventing
the consummation of the Transaction or limiting or restricting QuickLogic's
conduct or operation of the business of QuickLogic after the Transaction shall
have been issued, nor shall any proceeding brought by a domestic administrative
agency or commission or other domestic governmental entity, seeking any of the
foregoing be pending; nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Transaction which makes the consummation of the Transaction illegal.
8.7. Consummation of Acquisition. The Closing of the Transaction shall
----------------------------
occur no later than April 30, 1997 unless mutually agreed to by QuickLogic and
Cypress.
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<PAGE>
8.8. Legal Opinion. Cypress shall have received a legal opinion from
-------------
Venture Law Group, special counsel to QuickLogic, substantially in the form
attached hereto as Exhibit L.
---------
ARTICLE IX
TERMINATION AND SURVIVAL
9.1. Termination. Anything contained herein to the contrary
-----------
notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing Date:
(a) By mutual consent of QuickLogic and Cypress;
(b) By notice in writing by QuickLogic, if any of the conditions set
forth in Section 7 shall have become incapable of fulfillment prior to April 30,
1997, through no fault of QuickLogic and shall not have been waived by
QuickLogic;
(c) By notice in writing by Cypress, if any of the conditions set
forth in Section 8 shall have become incapable of fulfillment prior to April 30,
1997, through no fault of Cypress and shall not have been waived by Cypress; or
(d) By notice in writing by either QuickLogic, on one hand, or
Cypress, on the other hand, if (i) the other has breached this Agreement in any
material respect, (ii) any of the representations and warranties made by the
other in Section 3 or Section 4 of this Agreement (as the case may be) is false
or inaccurate in any material respect, or (iii) the Closing does not occur on or
before April 30, 1997 (unless such date is extended by mutual agreement), but
only if the failure to consummate such transaction on or before such date did
not result from the failure by the party seeking such termination to fulfill any
condition set forth in Section 5.4, Section 7 or Section 8, as the case may be,
which is a condition precedent to the obligation of the other under this
Agreement to consummate the transactions contemplated hereby. To the extent a
party fails to act in good faith and consummate the Transactions, the non-
breaching party shall be entitled to obtain injunctive relief to enforce the
terms of this Agreement and the Transaction Agreements.
9.2. Effect of Termination. If this Agreement is terminated prior to
---------------------
Closing and the transactions contemplated hereby are not consummated at said
time as described above, this Agreement shall become void and of no further
force and effect, except for the provisions of Section 5.1 (relating to the
obligations of confidentiality); Section 5.2 (relating to disclosure); Section 9
(relating to termination); Section 12.1 (relating to arbitration); and Section
15 (relating to certain miscellaneous provisions) and there shall be no
liability or obligation on the part of QuickLogic or Cypress or their respective
officers, directors or stockholders; provided, however, that such termination
shall not limit any rights or obligations of any party hereto for willful breach
of this Agreement or any Transaction Agreement.
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<PAGE>
ARTICLE X
INDEMNIFICATION
10.1 Cypress's Indemnification. Cypress will indemnify and hold harmless
-------------------------
QuickLogic and each of its directors, officers, employees, advisors, affiliates,
agents and shareholders from and against any and all losses, damages,
liabilities, costs, claims and expenses, including but not limited to attorney's
fees, arising out of, based upon or resulting from:
(a) any claims against, or liabilities or obligations of, Cypress or
against the Transferred Assets the circumstances of which arose prior to the
Closing Date other than the Assumed Obligations;
(b) any inaccuracy of any representation or warranty or schedule of
Cypress which is contained in or made pursuant to this Agreement;
(c) the non-compliance by Cypress with the provisions of any
applicable bulk sales act governing the purchase and sale of the Transferred
Assets;
(d) any tax liability of Cypress including other than any sales or use
taxes resulting from the Transactions; or
(e) any breach by Cypress of any of its agreements, covenants,
warranties or obligations contained in or made pursuant to this Agreement.
Cypress shall have no obligation to indemnify QuickLogic under this Section
10.1 for any breach of Cypress's representations and warranties made in or
pursuant to this Agreement, until such time, if any, as the aggregate amount of
the liabilities, losses, damages, claims costs and expenses arising out of such
breach exceeds [ * ] and then only to the extent of such excess.
10.2 QuickLogic's Indemnification. QuickLogic will indemnify and hold
----------------------------
harmless Cypress and each of its directors, officers, employees, advisors,
affiliates, agents and stockholders from and against any and all losses,
damages, liabilities, costs, claims and expenses including but not limited to
attorney's fees arising out of, based upon or resulting from:
(a) any inaccuracy of any representation or warranty of QuickLogic
which is contained in or made pursuant to this Agreement;
(b) any breach by QuickLogic of any of its agreements, covenants,
warranties or obligations contained in or made pursuant to this Agreement; or
(c) any of the Assumed Obligations.
- ------------
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
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<PAGE>
QuickLogic shall have no obligation to indemnify Cypress under this Section
10.2 for any breach of QuickLogic's representations and warranties made in or
pursuant to this Agreement, until such time, if any, as the aggregate amount of
the liabilities, losses, damages, claims costs and expenses arising out of such
breach exceeds [ * ] and then only to the extent of such excess.
10.3 Claims Procedures.
-----------------
(a) Promptly after the receipt by any party hereto of notice or upon
any party becoming otherwise aware of (x) any claim or (y) the commencement of
any action or proceeding, such party (the "Aggrieved Party") will, if a claim
with respect thereto is to be made against any party obligated to provide
indemnification (the "Indemnifying Party") pursuant to this Article X, give such
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting from such claim. Failure
by the Indemnifying Party to notify the Aggrieved Party of its election to
defend any such action within a reasonable time, but in no event more than
thirty days after notice thereof shall have been given to the Indemnifying
Party, shall be deemed a waiver by the Indemnifying Party of its right to defend
such action.
(b) If the Indemnifying Party assumes the defense of any such claim or
litigation resulting therefrom, (i) the obligations of the Indemnifying Party as
to such claim shall be limited to taking all steps necessary in the defense or
settlement of such claim or litigation resulting therefrom and to holding the
Aggrieved Party harmless from and against any and all losses, damages and
liabilities caused by or arising out of any settlement approved by the
Indemnifying Party or any judgment in connection with such claim or litigation
resulting therefrom and (ii) the Aggrieved Party shall not be entitled to
indemnification as to fees and expenses of any counsel retained by the Aggrieved
Party after the time at which the Indemnifying Party has so assumed such
defense. The Aggrieved Party may participate, at its expense, in the defense of
such claim or litigation provided that the Indemnifying Party shall direct and
control the defense of such claim or litigation. The Indemnifying Party shall
not, in the defense of such claim or any litigation resulting therefrom, consent
to entry of any judgment, except with the written consent of the Aggrieved
Party, such consent to not be unreasonably withheld, or enter into any
settlement, except with the written consent of the Aggrieved Party, which does
not include as an unconditional term thereof the giving by the claimant or the
plaintiff to the Aggrieved Party of a release from all liability in respect of
such claim or litigation.
(c) If the Indemnifying Party shall not assume the defense of any such
claim or litigation resulting therefrom, the Aggrieved Party may defend against
such claim or litigation in such manner as it may deem appropriate and, unless
the Indemnifying Party shall deposit with the Aggrieved Party a sum equivalent
to the total amount demanded in such claim or litigation, or shall deliver to
the Aggrieved Party a surety bond or an irrevocable letter of credit in form and
substance reasonably satisfactory to the Aggrieved Party, the Aggrieved Party
may settle such claim or litigation on such terms as it may deem appropriate,
and the Indemnifying Party shall promptly reimburse the Aggrieved Party for the
amount of all reasonable expenses, including,
- ----------------
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
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<PAGE>
without limitation, attorneys' fees, incurred by the Aggrieved Party in
connection with the defense against or settlement of such claims or litigation.
If no settlement of such claim or litigation is made, the Indemnifying Party
shall promptly reimburse the Aggrieved Party for the amount of any judgment
rendered with respect to such claim or in such litigation and of all expenses,
including, without limitation, attorneys' fees, incurred by the Aggrieved Party
in the defense against such claim or litigation.
10.4. Insurance; Tax Benefits. The amount of any liability for which an
-----------------------
Aggrieved Party shall be entitled to indemnification shall take into
consideration (i) the amount of insurance or other third party proceeds, if any,
actually received by the Aggrieved Party in respect of such liability and (ii)
any tax benefits actually realized by the Aggrieved Party in respect of such
liability. Upon making any indemnity payment, the Indemnifying Party will, to
the extent of such indemnity payment, be subrogated to all rights of the
Aggrieved Party against any third party in respect of the loss to which the
payment relates. Without limiting the generality or the effect of any other
provision hereof, the Aggrieved Party and the Indemnifying Party will duly
execute upon request all instruments reasonably necessary to evidence and
perfect the above-described subrogation and subordination rights.
10.5. Exclusive Remedy. Cypress and QuickLogic agree that, to the fullest
-----------------
extent permitted by law, the sole and exclusive legal remedy of Cypress and
QuickLogic after the Closing with respect to any claim or cause of action
asserted by either party related to or arising from breaches of the
representations, warranties or covenants of the other party contained in this
Agreement or any document, list, schedule, exhibit, certificate or other
instrument furnished or to be furnished by or on behalf of such other party or
any of its representatives in connection with the transactions contemplated by
this Agreement shall be limited to the rights, terms and conditions of this
Article X; provided, however, that nothing contained in this Section 10.5 shall
preclude either party from seeking or obtaining equitable relief to enforce or
protect its rights under this Agreement and the Transaction Agreements,
including without limitation the ability to seek equitable relief under Article
XIII below and the rights to arbitration and injunctive relief provided in the
Wafer Fabrication Agreement with respect to Cypress's obligations as to wafer
starts.
10.6. Nature of Survival of Representations, etc. All representations and
-------------------------------------------
warranties and agreements made by the parties hereto shall survive the Time of
Closing and any investigation at any time made by or on behalf of either party,
provided, however, that no suit or action may be commenced in respect of a
representation or warranty after [ * ] months from the Time of Closing.
10.7. Maximum Level of Indemnification. Neither party shall have any
---------------------------------
obligation to indemnify the other under this Article X after such time, if any,
as the aggregate amount of all indemnification payments paid by such party to
the other exceeds [ * ].
- --------------
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
-22-
<PAGE>
ARTICLE XI
TRANSITIONAL ISSUES
11.1. Purchase Orders. Cypress will promptly contact all its customers
---------------
with outstanding purchase orders for FPGA Products and will use its reasonable
best efforts to encourage such customers to cancel all purchase orders for FPGA
Products and to enter into new purchase orders with QuickLogic for FPGA Products
as expeditiously as possible, pursuant to the plan to effect such transition
attached hereto as Exhibit J (the "Transition Plan").
---------
11.2. Sale of Products. QuickLogic will sell to Cypress FPGA Products to
----------------
the extent needed by Cypress to fill purchase orders received by Cypress and
which cannot be transferred to QuickLogic pursuant to the Transition Plan in a
timely manner because of customer demands. For such sales, QuickLogic will sell
such FPGA Products to Cypress during the six-month period following the Closing
Date at a price equal to: (i) 77.5% of Cypress's actual sales price of such
products, for the first three months after the Closing Date and (ii) 90.0% of
Cypress's actual sales price of such products for the second three months after
the Closing Date. In addition, QuickLogic will reimburse Cypress for any test
and finish costs reasonably incurred by Cypress and supported by appropriate
documentation submitted in writing to QuickLogic.
11.3. Transfer of Inventory. The Inventory (as defined on Exhibit A) will
---------------------
be transferred, at Cypress's expense, to QuickLogic's offices in Sunnyvale,
California in accordance with the Transition Plan, and in any event within
fourteen (14) days after the Closing Date. Cypress may retain a portion of the
Inventory to the extent reasonably necessary to fulfill purchase orders that
pursuant to Section 11.2 cannot be transferred to QuickLogic. Any remaining
Inventory shall be transferred, at Cypress's expense, to QuickLogic's offices in
Sunnyvale, California 90 and 180 days after the Closing Date.
11.4. Warranties and Returns. Cypress shall bear the cost of all returns,
----------------------
warranties and chargebacks for FPGA Products shipped to customers by Cypress,
regardless of the date of sale, in each case in accordance with Cypress' then-
current practices. QuickLogic will not take any action to encourage any returns
of such goods to Cypress. QuickLogic shall be responsible for all warranties
and chargebacks for FPGA Products shipped to customers by QuickLogic, regardless
of the date of sale, and shall be responsible for returns of FPGA Products from
the trade in accordance with QuickLogic's return policy. The parties hereto
agree that should QuickLogic accept returns or pay chargebacks for FPGA Products
shipped to customers by Cypress, Cypress shall reimburse QuickLogic upon
presentation of proper evidence by QuickLogic of such acceptance or payment.
-23-
<PAGE>
ARTICLE XII
COVENANTS FOLLOWING CLOSING
12.1. Arbitration. Any dispute arising between the parties with respect
-----------
to this Agreement (including, without limitation, in regard to any claim under
Section 12.1 hereof) or any Transaction Agreement (except as provided in the
Wafer Fabrication Agreement), shall be settled by arbitration conducted in Santa
Clara County. If either party wishes to commence an arbitration hereunder, it
shall serve written notice to such effect on the other party and, within 45 days
thereafter, the parties shall mutually select a single arbitrator to conduct
such arbitration from among a list of retired federal and state trial court
judges eligible to serve in such capacity furnished to the parties by the
American Arbitration Association. If the parties are unable to select an
arbitrator by mutual agreement within such period, the arbitrator shall be
selected by the American Arbitration Association in accordance with its
procedures. In conducting the arbitration, the arbitrator shall apply the
Commercial Arbitration Rules of the American Arbitration Association as modified
by any other instructions that the parties may agree upon at the time, except
that each party shall have the right to conduct discovery in any manner and to
any extent authorized by the Federal Rules of Civil Procedure as interpreted by
the federal courts. Costs and expenses, including reasonable attorneys' fees
incurred with respect to the arbitration, shall be borne by the losing party,
unless otherwise determined by the arbitrator based on a showing of good cause
to vary from the usual rule expressed in this sentence. The arbitrator's award
shall be final and unappealable. A judgment upon the award may be entered in
any court having jurisdiction of the parties.
12.2. Support.
-------
(a) Cypress will cooperate in good faith and use reasonable efforts to
assist QuickLogic in achieving the orderly transition of the Transferred Assets
to QuickLogic in order that QuickLogic may incorporate the Transferred Assets
into its existing operations with no diminution in the value of the Transferred
Assets.
(b) Cypress shall observe faithfully the terms of all Assigned
Contracts until assignments or transfers thereof have been obtained. QuickLogic
agrees promptly to reimburse Cypress for any out-of-pocket expenses reasonably
incurred (and documented) by Cypress in carrying out the obligations under such
Assigned Contracts following the Closing Date and through the date of such
assignment, other than any outstanding liabilities under such Assigned
Contracts, which are sole responsibility of Cypress.
(c) Cypress and QuickLogic shall provide each other with such
information and access to books and records as may reasonably be requested by
the other in connection with any Claim or the preparation of any returns of
Taxes and audits or other proceedings relating to Taxes.
-24-
<PAGE>
(d) At the Time of Closing, Cypress will deliver to QuickLogic
electronic copies of any Transaction Agreement for which the first draft was
prepared by Cypress or counsel to Cypress, for the purpose of assisting any
future obligations of Cypress to comply with EDGAR disclosure requirements under
the Securities Act or the Exchange Act.
ARTICLE XIII
NON-COMPETITION AND NON-SOLICITATION
13.1 Covenant Not to Compete. Cypress agrees and acknowledges that
-----------------------
QuickLogic has spent significant time and resources on the development of the
FPGA Technology. In addition, Cypress agrees and acknowledges that the FPGA
Technology is highly confidential and proprietary to QuickLogic and has
significant commercial value to QuickLogic. Cypress also acknowledges that
Cypress's former ownership of the Rights and the Transferred Assets could
provide Cypress with the immediate and commercially valuable ability to compete
with QuickLogic in the field of antifuse FPGA products. Therefore, in
consideration of the Consideration and the other rights granted to Cypress under
this Agreement and the Transaction Agreements, Cypress agrees to the following
covenant not to compete:
(a) Non-Compete. During the ten (10) year period following the
------------
Closing Date, Cypress (including its subsidiaries) will not, directly or
indirectly, develop, manufacture, market, sell or otherwise distribute any
antifuse FPGAs or products which provide the same or similar capability to the
user and which are predominately user configurable that are pin-compatible with
existing PASIC 1 or PASIC 2 products (specifically, 1K, 2K, 3K, 4K, 5K, 7K, 8K
and 9K) (the "Field") anywhere in the world. The foregoing specifically
-----
includes any activities performed by third parties on behalf of, or in
conjunction with, Cypress (or its subsidiaries) during this ten-year term. For
purposes of this paragraph, a "subsidiary" shall mean any corporation or other
entity of which Cypress beneficially owns fifty percent (50%) or more of the
voting stock of such corporation or a fifty percent (50%) or greater interest in
the decision-making authority of such other entity.
(b) Transition Period. Notwithstanding Section 13.1(a), Cypress may
-----------------
continue to sell antifuse FPGA Products to certain customers of Cypress (i) that
required QuickLogic to be qualified until QuickLogic has been qualified to
manufacture and sell products to such customers and (ii) under existing
contracts or other binding commitments until such customers agree to release
Cypress from such obligations.
(c) Reformation. In the event that the provisions of this Section
-----------
13.1 should ever be deemed to exceed the scope, time or geographic limitations
of applicable law regarding covenants not to compete or are otherwise declared
unenforceable under applicable law, then such provisions shall be reformed to
the maximum scope, time or geographic limitations, as the case may be, permitted
under applicable law.
-25-
<PAGE>
13.2. Representations of Cypress. Cypress represents that: (i) it is
--------------------------
familiar with the covenant not to compete set forth in Section 13.1, (ii) it is
fully aware of its obligations thereunder, including, without limitation, the
length of time, scope and geographic coverage of those covenants, (iii) it finds
the length of time, scope and geographic coverage of these covenants to be
reasonable, and (iv) it is receiving specific, bargained-for consideration for
its covenant not to compete.
13.3. Non-Solicitation. For a period of twelve (12) months from the
----------------
Closing Date (or, if the Closing does not occur, twelve months from the
termination of negotiations with regard to the Transaction), neither Cypress nor
QuickLogic shall engage or participate in any effort or act to solicit the other
party's employees to cease their association or employment with that party.
13.4. Breach by Cypress. Cypress acknowledges that in the event of a
-----------------
material breach of any of the provisions of Section 13.1 by Cypress, QuickLogic
would sustain irreparable harm, and, therefore, Cypress agrees that in addition
to any other remedies which QuickLogic may have under this Agreement or
otherwise, QuickLogic shall be entitled to obtain equitable relief, including
specific performance and injunctions restraining Cypress from committing or
continuing any such violation of this Agreement.
13.5. Breach by QuickLogic. QuickLogic acknowledges that in the event of
--------------------
a material breach of any of the provisions of Section 13.3 by QuickLogic,
Cypress would sustain irreparable harm, and, therefore, QuickLogic agrees that
in addition to any other remedies which Cypress may have under this Agreement or
otherwise, Cypress shall be entitled to obtain equitable relief, including
specific performance and injunctions restraining QuickLogic from committing or
continuing any such violation of this Agreement.
ARTICLE XIV
MISCELLANEOUS
14.1. Fees and Expenses. Each of the parties hereto shall bear its own
-----------------
fees and expenses, including fees of counsel and accountants, incurred in
connection with the negotiation of this Agreement and the Transaction Agreements
and the consummation of the transactions contemplated hereby and thereby or
otherwise arising out of, or by reason of, this Agreement or any Transaction
Agreement.
14.2. Entire Agreement; Conflicts; Third Party Beneficiaries. This
------------------------------------------------------
Agreement and the Transaction Agreements (including the exhibits and schedules
hereto and thereto) constitute the entire agreement between the parties hereto
and thereto with respect to the subject matter hereof
-26-
<PAGE>
and thereof and supersedes all prior and contemporaneous agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties with respect thereto, including the Letter of Intent. The parties
hereto acknowledge and agree that no third party is intended to be a third-party
beneficiary of this Agreement or any Transaction Agreement.
14.4. Amendments. No amendment, modification or rescission of this
----------
Agreement shall be effective unless set forth in writing executed by the party
sought to be bound thereby.
14.5. Notices. Any notice given hereunder or under any Transaction
-------
Agreement (except as otherwise provided therein) shall be in writing and shall
be deemed effective upon the earlier of personal delivery (including personal
delivery by facsimile or other means), the day of delivery by commercial courier
to a responsible individual or the third day after mailing by certified or
registered mail, postage prepaid, as follows:
(1) If to QuickLogic:
QuickLogic Corporation
1277 Orleans Drive
Sunnyvale, CA 94089-1138
Attention: E. Thomas Hart, President and Chief Executive Officer
Telephone: (408) 990-4000
Fax: (408) 990-4153
With a copy to:
Joshua L. Green
Jeffrey Y. Suto
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Telephone: (415) 854-4488
Fax: (415) 854-1121
-27-
<PAGE>
(2) If to Cypress:
Cypress Semiconductor Corporation
3901 North First Street
San Jose, CA 95134-1599
Attention: T.J. Rodgers
Telephone: (408) 729-3031
Fax: (408) 943-2796
With a copy to:
Barry Taylor
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94306
Telephone: (415) 493-9300
Fax: (415) 493-6811
or to such other address as any party may have furnished in writing to the other
party in the manner provided above.
14.6. Assignment. Except with respect to an assignment to a successor of
----------
all or substantially all of a party's stock, business or assets (for which no
consent shall be required), no party may assign this Agreement or any
Transaction Agreement, nor may any of its rights hereunder be assignable or
transferable, in any manner by a party, without the prior written consent of the
other party. Any proposed assignment in violation of this Section 14.6 shall be
void. Subject to the foregoing, this Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective transferees,
successors, assigns and legal representatives.
14.7. Incorporation by Reference. All Schedules and Exhibits referred to
--------------------------
in this Agreement are by this reference incorporated herein as an integral part
hereof.
14.8. Governing Law. This Agreement and the Transaction Agreements and
-------------
the respective rights and obligations of the parties hereto and thereto shall be
construed under and by the laws of the State of California, without reference to
conflicts of laws principles.
14.9. Captions. The title to the Sections and subsections of this
--------
Agreement and the Transaction Agreements are included herein solely for
convenience, are not a part of this Agreement or any Transaction Agreement and
do not in any way limit or amplify the terms of this Agreement or any
Transaction Agreement.
-28-
<PAGE>
14.10. No Waiver. It is understood and agreed that no failure or delay by
---------
any party in exercising any right, power, or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any right,
power or privilege be deemed to operate as a waiver of any other right, power or
privilege hereunder.
14.11. Counterparts. This Agreement and any Transaction Agreement may be
------------
executed in any number of counterparts, each of which shall be considered to be
an original, but all of which together shall constitute one and the same
instrument.
[SIGNATURE PAGE FOLLOWS]
-29-
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Termination
Agreement as of the date first set forth above.
QUICKLOGIC: QUICKLOGIC CORPORATION
a California corporation
By: /s/ E. Thomas Hart
-----------------------------------------
Title: President & CEO
--------------------------------------
CYPRESS: CYPRESS SEMICONDUCTOR CORPORATION
a Delaware corporation
By: /s/ Emmanuel Hernandez
-----------------------------------------
Title: CFO
--------------------------------------
<PAGE>
EXHIBIT A TO TERMINATION AGREEMENT
----------------------------------
TRANSFERRED ASSETS
All inventory of the FPGA Products, including work in process and finished goods
but excluding wafers in process, 1K PCI bus devises, and 1K and 2K VLSI devises
(the "Inventory"). Attached is a complete listing of such Inventory as of the
date of this Agreement, which will be updated as of the Closing.
Equipment utilized for the FPGA Products (the "Equipment") as attached.
Permits: None
Other Assets: None
<PAGE>
Exhibit A
Equipment
Units Amount
Reticles
7C382 [*] [*]
7C384 [*] [*]
7C386 [*] [*]
7C3803 [*] [*]
7C3805 [*] [*]
7C3807 [*] [*]
7C3809 [*] [*]
Sort H/W [*] [*]
Scrambler Board [*] [*]
382 Probe Card [*] [*]
384 Probe Card [*] [*]
386 Probe Card [*] [*]
388 Probe Card [*] [*]
3807 Probe Card [*] [*]
3809 Probe Card [*] [*]
3805 Probe Card [*] [*]
HP H/W [*] [*]
HP Tester [*] [*]
8K Mother Board [*] [*]
387 TQFP OUT Card [*] [*]
388 PQFP OUT Card [*] [*]
4K Mother Board [*] [*]
385 TQFP OUT Card [*] [*]
386 TQFP OUT Card [*] [*]
388 Blank TQFP OUT Card [*] [*]
2K Mother Board [*] [*]
384 TQFP OUT Card [*] [*]
384 CPGA OUT Card [*] [*]
1K Mother Board [*] [*]
382 TQFP OUT Card [*] [*]
Blank Mother Board [*] [*]
Blank Component Card [*] [*]
Blank 8K Mother Board [*] [*]
VT H/W [*] [*]
Load Boards [*] [*]
44-PLCC Hand Test Board [*] [*]
68-PLCC Hand Test Board [*] [*]
84-PLCC Hand Test Board [*] [*]
100-TQFP Hand Test Board [*] [*]
144-TQFP Hand Test Board [*] [*]
Cable Sets [*] [*]
- -----------------
* An asterisk indicates confidential material that has been omitted from
this document and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
Page 1
<PAGE>
Exhibit A
Equipment
B/I Boards [ * ]
160-COFP [ * ]
SpDE [ * ]
Programmers [ * ]
DeskFab [ * ]
Programmers [ * ]
84-PLCC Adapters [ * ]
208-PQFP Adapters [ * ]
Other [ * ]
Bench Boards [ * ]
TOTAL [ * ]
- -------------
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
EXHIBIT A-1 TO TERMINATION AGREEMENT
------------------------------------
FPGA TECHNOLOGY
PATENTS AND PATENT APPLICATIONS (SEE ATTACHED)
MASK WORK RIGHTS: NONE
<PAGE>
EXHIBIT A
CONFIDENTIAL - SUBJECT TO ATTORNEY-CLIENT PRIVILEGE
CYPRESS U.S. PATENTS AND PATENT APPLICATIONS THAT EITHER COVER
OR MAY COVER ANTIFUSE TECHNOLOGY AND/OR CIRCUITS THAT ARE OR
MAY BE USED IN FPGA'S
---------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Patent/Serial No. Original Filing Date Title Status
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
[*] [*] [*] [*]
- ---------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*]
- ---------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*]
- ---------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*]
- ---------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*]
- ---------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*]
- ---------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*]
- ---------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*]
- ---------------------------------------------------------------------------------------------------------------
[*] [*] [*] [*]
- ---------------------------------------------------------------------------------------------------------------
U.S. Pat. No. December 29, 1995 Planner Antifuse and Method Issued
5,573,971 of Fabrication
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities and Exchange Act of 1933, as amended.
<PAGE>
EXHIBIT B TO TERMINATION AGREEMENT
----------------------------------
ASSUMED OBLIGATIONS
1. Obligations of Cypress under purchase orders to sell FPGA Products to
Cypress' customers that are unfilled as of the Closing to the extent
transferable and attached hereto.
2. Obligations of Cypress that arise after the Closing Date in connection
with the performance by QuickLogic of such transferred purchase orders; provided
that all such orders shall not include any responsibility of QuickLogic for any
returns of product shipped by Cypress, and provided further, if Cypress has
received payment for the obligations, it shall remit such payments to
QuickLogic.
<PAGE>
EXHIBIT C TO
------------
TERMINATION
-----------
AGREEMENT
---------
BILL OF SALE
This Bill of Sale ("Agreement") is made as of March 29, 1997 by and
between Cypress Semiconductor Corporation, a corporation organized under the
laws of Delaware ("Seller"), and, QuickLogic Corporation, a corporation
organized under the laws of California (the "Buyer").
1. Definitions. Unless specifically designated otherwise, capitalized
-----------
terms used in this Agreement shall have the meanings given them in the
Termination Agreement between Seller and Buyer dated as of March 29, 1997 (the
"Termination Agreement").
2. Transfer. Subject to the terms and conditions of the Termination
--------
Agreement and Transition Plan, Seller shall assign, grant, transfer and convey
to Buyer, free and clear of all liens, claims, interests and encumbrances, and
Buyer agrees to acquire from Seller, all of Seller's rights, title and interest
in and to the assets listed on Exhibit A (the "Transferred Assets"), and Seller
shall deliver good, clear and marketable title to each and every Transferred
Asset, together with such bills of sale, assignments and other instruments of
conveyance as may be reasonably requested by Buyer to permit such delivery.
Without limiting the foregoing, the Transferred Assets shall be deemed to
include only the following:
(a) All right, title and interest in the Equipment and Inventory (each
as defined in Exhibit A), and all claims and rights of Seller with respect
thereto, including, without limitation, all rights against suppliers thereof
under warranties listed and described in Schedule 1.1(a) of the Termination
Agreement (to the extent transferable by Seller), including, without limitation,
all of Seller's rights under manufacturers' warranties and guarantees (to the
extent transferable by Seller) relating to the Equipment and all benefits and
proceeds with respect to the Equipment as of and after the Closing under any
policy of insurance;
(b) All books and records, whether originals or copies, whether
financial or otherwise, relating to the Transferred Assets and which do not
primarily relate to areas of Seller's business other than the Transferred
Assets; provided that Seller shall be entitled, at Seller's expense, to make and
retain photocopies of such records for the purpose of accounting and tax
compliance;
(c) All licenses, permits, authorizations and other approvals
from any federal, state, local or foreign governmental, public or
self-regulatory body or authority relating to the Transferred Assets or the
Assumed Obligations, all of which are listed in Exhibit A (collectively, the
"Permits");
(d) The computer software and hardware specifically used in
connection with the Equipment, including all documentation and source code, to
the extent they are legally transferable by Seller;
<PAGE>
(e) All rights of indemnification, claims or causes of action
in favor of Seller, to the extent they arise out of or relate to the Transferred
Assets after the Closing Date including, without limitation, those against any
person under any purchase or other agreement pursuant to which Seller acquired
any portion of the Transferred Assets or those arising by operation of law or
equity or otherwise; and
(f) Those other assets that relate to the Transferred Assets and are
listed in Exhibit A.
3. Miscellaneous.
-------------
(a) Seller and Buyer hereby agree that they will, from time to time,
execute and deliver such further instruments of conveyance and transfer as
may be reasonably required to implement and effectuate the transfer of the
Transferred Assets pursuant to the Termination Agreement.
(b) This Agreement has been executed to implement the Termination
Agreement and nothing contained herein shall be deemed or construed to impair or
alter any of the provisions of the Termination Agreement.
(c) This Agreement is executed and delivered in, and shall be
construed and enforced in accordance with the domestic laws of the State of
California, and shall be binding upon and shall inure to the benefit of the
respective successors and assigns of the parties to this Agreement.
(d) This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
(e) Seller hereby covenants and agrees to warrant and defend the
title to the above-described Transferred Assets hereby conveyed, against the
just and lawful claims and demands of all persons whomsoever.
(f) The terms of this Agreement may only be modified by a written
agreement duly signed by persons authorized to sign agreements on behalf of the
parties hereto.
Signature page follows
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Bill of Sale on the
date first above written.
"BUYER"
QUICKLOGIC CORPORATION
By:
---------------------------------------
Title:
------------------------------------
"SELLER"
CYPRESS SEMICONDUCTOR
CORPORATION
By:
---------------------------------------
Title:
------------------------------------
-3-
<PAGE>
EXHIBIT D TO TERMINATION AGREEMENT
----------------------------------
(See Exhibit 10.20 to the Registrant's Registration Statement on Form S-1).
<PAGE>
EXHIBIT E TO TERMINATION AGREEMENT
NON-CONVERTIBLE PROMISSORY NOTE
-------------------------------
$_________________ ______________, 1997
Sunnyvale, California
For value received, QuickLogic Corporation, a California corporation
(the "Company"), promises to pay to the order of Cypress Semiconductor
Corporation (the "Holder"), the principal sum of ____________ Dollars ($______).
Such principal sum may be increased from time to time pursuant to Paragraph 10
below. No interest shall accrue on the unpaid principal amount of this Note,
except as provided under Paragraph 9 below. This Note is subject to the
following terms and conditions.
1. MATURITY. This Note will automatically mature and be due and payable
--------
on the date nine months after the later of (i) the date hereof or (ii) the date
of any increase in principal pursuant to Paragraph 10 below (the "Maturity
--------
Date") in nine (9) equal monthly installments, with the first such installment
- -----
due on the Maturity Date. The last such installment shall include any amounts
oustanding but unpaid, such that it may not equal the preceding eight (8)
installments. The entire unpaid principal sum of this Note, shall become
immediately due and payable upon the insolvency of the Company, the commission
of any act of bankruptcy by the Company, the execution by the Company of a
general assignment for the benefit of creditors, the filing by or against the
Company of a petition in bankruptcy or any petition for relief under the federal
bankruptcy act or the continuation of such petition without dismissal for a
period of ninety (90) days or more, or the appointment of a receiver, trustee,
liquidator, assignee or similar official to take possession of the property or
assets of the Company or to administer the winding up or liquidation of its
affairs.
2. PAYMENT. All payments shall be made in lawful money of the United
-------
States of America at such place as the Holder hereof may from time to time
designate in writing to the Company. Prepayment of this Note may be made at any
time without penalty.
3. TRANSFER: SUCCESSORS AND ASSIGNS. The terms and conditions of this
--------------------------------
Note shall inure to the benefit of and be binding upon the respective successors
and assigns of the parties. This Note may be transferred only upon surrender of
the original Note for registration of transfer, duly endorsed, or accompanied by
a duly executed written instrument of transfer in form satisfactory to the
Holder. Thereupon, a new note for the same principal amount will be issued to,
and registered in the name of, the transferee. Principal is payable only to the
registered holder of this Note.
<PAGE>
4. GOVERNING LAW. This Note and all acts and transactions pursuant
-------------
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
5. NOTICES. Any notice required or permitted by this Note shall be in
-------
writing and shall be deemed sufficient upon delivery, when delivered personally
or by a nationally-recognized delivery service (such as Federal Express or UPS),
or forty-eight (48) hours after being deposited in the U.S. mail, as certified
or registered mail, with postage prepaid, addressed to the party to be notified
at such party's address as set forth below or as subsequently modified by
written notice.
6. AMENDMENTS AND WAIVERS. Any term of this Note may be amended with
----------------------
the written consent of the Company and the Holder. Any amendment or waiver
effected in accordance with this Section 7 shall be binding upon the Company and
the Holder.
7. SHAREHOLDERS, OFFICERS AND DIRECTORS NOT LIABLE. In no event shall
-----------------------------------------------
any shareholder, officer or director of the Company be liable for any amounts
due or payable pursuant to this Note.
8. ACTION TO COLLECT FEES. If action is instituted to collect this
----------------------
Note, the Company promises to pay all costs and expenses, including reasonable
attorney's fees, incurred in connection with such action.
9. DEFAULT. In the event the Company does not pay within ten (10)
-------
business days any installment payment required to be paid under Paragraph 1,
such unpaid installment shall accrue simple interest at 5.83% per year from the
original due date to the date such installment is paid in full.
10. INCREASE OF PRINCIPAL UPON SUBSEQUENT TRANSFERS OF INVENTORY. Upon
------------------------------------------------------------
subsequent transfers of inventory by Holder to the Company pursuant to Article
XI of that certain Termination Agreement dated March __, 1997 between the
Company and Holder, the principal sum due under this Note shall be increased by
an amount equal to QuickLogic's standard cost of such finished and
work-in-progress inventory being shipped.
11. OTHER. The Company expressly waives any presentment, demand,
-----
protest, notice of dishonor or any other notice of any kind in connection with
this Note now or hereafter required by applicable law.
-2-
<PAGE>
COMPANY:
QUICKLOGIC CORPORATION
By: _________________________
Name: _______________________
(print)
Title: ______________________
Address: 1277 Orleans Drive
Sunnyvale, CA 94089-1138
AGREED TO AND ACCEPTED:
HOLDER:
CYPRESS SEMICONDUCTOR CORPORATION
By: _____________________________
Name: ___________________________
(print)
Title: __________________________
Address: 3901 North First Street
San Jose, CA 95134
<PAGE>
EXHIBIT F TO TERMINATION AGREEMENT
----------------------------------
(See Exhibit 10.13 to the Registrant's Registration Statement on Form S-1).
<PAGE>
EXHIBIT G TO TERMINATION AGREEMENT
----------------------------------
(See Exhibit 10.12 to the Registrant's Registration Statement on Form S-1).
<PAGE>
EXHIBIT H TO TERMINATION AGREEMENT
----------------------------------
(See Exhibit 10.11 to the Registrant's Registration Statement on Form S-1).
<PAGE>
EXHIBIT I TO TERMINATION AGREEMENT
----------------------------------
(See Exhibit 10.10 to the Registrant's Registration Statement on Form S-1).
<PAGE>
EXHIBIT J TO TERMINATION AGREEMENT
----------------------------------
TRANSITION PLAN
<PAGE>
[LETTERHEAD OF QUICKLOGIC]
CY Transition Agreement
Revision Date: March 20, 1997
Definitions:
- -----------
Closing Date - execution date of the Transaction Agreement.
Products - pASIC1, pASIC2, programmers, adapters, development tools
Exceptions to Transition Agreement - in writing and signed by D. McCranie and
R. Johnson
Transfer Plan - inventory transfer agreement executed on March 10, 1997.
Terms and Conditions:
- --------------------
Backlog - No new orders, or increases to existing orders, will be accepted by
Cypress as of the Closing Date, unless otherwise agreed to in writing by both
parties.
Continued Shipments by Cypress - It is the intent and expectation of both
parties to transition all backlog requirements to QuickLogic by the Closing
Date. Any accounts which are not expected to transition to QuickLogic by the
Closing Date must be identified and agreed to in writing by both parties.
New Orders - all new orders for Products will be referred to QuickLogic's sales
representative in the respective geographic territory.
Inventory - Inventory will transfer to QuickLogic in accordance with the terms
outlined in the Transfer Plan. Inventory and test hardware purchases will
include a one million dollar ($1,000,000) discount. This discount will be
realized by applying forty percent (40%), rounded to the nearest $100,000
for each purchase order. Each purchase order should include a single line for
the discounted dollar amount.
<PAGE>
page two
Transition Agreement
Documentation - the Parties agree to transfer the following documents:
a) Shipments - by the Closing Date. Q1'97 quarter to date shipments by
Product by customer (identifying location of end customers); monthly
shipments by Product by customer for each month after the Closing Date
until no further shipments of Products are made by Cypress.
b) POS - Q1'97 quarter to date resale data by distributor by end customer by
Product by the Closing Date; complete Q1'97 resale data by distributor by
end customer by product within one month from the Closing Date.
c) CY Backlog - weekly backlog status in the format identified as "End
Customer Backlog Report," until no further backlog is in place at Cypress
on the Products.
d) DeskFab Programmers - list of customers which DeskFab programmers were
shipped to by Cypress by the Closing Date.
Cypress Semiconductor Corporation:
/s/ J. Daniel McCranie
- ----------------------------------
J. Daniel McCranie
Vice President Sales and Marketing
QuickLogic Corporation:
/s/ Richard Johnson
- ----------------------------------
Richard Johnson
Vice President Sales
<PAGE>
TRANSFER PLAN FOR CYPRESS FPGA INVENTORY TO QUICKLOGIC
March 10, 1997
All Cypress (CY) FPGA inventory will be transferred to QuickLogic (QL) within
fourteen (14) days after the closing date except for a reasonable portion
necessary to fulfill purchase orders that have not yet been transferred to QL.
Any remaining inventory shall be transferred to QL 90 days and 180 days after
the closing date.
All CY FPGA inventory will be transferred to QL at one of four WIP (Work In
Progress) positions:
1. Die Bank
2. Packaged Units (assembled but untested)
3. Bin (packaged, tested but unmarked)
4. Finished Goods (packaged, tested, marked, and finished)
The transfer pricing is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Prime In-house
CY Part CY Pack. OL Part OL Pack. Die Bank Packaged Bin Proc. Bin FG
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
381 ic.ii 1K 44 plcc [ * ] [ * ] [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------
382 ic.ii 1K 68 plcc [ * ] [ * ] [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------
382 ac.ai 1K 100 taFo [ * ] [ * ] [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------
383 ic.ii 2K 68 plcc [ * ] [ * ] [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------
384 ic.ii 2K 84 plcc [ * ] [ * ] [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------
384 ac.ai 2K 100 taFo [ * ] [ * ] [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------
384 gc 2K 84 pga [ * ] [ * ] [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------
384 gm 2K 84 pga [ * ] [ * ] [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------
385 ic.ii 4K 84 plcc [ * ] [ * ] [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------
385 ac.ai 4K 100 taFo [ * ] [ * ] [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------
386 ac.ai 4K 144 taFo [ * ] [ * ] [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------
386 um 4K 160 caFo [ * ] [ * ] [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------
385P ic.ii 4K PCI 84 plcc [ * ] [ * ] [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------
385P ac.ii 4K PCI 100 taFo [ * ] [ * ] [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------
386P ac.ii 4K PCI 144 taFo [ * ] [ * ] [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------
3807 ac.ai 7K 144 taFo [ * ] [ * ] [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------
3807 nc.ni 7K 208 paFo [ * ] [ * ] [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------
387 ac.ai 8K 144 taFo [ * ] [ * ] [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------
388 nc.ni 8K 208 paFo [ * ] [ * ] [ * ] [ * ] [ * ]
- ----------------------------------------------------------------------------------------------
</TABLE>
The transfer price for finished goods is the prime bin transfer price minus
the cost for stripping the mark: [ * ] for 44 plcc. 68 plcc. 84plcc. and
all others, respectively.
The transfer price for the in-house programming bin is [ * ].
- ------------
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
Until fourteen days after the closing date the logistics of transferring
inventory will be as follows:
On Tuesday of each week CY will provide a list of all CY inventory
available to QL. The device package (if applicable) WIP position, lot
information, geographical location, and number of units will be detailed
for all available inventory.
QL will respond to this by providing a purchase order (PO) to CY which will
include the same information as above, the price, and the shipping
requirements, including location and date.
CY will respond within one business day of receipt of the PO from QL with a
confirmation of the WIP material to be shipped, the price, and the expired
delivery date to the specified location.
CY will ship the WIP material and invoice QL accordingly.
For 90 days and 180 days after the closing date, the logistics of transferring
inventory will be as follows:
Fifteen (15) days prior to the inventory transfer date, CY will provide a
list of all CY inventory available for transfer to QL. The device package
(if applicable), WIP position, lot information, geographical location, and
number of units will be detailed for all available inventory.
QL will respond to this by providing a purchase order (PO) to CY which will
include the same information as above, the price, and the shipping
requirements including location and date.
CY will respond within one business day of receipt of the PO from QL with a
confirmation of the WIP material to be shipped, the price, and the expected
delivery date to the specified location.
CY will ship the WIP material and invoice QL accordingly.
CYPRESS SEMICONDUCTOR CORPORATION
/s/ Christopher W. Jones 03/10/97
- ------------------------------------------
Christopher W. Jones
FPGA Product Engineering Director
QUICKLOGIC CORPORATION
/s/ Philip Ong 3/10/97
- ------------------------------------------
Philip Ong
Vice President Operations
<PAGE>
TRANSITION PLAN FOR CYPRESS TO SUPPORT EXISTING CUSTOMER DEMAND
March 20, 1997
Cypress (CY) may continue to sell FPGA products to satisfy existing CY backlog.
Products will be supplied to customers from existing CY inventory.
The customers, devices, and quantities are limited to the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Manufacturing Marketing End Number of
Part Number Part Number Customer Units
- ---------------------------------------------------------------------
<S> <C> <C> <C>
7C384A-OAC CY7C384A-OAC [ * ] [ * ]
- ---------------------------------------------------------------------
7C384A-1JI CY7C384A-1JI [ * ] [ * ]
- ---------------------------------------------------------------------
7C385A-2JI CY7C385A-2JI [ * ] [ * ]
- ---------------------------------------------------------------------
7C384A-2JI CP4515AM [ * ] [ * ]
- ---------------------------------------------------------------------
7C382A-XA1 CP4805AM [ * ] [ * ]
- ---------------------------------------------------------------------
7C386A-IUMB CY7C386A-IUMB [ * ] [ * ]
- ---------------------------------------------------------------------
7C386A-OUMB CP4580BM [ * ] [ * ]
- ---------------------------------------------------------------------
7C386A-OUMB CP4581AM [ * ] [ * ]
- ---------------------------------------------------------------------
7C384A-2JC CY7C384A-2JC [ * ] [ * ]
- ---------------------------------------------------------------------
</TABLE>
QL will provide CY with testing services for the 7C382A-XAI (1K industrial in
100-pin TQFP) and the 7C386A-IUMB and 7C386A-OUMB (4K military 883 in 160-pin
CQFP) as follows:
1. QL will provide up to [ * ] of testing capacity each week.
2. All [ * ] of testing are at any temperature required.
3. The price for each tested unit out is given in the table below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Device FT @ 25C FT @ 85C FT @ 135C FT @ -60C QA @ 25C
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
7C382 [ * ] [ * ] [ * ] [ * ] [ * ]
- ------------------------------------------------------------------------------------
7C386 [ * ] [ * ] [ * ] [ * ] [ * ]
- ------------------------------------------------------------------------------------
</TABLE>
CYPRESS SEMICONDUCTOR CORPORATION
/s/ J. Daniel McCranie 3/20/97 /s/ Christopher W. Jones 03/20/97
- ----------------------------- -------------------------
J. Daniel McCranie Christopher W. Jones
Vice President Sales and Marketing FPGA Product Engineering Director
QUICKLOGIC CORPORATION
/s/ Richard Johnson 3/20/97 /s/ Phillip Ong 3/20/97
- ----------------------------- -------------------------
Richard Johnson Phillip Ong
Vice President World-Wide Sales Vice President Operations
- --------------
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
-1-
<PAGE>
SCHEDULE 1.1(a) TO TERMINATION AGREEMENT
----------------------------------------
LIST OF CLAIMS AND RIGHTS OF CYPRESS AGAINST SUPPLIERS UNDER WARRANTIES
None.
<PAGE>
SCHEDULE 2.2 TO TERMINATION AGREEMENT
-------------------------------------
ALLOCATION OF CONSIDERATION
Inventory [ * ] (as estimated by Cypress as of February 28,
1997)
Equipment [ * ]
Marketing Rights and
Contract Termination [ * ]
- -------------
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
SCHEDULE 3 TO TERMINATION AGREEMENT
-----------------------------------
CYPRESS DISCLOSURE SCHEDULE
No exceptions to the representations and warranties made in Article III.
<PAGE>
SCHEDULE 4 TO TERMINATION AGREEMENT
-----------------------------------
QUICKLOGIC DISCLOSURE SCHEDULE
No exceptions to the representations and warranties made in Article IV.
<PAGE>
EXHIBIT 10.10
CROSS LICENSE AGREEMENT
This Cross License Agreement ("Agreement") is made and entered into as of
this 29th day of March, 1997 ("Effective Date") by and between Cypress
Semiconductor Corporation, a Delaware corporation, with offices at 3901 North
First Street, San Jose, California 95134 ("Cypress"), and QuickLogic
Corporation, a California corporation, with offices at 1277 Orleans Drive,
Sunnyvale, California 94089-1138 ("QuickLogic").
BACKGROUND
The parties possess certain patents and other intellectual property rights,
and the parties desire to license these patents and other intellectual property
rights to each other pursuant to the terms and conditions of this Agreement.
In consideration of the mutual covenants and conditions stated herein, the
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
AGREEMENT
1. DEFINITIONS
1.1 "Antifuse Module" shall mean the programming cell used by Cypress from
---------------
time to time in the PASIC 1 and PASIC 2 products.
1.2 "Control" for purposes of Sections 1.3, 1.4, and 1.7 shall mean the
-------
ability to grant the rights and licenses stated herein without payment of
royalties or other consideration to third parties.
1.3 "Cypress Intellectual Property Rights" shall mean all patents,
------------------------------------
copyrights, mask work rights, trade secrets owned or Controlled by Cypress prior
to and during the term of this Agreement, including without limitation all
applications and registrations with respect thereto, that were developed,
conceived and reduced to practice solely by Cypress or jointly by Cypress and
QuickLogic under the Existing Agreement in the development of the Antifuse
Module, including for purposes of Section 2.3, the method of fabrication,
physical structure, and method of design of the Antifuse Module.
1.4 "Cypress Licensed Patents" shall mean all patents throughout the
------------------------
world, now issued or issued within ten (10) years of the Effective Date, that
are owned or Controlled by Cypress as of the Effective Date or during the term
of this Agreement.
1.5 "Existing Agreement" shall mean that certain Technical Transfer, Joint
------------------
Development License and Foundry Supply Agreement between the parties dated
October 2, 1992.
-1-
<PAGE>
1.6 "Programmable Logic Product" shall mean an integrated circuit that
--------------------------
incorporates a network of programmable cells.
1.7 "QuickLogic Intellectual Property Rights" shall mean all patents,
---------------------------------------
copyrights, mask work rights, trade secrets owned or Controlled by QuickLogic
prior to and during the term of this Agreement, including without limitation all
applications and registrations with respect thereto, that were developed,
conceived and reduced to practice solely by QuickLogic or jointly by Cypress and
QuickLogic under the Existing Agreement in the development of the Antifuse
Module, including for purposes of Section 2.1, the method of fabrication,
physical structure, and method of design of the Antifuse Module.
1.8 "QuickLogic Licensed Patents" shall mean all patents throughout the
---------------------------
world, now issued or issued within ten (10) years of the Effective Date, that
are owned or Controlled by QuickLogic as of the Effective Date or during the
term of this Agreement.
1.9 "Licensed Products" shall mean any and all Programmable Logic
-----------------
Products, except (i) antifuse field programmable gate arrays (FPGAs), or (ii)
products providing the same or similar capability to the user as the products
described in (i) that are predominantly user configurable and are pin-compatible
with the PASIC 1 and PASIC 2 products existing as of the Effective Date (i.e.,
1K, 2K, 3K, 4K, 5K, 7K, 8K, and 9K).
2. LICENSE GRANTS
2.1 QuickLogic Licensed Patents and Intellectual Property Rights.
------------------------------------------------------------
QuickLogic hereby grants to Cypress a non-exclusive, non-transferable (except
pursuant to Article 5), royalty-free, worldwide license, without right of
sublicense, under the QuickLogic Licensed Patents and QuickLogic Intellectual
Property Rights to make, have made, use, offer for sale, sell and distribute
(directly or indirectly) Licensed Products.
2.2 Cypress Licensed Patents. Cypress hereby grants to QuickLogic a non-
------------------------
exclusive, non-transferable (except pursuant to Article 5), royalty-free,
worldwide license, without right of sublicense, under the Cypress Licensed
Patents to make, have made, use, offer for sale, sell and distribute (directly
or indirectly) Programmable Logic Products.
2.3 Cypress Licensed Antifuse Technology. Cypress hereby grants to
------------------------------------
QuickLogic a non-exclusive, royalty-free, worldwide license, including a right
of sublicense, under the Cypress Intellectual Property Rights, to make, have
made, use offer, sell and distribute (directly or indirectly) Programmable Logic
Products incorporating the Antifuse Module, or the method of fabrication,
physical structure or method of design of the Antifuse Module.
2.4 Further Limitations. Nothing contained in this Article 2 shall be
-------------------
construed as
-2-
<PAGE>
conferring upon either party, by implication, estoppel or otherwise, any license
or other right except the licenses and rights expressly granted herein. Nothing
contained in this Agreement shall be construed as: (i) a warranty or
representation by either party as to the validity and/or scope of any Cypress
Licensed Patents or QuickLogic Licensed Patents (collectively, "Licensed
Patents"); (ii) imposing upon either party any obligation to institute any suit
or action for infringement of any Licensed Patent, or to defend any suit or
action brought by a third party that challenges or concerns the validity of any
Licensed Patent; (iii) a warranty or representation by either party that any
manufacture, use, sale, lease or other disposition of any products, components
or other technology licensed hereunder, will be free from infringement of any
patent or other intellectual property right; (iv) imposing upon either party any
obligation to file any patent application or to secure any patent or maintain
any patent in force; or (v) an obligation on either party to furnish the other
with any manufacturing or technical information or any other know-how or
information.
2.5 Cypress agrees to reference the inclusion of QuickLogic's VIALINK(tm)
antifuse technology in Cypress products in all appropriate marketing materials,
including press releases and data sheets, distributed in connection with the
sale of such products, it being understood that this provision shall not require
Cypress to sell any products containing VIALINK technology.
3. CONFIDENTIALITY
3.1 "Confidential Information" means any information disclosed by either
------------------------
party to the other party under this Agreement or the Existing Agreement, whether
directly or indirectly, and whether in writing, orally or by inspection of
tangible objects (including without limitation documents, prototypes, samples,
plant and equipment), of a confidential or proprietary nature. Confidential
Information shall include, without limitation, the terms and conditions of this
Agreement, and any information relating to Cypress' manufacturing processes.
"Confidential Information" shall not include information that: (i) is or
becomes generally known or available by publication, commercial use or otherwise
through no fault of the receiving party; (ii) is known and has been reduced to
tangible form by the receiving party at the time of disclosure and is not
subject to restriction; (iii) is independently developed by the receiving party
without use of the disclosing party's Confidential Information; (iv) is lawfully
obtained from a third party who has the right to make such disclosure; or (v) is
released for publication by the disclosing party in writing.
3.2 Nonuse and Nondisclosure. Each party will protect Confidential
------------------------
Information disclosed to it from unauthorized dissemination and use with the
same degree of care that each such party uses to protect its own like
information but in no event with less than reasonable care. Except as expressly
provided in Section 3.3 below, neither party will use Confidential Information
disclosed to it for purposes other than those necessary to directly further the
purposes of this Agreement, nor disclose to third parties Confidential
Information disclosed to it without the prior written consent of the other
party. All disclosures of Confidential Information to third parties made
pursuant to Cypress or QuickLogic's exercise of its rights under the licenses
set forth in Article 2 shall be subject to a confidentiality agreement between
QuickLogic or Cypress, as the case may be, and any such
-3-
<PAGE>
third parties, which confidentiality agreement is reasonably acceptable to the
licensor of such Confidential Information under this Agreement.
3.3 Authorized Disclosure. Either party may disclose the existence of,
---------------------
and the terms and conditions of, this Agreement as may be required by law, or to
governmental departments, agencies, or other bodies, including, without
limitation, the Securities and Exchange Commission, and to make a public
announcement of the transactions contemplated by this Agreement to the extent
that it, in its sole discretion reasonably exercised, is of the view that such
announcement is required or deemed advisable in order to meet its obligations
under the securities laws or stock exchange requirements in the United States,
or in connection with (a) a private or public offering of securities, and (b)
any filing and disclosure obligations under the Securities Act or the Exchange
Act, including without limitation the filing of this Agreement and all exhibits
with the Securities and Exchange Commission; provided that prior to making such
disclosure the party making the disclosure shall provide particulars thereof to
the other party sufficiently in advance of the disclosure to receive comments
from the other party with respect to the disclosure and the obtaining of a
protective order with respect to the protection of confidentiality of the
disclosure and/or applying for confidential treatment for such disclosure if
requested by the other party.
4. LIMITATION OF LIABILITY
In no event shall either party be liable to the other party hereunder for
any indirect, incidental, special or consequential damages, losses, costs or
expenses of any kind, however caused and whether based in contract, tort
(including negligence), products liability or any other theory of liability
Including but not limited to lost profits, costs of procurement of substitute
goods, loss of goodwill, and other business loss. The foregoing limitations
shall apply regardless of whether such party knows or has been advised of the
possibility of such damages, losses, costs, or expenses.
5. ASSIGNMENT
5.1 No Assignment. Except as expressly provided in this Article 5,
-------------
neither party may assign any of its rights or delegate any of its obligations
under this Agreement, whether by operation of law or otherwise, without the
prior written consent of the other party. The rights and liabilities of the
parties hereto will bind and inure to the benefit of the parties and their
respective permitted successors, executors and administrators, as the case may
be.
5.2 Assignment by Cypress. Cypress' license pursuant to Section 2.1 above
---------------------
may be assigned to any entity into which Cypress has merged or that has
otherwise succeeded to all or substantially all of Cypress' business and assets
by merger, reorganization or otherwise, and which has assumed in writing or by
operation of law the terms and conditions of this Agreement pertaining to such
license; provided, however, that the scope of the license so assigned shall be
-----------------
confined to the
-4-
<PAGE>
Licensed Products (i) which are commercially available as of the date of merger
or succession, or (ii) the design of which is in the layout stage as of the
consummation of such merger or succession and are made commercially available
within one (1) year of such date, as such Licensed Products exist as of one year
after the consummation of such merger or succession.
5.3 Assignment by QuickLogic. QuickLogic's license pursuant to Section
------------------------
2.2 above may be assigned to an entity into which QuickLogic has merged or that
has otherwise succeeded to all or substantially all of QuickLogic's business and
assets by merger, reorganization or otherwise, and which has assumed in writing
or by operation of law the terms and conditions of this Agreement pertaining to
such license; provided, however, that the scope of the license so assigned shall
-----------------
be confined to the Programmable Logic Products (i) which are commercially
available as of the date of merger or succession, or (ii) the design of which is
in the layout stage as of the consummation of such merger or succession and are
made commercially available within one (1) year of such date, as such
Programmable Logic Products exist as of one year after the consummation of such
merger or succession. QuickLogic's license pursuant to Section 2.3 above shall
be freely assigned by QuickLogic to any entity which has assumed in writing or
by operation of law the terms and conditions of this Agreement pertaining such
license.
6. TERM AND TERMINATION
6.1 Term. This Agreement shall commence on the Effective Date and
----
continue in full force and effect until the last to expire or be abandoned of
the Licensed Patents, unless earlier terminated pursuant to this Article 6.
6.2 Termination for Cause. Either party may terminate this Agreement
---------------------
effective upon written notice to the other party if such other party breaches
any material term or condition of this Agreement, which breach is not cured
within thirty (30) days after written notice of such breach from the non-
defaulting party stating its intention to terminate this Agreement.
6.3 Termination of Licenses. Either party may terminate the licenses
-----------------------
granted to it under this Agreement (but not the Agreement itself) for any reason
effective upon written notice to the other party.
6.4 Effect of Termination; Survival. Upon any termination of this
-------------------------------
Agreement, all licenses granted hereunder shall be null and void as of the
effective date of such termination, and all rights thereunder shall revert to
their respective grantors. The provisions of Articles 3, 4 and 7 and Section
6.4 shall survive the termination of this Agreement for any reason. All other
rights and obligations of the parties shall cease upon the effective date of
such termination.
7. MISCELLANEOUS PROVISIONS
7.1 Governing Law. This Agreement will be interpreted and governed by the
-------------
laws of the
-5-
<PAGE>
State of California, without reference to conflict of laws principles.
7.2 Arbitration. Any dispute arising between the parties with respect to
-----------
this Agreement shall be settled by arbitration conducted in Santa Clara County
in accordance with the Commercial Rules and Supplementary Procedures for Large,
Complex Disputes of the American Arbitration Association as presently in force
("Rules"), except that each party shall have the right to conduct discovery in
any manner and to any extent authorized by the Federal Rules of Civil Procedure
as interpreted by the federal courts. The arbitration shall be conducted by
three (3) arbitrators appointed in accordance with said Rules. If either party
wishes to commence an arbitration hereunder, it shall serve written notice to
such effect on the other party and, within 45 days thereafter. The arbitrators
shall be lawyers and are experienced in the semiconductor fabrication industry.
The arbitrator's award shall be final and unappealable. A judgment upon the
award may be entered in any court having jurisdiction of the parties.
7.3 Notices. All notices required or permitted under this Agreement will
-------
be in writing and will be deemed given when: (i) delivered personally; (ii) sent
by confirmed telex or facsimile; (iii) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid; or (iv)
one (1) day after deposit with a commercial overnight carrier specifying next
day delivery, with written verification of receipt. All communications will be
sent to the respective addresses first set forth above or to such other address
as may be designated by a party by giving written notice to the other party
pursuant to this Section 7.3.
7.4 Waiver and Amendment. No amendment or modification of this Agreement,
--------------------
nor any waiver of any rights, will be effective unless assented to in writing by
the party to be charged, and the waiver of any breach or default will not
constitute a waiver of any other right hereunder or any subsequent breach or
default.
7.5 Severability. If any provision of this Agreement is held to be
------------
invalid by a court of competent jurisdiction, then the remaining provisions
shall nevertheless remain in full force and effect. In such event, the parties
agree to negotiate, in good faith, a legal and enforceable substitute provision
which most nearly effects the parties' intent in entering into this Agreement.
7.6 Entire Agreement. This Agreement is the complete and entire
----------------
expression of the agreement between the parties regarding the subject matter
hereof, and shall supersede and replace any and all prior agreements,
communications, and understandings (both written and oral) regarding such
subject matter.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to enter into this Agreement, effective as of the Effective
Date.
CYPRESS SEMICONDUCTOR CORPORATION QUICKLOGIC CORPORATION
(Signature) (Signature)
(Printed Name) (Printed Name)
(Title) (Title)
(Date) (Date)
-7-
<PAGE>
EXHIBIT 10.11
WAFER FABRICATION AGREEMENT
---------------------------
This Wafer Fabrication Agreement (the "Agreement") is entered into and
effective as of March 29, 1997 (the "Effective Date"), by and between Cypress
Semiconductor Corporation, a Delaware corporation with its principal place of
business at 3901 North First Street, San Jose, California 95134 ("Cypress") and
QuickLogic Corporation, a California corporation with its principal place of
business at 1277 Orleans Drive, Sunnyvale, California 94089 ("QuickLogic").
RECITALS
WHEREAS, QuickLogic desires to have certain products manufactured by
Cypress;
WHEREAS, Cypress is willing to manufacture such products for QuickLogic;
and
THEREFORE, in exchange for good and valuable consideration and the mutual
covenants set forth below, the parties agree as follows:
AGREEMENT
1. DEFINITIONS
-----------
(a) "Baseline Sort Yield" means the average die yield per wafer start
-------------------
calculated over the [*] period preceding the date of calculation
as specified in Exhibit C.
(b) "Confidential Information" means any information disclosed by
------------------------
either party to the other party, whether directly or indirectly, and whether in
writing, orally or by inspection of tangible objects (including without
limitation documents, prototypes, samples, plant and equipment), of a
confidential or proprietary nature. Confidential Information shall include,
without limitation, the terms and conditions of this Agreement, and any
information relating to Cypress' manufacturing processes. "Confidential
Information" shall not include information that: (i) is or becomes generally
known or available by publication, commercial use or otherwise through no fault
of the receiving party; (ii) is known and has been reduced to tangible form by
the receiving party at the time of disclosure and is not subject to restriction;
(iii) is independently developed by the receiving party without use of the
disclosing party's Confidential Information; (iv) is lawfully obtained from a
third party who has the right to make such disclosure; or (v) is released for
publication by the disclosing party in writing.
(c) "Month" means a month as defined by the Cypress corporate
-----
calendar.
(d) "Products" means the wafer types set forth in Exhibit A hereto.
--------
(e) "Week" means a week as defined by the Cypress corporate calendar.
----
- ----------
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
2. AGREEMENT TO MANUFACTURE
------------------------
(a) Supply. Cypress agrees to manufacture and sell Products to
------
QuickLogic, subject to the maximum wafer starts per Week set forth in Exhibit B,
and QuickLogic agrees to purchase its requirements of such Products from
Cypress, all on the terms and conditions set forth herein.
(b) Process and Sort Changes.
------------------------
(i) QuickLogic may request commercially reasonable sort changes and
[*] shall pay all costs associated with such changes. QuickLogic may also
request process changes, which shall be subject to Cypress's prior written
approval which approval shall not be unreasonably withheld. In the event of a
process change requested by QuickLogic, the parties will discuss whether the
change will be implemented, under what guarantee conditions, if any, and which
party shall bear the cost of such process change. In the event of a sort change
requested by QuickLogic, the yields set forth in Exhibit C shall not apply
during the first [*] of production of Products with such sort change ("Yield
Testing Period"), and the Baseline Sort Yields of Products manufactured with
such sort change shall be measured during the Yield Testing Period. If the
Baseline Sort Yield for a Product during the Yield Testing Period is less than
the Baseline Sort Yield for such Product set forth in Exhibit C, such Baseline
Sort Yield set forth in Exhibit C shall be adjusted to the Baseline Sort Yield
for such Product over the Yield Testing Period.
(ii) Cypress may make process changes in the manufacture of the
Products without QuickLogic's approval of such changes. If Cypress makes a
process change, Cypress's Director of Engineering (FAB II) will notify
QuickLogic's Director of Process or the QuickLogic personnel on-site at FAB II
prior to implementation and obtain input, if any, from QuickLogic. [*]
provided however that if [*] are necessary and a [*], as agreed by [*] which
agreement shall not be unreasonably withheld, [*] as long as the change can be
verified and qualified by Cypress within the Cypress foundry (i.e. through
sort and ETEST). If the process change cannot be verified and qualified within
the Cypress foundry, it is further understood and agreed that [*] will pay for
the costs of packaging and testing.
(c) Product Revisions. In the event the Products are changed pursuant
-----------------
to Section 2(b)(i) or 2(b)(ii) as described in this Article 2, except as
otherwise expressly provided in Section 2(b)(ii) above with respect to reticles,
QuickLogic will provide Cypress with all tooling (e.g., such as masks, probe
cards, etc.) necessary to manufacture the Products as modified.
(d) Original and Replacement Tooling; Document Control; Frame
---------------------------------------------------------
Generation. Tooling (e.g., masks, probe cards, etc.) for each Product shall be
- ----------
paid for by QuickLogic, except for replacement of tooling damaged through the
gross negligence, recklessness or willful misconduct of Cypress. Cypress will
assist QuickLogic as required in the areas of document control and frame
- ----------
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
generation.
(e) Equipment Transfers. Within forty (40) days after the later of
-------------------
the date of invoice for the equipment transfer referenced below or the actual
date of transfer, [*] shall pay to [*] all costs and expenses associated with
the transfer of the amorphous silicon equipment used for the manufacture of the
Products to Cypress's FAB II site, provided that such costs and expenses shall
not to exceed [*]. The date of equipment transfer shall occur after such
amorphous silicon equipment in FAB I is no longer in use.
(f) Technical Assistance. Cypress agrees to provide up to two (2)
--------------------
QuickLogic employees on a full-time basis with access to Cypress facilities,
equipment, and personnel for the sole purposes of performing sustaining
engineering and step reduction.
3. PURCHASE PRICE AND PAYMENT
--------------------------
(a) Purchase Prices. The prices for Products manufactured by Cypress
---------------
hereunder shall be as set forth in Exhibit D ("Purchase Prices").
(b) Purchase Price Reductions. If Cypress and QuickLogic mutually
-------------------------
agree in writing to reduce the number of steps in the manufacture of any
Product, then the Purchase Price for such Product shall be reduced in accordance
with the applicable formula set forth in Exhibit D.
(c) Payment Terms. Payment shall be due net forty-five (45) days
-------------
after the date of the invoice. Any amounts not paid within forty-five (45) days
shall accrue interest at the rate of one and one-half percent (1.5%) per month
or the highest rate permitted by law, whichever is lower.
(d) Taxes. In addition to all payments due under this Agreement,
-----
unless QuickLogic provides Cypress with a valid resale or other tax exemption
certificate authorized by the appropriate taxing authority, QuickLogic shall pay
any sales, use, or other taxes, duties or charges of any kind (including foreign
withholding or value-added taxes) imposed by any federal, state or local or
foreign government entity with regard to the delivery or sale of products or
services provided under this Agreement, excluding only taxes based solely on
Cypress' net income or gross receipts.
4. FORECASTS; PURCHASE ORDERS; DELIVERY
------------------------------------
(a) Purchase Orders. All purchases and sales of Products between the
---------------
parties shall be set forth in written purchase orders. Such orders shall state
wafer starts per Week, delivery dates, and shipping instructions.
(b) Acceptance of Orders; Maximum Wafer Starts. Each purchase order
------------------------------------------
shall be
-3-
- ----------
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
subject to Cypress' written acceptance; provided, however, that Cypress shall
not withhold acceptance of any purchase orders issued in accordance with the
provisions of Section 4(c) below that are otherwise consistent with the terms of
this Agreement. Notwithstanding the foregoing, in no event shall Cypress be
obligated to accept any purchase order calling for a number of wafer starts per
Week that exceeds the maximum allowable wafer starts per Week set forth in
Exhibit B. If QuickLogic desires more wafers than the allowed maximum, Cypress
has the option of not providing them, or if Cypress chooses to provide wafers in
excess of the allowed maximum, the price will be negotiated. Purchase orders
accepted by Cypress shall supersede previous purchase orders to the extent such
previous purchase orders have not yet been fulfilled. Purchase orders accepted
by Cypress shall be firm and binding upon QuickLogic, except as otherwise
provided in Section 4(c).
(c) Purchase Order Commitments. Within days of the Effective Date
--------------------------
and prior to each and every subsequent Month, QuickLogic shall give to Cypress a
purchase order covering [*] of wafer starts ("[*] Purchase Order"). The first
[*] of each [*] Purchase Order shall be firm and binding upon QuickLogic.
(i) In each and every [*] Purchase Order submitted to Cypress, except
the first such [*] Purchase Order: (A) the quantity of wafer starts called for
in the [*] of such [*] Purchase Order shall be equal to the quantity of wafer
starts called for in such [*] in the preceding [*] Purchase Order; (B) the
quantity of wafer starts called for in the [*] of such [*] Purchase Order shall
be equal to the quantity of wafer starts called for in such [*] in the preceding
[*] Purchase Order; (C) the quantity of wafer starts called for in the [*] of
such [*] Purchase Order may be [*], but any [*] shall not exceed [*] multiplied
by the quantity of wafer starts called for in such [*] in the preceding [*]
Purchase Order; and (D) the quantity of wafer starts called for in the [*] of
such [*] Purchase Order may be [*] in any amount, subject to Section 4(b).
(ii) Cypress has the option of building ahead wafers; provided,
however, that the quantity of such wafer starts shall not exceed the [*] of (A)
[*] multiplied by the quantity of wafer starts per Week called for in the [*] of
such [*] Purchase Order; and (B) the quantity of wafer starts called for in the
[*] of such [*] Purchase Order. QuickLogic must pay for finished wafers and
work-in-progress that Cypress has opted to build ahead in accordance with this
Section 5(c)(ii).
(iii) QuickLogic shall participate in Cypress' Weekly wafer start
meetings, at which QuickLogic will provide to Cypress the Product mix of both
requested material and build ahead material (if any) to be started in the
following Week.
(d) Controlling Document. The terms and conditions of this Agreement,
--------------------
including without limitation all Purchase Prices, shall control all sales of
Products hereunder, and any additional or different terms or conditions in
either party's purchase order, acknowledgment, or
-4-
- ----------
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
similar document shall be of no effect, unless agreed to in writing by duly
authorized representatives of both parties.
(e) Shipping and Delivery. Delivery shall be F.O.B. Cypress'
---------------------
facilities. Cypress shall not ship wafers earlier than the delivery date
specified in QuickLogic's purchase order, it being understood that if Cypress
builds ahead wafers pursuant to a purchase order submitted by QuickLogic,
delivery may be made pursuant to the requested delivery date stated in such
purchase order. QuickLogic shall have the right to designate the method of
shipment, but if Cypress has not received such designation within a reasonable
time prior to the scheduled delivery date, Cypress may, at its discretion, make
arrangements for delivery to QuickLogic in accordance with its existing shipping
practices.
5. YIELDS
------
(a) Yield. For each [*] period during the term of this Agreement,
-----
subject to Section 2(b)(i) above, the average die yields per wafer start during
each such period shall equal or exceed the applicable [*] die yields per wafer
start set forth in Exhibit C. For each [*] period during the term of this
Agreement, subject to Section 2(b)(i) above, the average die yields per wafer
start during each such period shall equal or exceed the applicable [*] die
yields per wafer start set forth in Exhibit C. QuickLogic's exclusive remedy and
Cypress' sole obligation in the event the die yields per wafer start set forth
in Exhibit C are not met shall be for Cypress to promptly start additional
wafers to make up the yield shortfall as quickly as reasonably possible;
provided, however, than in no event is Cypress under any obligation to have the
total number of wafer starts in any given Week exceed [*] multiplied by the
maximum allowed starts per Week set forth Exhibit B. The Purchase Price for such
additional wafers in 1997 shall be the lower of the Purchase Prices for such
Products set forth in Exhibit D.
(b) Disputes.
--------
(i) Any dispute, controversy or claim arising out of or relating to a
breach by Cypress of its obligations under Section 5(a) above, shall be resolved
by final and binding arbitration. Such dispute shall be administered by the
American Arbitration Association ("AAA") in accordance with Commercial Rules
then in effect. The arbitration shall be conducted by a sole arbitrator who
shall have experience with the manufacture of semiconductor products. The
arbitration shall be held in Santa Clara County.
(ii) The parties require that the arbitration proceed as expeditiously
as possible. The arbitration shall commence upon the submission of a Demand for
Arbitration to the AAA. The appointment of the sole arbitrator will be made
within ten (10) business days of such submittal. Within thirty (30) days of the
filing of the Demand for Arbitration, each party shall prepare and submit a full
statement of its claims which will set forth such party's position with
-5-
- ----------
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
respect to the dispute in question. The arbitration shall be completed within
sixty (60) days of the filing of the Demand for Arbitration. The arbitrator's
award shall be rendered within five (5) business days of the close of
arbitration. The arbitrator shall select as his or her decision the position of
one or the other party. The arbitrator shall not have authority to render any
substantive decision other than to so select the position of either Cypress or
QuickLogic. The costs of the arbitration shall be shared equally by the parties
and each party shall bear its own expenses. During the pendency of any
arbitration, except in the event of a dispute over payment for Products
hereunder, Cypress shall commence wafer starts called for by the most recent [*]
Purchase Order in accordance with Section 5(a) above, which wafers shall be paid
for by QuickLogic pursuant to Article 3 above.
(iii) The parties acknowledge that QuickLogic may be irreparably
harmed in the event Cypress breaches its obligations under Sections 5(a) and/or
5(b) above. Cypress further agrees not to oppose or contest in any way
QuickLogic's efforts to seek temporary injunctive relief. Cypress therefore
agrees that except in the event of a dispute over payment for Products where
Cypress has not unilaterally changed the pricing or payment terms hereunder,
QuickLogic may immediately seek to obtain a court order pursuant to the
Temporary Order for Specific Performance attached hereto as Exhibit E requiring
specific performance by Cypress of its obligations under Sections 5(a) and/or
5(b) during the pendency of any arbitration.
6. WARRANTIES AND DISCLAIMER
-------------------------
(a) Mutual Warranties. Each party warrants that it has full power and
-----------------
authority to enter into this Agreement, to carry out its obligations under this
Agreement and to grant the rights granted hereunder.
(b) Disclaimers. EXCEPT AS PROVIDED IN THIS ARTICLE 6, CYPRESS AND
-----------
QUICKLOGIC DISCLAIM ALL OTHER WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF
MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE, ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT.
7. TERM AND TERMINATION OF AGREEMENT
---------------------------------
(a) Term. This Agreement shall commence upon the Effective Date and,
----
unless terminated sooner in accordance with Section 7(b), shall expire on
December 31, 2001.
(b) Termination for Cause By Either Party. Either party will have the
-------------------------------------
right to terminate this Agreement immediately upon written notice at any time
if:
(i) The other party is in material breach of any warranty, term,
condition
-6-
- ----------
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
or covenant of this Agreement and fails to cure that breach within thirty (30)
days after written notice of that breach stating the first party's intention to
terminate;
(iii) The other party: (A) becomes insolvent; (B) fails to pay its
debts or perform its obligations in the ordinary course of business as they
mature; (C) admits in writing its insolvency or inability to pay its debts or
perform its obligations as they mature; or (D) makes an assignment for the
benefit of creditors.
(c) Return of Materials. Any materials, information, test programs,
-------------------
procedures or Confidential Information provided to one party by the other party
hereunder shall be maintained in confidence by the receiving party and shall be
returned to disclosing party upon termination of this Agreement or when no
longer needed in connection with its performance under this Agreement.
(d) Effect of Termination. Upon termination of this Agreement, each
---------------------
party will be released from all obligations and liabilities to the other
occurring or arising after the date of such termination, except that the
provisions of Articles 3, 6, 8, 9, 10 and 11, and Sections 4(e), 7(c), and 7(d)
will survive termination of this Agreement. Neither party will be liable to the
other for damages of any sort solely as a result of terminating this Agreement
in accordance with its terms. Termination of this Agreement will be without
prejudice to any other right or remedy of either party.
8. CONFIDENTIALITY
---------------
(a) Confidentiality. Each party will protect Confidential Information
---------------
disclosed to it from unauthorized dissemination and use with the same degree of
care that each such party uses to protect its own like information but in no
event with less than reasonable care. Except as expressly provided in Section
8(b) below, neither party will use Confidential Information disclosed to it for
purposes other than those necessary to directly further the purposes of this
Agreement, nor disclose to third parties Confidential Information disclosed to
it without the prior written consent of the other party.
(b) Authorized Disclosures.
----------------------
(i) QuickLogic may disclose to Taiwan Semiconductor Manufacturing
Corporation ("TSMC") the amorphous silicon process recipes and equipment
specifications for the purpose of manufacture of products for QuickLogic by
TSMC.
(ii) Either party may disclose the existence of, and the
terms and conditions of, this Agreement as may be required by law, or to
governmental departments, agencies, or other bodies, including, without
limitation, the Securities and Exchange Commission, and to make a public
announcement of the transactions contemplated by this Agreement to the extent
that it, in its sole discretion reasonably exercised, is of the view that such
announcement is required or deemed advisable in order to meet its obligations
under the securities laws or stock exchange requirements in
-7-
<PAGE>
the United States, or in connection with (a) a private or public offering of
securities, and (b) any filing and disclosure obligations under the Securities
Act or the Exchange Act, including without limitation the filing of this
Agreement and all exhibits with the Securities and Exchange Commission; provided
that prior to making such disclosure the party making the disclosure shall
provide particulars thereof to the other party sufficiently in advance of the
disclosure to receive comments from the other party with respect to the
disclosure and the obtaining of a protective order with respect to the
protection of confidentiality of the disclosure and/or applying for confidential
treatment for such disclosure if requested by the other party.
(c) Limited License to Cypress. QuickLogic authorizes Cypress to use
--------------------------
Confidential Information supplied by QuickLogic under this Agreement solely for
the purpose of manufacturing Products.
9. OWNERSHIP AND INTELLECTUAL PROPERTY INDEMNITY
---------------------------------------------
(a) Ownership. Except as expressly provided in this Agreement,
---------
neither party grants to the other party under this Agreement any right, title,
or interest in or to such party's technology, proprietary information,
Confidential Information, patent rights, copyrights, mask work rights, trade
secret rights or other intellectual property rights.
(b) Intellectual Property Indemnity.
-------------------------------
(i) QuickLogic agrees to defend and/or settle any claims, actions or
proceedings ("Claims") brought by a third party against Cypress to the extent
based upon a claim alleging that the Products or the manufacture or use thereof
infringes any patent right, copyright, mask work right, trade secret or other
intellectual property right of any third party (excluding claims to the extent
they allege that portions of the manufacturing process developed solely by
Cypress, or jointly by Cypress and QuickLogic under the Existing Agreement,
infringes an intellectual property right of a third party), and QuickLogic
agrees to pay any settlements entered into or final damages awarded against
Cypress with respect to such Claims; provided that Cypress will provide
reasonably prompt notice of Claims thereof and reasonable assistance in
connection with the defense thereof (at QuickLogic's expense), and will allow
QuickLogic full control of the defense and settlement thereof, it being
understood and agreed that Cypress may participate in the defense and/or
settlement of Claims at its own expense with counsel of its own choosing.
(ii) Cypress agrees to defend and/or settle any claims, actions or
proceedings ("Claims") brought by a third party against QuickLogic to the extent
based upon a claim alleging that the manufacturing process developed solely by
Cypress and used in the manufacture of the Products infringes any patent right,
copyright, trade secret or other intellectual property right of any third party
(it being understood that this Section 9(b)(ii) specifically excludes claims
alleging that portions of the manufacturing process developed jointly by
QuickLogic and Cypress under the
-8-
<PAGE>
Existing Agreement infringe an intellectual property right of a third party),
and Cypress agrees to pay any settlements entered into or final damages awarded
against QuickLogic with respect to such Claims; provided that QuickLogic will
provide reasonably prompt notice of Claims thereof and reasonable assistance in
connection with the defense thereof (at Cypress's expense), and will allow
Cypress full control of the defense and settlement thereof, it being understood
and agreed that QuickLogic may participate in the defense and/or settlement of
Claims at its own expense with counsel of its own choosing.
10. LIMITATION OF LIABILITY
-----------------------
EXCEPT FOR LIABILITY ARISING UNDER ARTICLES 8 OR 9 HEREOF, IN NO EVENT
SHALL EITHER PARTY BE LIABLE UNDER THIS AGREEMENT FOR ANY LOST PROFITS, LOSS OF
GOODWILL, OVERHEAD, COST OF COVER OR OTHER INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES ARISING OUT OF OR RELATED TO THIS AGREEMENT, HOWEVER
CAUSED, AND WHETHER BASED IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT
LIABILITY, OR OTHERWISE. THESE LIMITATIONS SHALL APPLY EVEN IF THE PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE, AND NOTWITHSTANDING THE FAILURE
OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY STATED HEREIN.
11. MISCELLANEOUS
-------------
(a) Relationship of Parties. Each party is an independent contractor
-----------------------
and this Agreement shall not be construed as creating a partnership, joint
venture or employment relationship between the parties or as creating any other
form of legal association that would impose liability on one party for the act
or failure to act of the other party.
(b) Assignment. The rights and liabilities of the parties hereto will
----------
bind and inure to the benefit of their respective permitted successors and
assigns, as the case may be. Neither party may assign or delegate its
obligations under this Agreement either in whole or in part, without the prior
written consent of the other party, except to a person or entity into which it
has merged or which has otherwise succeeded to all or substantially all of its
business and assets, by merger, reorganization or otherwise. Any attempted
assignment in violation of the provisions of this Section 11(b) will be void.
Notwithstanding the foregoing, Cypress may cause one or more of its affiliates
or subsidiaries to perform its obligations under this Agreement, provided that
no such delegation shall serve to excuse, terminate or otherwise limit the
continuing obligations of Cypress hereunder.
(c) Force Majeure. Neither party will be liable for any failure or
-------------
delay in its performance under this Agreement due to causes, including, but not
limited to, an act of God, act of civil or military authority, fire, epidemic,
flood, earthquake, riot, war, sabotage, labor shortage or
-9-
<PAGE>
dispute, and governmental action, which are beyond its reasonable control;
provided that the delayed party: (i) gives the other party written notice of
such cause promptly, and (ii) uses its reasonable efforts to correct such
failure or delay in its performance. The delayed party's time for performance or
cure under this Section 11(c) will be extended for a period equal to the
duration of the cause.
(d) Applicable Law. This Agreement will be interpreted and governed
--------------
by the laws of the State of California, without reference to conflict of laws
principles.
(e) Arbitration. Except as provided in Section 5(b), any dispute
-----------
arising between the parties with respect to this Agreement shall be settled by
arbitration conducted in Santa Clara County. If either party wishes to commence
an arbitration hereunder, it shall serve written notice to such effect on the
other party and, within 45 days thereafter, the parties shall mutually select a
single arbitrator to conduct such arbitration from among a list of retired
federal and state trial court judges eligible to serve in such capacity
furnished to the parties by the American Arbitration Association. If the
parties are unable to select an arbitrator by mutual agreement within such
period, the arbitrator shall be selected by the American Arbitration Association
in accordance with its procedures. In conducting the arbitration, the
arbitrator shall apply the Commercial Arbitration Rules of the American
Arbitration Association as modified by any other instructions that the parties
may agree upon at the time, except that each party shall have the right to
conduct discovery in any manner and to any extent authorized by the Federal
Rules of Civil Procedure as interpreted by the federal courts. The arbitrator's
award shall be final and unappealable. A judgment upon the award may be entered
in any court having jurisdiction of the parties.
(f) Severability. If any provision of this Agreement is held to be
------------
invalid by a court of competent jurisdiction, then the remaining provisions
shall nevertheless remain in full force and effect. In such event, the parties
agree to negotiate, in good faith, a legal and enforceable substitute provision
which most nearly effects the parties' intent in entering into this Agreement.
(g) Notices. All notices required or permitted under this Agreement
-------
will be in writing and will be deemed given when: (i) delivered personally;
(ii) sent by confirmed telex or facsimile; (iii) five (5) days after having been
sent by registered or certified mail, return receipt requested, postage prepaid;
or (iv) one (1) day after deposit with a commercial overnight carrier specifying
next day delivery, with written verification of receipt. All communications
will be sent to the respective addresses first set forth above or to such other
address as may be designated by a party by giving written notice to the other
party pursuant to this Section 11(g). All communications will be sent to the
attention of:
To Cypress:
To QuickLogic:
(h) No Waiver. No amendment or modification of this Agreement, nor
---------
any
-10-
<PAGE>
waiver of any rights, will be effective unless assented to in writing by the
party to be charged, and the waiver of any breach or default will not constitute
a waiver of any other right hereunder or any subsequent breach or default.
(i) No Rights in Third Parties. This Agreement is made for the
--------------------------
benefit of the parties and their respective subsidiaries and affiliates, if any,
and not for the benefit of any third parties.
(j) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which will be deemed an original, but which collectively
will constitute one and the same instrument.
(k) Headings and References. The headings and captions used in this
-----------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(l) Construction. This Agreement has been negotiated by the parties
------------
and their respective counsel. This Agreement will be interpreted fairly in
accordance with its terms and without any strict construction in favor of or
against either party.
(m) Export Controls. The obligation of Cypress to provide the
---------------
Products, as well as any technical assistance, shall be subject in all respects
to such United States laws and regulations as shall from time to time govern the
license and delivery of technology and products abroad by persons subject to the
jurisdiction of the United States, including the Export Administration Act of
1979, as amended, any successor legislation, and the Export Administration
Regulations issued by the Department of Commerce, Bureau of Export
Administration. QuickLogic warrants that it will comply with the Export
Administration Regulations and all other applicable United States laws and
regulations governing exports in effect from time to time.
(n) Complete Agreement. This Agreement is the complete and entire
------------------
expression of the agreement between the parties regarding the subject matter
hereof, and shall supersede and replace any and all prior agreements,
communications, and understandings (both written and oral) regarding such
subject matter.
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to enter into this Agreement, effective as of the Effective
Date.
QUICKLOGIC, INC.
By: /s/ E. Thomas Hart
----------------------------------------
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<PAGE>
Title: President and CEO
-------------------------------------
Name: E. Thomas Hart
-------------------------------------
(Print)
CYPRESS SEMICONDUCTOR CORPORATION
By: /s/ Emmanuel Hernandez
----------------------------------------
Title: CFO
-------------------------------------
Name: Emmanuel Hernandez
-------------------------------------
(Print)
-12-
<PAGE>
EXHIBIT A
---------
PRODUCTS
--------
Devices
- -------
382
384
386
388
3803
3805
3807
3809
<PAGE>
EXHIBIT B
---------
MAXIMUM WAFER STARTS PER WEEK
-----------------------------
The maximum allowable wafer starts per Week shall be as follows:
1997 - [*] wafers/Week
1998 - [*] wafers/Week
1999 - [*] wafers/Week
2000 - [*] wafers/Week
2001 - [*] wafers/Week
- ----------
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
EXHIBIT C
---------
YIELDS PER WAFER START
----------------------
The tables below set forth the yield/wafer start on a rolling [*] and [*]
output. [*] Formula: wafer starts x [*] x [*]. [*] Formula: wafer starts x [*] x
[*].
[*] YIELDS PER WAFER START
PRODUCT [*] GUARANTEED
DIE OUT/START
382 [*] [*] = [*]
384 [*] [*] = [*]
386 [*] [*] = [*]
388 [*] [*] = [*]
3807 [*] [*] = [*]
3805 Will be established based on a consecutive [*] period designated by
QuickLogic and will be applicable immediately after such designation.
3809
3803
[*] YIELDS PER WAFER START
PRODUCT [*] GUARANTEED
DIE OUT/START
382 [*] [*] = [*]
384 [*] [*] = [*]
386 [*] [*] = [*]
388 [*] [*] = [*]
3807 [*] [*] = [*]
3805 Will be established based on a consecutive [*] period designated by
QuickLogic and will be applicable immediately after such designation.
3809
3803
- ----------
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
EXHIBIT D
---------
PURCHASE PRICE
--------------
D.1 Purchase Prices:
----------------
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
<S> <C> <C> <C> <C> <C>
Q1 Q2 Q3 Q4 1H 2H
Starts/Week
Up to the [*] [*] [*] [*] Up to [*] Up to [*] Up to [*] Up to [*]
following wafer Wafer Wafer Wafer Wafer
starts per Week Starts/Week Starts/Week Starts/Week Starts/Week
PASIC 1 [*]/wafer out [*] [*] [*] [*] [*]
PASIC 2 [*]/wafer out [*] [*] [*] [*] [*]
Over the
foregoing wafer
starts per Week
for 1997, and up
to * wafers
per Week
PASIC 1 *
PASIC 2 *
</TABLE>
D.2 Step Reductions. The following formulas shall be applied pursuant to
---------------
Section 3(b):
(a) [*] Formula. The Purchase Price for a Product shall be
-----------
decreased in accordance with the following formula:
Adjusted Purchase Price = the Original Purchase Price less an amount equal to:
<TABLE>
<S> <C>
[*]
</TABLE>
(1) Calculated in accordance with Cypress's normal procedures.
(b) [*] Formula. In cases in which a reduction in steps includes the
-----------
removal of a step requiring [*], the Purchase Price for a
Product shall be decreased in accordance with the following formula instead of
the formula of D.2(a) above:
- ----------
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
Adjusted Purchase Price per Product = the Original Purchase Price per Product
less an amount equal to:
<TABLE>
<S> <C>
[*]
</TABLE>
(1) Calculated in accordance with Cypress's normal procedures.
- ----------
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
EXHIBIT E
---------
FORM OF TEMPORARY ORDER FOR SPECIFIC PERFORMANCE
------------------------------------------------
SUPERIOR COURT OF CALIFORNIA
COUNTY OF SANTA CLARA
QUICKLOGIC CORPORATION, ) CASE NO:
)
Petitioner,) ORDER FOR PRELIMINARY
) INJUNCTION
v. )
) DATE:
CYPRESS SEMICONDUCTOR ) TIME:
CORPORATION, ) DEPT:
)
Respondent. )
)
- ------------------------
Upon consideration of the written Application of petitioner QuickLogic
Corporation ("QuickLogic") for a preliminary injunction, the verified petition,
the Demand for Arbitration, the Memorandum of Points and Authorities and
Declarations filed in support of the Application, and it appearing to the
satisfaction of the Court that this is a proper case for granting a preliminary
injunction, and that, except for disputes pertaining to payment of Products
where Cypress has not unilaterally changed the prices or payment terms under the
Wafer Fabrication Agreement dated __________ between QuickLogic and Cypress
Semiconductor Corporation (the "Agreement"), Cypress has previously agreed to
QuickLogic's seeking such relief pending the arbitration of their dispute, and
that unless such injunction is granted as prayed for, QuickLogic will suffer
great and irreparable injury before the matter can be fully arbitrated, and on
proof made to the Court's satisfaction, and good cause appearing:
IT IS ORDERED that, during the pendency of the arbitration between the
above-named parties, Cypress, and its officers, agents, employees,
representatives and all persons acting in concert or participating with them, is
required to continue fabricating and supplying semiconductor wafers to
QuickLogic in accordance with Section 5(a) of the Agreement;
IT IS FURTHER ORDERED that Cypress will commence wafer starts as required
by Sections 5(a) and 5(b) of the Agreement;
IT IS FURTHER ORDERED that QuickLogic is not required to provide a written
undertaking.
The Court reserves jurisdiction to modify this injunction as the ends of
justice may require.
DATED:_____________ ______________________________________
JUDGE OF THE SANTA CLARA
COUNTY SUPERIOR COURT
<PAGE>
EXHIBIT 10.14
TECHNICAL TRANSFER, JOINT DEVELOPMENT LICENSE
---------------------------------------------
AND FOUNDRY SUPPLY AGREEMENT
----------------------------
THIS AGREEMENT is entered into in Santa Clara, California on _________,
1992 (the "Effective Date") between QuickLogic Corporation, a California
corporation, having an office and place of business, at 2933 Bunker Hill Lane,
Santa Clara, California 95054 ("QuickLogic") and Cypress Semiconductor
Corporation, a Delaware corporation, having an office and place of business at
3901 North First Street, San Jose, California 95134 ("Cypress").
WITNESSETH
----------
WHEREAS, QuickLogic has developed and has the right to use and license
others to use an amorphous silicon antifuse semiconductor processing technology;
and
WHEREAS, QuickLogic and Cypress believe that such QuickLogic technology
when incorporated into a high performance CMOS process will result in a process
suitable for producing commercially successful field programmable gate arrays;
and
WHEREAS, Cypress designs, develops, manufactures and markets a wide variety
of integrated circuits employing high performance CMOS processes; and
WHEREAS, Cypress and QuickLogic wish to cooperate in the joint development
of a process which combines Quicklogic's technology with Cypress's CMOS Process
as well as in the implementation of several new field programmable gate array
("FPGA") products and families employing such combined process; and
WHEREAS, Cypress wishes to market certain QuickLogic FPGA products as
implemented in a Cypress process; and
WHEREAS, the parties wish to license each other upon the terms hereinafter
set forth; and
WHEREAS, Cypress is willing to supply QuickLogic wafer processing services
upon the terms hereinafter set forth; and
WHEREAS, Cypress wishes to make an equity investment in QuickLogic;
NOW THEREFORE, it is agreed between the parties as follows.
<PAGE>
ARTICLE 1
SCOPE
-----
This Agreement involves the joint development of a suitable process for
manufacturing FPGA devices, the granting to Cypress of certain license rights
related to existing QuickLogic products, subsequent development jointly and
separately of FPGA and other products and families of products, the licensing
thereof and the purchase of wafers from Cypress by QuickLogic. It is, however,
recognized by Cypress and QuickLogic that the FPGA process and products are
leading edge and as a result the development process is not entirely
deterministic. Accordingly, both companies agree to perform, on a best effort
basis, in accordance with the terms and conditions in this Agreement recognizing
the inherent risks of a new technology.
Under the terms of a separate agreement Cypress shall purchase certain
shares of Series D Preferred Stock of QuickLogic.
ARTICLE 2
DEFINITIONS
-----------
For purposes of this agreement, the following terms shall have the
following meanings:
2.1 "FPGA Technical Information" shall mean the information and materials
listed on Exhibit A.
2.2 "QL16X24", "QL8X12", and "QL12X16" shall mean the integrated circuit
products described in the QuickLogic Very High Speed FPGA, 1992 Data Book.
2.3 "Cypress CMOS Process" shall mean the Cypress 0.65 micron CMOS process
denoted by Cypress as its Logic 2.5 process.
2.4 "FPGA Product Family" shall mean FPGA Products which are based on a common
logic cell architecture but supplied in a variety of I/O counts and gate
densities which all use the same Vcc supply, the same lithography, and
which all have similar performance characteristics.
2.5 "FPGA Process" shall mean processes jointly developed by the parties as a
result of the modifications made to the Cypress CMOS Process or to other
Cypress processes in accordance with Paragraph 4.9 by the incorporation of
the FPGA Technical Information.
2.6 "FPGA Products" shall mean the QL16X24, the QL8X12, and the QL12X16 and any
other FPGA integrated circuit on a silicon substrate having only an array
of programmable logic cells consisting of basic gate and flip-flop elements
interconnected by rows and columns of programmable wiring channels and
which use the FPGA Process.
2.7 "Non-FPGA Products" shall mean products other than FPGA Products which use
the FPGA Process.
-2-
<PAGE>
2.8 "Software Product" shall mean all software developed by either party prior
to and during the Product Transfer Period (as hereinafter defined) for the
purposes of, in whole or in part, accomplishing, supporting, implementing,
incorporating, verifying, emulating, simulating or testing the design of
FPGA Products and Non-FPGA Products and shall also include the
characterization and test programs described at Paragraph 4.10 below as
well as any software offered by either party as a part of a development
system as described in Paragraph 5.2.
2.9 "Hardware Product" shall mean all hardware developed by either party prior
to and during the Product Transfer Period (as hereinafter defined) for the
purposes of, in whole or in part, accomplishing, supporting, implementing,
incorporating, verifying, emulating, simulating, testing or programming
FPGA Products and Non-FPGA Products and shall also include schematics,
bills of material and all manufacturing information as well as any software
offered by either party as a part of a development system as described in
Paragraph 5.2.
2.10 "Development System" shall mean a group of products, identified as a single
item in a published price list, developed for License or sale to customers
by either party prior to and during the Product Transfer Period (as
hereinafter defined) for the purposes of, in whole or in part supporting
the design of FPGA and Non-FPGA Products. It shall include Hardware
Products, Software Products or both.
2.11 "MTP" (Manufacturing Transfer Package) for a product shall mean the
information and materials listed and described on Exhibit A.
2.12 "Cypress Intellectual Property" shall mean all patents, copyrights, mask
works, and trade secrets owned or controlled by Cypress or any Subsidiary
of Cypress during the term of this Agreement.
2.13 "QuickLogic Intellectual Property" shall mean all patents, copyrights, mask
works, and trade secrets owned or controlled by QuickLogic or any
Subsidiary of QuickLogic during the term of this Agreement.
2.14 "Subsidiary" shall mean a corporation, company or other entity more than
fifty percent (50%) of whose outstanding shares or securities (representing
the right, other than is effected by events of default, to vote for the
election of directors or other managing authority) are, now or are
hereafter, owned or controlled, directly or indirectly, by a party hereto,
but such corporation, company or other entity shall be deemed to be a only
so long as such ownership or control exists.
2.15 "Net Sales Price" as applied to products licensed hereunder means the gross
sales price thereof in the form in which it is sold whether assembled or
disassembled; less the following items but only so far as they pertain to
the sale of such apparatus by the licensed party or any of its Subsidiaries
and are included in such gross sales price:
(a) usual trade discounts actually allowed;
-3-
<PAGE>
(b) packing costs;
(c) import, export and excise taxes, and customs duties;
(d) costs of insurance and transportation from the place of manufacture to
the customer's premises or point of installation;
(e) costs of installation at the place of use;
(f) costs of special development and special engineering not incident to
the manufacture of apparatus subject to royalty; and
(g) accepted returns from customers and negotiated settlements with
customers.
2.1 "Fair Market Value" as applied to products licensed hereunder means the Net
Sales Price which the seller would realize from an unaffiliated buyer in an
arm's length sale of identical apparatus in the same quantity and at the
same time and place as such transaction; provided, however, that it shall
not be lower than complete cost (less the items to be deducted from Net
Sales Price, to the extent these items are included in such complete cost)
plus the usual profit factor. In the cases of transactions not at "arm's
length", in the cases of leases and rentals, and in the cases of
transactions in which a licensed product is exchanged for other than a
separate, entirely-money consideration, "Net Sales Price" shall mean Fair
Market Value.
2.1 "Product Transfer Period" shall mean the period of time beginning up on the
Effective Date and ending five (5) years thereafter.
ARTICLE 3
PROCESS DEVELOPMENT PHASE
-------------------------
This phase involves the transfer to Cypress of certain QuickLogic
processing information and joint development efforts by the parties leading
towards the development of a process for producing FPGA Products and product
families. This phase shall be conducted as follows:
3.1 Transfer of FPGA Technical Information. Within thirty (30) days of the
--------------------------------------
Effective Date, QuickLogic shall furnish to Cypress the FPGA Technical
Information.
3.2 Development. The parties working jointly shall use their best efforts to
-----------
combine the FPGA Technical Information with the Cypress CMOS Process in
order to develop the FPGA Process.
3.3 Costs. QuickLogic shall pay for and supply the initial quantity of mask
-----
sets associated with each new process development effort and Cypress shall
pay for the first $50,000 of wafer cost associated with such effort. After
$50,000 of wafer cost for a process development effort is
-4-
<PAGE>
reached, the parties will thereafter share the cost of both mask sets and
wafers for that effort on a fifty-fifty (50-50) basis.
3.4 Completion. The parties shall consider the process development
----------
successfully completed when the FPGA Process is capable of satisfactorily
and repeatedly producing wafers containing FPGA Products which meet
mutually agreed-upon visual and electrical criteria at a mutually
acceptable yield.
ARTICLE 4
PRODUCT TRANSFER AND PRODUCT DEVELOPMENT PHASE
----------------------------------------------
This phase involves the transfer by QuickLogic of MTPs for the QL16X24,,
the QL8X12, and the QL12X16 and the subsequent development of new FPGA Products
and product families as follows:
4.1 Transfers. Promptly following the Effective Date QuickLogic shall begin
---------
the work necessary to develop and transfer a MTP to Cypress for the QL16X24
at the earliest reasonable date. Upon completion of the mask set for the
QL16X24, QuickLogic shall begin the work necessary to develop and transfer
MTPs for the QL8X12 and the QL12X16 pursuant to a reasonable and orderly
schedule.
4.2 Product Development. Thereafter, during the Product Transfer Period the
-------------------
parties shall work jointly to develop new FPGA Products and product
families.
4.3 Costs.
-----
(a) Mask Sets and Wafers. The cost of all mask sets and wafers involved
--------------------
in new product development shall be shared equally on a fifty-fifty
basis.
(b) Qualification and Reliability Testing. The costs of product
-------------------------------------
qualification and reliability testing for products to be marketed by
both parties shall be shared equally on a fifty-fifty basis. In the
case of products which only one party intends to market, that party
shall be responsible for such costs.
4.4 Engineering. A joint development team shall be established, comprised of
-----------
knowledgeable and experienced design engineers furnished by each party. It
is agreed that QuickLogic shall furnish approximately seventy-five percent
(75%) of the engineering labor hours related to the design and development
of new FPGA Products and that Cypress shall furnish an average of twenty-
five percent (25%) of the engineering labor hours required for such design
and development.
-5-
<PAGE>
4.5 Product Selection, Marketing and Licenses.
-----------------------------------------
(a) Selection. Each party may specify new FPGA Products to be designed
---------
and developed by the joint development team and the parties may also
design and develop new FPGA Products and Non-FPGA Products
independently of the activities of the joint development team and
subject to Paragraph (b) below, each party shall be free to market or
not market a product chosen by the other party.
(b) Marketing and Licenses. As a general rule each party shall be granted
----------------------
a license of the scope and in accordance with terms set forth in
Article 6 to all FPGA Products developed by the other party or by the
joint development team during the Product Transfer Period. However, in
the event either party (the "Non-Marketing Party") decides that it
shall not market two successive FPGA Products chosen or developed by
the other party (the "Developing Party") the Developing Party may
designate a specific FPGA Product which the Non-Marketing Party must
accept and place on the market as a condition precedent to the
Developing Party's obligation to grant to the NonMarketing Party a
license to FPGA Products subsequently developed by the Developing
Party.
4.6 Program Manager. Each party shall promptly after the execution of this
---------------
Agreement designate a Program Manager and shall notify the other in writing
of its Program Manager. The Program Manager shall be responsible for:
(a) Periodic reviews of the activities of the joint development team;
(b) Representing the parties in all matters relating to the choice of
products to be developed;
(c) Submission and acceptance of materials required to be delivered under
this Agreement;
(d) Arranging such meetings and consultations between Cypress and
QuickLogic personnel associated with the development program as may be
deemed necessary for the successful accomplishment of work under this
Agreement;
(e) Handling the disclosure and receipt of proprietary information in
accordance with Paragraph 12.1 hereof;
(f) Submission of requests for changes, proposals and responses thereto;
and
(g) Written authorization of changes to any product. Each party shall
advise the other in writing of any successor or designee of the named
Program Manager.
-6-
<PAGE>
4.7 Completion of New Products. Development work on new FPGA Products shall be
--------------------------
considered complete upon the creation and furnishing to Cypress'
manufacturing facilities of an MTP for each such product.
4.8 Product Announcements and Deliveries. It is agreed that Cypress shall not
------------------------------------
deliver samples of each of the first four separate products (a separate
product being one identified by a unique base mask set) of each new FPGA
Product Family to any customer or potential customer for a period of three
(3) months from the date that QuickLogic, with regard to each such product,
either: (a) issues a press release announcing price and delivery; or (b)
delivers its first sample which meets the basic parametric and reliability
goals of the process to a customer or potential customer, whichever is
first. QuickLogic agrees that it shall not unreasonably withhold products
from the market for the purpose of delaying the right of Cypress to ship
samples to its customers or potential customers. This shall not apply to
design changes or process shrinks primarily aimed at cost reduction or
speed enhancement of products developed by the parties nor shall it apply
to those products developed subsequent to the pASIC 1 Family on which
products Cypress has contributed more than fifty percent (50%) of the
design personnel resources and which is perceived by the parties as being
primarily a Cypress project.
4.9 Other FPGA Processes. QuickLogic shall be furnished knowledge of, and
--------------------
permitted unrestricted access to all processes and process variations
implemented in the facilities of Cypress and its Subsidiaries during the
Product Transfer Period. QuickLogic shall use such knowledge and access
for the purpose of determining the feasibility and suitability of producing
new FPGA Products with each Cypress process so examined. No process so
examined may be adapted for FPGA by QuickLogic without the agreement of
Cypress. Once any such process has been employed in the manufacture of an
FPGA Product at Cypress or at a Cypress Subsidiary, it may be used by
QuickLogic for the development of Non-FPGA Products.
4.10 Non-FPGA Products. Both parties may use the FPGA Process to develop Non-
-----------------
FPGA Products subject to the following:
(a) The party developing a Non-FPGA Product shall offer a royalty-free
license to the product of the scope and in accordance with the terms
set forth in Article 6.
(b) If such offer is not accepted, the developing party shall have and
retain a license of the scope and in accordance with the terms set
forth in Article 6 subject to the payment of royalties as set forth in
such Article.
4.11 Information Exchanges and Cooperation.
-------------------------------------
(a) The parties agree to cooperate fully in the sharing of all development
information and results relating to products and processes developed
under or covered by this Agreement as openly as possible. Information
relating to device and package reliability testing shall be regularly
exchanged and any yield enhancements or cost
-7-
<PAGE>
reductions will be equally available to both parties. In accordance
with the scope and limitations set forth in Article 6 for Software
Products, each party shall also license the other party to use and
copy the source code for any and all characterization and electrical
test programs developed by either party for the licensed devices.
(b) The undertakings contained in Paragraph 4.11(a) above, shall. continue
beyond the Product Transfer Period for the full term of the Agreement
but information furnished following conclusion of the Product Transfer
Period shall only be with respect to the products, and related
processes, theretofore transferred so that, for example, (i)
improvements in placement and routing, and in programming or (ii)
changes in masks or process which improve yield, performance or
reliability, etc., for an FPGA Product developed during the term of
the Agreement but after the expiration of the Product Transfer Period
will be furnished by the developing party to the other party, in
accordance with the provisions of this Paragraph 4.11 if the
development of such FPGA Product had been completed prior to the
expiration of the Product 'Transfer Period.
ARTICLE 5
SOFTWARE PRODUCTS AND DEVELOPMENT SYSTEMS
-----------------------------------------
5.1 Software Products. All Software Products of either party shall be
-----------------
furnished to and licensed to the other party. The components of each
Software Product to be furnished shall include, but not be limited to,
source code, object code, documentation, and specifications in computer
readable format. In addition, each party shall furnish reasonable
assistance and consultation in the use and incorporation of such software
into the other party's product support and design environment. Changes to
the other party's source codes, shall be under the direction of, and
implemented at the furnishing party's facilities. Each party shall
transfer to and make available to the other party all such Software
Products as soon as any such Software Product, or preliminary version
thereof, (e,g., alpha or beta copies), is released to any third party. For
each Software Product transferred, the receiving party shall be granted a
license of the scope and in accordance with the terms set forth in Article
6.
5.2 Development Systems. Each party is also hereby granted the right to
-------------------
purchase and resell any FPGA Product development system, including hardware
and software offered for sale by the other party during the term of this
Agreement. Re-branding, if requested shall be paid for by the requesting
party in the form of a one time charge to be negotiated on a case-by-case
basis. The purchase price for such development systems shall be calculated
and adjusted from time to time in accordance with the procedures, formulas
and terms set forth on Exhibit C.
5.3 Third Party Systems. The parties agree to cooperate fully with each other
-------------------
and with development system suppliers to encourage to the maximum extent
possible the widespread availability of appropriate development systems,
including hardware and to support FPGA Products.
-8-
<PAGE>
ARTICLE 6
LICENSES
--------
6.1 Product Licenses.
----------------
(a) Product Licenses to Cypress.
---------------------------
(i) FPGA Products. Cypress is granted a worldwide, nonexclusive,
-------------
nontransferable license without the right to sublicense, except
to Subsidiaries who agree in writing to be bound by the terms of
this Agreement under QuickLogic's Intellectual Property, the
FPGA Technical Information, the FPGA Process, and any MTPs
furnished by QuickLogic hereunder to make (but not to have made
except pursuant to specific prior written approval by
QuickLogic), use, sell, lease, or otherwise dispose of FPGA
Products.
(ii) Non-FPGA Products. If Cypress is the developing party, or
-----------------
accepts an offer of a license from QuickLogic pursuant to
Paragraph 4.10(a) above, Cypress shall be deemed granted a
worldwide, nonexclusive, nontransferable license (without the
right to sublicense except to Subsidiaries who agree in writing
to be bound by the terms of this agreement) under QuickLogic
Intellectual Property, the FPGA Technical Information, the FPGA
Process, and any MTPs furnished by QuickLogic hereunder to make
(but not to have made except pursuant to specific prior written
approval by QuickLogic), use, sell, lease, or otherwise dispose
of Non-FPGA Products.
(iii) Cypress Product License Royalties. The above license grants
---------------------------------
shall be royalty-free except as follows:
(1) FPGA Products. Cypress shall pay QuickLogic a royalty
-------------
calculated as a percentage of the Net Sales Price in
accordance with the following schedule:
<TABLE>
<CAPTION>
Cypress Share of Total
FPGA Product Sales Rate
------------------ ----
<S> <C>
0%-49% 0%
50%-59% 2% on amount
between
50% and 59%
60%-70% 4% on amount
between
60% and 69%
Greater than 70% 5% on amount
greater
than 70%
</TABLE>
-9-
<PAGE>
(2) Non-FPGA Products. If Cypress is the developing party and
-----------------
an offer made by Cypress pursuant to Paragraph 4.10(b) above
is not accepted by QuickLogic, Cypress shall I pay to
QuickLogic a royalty at the rate of 2 1/2% of the Net Sales
Price.
(b) Product Licenses to QuickLogic.
------------------------------
(i) FPGA Products. QuickLogic and its Subsidiaries who agree in
-------------
writing to be bound by the terms of this Agreement are granted a
worldwide, nonexclusive, nontransferable license (with the right
to sublicense provided no Cypress proprietary information is
disclosed), under Cypress' Intellectual Property, the FPGA
Technical Information, the FPGA Process, and any MTPs furnished
by Cypress hereunder to make, have made, use, sell, lease, or
otherwise dispose of FPGA Products. Except for QuickLogic's
right to make and to have made wafers for use and sale or other
disposition by it (as wafers, as die and as incorporated in more
completely finished goods) which may be freely used and resold
by its transferees, QuickLogic's sublicense right is limited to
inventions described in Article 10.
(ii) Non-FPGA Products. If QuickLogic is the developing party, or
-----------------
accepts an offer of a license from Cypress pursuant to Paragraph
4.10(a) above, QuickLogic and its Subsidiaries who agree in
writing to be bound by the terms of this Agreement shall be
deemed granted a worldwide, nonexclusive, nontransferable
license (with the right to sublicense provided no Cypress
proprietary information is disclosed in the case of products
developed by QuickLogic, but not for Cypress developed products)
under Cypress Intellectual Property, the FPGA Technical
Information, the FPGA Process, and any MTPs furnished by Cypress
hereunder to make, have made, use, sell, lease, or otherwise
dispose of Non-FPGA Products. Except for QuickLogic's right to
make and to have made wafers for use and sale or other
disposition by it (as wafers, as die and as incorporated in more
completely finished goods) which may be freely used and resold
by its transferees, QuickLogic's sublicense right is limited to
inventions described in Article 10.
(iii) QuickLogic Product License Royalties. The above license grants
------------------------------------
shall be royalty-free except for Non-FPGA Products where
QuickLogic is the developing party and an offer made by
QuickLogic pursuant to Paragraph 4.10(a) above is not accepted,
in which case QuickLogic shall pay to Cypress a royalty at the
rate of 2 1/2% of the Net Sales Price.
-10-
<PAGE>
6.2 Software Licenses. QuickLogic and Cypress hereby each grant to each other
-----------------
under QuickLogic Intellectual Property or Cypress Intellectual Property, as
appropriate, personal, nonexclusive, nontransferable licenses to use the
Software Products internally, to modify and prepare derivative works of the
Software Products, to copy the Software Products and to sublicense object
code versions of the Software Products in accordance with the terms of
Paragraph 6.4 below.
6.3 Retention of Title. Each party retains title and ownership in and to an,
------------
Software Product developed by it and all subsequent copies, modifications,
and derivative works.
6.4 Sublicensing. Neither party may sublicense the source code of an Software
------------
Product received by it hereunder. Object code versions of each party's
Software Products, including copyright notices and proprietary legends of
the furnishing party may be sublicensed to end-users and distributors for
use in support of FPGA Products under sublicense agreements which include
and require the following: (a) appropriate restrictions on Sublicensing
assignment and transfer; (b) a prohibition of reverse engineering and
decompiling; (c) limitations on copying, including a requirement that all
copies must contain the furnishing party's copyright notice and any
proprietary legends; (d) confidentiality provisions at least as restrictive
as those contained in Paragraph 12.1 of this Agreement; (e) a requirement
that the licensed software be returned upon termination, cancellation, or
expiration; (f) a disclaimer conspicuously typed and placed which negates
all warranties, express, implied, or statutory, including merchantability,
fitness and freedom from claims of third party infringement of an, kind.
6.5 Software Royalties. Each party shall pay the other party a per-copy
------------------
royalty on Software Products included in Development Systems in an amount
calculated in accordance with the terms of Exhibit C. Royalties would only
be charged on complete Software Products which are used internally by a
party or transferred by it to a third party. The parties intend that no
royalty will be charged if only portions of a Software Product are included
in the other party's final product (e.g., only place and route fitters or
only VHDL code) though, of course, minor omissions would not avoid a
royalty obligation.
6.6 License. Limitation. Notwithstanding any other provision contained in
--------------------
this Article 6 or elsewhere in this Agreement, all licenses from QuickLogic
to Cypress are, through the period ending May 31, 1995, limited to a
license only to develop FPGA Products and Non-FPGA Products for the PLD,
FPGA and Standalone Programmable ROM markets. Thereafter, providing this
Agreement is still in force and effect, the license shall. automatically
be expanded to encompass all FPGA Products and Non-FPGA Products.
-11-
<PAGE>
ARTICLE 7
ROYALTIES
---------
7.1 Reporting and Payment. For the purpose of reporting on and paying
---------------------
royalties with respect to products licensed to it hereunder by the other
party, each party shall furnish the other party a written report stating
the total Net Sales Price of each licensed FPGA Product and licensed Non-
FPGA Product as well as the total number of copies of each licensed
Software Product distributed by the reporting party during the periods
anding June 30 and December 31 of each year. Each such report shall be
given within sixty (60) days following the end of the period reported on
and shall be accompanied by a check in full payment of all royalties due
for such period.
7.2 Records and Audit. Each party shall keep full, clear, and accurate records
-----------------
with respect to the products subject to royalty hereunder. Each party
shall have the right, through the employment of a certified public
accountant, to examine and audit at all reasonable times, all such records
and such other records and accounts as may under recognized accounting
practices contain information bearing upon the amount of royalty payable by
it under this Agreement. Prompt adjustment shall be made by the proper
party to compensate for any errors or omissions disclosed by such
examination or audit.
ARTICLE 8
WAFER SUPPLY
------------
During the term of this Agreement, Cypress shall supply QuickLocic with
five or six inch wafers containing FPGA Products or Non-FIDGA Products upon the
following terms:
8.1 Capacity Up to 250. Cypress guarantees that it shall provide a wafer start
capacity in accordance with the following schedule:
<TABLE>
<CAPTION>
Year Starts Per Week
---- ---------------
<S> <C>
1992 Up to 50 wafers
1993 Up to 100 wafers
1994 Up to 175 wafers
1995 Up to 200 wafers
Thereafter Up to 250 wafers
</TABLE>
8.2 Capacity In Excess of 250. In addition, in return for an equity investment
-------------------------
by QuickLogic in Cypress or in one of Cypress' Subsidiaries in the amount
of one and one-half million dollars ($1,500,000) per 50 wafer starts per
week, QuickLogic may purchase the right at any time during the term) of
this Agreement to obtain a permanently guaranteed wafer, start capacity in
excess of 250 wafers per week.
-12-
<PAGE>
8.3 Continuation. If QuickLogic, prior to the expiration of this Agreement,
------------
determines that it wishes to secure thc base capacity of up to 250 wafer
starts per week for a continued supply of such wafers by Cypress after the
expiration of this Agreement, QuickLogic may do so by notifying Cypress of
its intention to secure such capacity prior to the expiration of this
Agreement and making an investment in Cypress or in one of Cypress'
Subsidiaries in the amount of one and one-half million dollars
($1,500,000) per 50 wafer starts per week. For example, an equity
investment of seven and one half million dollars ($7,500,000) shall secure
a permanently guaranteed capacity of 250 wafers starts per week.
8.4 Price. The per wafer price to be paid by QuickLogic shall in the case of
-----
products marketed by both parties be no greater than the per wafer price
at which Cypress transfers such wafers internally to its own product
organizations or in the case of products marketed only by QuickLogic no
greater than the price at which Cypress would transfer wafers of the same
complexity (as a function of number of mask steps) to such organizations.
QuickLogic's audit rights as set forth at 7.2 above shall be deemed to
include the right to examine and audit such records as are necessary or
reasonable to determine the correctness and currency of such internal
transfer prices.
8.5 Yields and Specifications. Cypress agrees that all such wafers shall be
-------------------------
processed in accordance with its normal processing quality standards and
procedures. Cypress does not guarantee yields but agrees that in general
wafers shipped to QuickLogic shall contain yields which are no less than
those wafers transferred internally to its own product organizations. The
following wafer acceptance criteria will apply:
1. A standard visual quality inspection to be jointly agreed upon.
2. A standard DC parametric measurement value specification to be jointly
agreed upon.
3. A minimum wafer sort (die) yield value, to be jointly agreed upon for
each product once a regular yield history has been established for each
product.
4. All rejected wafers must be returned within thirty (30) business days
after discovery of the reasons for rejection, with accompanying
documentation and statement in support of such reasons.
It is further agreed that both companies will freely share yield data
and information with each other on a frequent and regular basis. A
separate wafer inventory for each company will be maintained for each
company throughout the fabrication process and identified with unique
lot numbers.
-13-
<PAGE>
8.6 Scheduling, Ordering and Terms of Payment. QuickLogic shall place purchase
-----------------------------------------
orders calling for deliveries within Cypress' normal processing lead
times. Quick-turn processing, "risk wafer" transactions, etc. shall be
negotiated on a case-by-case basis. Cypress agrees that no less priority
shall be assigned to QuickLogic's requirements than regularly assigned to
its own internal transfers of the same products. Terms of payment shall be
net thirty (30) days from the date of shipment or receipt of invoice,
whichever is later and shall be subject to change by mutual agreement.
ARTICLE 9
TERM, CANCELLATION AND TERMINATION
----------------------------------
9.1 Term. Unless canceled as hereinafter provided, this Agreement shall
----
expire five (5) years from the Effective Date or three (3) years after the
transfer of the last MTP to a Cypress manufacturing facility, whichever is
longer.
9.2 Breach. If either party breaches a material provision and does not cure
------
such breach within thirty (30) days after written notice from the other
party or (if cure is impossible within such period) if a recovery plan is
not mutually agreed upon within such period, such other party shall have
the right at its option to: (a) suspend performance or payment until such
breach is cured; (b) cancel this Agreement; or (c) seek a combination of
(a) and (b) and those remedies available at law or equity to the extent
not limited by the terms of this Agreement. The election of (a), (b), or
(c) above shall not excuse the breaching party from any obligation arising
prior to the date of such election.
---
9.3 Insolvency. Should either party: (a) become insolvent; (b) make an
----------
assignment for the benefit of creditors; (c) file or have filed against
it a petition in bankruptcy or seeking reorganization; (d) have a receiver
appointed; (e) institute an, proceedings for liquidation or winding up;
then the other party may, in addition to other rights and remedies it may
have, cancel this Agreement immediately by written notice.
9.4 Effect of Cancellation.
----------------------
(a) Licenses. Upon cancellation by either party pursuant to Paragraphs 9.2
--------
or 9.3 above the licenses granted hereunder by the canceling party to
the canceled party shall cease, but the licenses granted hereunder by
the canceled party to the canceling party shall continue in accordance
with their terms.
9.5 Effect of Expiration.
--------------------
(a) Licenses. Each party's license rights to FPGA Products, Non-FPGA
--------
Products, and Software Products to the extent such rights have arisen
under this Agreement prior to expiration shall survive (subject to
compliance with
-14-
<PAGE>
the royalty reporting and payment provisions of Article 7) with regard
to each such product until such time as a party paying royalties,
reports and pays less than two thousand five hundred dollars ($2,500)
for any one product for eight consecutive calendar quarters at which
time such party's obligation to report or pay further royalties for
that product shall cease.
(b) Wafer Supply. If QuickLogic has exercised the options to secure
------------
additional capacity as described in Paragraphs 8.2 and/or 8.3, the
provisions of Paragraphs 8.4, 8.5, and 8.6 shall survive the expiration
of this Agreement. If QuickLogic does not exercise either of the
options described in Paragraphs 8.2 or 8.3, Cypress shall continue to
supply wafers upon competitive terms (i.e., at a price and on a
delivery schedule not less favorable than that available from a bona
fide third party) or, at the option of Cypress, provide reasonable
assistance in transferring the processes then being used to produce for
QuickLogic to a foundry acceptable to QuickLogic.
(c) General. The provisions of Article 12 shall survive the expiration of
-------
this Agreement.
9.6 Effect of Change in Ownership.
-----------------------------
(a) Prior to QuickLogic consummating (i) any reorganization (as the term
"reorganization" is defined in the California Corporations Code, as
amended) or (ii) any sale of substantially all of its assets to a third
party, notice of QuickLogic's intent ("Notice of Intent") shall be
given to Cypress. Within twenty (20) days following the date of the
Notice of Intent either Cypress or QuickLogic may elect to terminate
the ongoing obligations of the parties hereunder to provide the other
with access to new processes and to new product developments or to
engage in further joint new product developments ("Termination As To
New Developments"). If such election is not exercised during that
twenty (20) day period the right to do so shall be waived. If Cypress
gives timely notice of its election to Terminate As To New Developments
QuickLogic may cancel the proposed reorganization or sale of assets and
give notice to Cypress of such cancellation in which event the Notice
of Intent and the Termination As To New Developments shall be null and
void and this Agreement shall continue in full force and effect.
(b) Upon the timely exercise of such election by a party (unless the Notice
of Intent is withdrawn as provided in 9.6 (a) above) then to the extent
already begun the transfer of MTPs for products and the furnishing of
information and access for processes, will be completed promptly and
completely as would have been appropriate had the election not been
made.
-15-
<PAGE>
(c) Except for completion of the provision of information as provided in
subparagraph (ii) above, the Product Transfer Period shall (unless the
Notice of Intent is withdrawn as provided in 9.6 (i) above) be deemed
to have ended as of the date of notice of that election, and neither
party shall have any obligation to transfer or otherwise provide
information with respect to new products or new processes to, or engage
in the joint development of new product with, the other party. The
provisions of Paragraph 4.11(b) above, however, shall remain in effect.
(d) In al1 other respects the Agreement shall continue in full force and
effect except that the obligation of Cypress to provide wafers for
Quicklogic shall, thereafter, be at the lesser of a competitive price
as defined in paragraph 9.5(b) above or one hundred fifty dollars
($150) more than the per wafer price defined in Paragraph 8.4 above.
ARTICLE 10
INVENTIONS
----------
10.1 All discoveries, improvements and inventions conceived or first reduced to
practice as that term is used before the U.S. Patent Office by Cypress
personnel in the performance of work under this Agreement shall be the
sole and exclusive property of Cypress and Cypress shall retain any and
all rights to file any patent applications thereon.
10.2 All discoveries, improvements and inventions conceived or first reduced to
practice as that term is used before the U.S. Patent Office by QuickLogic
personnel in the performance of work under this Agreement shall be the
sole and exclusive property of QuickLogic, and QuickLogic shall retain any
and all rights to file any patent applications thereon.
10.3 In the event personnel of Cypress and QuickLogic jointly invent devices or
circuits during the performance of work under this Agreement, then the
joint invention shall be jointly owned without accounting to either party.
In the event of a joint invention, the parties shall mutually determine
whether an application or applications for patent shall be filed on such
joint invention, the party which will prepare and file such application or
applications, and the country and countries in which the same is to be
filed. The patent expenses incurred shall be divided equally between the
parties.
-16-
<PAGE>
ARTICLE 11
VLSI FABRICATION
----------------
Until such time as Cypress has implemented and qualified its production,
QuickLogic will, at the request of Cypress, use its best efforts to supply
Cypress with QL8X12 and QL12X16 devices fabricated by VLSI for resale by
Cypress. The terms and conditions of any such purchase shall be in accordance
with the provisions of Exhibit D.
ARTICLE 12
GENERAL
-------
12.1 Confidential Information. It is agreed that all information regarded as
------------------------
proprietary shall be suitably marked by the owner thereof. Both parties
agree to receive and hold each other's proprietary information in
confidence and to exert the same effort to prevent disclosure thereof as
they would for their own proprietary information which they did not wish
disclosed to third parties. The obligations of this paragraph shall
terminate five (5) years after the date of expiration of this Agreement,
survive any cancellation or termination thereof, and impose no obligation
upon either party with respect to any oortion of the received information
a) which was known to the recipient prior to its first receipt from the
other party; b) which is now, or shall hereafter through no act or failure
to act upon the part of the recipient become generally known; c) is
furnished to others by the disclosing party without restriction on
disclosure; d) which is hereafter furnished to recipient by a third party
and without restriction on disclosure; or e) which is independently
developed by recipient provided the person or persons developing same have
not had access to the same information as received from the other party.
12.2 Assiqnment. This Agreement shall be binding upon and inure to the benefit
----------
of the parties hereto, their subsidiaries, and their respective successors
and assigns, provided that neither arty shall assign any of its rights or
privileges hereunder without the prior written consent of the other party
except to a successor in ownership of all or substantially all of the
assets of the assigning party, and which successor shall expressly assume
in writing the performance of all the terms and conditions of this
Agreement to be performed by the assigning party. Any attempt at
assignment in derogation of the foregoing shall be null and void.
12.3 Damage Limitation. Independently of any other remedy limitation hereof and
-----------------
notwithstanding any failure of the essential purpose of any such limited
remedy, it is agreed that in no event shall either party be liable for
special, incidental or consequential damages of any kind under this
agreement.
12.4 Publicity. All notices to third parties and all other publicity concerning
---------
the transactions contemplated by this Ageement shall be jointly planned
and coordinated
-17-
<PAGE>
by and between the parties. Neither of the parties shall act unilaterally
in this regard without the prior written approval of the other party;
however, this approval shall not be unreasonably withheld.
12.5 Governing Law. This Agreement shall be governed by, construed in
-------------
accordance with, and subject to the laws of California as applied to
contracts entered into in California by California residents to be
performed entirely within the State of California. It is the express
intention of the parties that any claim or controversy of any kind arising
out of or relating in any way to this Agreement shall be resolved only by
prompt submission to binding arbitration in accordance with the then
prevailing American Arbitration rules with the following modifications:
(a) Not later than five (5) days following notice by one party to the other
requesting arbitration, each party will notify the other of the person
it has selected ("Selector") to choose an arbitrator and the two
Selectors shall promptly meet to name an arbitrator. In the event both
Selectors are not identified within the time provided or, if
identified, they are unable to agree upon an arbitrator within twenty
(20) days following the notice of request for arbitration, either party
shall have the right to have the arbitrator selected by the American
Arbitration Association.
(b) Arbitration shall take place in the County of Santa Clara, California
and the arbitrator shall be authorized to conduct the proceedings in as
expeditious manner as possible consistent with the interests of
justice.
(c) Notwithstanding any provision to the contrary in the applicable law or
in the rules of the American Arbitration Association, the arbitrator
shall have no authority to award punitive or exemplary damages of any
nature.
(d) Pursuant to California Code of Civil Procedure 1283.1(b), the Parties
agree that the provisions of 1283.05 are hereby incorporated into, made
a part of and are applicable to this arbitration agreement solely for
the purpose of obtaining the production of documents.
(e) To the extent not covered by the arbitrator's award, the cost of the
arbitration shall, be shared equally by the parties.
(f) Any award rendered by the arbitrator may be entered for enforcement, if
necessary, in any court of competent jurisdiction, the party against
whom enforcement is sought bearing the costs and expenses, including
attorneys fees, related to such entry and enforcement.
12.6 Integration. This Agreement embodies the entire understanding of the
-----------
parties as it relates to the subject matter hereof. This Agreement
supersedes the Memorandum of
-18-
<PAGE>
Understanding dated May 29, 1992, and any other prior agreements or
understandings between the parties as to this subject matter. No amendment
or modification of this Agreement shall be valid or binding upon the
parties unless in writing and signed by duly authorized representatives of
each party.
12.7 Waiver. No failure or delay on the part of either party in the exercise
------
of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right
or privilege preclude any other or further exercise thereof, or of any
other right, power or privilege.
12.8 Notice. Any notice herein required or permitted to be given will be in
------
writing and may be personally served, or sent by telex or mail and will be
deemed to have been given: if personally given when served, if by
facsimile machine to the proper address and facsimile number, or if
mailed, on the fifth business clay after deposit in the United States with
airmail postage, prepaid and properly addressed. For purposes hereof the
address of the parties hereto (until a notice of change thereof is given
as provided in this paragraph) will be as follows:
If to QuickLogic:
QuickLogic Corporation
2933 Bunker Hill Lane
Santa Clara, CA 95054
FAX: (408) 987-2012
ATTN: David Laws, President
and Chief Executive Officer
If to Cypress:
Cypress Semiconductor Corporation
3901 North First Street
San Jose, CA 95134
FAX: (408) 943-2830
ATTN: Thomas Freeze, Vice President,
Programmable Logic Division
12.9 Force Majeure. Neither of the parties hereto shall be deemed to be in
-------------
default of this Agreement to the extent any failure to perform hereunder
is a result of conditions beyond its reasonable control, including but not
limited to, acts of God, war, insurrection, strikes, fires, floods,
earthquakes, work stoppages and embargoes, material shortages,
subcontractor delays, equipment or other facilities failures and/or
-19-
<PAGE>
any act or failure to act by the other party hereto, and neither party
shall have the right to cancel for any such delay or default on the part
of the other party.
12.10 Severability. If any provision of this Agreement is held to be
------------
ineffective, unenforceable or illegal for any reason, such decision shall
not affect the validity or enforceability of any or all of the remaining
portions thereof.
12.11 Counterpart Originals. This Agreement may be executed simultaneously in
---------------------
two or more counterparts, each of which shall be deemed an original but
all of which together constitute one in the same Agreement.
12.12 Captions. Paragraph titles or captions contained herein are inserted only
--------
as a matter of convenience and for reference, and in no way define, limit,
extend, or describe the scope of this Agreement, nor the intent of any
provision thereof.
12.13 Market Representations. Cypress acknowledges and agrees that QuickLogic
----------------------
has made no statements or representations as to the size of the market for
the FPGA Products or as to the amount of rqalties, revenue or profits to
be received by Cypress. Cypress acknowledges that in entering into this
Agreement it is relying entirely on its own estimate as to the market for
such products.
12.14 Technical Information Warranty. Each party represents and warrants that
------------------------------
all technical information (including Software Products) to be furnished by
it under this Agreement to the other party shall be in the same form as
the information used by the furnishing party in its regular design or
production of the products in question at the time of furnishing. If any
technical information furnished hereunder does not meet this requirement
and such fact is confirmed by the furnishing party, the furnishing party
shall promptly correct the discrepancy at its cost by furnishing corrected
information. THIS WARRANTY IS EXPRESSED IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS, STATUTORY, OR IMPLIED INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND OF ALL OTHER
OBLIGATIONS OR LIABILITIES ON THE FURNISHING PARTY'S PART.
12.15 Warranties. Nothing contained in this Agreement sha11 be construed as:
----------
(a) a warranty or representation by any licensor as to the validity or
scope of any patent; or
(b) a warranty or representation that any manufacture, sale, lease use or
other disposition hereunder will be free from infringement of any
patent other than those under which and to the extent to which licenses
are in force hereunder; or
-20-
<PAGE>
(c) an agreement to bring or prosecute actions or suits against third
parties for infringement of conferring any right to bring or prosecute
actions or suits against third parties for infringement; or
(d) conferring any right to use in advertising, publicity, or otherwise,
any trademark, trade names or names, or any contraction, abbreviation
or simulation thereof, of either party; or
(e) conferring by implication, estoppel or otherwise, upon any party
licensed hereunder, any license or other right except the licenses and
rights expressly granted hereunder.
12.16 Notwithstanding any other provision of this Agreement, in the event the
equity investment by Cypress in QuickLogic referred to in the Recital, is
not consummated to the satisfaction of each party in the exercise of such
party's sole and exclusive judqment, on or before sixty (60) days
following the Effective Date, either party may, on five (5) days prior
notice to the other party, terminate this Agreement. In such event all
physical embodiments of any information given by one party to the other
under or in contemplation of this Agreement shall be returned to the
originating party and, except for the obligations of confidentiality set
forth in Paragraph 12.1, all other obligations and all rights and licenses
arising hereunder shall terminate forthwith. Neither party shall, as a
result of such termination, be or become liable to the other for any costs
or expenses incurred by such other party in connection with the
preparation of this Agreement or any activities undertaken in
contemplation of performance hereunder.
12.17 Terms and Conditions of Sale. Unless otherwise provided in this Agreement
----------------------------
or as may otherwise be agreed to by the parties, all sales of product
(including, but not limited to, finished product, wafers and die) by one
party to the other as contemplated in this Agreement shall, except for
price, be on the most favorable terms and conditions afforded by that
party to any of its customers without regard to quantities or other
similar considerations.
12.18 Further Assistance. Each of the parties agrees to take such further
------------------
actions, and to execute and deliver such additional agreements and
instruments, as the other party may reasonably require to consummate,
evidence or confirm the agreements contained herein in the manner
contemplated hereby.
12.19 Relationship. Nothing contained herein or done pursuant to this Agreement
------------
shall constitute the parties as entering upon a joint venture or shall
constitute either party hereto the agent of the other party for any
purpose or in any sense whatsoever.
-21-
<PAGE>
12.20 United States Export Controls. In order to facilitate the exchange of
-----------------------------
information in accordance with this Agreement and in conformity with the
laws and regulations of the United States relating to the exportation of
technical data, both parties agree to fully comply with all relevant laws
and reculations of the United States Government and to assure that no
violation of such laws or regulations shall occur.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their authorized representatives.
QuickLogic Corporation Cypress Semiconductor
Corporation
By__________________________ By__________________________
Title_______________________ Title_______________________
Date________________________ Date________________________
-22-
<PAGE>
EXHIBIT A
---------
FPGA TECHNICAL INFORMATION
--------------------------
Structural Drawing of ViaLink Element
Electrical Specifications of ViaLink
Process Flow Chart
Process Parameters
Programming Characteristics
Life Test Data
Electrical Design Criteria
-23-
<PAGE>
EXHIBIT B
---------
MANUFACTURING TRANSFER PACKAGE
------------------------------
Schematic Diagram of Product
Plots of mask layout
Data base tape
Assembly diagram
Manufacturing Flow Chart
Probe card wiring diagram
Test Specifications
Wafer sort and Final Test Program
Load board schematic
Characterization Data
Burn-in Schematic
Reliability Data
Data Sheet
-24-
<PAGE>
EXHIBIT C
---------
CALCULATION OF DEVELOPMENT SYSTEM PURCHASE PRICES
-------------------------------------------------
The price (including royalty) to be paid by a party purchasing a
Development System from the developing party shall be the sum of (i) an amount
equal to the amortization of the developing party's cost to develop that
Development System over the total number of units of that Development System
distributed to customers by both parties and (ii) the developing party's unit
manufacturing cost for that Development System including direct material, labor
and overhead, plus (iii) 20% of the total of (i) and (ii). The price shall not,
however, exceed the developing party's then current published distributor cost
for that Development System.
For example, if the Cypress cost for developing a particular Development
System was $100,000; if each party distributed 50,000 units of that Development
System; and if the Cypress manufacturing cost (as defined above) of one unit was
$100, the sum of $1 would be added to the manufacturing cost and to the total of
$101 you would add 20% ($20.20) making the purchase price to QuickLogic $121-20.
The first time a party intends to purchase a particular Development System
from the other party it shall give the developing party its best estimate of the
total number of units it will purchase during that calendar year. The
developing party will then give the purchasing party a statement certified by
its controller as to its manufacturing costs and its development costs, and
indicate the total combined number of units of that Development System that the
two parties estimate they will distribute by the end of that year.
Based on that information the parties will calculate the development cost
factor to be included in the purchase price for that Development System as set
forth above. The development cost factor for each, Development System will be
reviewed and recalculated within 90 days following the end of each calendar
year, based upon the actual number of units of each that were purchased by the
purchasing party and that were distributed (to persons other than the purchasing
party) by the developing party and such recalculated factor will be used to
establish the purchase price for the remainder of the then current calendar
year. In addition if, as of the end of any calendar year, there had been a net
overpayment or net underpayment for Development Systems on account of incorrect
assumptions as to quantities, an adjusting payment shall be made by one party to
the other, as required to balance the account.
-25-
<PAGE>
EXHIBIT D
---------
TERMS AND CONDITIONS FOR RESALE BY CYPRESS
------------------------------------------
OF QUICKLOGIC SUPPLIED SILICON
------------------------------
1. Cypress distributors in the USA and Canada shall be authorized to quote,
sell and promote the devices on or after February 1, 1993.
2. Device shipments, including free samples or units for sale, to Cypress
customers and distributors outside North American may commence on or
after October 1, 1993. Quantities shipped outside North America in any
quarter shall not exceed 10% of the total quantity shipped by Cypress in
the same quarter. Prior to October 1, Cypress may sample up to 30
devices each to ten international customers. Up to four of these
customers may be in Japan and no more than two may be in any other
country.
3. Device types to be supplied are the commercial operating range versions
of QL8xl2A-xPL68, and the QL12xl6-xPL84 (where x designates the -0 and -
1 speed grades). The -2 speed versions will be made available when
QuickLogic is able to generate consistent yields above 30%.
4. Devices will be supplied tested, but unmarked in standard QuickLogic
shipping containers externally identified with the ordered part numbers.
5. Cypress may request up to 10% of its unit volume as die on sorted
wafers. No guarantees can be made on yield to specific bin distribution
criteria.
6. Cypress shall place its orders, by device type and speed selection, once
per month in the firstweek of each month. At any time the first two
months of backlog shall be firm and noncancellable. The next two months
shall be a projection of Cypress' expected demand. QuickLogic will
advise its ability to supply the quantities in months three and four
within two weeks of receipt of the projection. At the time that the
order becomes non-cancellable, Cypress may vary its firm order for these
quantities by plus or minus 25% from the last projection.
7. If QuickLogic is unable to meet quantities committed against the firm
orders due to manufacturing limitations, it will guarantee Cypress up to
50% of the total quantity available subject to a maximum of 3K/month for
the 12x16.
-26-
<PAGE>
8. Price for packaged units shall be 40% less than the published US
distributor cost for each type at the time of shipment, or 10% above the
cost of material, labor and manufacturing overhead, whichever is the
greater. Price for die in wafer form shall be 50% less than the
distributor cost for the -1 version of the packaged unit.
9. QuickLogic will support Cypress sales of these products by supplying and
permitting reproduction of the pASIC 1 Family, the QL8xl,2A and the
QL12x16 device data sheets. It will also act as a consultant for
technical questions.
-27-
<PAGE>
EXHIBIT 10.19
MEMORANDUM OF UNDERSTANDING BETWEEN QUICKLOGIC AND
TSMC LTD.
Whereas QuickLogic desires to access TSMC Ltd.(TSMC) Semiconductor Wafer
Foundry Capacity and TSMC desires to provide QuickLogic with said Semiconductor
Wafer Foundry Capacity and QuickLogic desires a foundry to develop a process
for production and TSMC desires to develop such process.
Now Therefore, in consideration of the mutual promises contained
herein, the parties agree as follows.
TSMC agrees to assist QuickLogic in either transferring and/or developing a
production process for QuickLogic's ViaLink (TM) technology. TSMC and
QuickLogic will enter into a rolling "Take or Pay" contract, for a period of
three (3) years, starting on the date of first Risk Production Wafer Outs and
incrementing annually by mutual consent, of substantially the same from as the
"Take or Pay" contracts currently offered to TSMC's existing customers. TSMC
and QuickLogic will enter into an Agreement, initially for three (3) years,
renewable annually as a rolling three year Agreement in which QuickLogic
agrees to purchase not less than [*] of the total volume of wafers for those
products purchased from foundry sources, excluding wafers purchased from
Cypress Semiconductor, with TSMC in the first and succeeding years. TSMC
agrees to Manufacture and supply such wafers to QuickLogic providing that such
quantity of wafers do not exceed an annual forecast provided by QuickLogic by
more than [*]in the first year and [*] in the second and all successive years.
TSMC further agrees to supply QuickLogic with wafers in excess of the above
committed capacity on a best efforts basis if additional capacity is available
in any TSMC fab which can produce the QuickLogic Technology.
1
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
QuickLogic will also provide annually, on the anniversary of three months prior
to the first Risk Production Wafer Out, a forecast of the total number of wafers
for [*] or for the remaining term of the Agreement, such
forecast being for yearly periods commencing on the anniversary of the first
Risk Production Wafer Out. QuickLogic will make a firm commitment to purchase
the numbers of wafer outs for [*].
At the end of each quarter QuickLogic will provide to TSMC, in writing, [*]
forecast of the number of wafers by quarter by technology, the
first such forecast being provided to TSMC three (3) months prior to the first
Risk Production Wafer Out. The first [*] of such forecast shall be a
firm commitment to purchase the wafers forecast for that period.
QuickLogic reserves the right to obtain a "Second Source", up to a maximum of
[*] of its requirements in any one year. In the event that
TSMC fails to meet the market requirements or the capacity commitments of
QuickLogic for any Product, QuickLogic shall have the right to second source the
Product without regard to quantity limitations until such time as TSMC can
supply that part at the required capacity. If TSMC fails to deliver wafers
ordered by QuickLogic within the TSMC Committed Capacity, including a failure to
deliver due to low process yields, and such failure to deliver results in a
failure by QuickLogic to take delivery of the QuickLogic Committed Capacity,
then QuickLogic shall not be liable to forfeit the "Take or Pay" Deposit for any
shortfall in wafers resulting from TSMC's failure to deliver.
It is agreed that the Confidentiality Agreements between QuickLogic and TSMC
shall include the following provisions: QuickLogic and TSMC agree that all
Confidential Information shall be held in strict confidence and released only to
employees of either party who have a Need to Know, and have agreed to comparable
restrictions on use and disclosure.
2
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
DEVELOPMENT OF THE PROCESS AND TECHNOLOGY
QuickLogic and TSMC will jointly develop a 0.5 micron (0.5um) single poly,
triple metal (SPTM) process FPGA using the QuickLogic ViaLink (TM) amorphous
silicon anti-fuse technology. In addition to assisting TSMC to transfer the
process to a TSMC Fab, QuickLogic will work with TSMC on an ongoing basis to
improve and enhance the yields of the production process. TSMC shall make its
best efforts to migrate this process to future technologies to realize the
benefits of smaller geometries. QuickLogic will retain all rights to the
ViaLink trademark and basic technology and process. [*]
DEVELOPMENT SCHEDULE
It is agreed that a good faith estimate of the schedule for both QuickLogic and
TSMC for the Project Development is for the Project to start in [*] with Risk
Production forecast at [*].
DEVELOPMENT EXPENSE
It is agreed that the Development Expense for the Project shall be shared
between QuickLogic and TSMC as follows:
<TABLE>
<CAPTION>
QuickLogic TSMC
<S> <C> <C>
Loop Test (estimated at [*]) [*]% [*]%
Full run wafers (estimated at [*]) [*]% [*]%
Test Wafers [*]% [*]%
Qualification Wafers [*]% [*]%
Masks, including frames (17 reticles) [*]% [*]%
Foundry Machinery and Modifications [*]% [*]%
</TABLE>
3
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
QuickLogic and TSMC will hold monthly development reviews at times and locations
to be mutually agreed upon, until the process is fully qualified. QuickLogic
and TSMC will hold Operations reviews twice per year at locations to be mutually
agreed upon.
QuickLogic and TSMC will hold a quality audit once per year at a time to be
mutually agreed upon by the Parties.
A good faith estimate of the volume that TSMC expects to support and that
QuickLogic expects to purchase, expressed in eight inch (8") Physical Wafers, is
as follows:
YEAR
Year 1 Year 2 Year 3
QuickLogic Committed Capacity [*] [*] [*]
TSMC Committed Capacity [*] [*] [*]
Ratio of Committed Capacities [*] [*] [*]
Providing that, for those Products where TSMC is a foundry source for
QuickLogic, TSMC supplies not less than [*] of the aggregate total number of
wafers, excluding purchased from Cypress Semiconductor, for those Products from
all foundry sources, verifiable by third party audit, QuickLogic will receive
[*] pricing for Products using its technology. This shall be interpreted as
QuickLogic pricing shall be in the [*] of prices for wafers sold to TSMC
customers for a specific TSMC Fab, for like Technology, [*]
4
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
For clarification and to establish Preliminary Budgetary Numbers TSMC provides
the following good faith estimate of prices for products and services referred
to in the preceding paragraphs;
Q1,1997 Q4,1997
8" "QuickLogic" Anti-fuse Process $[*] $[*]
Loop Test (estimate at [*]) $[*] per wafer
Full run wafers (estimated at [*]) $[*] per wafer
Qualification Wafer $[*] per wafer
Masks, including frames (17 reticles) $[*] total
QuickLogic desires to have the option to purchase tested die to fulfill their
contractual requirements. TSMC agrees to provide die pricing options after the
Amorphous Silicon Anti-fuse Process has been fully qualified in full production
and not less than [*] of full production have yielded sufficient data and
information to ensure the reliability of the yield predictions for any Specific
Product or Device Design.
This Memorandum of Understanding is intended to be a non-binding statement of
QuickLogic's and TSMC's mutual interest. The binding agreement between TSMC and
QuickLogic will be set forth only in the Definitive Agreement to be negotiated
and signed after the date of this Memorandum of Understanding. This Memorandum
of Understanding may be terminated by either party upon notice to the other at
any time prior to the execution of a Definitive Agreement.
5
* An asterisk indicates confidential material that has been omitted from this
document and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
<PAGE>
Signed Signed
/s/ Donald W. Brooks /s/ E. Thomas Hart
- ------------------------ ------------------------
Signature Signature
Name: Donald W. Brooks Name: E. Thomas Hart
-------------------- ---------------------
Title: President, TSMC Ltd. Title: President & CEO
-------------------- ---------------------
Date: 10/28/96 Date: 28 October 1996
-------------------- ---------------------
6
<PAGE>
EXHIBIT 10.20
QUICKLOGIC CORPORATION
First Amended and Restated
Common Stock
Purchase Agreement
June 13, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Authorization and Delivery of Common Stock............................. 1
1.1 Authorization.................................................... 1
1.2 Right to the Shares............................................. 1
-------------
2. Delivery............................................................... 1
--------
1.2 No IPO Prior to April 1, 1998.................................... 1
-----------------------------
1.2 IPO Consummated Prior to April 1, 1998........................... 1
--------------------------------------
3. Representations and Warranties of the Company.......................... 2
---------------------------------------------
3.1 Organization and Standing; Articles of Incorporation and Bylaws.. 2
---------------------------------------------------------------
3.2 Corporate Power.................................................. 2
---------------
3.3 No Subsidiaries.................................................. 3
---------------
3.4 Capitalization................................................... 3
--------------
3.5 Authorization.................................................... 3
-------------
3.6 Financial Statements............................................. 4
--------------------
3.7 Title to Properties; Liens and Encumbrances...................... 4
-------------------------------------------
3.8 Intellectual Property Rights..................................... 4
----------------------------
3.9 Proprietary Information Agreements............................... 5
----------------------------------
3.10 Operating Rights................................................ 6
----------------
3.11 Manufacturing, Distribution and License Rights.................. 6
----------------------------------------------
3.12 Compliance with Other Instruments, None Burdensome, etc......... 6
-------------------------------------------------------
3.13 Litigation, etc................................................. 6
---------------
3.14 Employee Compensation Plans..................................... 7
---------------------------
3.15 Insurance....................................................... 7
---------
3.16 Registration Rights............................................. 7
-------------------
3.17 Governmental Consent, etc....................................... 7
-------------------------
3.18 Offering........................................................ 7
--------
3.19 Material Contracts and Obligations.............................. 7
----------------------------------
3.20 Tax Returns and Payments........................................ 8
------------------------
3.21 Related Party Transactions...................................... 8
--------------------------
3.22 Certain Transactions............................................ 8
--------------------
3.23 Environmental Protection........................................ 8
------------------------
3.24 Brokers or Finders.............................................. 9
------------------
3.25 Changes......................................................... 9
-------
3.26 Foreign Investment in Real Property Act......................... 10
---------------------------------------
3.27 Disclosure...................................................... 10
----------
4. Representations and Warranties of the Purchaser........................ 10
-----------------------------------------------
4.1 Authorization.................................................... 10
-------------
4.2 Experience....................................................... 10
----------
4.3 Investment....................................................... 11
----------
4.4 Rule 144......................................................... 11
--------
4.5 No Public Market................................................. 11
----------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4.6 Access to Data................................................... 11
--------------
4.7 Further Limitations on Dispositions.............................. 11
-----------------------------------
5. Conditions to Purchaser's Obligations at the Closing................... 11
----------------------------------------------------
5.1 Representations and Warranties Correct........................... 12
--------------------------------------
5.2 Covenants........................................................ 12
---------
5.3 Good Standing Certificates....................................... 12
--------------------------
5.4 Secretary's Certificate.......................................... 12
-----------------------
5.5 Legal Investment................................................. 12
----------------
6. Conditions to Company's Obligations at the Closing..................... 12
--------------------------------------------------
6.1 Representations and Warranties Correct........................... 12
--------------------------------------
7. Miscellaneous.......................................................... 12
-------------
7.2 Waivers and Amendments........................................... 12
----------------------
7.3 Governing Law.................................................... 13
-------------
7.4 Survival......................................................... 13
--------
7.5 Successors and Assigns........................................... 13
----------------------
7.6 Entire Agreement................................................. 13
----------------
7.7 Severability of this Agreement................................... 13
------------------------------
7.8 Finder's Fees.................................................... 13
-------------
7.9 Legends.......................................................... 13
-------
7.10 Removal of Legends and Transfer Restrictions.................... 14
--------------------------------------------
7.11 Titles and Subtitles............................................ 14
--------------------
7.12 Counterparts.................................................... 14
------------
7.13 Delays or Omissions............................................. 14
-------------------
7.14 Notices......................................................... 14
-------
</TABLE>
<PAGE>
QUICKLOGIC CORPORATION
FIRST AMENDED AND RESTATED
--------------------------
COMMON STOCK
------------
PURCHASE AGREEMENT
------------------
This FIRST AMENDED AND RESTATED COMMON STOCK PURCHASE AGREEMENT (the
"Agreement") is made as of June 13, 1997 by and between QuickLogic Corporation,
a California corporation (the "Company"), and Cypress Semiconductor Corporation,
a Delaware company (the "Purchaser").
A. On March 29, 1997 (the "Original Date"), the Company and the Purchaser
entered into a certain Common Stock Purchase Agreement dated the Original Date
(the "Prior Agreement"); and
B. The Company and the Purchaser desire to amend and restate the Prior
Agreement in its entirety and to enter into this Agreement upon the terms and
conditions set forth below; this Agreement shall supersede the Prior Agreement
in its entirety.
Therefore, in consideration of the mutual promises, representations,
warranties, covenants, and conditions set forth in this Agreement, the parties
to this Agreement mutually agree as follows:
1. Authorization and Delivery of Common Stock.
------------------------------------------
1.1 Authorization. The Company has authorized the issuance and
-------------
delivery of 18,226,716 shares of its Common Stock ("Common Stock") having the
rights, preferences, and privileges set forth in the Amended and Restated
Articles of Incorporation (the "Restated Articles") of the Company, attached
hereto as Exhibit A.
1.2 Right to the Shares. Subject to the terms and conditions hereof,
-------------------
at the Closing (as defined in that certain Termination Agreement (the
"Termination Agreement") between the Company and Purchaser dated March 29,
1997), the Company became obligated to deliver to Purchaser, and Purchaser
became entitled to receive from the Company 18,226,716 shares of Common Stock
(the "Shares") (and such additional shares that are issuable pursuant to Section
2.5 of the Termination Agreement) in the manner set forth in Section 2 below.
2. Delivery. The delivery of the Shares shall take place in the
--------
following manner:
2.1 No IPO Prior to April 1, 1998. In the event that the Company has
-----------------------------
not consummated the initial public offering ("IPO") of its Common Stock prior to
April 1, 1998, then the Company shall deliver all of the Shares to the Purchaser
on or about April 1, 1998, but in any event by April 7, 1998.
2.2 IPO Consummated Prior to April 1, 1998. In the event that the
--------------------------------------
Company has consummated an IPO prior to April 1, 1998, then the Company shall
deliver to the Purchaser
<PAGE>
in connection with the IPO that number of Shares that the Purchaser is able to
sell in accordance with that certain Sixth Amended and Restated Registration
Rights Agreement (the "Registration Rights Agreement") in substantially the form
attached as Exhibit F to the Termination Agreement, and the balance of Shares
shall be delivered upon the lapse of the Lockup Period (defined below) following
the effective date of the IPO; provided, in the event the Company undertakes a
registered public offering of its Common Stock following an IPO (a "Follow-on
Offering") prior to the lapse of the lockup period agreed to by the Company's
directors, officers and greater than 1% shareholders for the IPO (the "Lockup
Period"), the Company shall deliver such number of Shares that Purchaser is able
to sell in accordance with the Registration Rights Agreement in the Follow-on
Offering, and the remaining balance of Shares shall be delivered to Cypress upon
the expiration of the lock-up agreements executed in connection with such
Follow-on Offering. The Company shall instruct its transfer agent to deliver the
Shares deliverable at the expiration of the applicable Lockup Period at least
twenty (20) days prior to such date. In the event that the Lockup Period
provides for a set number of days where the Lockup Period would expire in a
period where the Company's directors and officers are prevented from trading
because of the set "blackout" period between earnings releases provided in the
Company's insider trading policy, then the Company's directors, officers and
greater than 1% shareholders shall agree to a Lockup Period that does not expire
until the date that trading can commence under the Company's insider trading
policy. Any early releases of any lockup shall include the pro-rata release of
Shares based on the total number of shares that are locked-up, and such early-
released Shares shall not, at the time of such early release, be subject to any
blackout provision on the released Shares, which are entitled to registration as
provided in the Registration Rights Agreement.
3. Representations and Warranties of the Company. Except as set forth on
---------------------------------------------
the Schedule of Exceptions attached hereto as Exhibit A, the Company hereby
represents and warrants to Purchaser as of the Original Date as follows:
3.1 Organization and Standing; Articles of Incorporation and Bylaws.
---------------------------------------------------------------
The Company is a corporation duly organized and validly existing under, and by
virtue of, the laws of the State of California, is in good standing under such
laws and is authorized to exercise all of its corporate powers, rights and
privileges. The Company has the requisite legal and corporate power and
authority to own, lease and operate its properties and assets and to conduct its
business as presently conducted and as proposed to be conducted. The Company is
qualified to do business as a foreign corporation in each jurisdiction where the
failure to be so qualified would have a material adverse effect on the business
of the Company as now conducted or as proposed to be conducted. True, correct
and complete copies of the Company's Articles, Bylaws and other charter
documents, each as will be in effect at the Closing have been delivered to
Purchaser.
3.2 Corporate Power. The Company has the requisite legal and
---------------
corporate power to execute and deliver the Termination Agreement and the
Transaction Agreements (as defined in the Termination Agreement), to file the
Restated Articles with the Secretary of State of California, to issue and sell
the Shares hereunder and to carry out and perform its obligations under the
terms of the Transaction Agreements.
-2-
<PAGE>
3.3 No Subsidiaries. Except as described in Exhibit A, the Company
---------------
has no subsidiaries or affiliated companies and does not otherwise own or
control, directly or indirectly, any equity interest in any other corporation,
partnership, association or other business entity.
3.4 Capitalization. As of the Closing (as defined in the Termination
--------------
Agreement), the authorized capital stock of the Company consisted of
105,000,000 shares of Common Stock (the "Common Stock") and 61,567,874 shares of
Preferred Stock (the "Preferred Stock"), 2,505,000 of which are designated
Series A Preferred Stock ("Series A Preferred"), 10,274,637 of which are
designated Series B Preferred Stock ("Series B Preferred"), 12,106,811 of which
are designated Series C Preferred Stock ("Series C Preferred"), 3,125,000 of
which are designated Series D Preferred ("Series D Preferred"), 23,873,667 of
which are designated Series E Preferred Stock ("Series E Preferred") and
9,482,759 of which are designated Series F Preferred Stock ("Series F
Preferred"). As of February 7, 1997, 4,785,364 shares of Common Stock,
2,505,000 shares of Series A Preferred, 10,274,637 shares of Series B Preferred,
11,975,561 shares of Series C Preferred, 3,125,000 shares of Series D Preferred,
23,873,667 shares of Series E Preferred and 7,716,119 shares of Series F
Preferred were issued and outstanding. All such issued and outstanding shares
have been duly authorized and validly issued, are fully paid and nonassessable,
and were issued in compliance with all applicable federal and state securities
laws. The rights, preferences and privileges of the Preferred Stock are as
stated in the Articles. Each share of Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred, Series E Preferred, Series F Preferred
and Common Stock is convertible into one share of Common Stock of the Company
(as subject to adjustment pursuant to its terms). The Company has reserved
61,567,874 shares of Common Stock for issuance upon conversion of the Preferred
Stock. Except for (i) the conversion privileges of the Preferred Stock, (ii)
14,700,000 shares of Common Stock reserved for issuance pursuant to the
Company's 1989 Stock Option Plan, under which options to purchase 8,532,958
shares were outstanding as of February 7, 1997 and 4,225,928 shares were
available for future grant as of February 7, 1997, (iii) 100,000 shares reserved
for issuance pursuant to the Company's Sales Representative Stock Purchase Plan,
(iv) 131,250 shares of Series C Preferred Stock reserved for issuance pursuant
to the exercise of a warrant to purchase Series C Preferred Stock, and (v) the
rights provided in Section 3 of the Shareholders Agreement to the Shareholders
(as defined therein), at the Closing there will be no other outstanding rights
of first refusal, preemptive rights or other rights, options, warrants,
conversion rights, or other agreements either directly or indirectly for the
purchase or acquisition from the Company of any shares of its capital stock.
3.5 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and shareholders necessary for the authorization,
execution, delivery and performance of the Transaction Agreements and for the
authorization, sale, issuance (or reservation for issuance) and delivery of the
Shares, and the performance of the Company's obligations under the Transaction
Agreements has been taken. The Transaction Agreements when executed and
delivered by the Company, will constitute legal, valid and binding obligations
of the Company enforceable against the Company in accordance with their
respective terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights and, with respect to the Registration Rights Agreement, except
as the enforceability of Section 7 thereof may be limited by
-3-
<PAGE>
public policy. The Shares, when issued in compliance with provisions of this
Agreement, will be, validly issued, fully paid and nonassessable, and free of
any liens or encumbrances; provided, however, that the Shares may be subject to
restrictions on transfer under state and/or federal securities laws as set forth
herein. The Shares will be, assuming the accuracy of the representations set
forth in Section 4 hereof, issued in compliance with all applicable state and/or
federal securities laws. The Shares are not subject to any preemptive rights or
rights of first refusal except as have been waived or satisfied. Except as
provided in the Shareholders Agreement, the Company is not a party or subject to
any agreement or understanding, and, to the Company's knowledge, there is no
agreement or understanding between any persons and/or entities, which affects or
relates to the voting or giving of written consents with respect to any security
or by a director of the Company.
3.6 Financial Statements. The Company has delivered to Purchaser its
--------------------
audited financial statements (balance sheet, and statement of operations and
statement of cash flows and statement of shareholders' equity) for the years
ended December 31, 1996, 1995 and 1994 and its unaudited financial statements
(balance sheet, statement of operations, statement of cash flows and statement
of shareholders' equity) for the one (1) month period ended January 31, 1997
(collectively, the "Financial Statements"). The Financial Statements are
complete and correct in all material respects and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis for the periods indicated and with each other. The Financial Statements
accurately set out and describe the financial condition and operating results of
the Company as of the dates, and for the periods, indicated therein, subject, in
the case of the unaudited financial statements, to normal year-end audit
adjustments. Except as set forth in the Financial Statements, the Company has
no liabilities, contingent or otherwise, other than (i) liabilities incurred in
the ordinary course of business and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the Financial
Statements, which, individually or in the aggregate, are not material to the
financial condition or operating results of the Company. The Company maintains
and will continue to maintain a standard system of accounting established and
administered in accordance with generally accepted accounting principles.
3.7 Title to Properties; Liens and Encumbrances. The Company has
-------------------------------------------
good and marketable title to all of its properties and assets. Such properties
and assets are not subject to any mortgage, pledge, lien, security interest,
conditional sales agreement, encumbrance or charge, except liens for current
taxes not yet due and payable. The Company is not in default or in breach and
has not received notice of default of any provision of its leases or licenses
and the Company holds valid leaseholds or licensed interests in the properties
which it leases or which is licensed to it. The Company's properties and assets
are in good condition and repair in all material respects.
3.8 Intellectual Property Rights. Except as disclosed in Exhibit A,
----------------------------
the Company (a) owns or has the right to use, free and clear of all liens,
claims and restrictions, all patents, trademarks, service marks, trade names,
copyrights and other intangible or intellectual property rights (and licenses
with respect to the foregoing) needed for or used in the conduct of its business
as now conducted and as proposed to be conducted without infringing upon or
otherwise acting adversely to the right or claimed right of any person under or
with respect to any
-4-
<PAGE>
of the foregoing, and (b) is not obligated or under any liability whatsoever to
make any payments by way of royalties, fees or otherwise to any owner of,
licensor of, or other claimant to, any patent, trademark, trade name, copyright
or other intangible assets, with respect to the use thereof or in connection
with the conduct of its business or otherwise. Except as disclosed in Exhibit A,
the Company owns or has the unrestricted right to use all patents, trademarks,
service marks, trade names, copyrights, trade secrets, including know-how,
inventions, designs, processes, and technical data required for or incident to
the development, manufacture, operation and sale of all products and services
sold or proposed to be sold by the Company and all of the patents, trademarks,
service marks, trade names, copyrights and trade secrets of the Company are held
by the Company free and clear of any rights, licenses, liens or claims of
others, including, without limitation, current and former employees, former
employers of all current and former employees, consultants, officers, directors
and shareholders of the Company.
3.9 Proprietary Information Agreements. All employees and
----------------------------------
consultants of the Company are parties to a written agreement ("Proprietary
Information and Inventions Agreement") under which each such employee or
consultant (i) is obligated to disclose and transfer to the Company, without the
receipt by such person of any additional value therefor (other than normal
salary or fees for consulting services), all inventions, developments and
discoveries which, during the period of his employment with or performance of
services for the Company, he makes or conceives of either solely or jointly with
others, that relate to any subject matter with which his work for the Company
may be concerned, or relate to or are connected with the business, products or
projects of the Company, or involve the use of the time, material or facilities
of the Company, and (ii) is obligated to maintain the confidentiality of
proprietary information of the Company. To the best of the Company's knowledge,
none of the Company's employees or consultants, is in violation of the
Proprietary Information and Inventions Agreement to which such employee or
consultant is a party. None of the Company's employees or consultants is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would conflict with their obligation to
use their best efforts to promote the interests of the Company or that would
conflict with the Company's business as conducted or as proposed to be
conducted. Neither the execution nor delivery of the Transaction Agreements,
nor the carrying on of the Company's business by its employees and consultants,
nor the conduct of the Company's business as proposed, will conflict with or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, any contract, covenant or instrument under which any of such
employees or consultants are now obligated. The Company does not believe it is
or will be necessary to utilize, and will not utilize, any inventions of any of
the Company's employees or consultants (or people it currently intends to hire)
made or owned prior to their employment by the Company or that it is or will be
necessary to utilize any other assets or rights of any of its employees or
consultants (or people it currently intends to hire) made or owned prior to
their employment with or engagement by the Company, in violation of any
limitations or restrictions to which any such employee or consultant is a party
or to which any of such assets or rights may be subject. To the best of the
Company's knowledge, none of the Company's employees or consultants, have taken,
removed or made use of any proprietary documentation, manuals, products,
materials, or any other tangible item from his previous employer, and the
Company will not make use of any such proprietary items in the business of the
Company.
-5-
<PAGE>
3.10 Operating Rights. The Company has all operating authority,
----------------
licenses, franchises, permits, certificates, consents, rights and privileges
(collectively, the "Permits") as are necessary or appropriate to the operation
of its business as now or as proposed to be conducted, the absence of which
would have a material and adverse effect on the business of the Company. Such
Permits are in full force and effect, no violations have been or are expected to
be recorded in respect of any such Permits, and no proceeding is pending or
threatened that could result in the revocation or limitation of any of such
Permits. The Company has conducted its business so as to comply in all respects
with all such material Permits.
3.11 Manufacturing, Distribution and License Rights. The Company has
----------------------------------------------
not granted rights or licenses to manufacture, assemble, distribute or sell its
products to any person or entity, is not bound by any agreement that affects the
Company's exclusive right to manufacture, assemble, distribute or sell its
products, and has not licensed or sold any of its technology or proprietary
information to any person or entity.
3.12 Compliance with Other Instruments, None Burdensome, etc. The
-------------------------------------------------------
Company is not in violation of any term of its Articles or Bylaws. The Company
is not in violation of any term or provision of any material mortgage,
indenture, contract, agreement, instrument, judgment or decree and the Company
is not in violation of any applicable order, statute, rule or regulation where
such violation could have a material and adverse effect on the Company. The
execution, delivery and performance of and compliance with this Agreement and
the other Transaction Agreements and the issuance of the Shares have not
resulted and will not result in any violation of or conflict with the Company's
Articles or Bylaws, and have not resulted and will not result in any violation
of, or be in conflict with, or constitute a default under, or result in the
creation of, any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company; and there is no such violation or default
or event which, with the passage of time or giving of notice or both, would
constitute a violation or default which would materially and adversely affect
the business of the Company or any of its properties or assets.
3.13 Litigation, etc. Except as disclosed in Exhibit A, there are no
---------------
actions, suits proceedings or investigations pending against the Company or its
properties before any court or governmental agency (nor is there any threat
thereof) which, either in any case or in the aggregate, might result in any
material adverse change in the business or financial condition of the Company or
any of its properties or assets, or in any material impairment of the right or
ability of the Company to carry on its business as now conducted or as proposed
to be conducted, or in any material liability on the part of the Company, and
none which questions the validity of this Agreement and the other Transaction
Agreements or any action taken or to be taken in connection herewith or
therewith. The Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or governmental agency
or instrumentality. The foregoing includes, without limitation, actions pending
or threatened (or any basis therefor known to the Company) involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreement with prior
employers.
-6-
<PAGE>
There is no action, suit, proceeding or investigation by the Company currently
pending or which the Company intends to initiate.
3.14 Employee Compensation Plans. Except for the Company's 1989 Stock
---------------------------
Option Plan and 1991 Sales Representative Stock Purchase Plan, the Company is
not a party to or bound by any currently effective employment contract, deferred
compensation agreement, benefit plan, pension, profit-sharing plan, stock
option, retirement agreement, or other employee compensation agreement. The
Company has provided copies of all such plans, contracts, and agreements to
which the Company is currently a party. The Company is not bound by or subject
to (and none of its assets are bound by or subject to) any arrangement with any
labor union and does not have any collective bargaining agreements covering any
of its employees.
3.15 Insurance. The Company has obtained and maintained in full force
---------
and effect fire, casualty and liability insurance policies with recognized
insurers with such coverages as are carried by similar companies, sufficient in
amount to allow replacement of the tangible properties of the Company that might
be damaged or destroyed.
3.16 Registration Rights. Except as contemplated by this Agreement
-------------------
and the Registration Rights Agreement, the Company is not under any obligation
to register any of its presently outstanding securities or any of its securities
which may hereafter be issued.
3.17 Governmental Consent, etc. No consent, approval or authorization
--------------------------
of, or designation, declaration or filing with, any governmental authority on
the part of the Company is required in connection with the valid execution,
delivery, and performance of this Agreement and the other Transaction Agreements
or the offer, sale or issuance of the Shares, or the consummation of any other
transaction contemplated by this Agreement and the other Transaction Agreements
except certain filings as may be required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, the Securities Act of 1933, as amended
(the "Securities Act"), the California Corporations Code and the securities laws
of other states in which Purchasers reside.
3.18 Offering. Subject to the accuracy of the Purchaser's
--------
representations in Section 4 hereof, the offer, sale and issuance of the Shares
constitute transactions exempt from the registration requirements of Section 5
of the Securities Act, and from the qualification requirements of applicable
state or other securities laws.
3.19 Material Contracts and Obligations. Set forth in Exhibit A
----------------------------------
hereto is a list of all agreements, contracts, indebtedness, liabilities and
other obligations to which the Company is a party or by which the Company is
bound that are material to the conduct and operations of its business,
properties and prospects, that provide for payments to or by the Company in
excess of $80,000, that relate to any product or technology the Company is
developing, or that involve transactions or proposed transactions between the
Company and its officers or directors. All of such agreements and contracts are
valid, binding and in full force and effect in all material respects, assuming
due execution by the other parties to such agreements and contracts.
-7-
<PAGE>
3.20 Tax Returns and Payments. The Company has accurately prepared
------------------------
and timely filed all tax returns (foreign, federal, state and local) required to
be filed by it. All taxes shown to be due and payable on said returns, any
assessments received, and all other taxes due and payable by the Company on or
before the date hereof have been paid or will be paid prior to the time they
become delinquent. The federal income tax returns of the Company have not been
audited by the Internal Revenue Service. No deficiency assessment or proposed
adjustment of the Company's foreign or federal income tax or state or local
taxes is pending and the Company has no knowledge of any proposed liability for
any tax to be imposed upon its properties or assets for which the Company has
not adequately reserved.
3.21 Related Party Transactions. No officer or director of the
--------------------------
Company (a) is an officer, director or general partner of, or directly or
indirectly owns beneficially more than 5% of the equity of, any business which
(i) furnishes or sells services or products which compete with services or
products furnished or sold by the Company, or (ii) purchases from or sells or
furnishes to the Company any goods or services on terms less favorable than the
Company could obtain from third parties on an arms-length basis, or (b) has a
beneficial interest in any contract or agreement to which the Company is a party
or by which it may be bound or affected involving the payment or receipt of in
excess of $10,000.
3.22 Certain Transactions. Except as set forth on Exhibit A attached
--------------------
hereto, the Company is not indebted, directly or indirectly, to any of its
officers, directors or shareholders or to their respective spouses or children,
in any amount whatsoever; none of such officers, directors, or shareholders, or
any members of their immediate families, are indebted to the Company or have any
direct or indirect ownership interest in any firm or corporation with which the
Company has a business relationship, or any firm or corporation that competes
with the Company. No officer, director or shareholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company. The Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
3.23 Environmental Protection. Except as disclosed in Exhibit A:
------------------------
(a) The Company has not caused or allowed, nor has the Company
contracted with any party for, the generation, use, transportation, treatment,
storage or disposal of any Hazardous Substances (as defined below) in connection
with the operations of its business or otherwise.
(b) The Company, the operations of its business, and any real
property that the Company owns, leases, or otherwise occupies or uses (the
"Premises") are in compliance with all applicable Environmental Laws (as defined
below) and orders or directives of any governmental authorities having
jurisdiction under such Environmental Laws including, without limitation, any
Environmental Laws or orders or directives with respect to any cleanup or
remediation of any release or threat of release of Hazardous Substances.
(c) The Company has not received any citation, directive, letter or
other communication, written or oral, or any notice of any proceedings, claims
or lawsuits, from
-8-
<PAGE>
any person, entity or governmental authority arising out of the ownership or
occupation of the Premises, or the conduct of its operations, nor is it aware of
any basis therefor.
(d) The Company has obtained and is maintaining in full force and
effect all necessary permits, licenses and approvals required by any
Environmental Laws applicable to the Premises and the business operations
conducted thereon (including operations conducted by tenants on the Premises)
and is in compliance with all such permits, licenses and approvals.
(e) The Company has not caused, or allowed a release, or a threat of
release, of any Hazardous Substance onto, at or near the Premises nor, to the
best of the Company's knowledge, has the Premises or any property at or near the
Premises ever been subject to a release, or a threat of release, of any
Hazardous Substance.
The term "Environmental Laws" shall mean any federal, state or local
law, ordinance or regulation pertaining to the protection of human health or the
environment including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Sections 9601, et seq.,
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections 11001, et
seq., and the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901,
et seq.
The term "Hazardous Substance" includes oil and petroleum products,
asbestos, polychlorinated biphenyls and urea formaldehyde, and any other
materials classified as hazardous or toxic under any Environmental Laws.
3.24 Brokers or Finders. The Company has not incurred, directly or
------------------
indirectly, any liability for brokerage or finders' fees, agent's commission, or
other similar charges in connection with this Agreement or any of the
transactions contemplated hereby.
3.25 Changes. Since January 31, 1997, there has not been:
-------
(a) any changes in the assets, liabilities, financial condition,
operating results or prospects of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business which
have not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of the Company (as such
business is presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or of a material
debt owed to it;
-9-
<PAGE>
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and which is not material to the assets, properties,
financial condition, operating results, prospects or business of the Company (as
such business is presently conducted and as it is proposed to be conducted);
(e) any change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound or
subject;
(f) any material change in any compensation arrangement or
agreement with any employee; or
(g) to the Company's knowledge, any other event or condition of
any character which might materially and adversely affect the assets,
properties, financial condition, operating results, prospects or business of the
Company (as such business is presently conducted and as it is proposed to be
conducted).
3.26 Foreign Investment in Real Property Act. The Company is not a
---------------------------------------
"United States real property holding corporation" for the purposes of Section
897(c)(2) of the Internal Revenue Code of The United States of America and the
Treasury Regulations thereunder ("FIRPTA").
3.27 Disclosure. No statement by the Company contained in the
----------
Transaction Agreements, nor any written statement or certificate furnished or to
be furnished to the Purchaser in connection with the transactions contemplated
hereby including without limitation the Business Plan (when read with other
documents so furnished) contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made except that, with respect to the financial projections
given by the Company, the Company only represents that such projections where
made in good faith.
4. Representations and Warranties of the Purchaser. Purchaser represents
-----------------------------------------------
and warrants to the Company with respect to the purchase of the Shares as of the
Original Date as follows:
4.1 Authorization. All action on the part of the Purchaser necessary
-------------
for the authorization, execution, delivery and performance by the Purchaser of
the Transaction Agreements has been taken, and the Transaction Agreements when
executed and delivered by the Purchaser constituted valid and binding
obligations of the Purchaser, enforceable in accordance with their terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditor's rights
and, with respect to the Amended Registration Rights Agreement, except as the
enforceability of Section 7 thereof may be limited by public policy.
4.2 Experience. The Purchaser is experienced in evaluating and
----------
investing in new high technology companies such as the Company.
-10-
<PAGE>
4.3 Investment. The Purchaser is acquiring the Shares for
----------
investment, for its own account, and not with a view to, or for resale in
connection with, any distribution. The Purchaser understands that the Shares
have not been, and will not be (except as contemplated in the Registration
Rights Agreement) registered under the Securities Act or applicable state or
other securities laws by reason of a specific exemption from the registration
provisions of the Securities Act and applicable state and other securities laws
which depends upon, among other things, the bona fide nature of the investment
intent as expressed herein.
4.4 Rule 144. The Purchaser acknowledges that the Shares must be
--------
held indefinitely unless subsequently registered under the Securities Act and
applicable state and other securities laws or unless an exemption from such
registration is available. The Purchaser is aware of the provisions of Rule 144
promulgated under the Securities Act which permit limited resale of shares
purchased in a private placement subject to the satisfaction of certain
conditions.
4.5 No Public Market. The Purchaser understands that no public
----------------
market now exists for the Shares and that it is unlikely that a public market
will ever exist for the Shares.
4.6 Access to Data. The Purchaser has had an opportunity to discuss
--------------
the Company's business, management and financial affairs with the Company's
management and an opportunity to review the Company's facilities. The Purchaser
understands that such discussions, as well as the written information issued by
the Company, were intended to describe the aspects of the Company's business and
prospects which it believes to be material but were not necessarily a thorough
or exhaustive description.
4.7 Further Limitations on Dispositions. Without in any way limiting
-----------------------------------
the representations set forth above, the Purchaser further agrees that, if at
the time of any transfer of any Shares, such Shares shall not be registered
under the Securities Act, prior to any disposition of all or any portion of the
Shares, the Company may require, as a condition of allowing such transfer, that
the holder or transferee furnish to the Company (i) such information as is
necessary in order to establish that such transfer may be made without
registration under the Securities Act; and (ii) at the expense of the holder or
transferee, an opinion by legal counsel designated by such holder or transferee
and reasonably satisfactory in form and substance to the Company, to the effect
that such transfer may be made without registration under the Securities Act.
Notwithstanding the foregoing, no such opinion of counsel shall be necessary for
a transfer pursuant to Rule 144 of the Securities and Exchange Commission or by
a Purchaser which is a partnership to a partner of such partnership or a retired
partner of such partnership who retires after the date hereof, or to the estate
of any such partner or retired partner or to any person or entity that is deemed
to be an "affiliate" of the Purchaser for purposes of the Securities Act.
5. Conditions to Purchaser's Obligations at the Closing. The Purchaser's
----------------------------------------------------
right to receive the Shares and obligations under the Termination Agreement and
other Transaction Agreements shall be subject to the following conditions prior
to the date for closing (the "Closing Date"), any of which may be waived in
whole or in part by the Purchaser.
-11-
<PAGE>
5.1 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Company in Section 3 hereof shall be true and correct
when made, and shall be true and correct on the Closing Date with the same force
and effect as if they had been made on and as of the same date.
5.2 Covenants. All covenants, agreements, and conditions in this
---------
Agreement required to be performed or complied with by the Company on or prior
to such Closing Date shall have been performed or complied with by the Company.
5.3 Good Standing Certificates. The Company shall have delivered a
--------------------------
Certificate dated as of a recent date issued by the Secretary of State of the
State of California to the effect that the Company is legally existing and in
good standing and a letter dated as of a recent date from the Franchise Tax
Board of the State of California to the effect that the Company is in good
standing.
5.4 Secretary's Certificate. The Company shall have delivered a
-----------------------
certificate executed by the Secretary or Assistant Secretary of the Company
dated such Closing Date, certifying the following matters: (a) the resolutions
adopted by the Company's Board of Directors and shareholders relating to the
transactions contemplated by this Agreement; (b) the Articles of the Company;
(c) the Bylaws of the Company; and (d) incumbency of officers of the Company.
5.5 Legal Investment. At such Closing Date, the issuance of the
----------------
Shares to the Purchaser hereunder shall be legally permitted by all laws and
regulations to which the Purchaser and the Company are subject.
6. Conditions to Company's Obligations at the Closing. The Company's
--------------------------------------------------
obligation to deliver the Shares is subject to the fulfillment at or prior to
the Closing Date of the following conditions, any of which may be waived in
whole or in part by the Company in accordance with the provisions of Section 7.2
hereof:
6.1 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Purchaser in Section 4 hereof shall be true and correct
when made, and shall be true and correct on the Closing Date with the same force
and effect as if they had been made on or as of the same date.
7. Miscellaneous.
-------------
7.1 Waivers and Amendments. With the written consent of the
----------------------
Purchaser, the obligations of the Company under this Agreement may be waived
(either generally or in a particular instance, either retroactively or
prospectively and either for a specified period of time or indefinitely), and
with the same consent, the Company, when authorized by resolution of its Board
of Directors, may enter into a supplementary agreement for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of this Agreement.
-12-
<PAGE>
7.2 Governing Law. This Agreement shall be governed in all respects
-------------
by the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California.
7.3 Survival. The representations, warranties, covenants and
--------
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto or in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder as of the date of such certificate or instrument.
7.4 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
7.5 Entire Agreement; Termination of Prior Agreement. This Agreement
------------------------------------------------
constitutes the full and entire understanding and agreement between the parties
with regard to the subjects hereof. Without limiting the foregoing, the Prior
Agreement shall be terminated as of the date hereof and shall be superseded and
replaced in its entirety by this Agreement.
7.6 Severability of this Agreement. In case any provision of this
------------------------------
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
7.7 Finder's Fees. The Company represents and warrants that it has
-------------
retained no finder or broker in connection with the transactions contemplated by
this Agreement and hereby agrees to indemnify and to hold the Purchaser harmless
of and from any liability for commission or compensation in the nature of a
finder's fee to any broker or other person or firm (and the costs and expenses
of defending against such liability or asserted liability) for which the
Company, or any of its employees or representatives, are responsible. Each
Purchaser represents and warrants that such Purchaser has retained no finder or
broker in connection with the transactions contemplated by this Agreement and
hereby agrees to indemnify and to hold the Company harmless of and from any
liability for any commission or compensation in the nature of a finder's fee to
any broker or other person or firm (and the costs and expenses of defending
against such liability or asserted liability) for which such Purchaser, or any
of its employees or representatives, are responsible.
7.8 Legends. Each certificate representing the Shares shall be
-------
endorsed with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES, THE SALE IS
MADE IN
-13-
<PAGE>
ACCORDANCE WITH RULE 144 OR ITS SUCCESSOR RULE UNDER THE ACT, OR THE
COMPANY RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
Each certificate representing the Shares shall also bear any legend required by
any applicable state securities law. The Company need not register a transfer of
Shares, unless the conditions specified in the foregoing legends are satisfied.
The Company may also instruct its transfer agent not to register the transfer of
any of the Shares unless the conditions specified in the foregoing legend is
satisfied.
7.9 Removal of Legends and Transfer Restrictions. The legend
--------------------------------------------
relating to the Securities Act endorsed on a stock certificate pursuant to
Section 7.9 of this Agreement and the stop transfer instructions with respect to
the Shares represented by such certificate shall be removed and the Company
shall issue a certificate without such legend to the holder of such Shares if
such Shares are registered under the Securities Act and a pros pectus meeting
the requirements of Section 10 of the Securities Act is available or if such
holder provides to the Company an opinion of counsel reasonably satisfactory to
the Company to the effect that a public sale, transfer or assignment may be made
without registration or if the Shares may be sold pursuant to Rule 144(k) of the
Securities Act of 1933.
7.10 Titles and Subtitles. The titles of the sections and subsections
--------------------
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
7.11 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be an original, but all of which together shall constitute
one instrument.
7.12 Delays or Omissions. It is agreed that no delay or omission to
-------------------
exercise any right, power or remedy accruing to any Purchaser, upon any breach
or default of the Company under this Agreement, shall impair any such right,
power or remedy, nor shall it be construed to be a waiver of any such breach or
default, or any acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. It is further agreed that any waiver, permit, consent or approval of
any kind or character by any Purchaser of any breach or default under this
Agreement, or any waiver by any Purchaser of any provisions or conditions of
this Agreement must be in writing and shall be effective only to the extent
specifically set forth in writing and that all remedies, either under this
Agreement, or by law or otherwise afforded to the Purchaser, shall be cumulative
and not alternative.
7.13 Notices. All notices and other communications required or
-------
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery or upon deposit with the United Stated Post Office, by
first class mail, postage prepaid, addressed: (a) if to Purchaser, at the
Purchaser's address as set forth below, or at such other address as such
Purchaser shall have furnished to the Company in writing, or (b) if to the
Company, at the
-14-
<PAGE>
Company's address as set forth below, or at such other address as the Company
shall have furnished to the Purchaser in writing:
Cypress Semiconductor Corporation
3901 North First Street
San Jose, CA 95134-1599
Attention: T.J. Rodgers
To the Company:
---------------
QuickLogic Corporation
2933 Bunker Hill Lane, Ste. 100A
Santa Clara, CA 95054
Attn: E. Thomas Hart
[SIGNATURE PAGE FOLLOWS]
-15-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this First Amended and Restated
Common Stock Purchase Agreement to be duly executed and delivered by their
proper and duly authorized officers as of the day and year first written above.
"THE COMPANY"
QUICKLOGIC CORPORATION
/s/ Vincent A. McCord
By________________________________
Vice President and Chief Financial Officer
Title__________________________________________
"PURCHASER"
CYPRESS SEMICONDUCTOR
CORPORATION
/s/ Emmanuel Hernandez
By________________________________
Chief Financial Officer
Title_____________________________
-16-
<PAGE>
EXHIBIT A
---------
QUICKLOGIC CORPORATION
COMMON STOCK PURCHASE AGREEMENT
SCHEDULE OF EXCEPTIONS
The disclosures set forth in this Schedule of Exceptions are itemized to
correspond to the first or principal section of the QuickLogic Corporation
Common Stock Purchase Agreement (the "Agreement") to which they relate. Each of
the disclosures made herein shall qualify each of the sections of the Agreement
to which they relate.
While no specific reference herein is made to the Termination Agreement
(and the exhibits thereto) , the provisions thereof shall be deemed to qualify
any applicable representations and warranties made by QuickLogic in the
Agreement.
Section 3.7 Title to Properties; Liens and Encumbrances.
-------------------------------------------
The Company owns no real property. The Company has purchased certain
office and manufacturing equipment used in its business. The aggregate value of
such equipment is approximately $2,400,000.
Section 3.8 Intellectual Property Rights.
----------------------------
With respect to the representation that the Company has the unrestricted
right to use all trade secrets, including know-how, inventions, design processes
and technical data, the Company has not conducted an investigation or audit of
its or third parties' intellectual property rights or its or third parties'
proprietary rights, nor has it retained intellectual property counsel for that
purpose. The exceptions to the representations contained in Section 3.8 that
the Company is currently aware are set forth below.
Licenses.
--------
The Company has granted certain technology license rights and manufacturing
rights to VLSI Technology, Inc. ("VLSI") pursuant to an agreement dated May 9,
1990, as amended (the "VLSI" Agreement").
-1-
<PAGE>
Actel Litigation.
----------------
On January 20, 1994, Actel Corporation filed suit against QuickLogic
alleging infringement by QuickLogic of U.S. Patents No. 4,758,745; 4,873,459;
5,055,718; and 5,198,705, and seeking damages and injunctive relief. On or
about February 10, 1994, QuickLogic filed an answer and counter-claim seeking in
the counter-claim a declaration that each of the patents alleged to be infringed
was not infringed and in addition that each of the patents upon which suit was
brought was invalid, void and unenforceable. Discovery has begun. QuickLogic
moved to stay proceedings pending reexamination of two patents involved in the
litigation and the court granted this motion in early Summer 1994. The United
States Patent and Trademark Office confirmed the patentability of the two Actel
patents placed in reexamination (the '745 and the '459 patents) in late summer
and early fall 1994. The court then lifted the stay in late November 1994 and
shortly thereafter Actel filed a motion for summary judgment with respect to the
interpretation claim 1 of the '705 patent and its infringement which QuickLogic
opposed. On October 4, 1996, the Special Master recommended that Actel's motion
be granted; QuickLogic has objected to this recommendation. (The recommendation
does not address the validity of claim 1 of the '705 patent. Validity must
still be resolved by the court or at trial.) A hearing on the recommendation
was held on January 27, 1997 and February 3, 1997, but Judge Ware has not yet
issued his ruling.
Actel on or about March 15, 1995 amended its complaint to add to the suit
U.S. Patent No. 5,367,208 (the "'208 patent"), a patent which issued on November
22, 1994 and which is assigned to Actel. On or about April 12, 1995, QuickLogic
filed a counterclaim against Actel alleging infringement by Actel of QuickLogic
U.S. Patents No. 5,220,213 (the "'213 patent") entitled "Programmable
Application in Specific Integrated Circuit and Logic Cell Therefore" and
5,396,127 (the "'127 patent"), entitled "Programmable Application in Specific
Integrated Circuit and Logic Cell Therefore". This counterclaim was in response
to the amended complaint filed by Actel against QuickLogic on or about March 15,
1995. On March 7, 1995, Actel filed its second supplemental complaint, which
alleged patent infringement of Actel U.S. Patent No. 5,479,113 (the "'113
patent"), entitled "User-Configurable Logic Circuits Comprising Antifuses and
Multiplexer-Based Logic Modules." QuickLogic filed its answer, denying these
allegations, on April 12, 1995. On June 14, 1995, Actel again amended its
complaint to include counterclaims against QuickLogic and John Birkner for
misappropriation of trade secrets, breach of contract, breach of confidential
relationship, unfair competition and assignment of patents. Mr. Birkner and
QuickLogic denied each of these claims, in replies to Actel's counterclaims,
filed July 5, 1995 and July 7, 1995, respectively.
On January 14, 1997, U.S. Patent No. 5,594,364, entitled "Programmable
Application Specific Integrated Circuit and Logic Cell Therefore" (the "'364
patent") was issued to QuickLogic. On February 28, 1997, QuickLogic filed a
motion to amend its counterclaim to include a claim for patent infringement of
the '364 patent. A hearing on this motion will be held before the Special
Master on April 23, 1997.
-2-
<PAGE>
The parties have each made summary judgment motions covering various claims
of the patents in dispute. No hearing dates on these motions have been set.
For much of 1996 the parties were embroiled in a dispute concerning the
disqualification of Actel's former counsel who was replaced after Judge Ware
ruled in favor of QuickLogic's motion to disqualify the former counsel and
Actel's appeal to the Federal Circuit Court of Appeals was unsuccessful.
Both parties are engaged in discovery. A discovery cut off of January 30,
1998 has been set in the case. No trial date has been set, but both parties
have requested that the trial be held in the fourth quarter of 1998.
Instant Circuit Corporation
---------------------------
The Company has received correspondence from Instant Circuit Corporation
"ICC") alleging that the Company's technology may infringe one or more of ICC's
patents. The Company and its patent counsel have reviewed the ICC patents and
have notified ICC that the Company does not believe that the Company's
technology infringes ICC's patents. ICC has responded by letter dated February
5, 1992 reiterating its belief that the Company's products infringe ICC's
patents, but indicating ICC's intent to wait to see whether the Company's
products are successful in the marketplace before pursuing the matter. The
Company has not heard anything further from ICC since that date.
Xilinx
------
On June 12, 1992, the Company received a letter from Xilinx requesting the
Company to review Xilinx's patent 4,870,302 entitled "Configurable Electrical
Circuit Having Configurable Logic Elements and Configurable Interconnects" and
stating Xilinx's belief that at least one claim under that patent is infringed
by the Company's products. No litigation has been instituted by Xilinx, and
there has been no correspondence between the Company and Xilinx regarding this
matter during the year preceding the .Closing Date. While the Company does not
believe that there is any basis for a legal claim by Xilinx, there can be no
assurance that Xilinx will not elect to take further legal action in the future.
Such legal action, if instituted, could have a material adverse effect on the
Company's business.
Phil Ferguson
-------------
California EDD has filed a claim against the Company relating to services
rendered by Phil Ferguson. The Company expects to settle the claim for less
than $25,000.
See disclosure under Section 3.9.
-3-
<PAGE>
Section 3.9 Proprietary Information Agreements.
----------------------------------
Actel has claimed that QuickLogic has misappropriated the trade secrets of
Actel based, at least in part, upon the fact that John Birkner, a founder of
QuickLogic, performed consulting services for Actel prior to and allegedly after
joining the Company.
Section 3.11 Manufacturing, Distribution and License Rights.
----------------------------------------------
The Company has granted certain rights to VLSI and Cypress pursuant to the
VLSI Agreement and the Cypress Agreement, respectively. The Company has entered
into an MOU with TSMC U.S.A. providing for the acquisition of eight (8) inch
wafers.
Section 3.13 Litigation.
----------
See the discussion of the Actel, Xilinx and ICC and other issues discussed
in Section 3.8 above.
Section 3.17 Governmental Consent.
--------------------
See Section 3.5.
Section 3.19 Material Contracts and Obligations.
----------------------------------
The following is a list of all agreements and obligations described in
Section 3.19:
1. VLSI Agreement.
2. The Company has entered into a lease agreement for its new
facility at 1277 Orleans Drive, Saratoga, California. The lease
expires on November 26, 2003.
3. Software OEM Distribution Agreement with Data I/O, Inc. pursuant
to which the Company obtained rights to sublicense certain Data
I/O software on an OEM basis. The Company is required to make
annual royalty payments of up to $100,000 to Data I/O pursuant to
this Agreement.
4. Employee Restricted Stock Purchase Agreements between the Company
and each of the founders and option agreements with persons who
have been granted options.
The Company also has outstanding miscellaneous licensing agreements
with entities including Synplicity, SimuCad, Doulos, Saros, Premia and Data I/O.
None of these agreements currently involve annual payment obligations in excess
of $80,000.
-4-
<PAGE>
Section 3.21 Related Party Transactions. The Company has entered into the
---------------------------
Cypress Agreement with Cypress. See also Section 3.22 below regarding loans to
John Birkner and from certain shareholders of the Company. In addition to the
existing relationships directly between the Company and Cypress, Pierre Lamond,
a partner in the Sequoia Capital venture funds, is a director of Cypress. Mark
Stevens, a director of the Company, is also a partner in the Sequoia Capital
venture funds.
Section 3.22 Certain Transactions.
--------------------
The Company has loaned John Birkner $114,000, plus interest, evidenced by
demand promissory notes from Mr. Birkner to the Company secured by a pledge of
Mr. Birkner's shares of the Company's stock. These loans were approved by the
Company's Board of Directors and shareholders.
-5-
<PAGE>
EXHIBIT 11.1
QUICKLOGIC CORPORATION
SCHEDULE OF COMPUTATION OF PRO FORMA EARNINGS (LOSS) PER SHARE
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED -----------------------------
DECEMBER 31, 1996 MARCH 31, 1996 MARCH 31, 1997
----------------- -------------- --------------
<S> <C> <C> <C>
Net income (loss).............. $(3,597) $ 21 $(23,103)
------- ------- --------
Weighted average common shares
outstanding................... 784 552 784
Weighted average common
equivalent shares relating to
convertible preferred stock
(using the as if-converted
method)....................... 8,496 8,496 8,496
Common equivalent shares
relating to stock options and
warrants (using the treasury
stock method)................. -- 58 --
Common shares and common
equivalent shares relating to
stock options issued
subsequent to May 1996........ 3,332 3,332 3,332
------- ------- --------
Shares used in pro forma net
income (loss) per share
calculation................... 12,612 12,438 12,612
Pro Forma net income (loss) per
share......................... $ (0.29) $ -- $ (1.83)
</TABLE>
<PAGE>
EXHIBIT 16.1
June 9, 1997
Securities and Exchange Commission
Mail Stop 9-5
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: QuickLogic Corporation
Dear Sirs/Madams:
We have read and agree with the comments, as they pertain to us, relating to
the change in independent accountants under the heading "Change in
Accountants" in the QuickLogic Corporation's Registration Statement on Form S-
1 expected to be filed with the Securities and Exchange Commission on or about
June 9, 1997.
Yours truly,
/s/ Deloitte & Touche LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 MAR-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 10,366 10,336
<SECURITIES> 0 0
<RECEIVABLES> 2,609 3,653
<ALLOWANCES> 2,084 2,284
<INVENTORY> 3,248 4,667
<CURRENT-ASSETS> 20,826 18,931
<PP&E> 1,708 2,502
<DEPRECIATION> 2,290 2,411
<TOTAL-ASSETS> 22,577 21,476
<CURRENT-LIABILITIES> 10,176 11,759
<BONDS> 602 1,658
0 0
8 9
<COMMON> 1 1
<OTHER-SE> 11,790 8,049
<TOTAL-LIABILITY-AND-EQUITY> 22,577 21,476
<SALES> 23,578 6,628
<TOTAL-REVENUES> 23,578 6,628
<CGS> 11,158 2,813
<TOTAL-COSTS> 11,158 2,813
<OTHER-EXPENSES> 16,497 26,655
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 60 21
<INCOME-PRETAX> (3,597) (23,103)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,897) (23,200)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,597) (23,103)
<EPS-PRIMARY> (.29) (1.83)
<EPS-DILUTED> 0 0
</TABLE>
