<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 1999
REGISTRATION NO. 333-28833
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 5
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>
DELAWARE 3674 77-0188504
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
</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, ESQ. GEOFFREY P. LEONARD, ESQ.
AARON J. ALTER, ESQ. SCOTT D. ELLIOTT, ESQ.
DAVID J. SAUL, ESQ. JEFF BROWN, ESQ.
WILSON SONSINI GOODRICH & ROSATI ORRICK, HERRINGTON & SUTCLIFFE LLP
PROFESSIONAL CORPORATION 1020 MARSH ROAD
650 PAGE MILL ROAD MENLO PARK, CALIFORNIA 94025
PALO ALTO, CALIFORNIA 94304 (650) 614-7400
(650) 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PRICE PER SHARE OFFERING PRICE(1) FEE(2)
<S> <C> <C> <C> <C>
Common Stock $0.001 par value............. 7,667,050 Shares $10.00 $76,670,500 $21,315
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933.
(2) Of this amount, $16,680 was previously paid by the Registrant to the
Commission.
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 said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 16, 1999
[LOGO]
6,667,000 SHARES
COMMON STOCK
QuickLogic is offering 3,333,500 shares of its common stock and the selling
stockholder is selling 3,333,500 shares of QuickLogic common stock. This is our
initial public offering and no public market currently exists for our shares. We
have filed for approval for quotation on the Nasdaq National Market under the
symbol "QUIK." We anticipate that the initial public offering price will be
between $8.00 and $10.00 per share.
------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------------- ---------------
<S> <C> <C>
Public Offering Price......................................................... $ $
Underwriting Discounts and Commissions........................................ $ $
Proceeds to QuickLogic........................................................ $ $
Proceeds to the Selling Stockholder........................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
QuickLogic and the selling stockholder have granted the underwriters a
30-day option to purchase up to an additional 1,000,050 shares of common stock
to cover over-allotments. BancBoston Robertson Stephens Inc. expects to deliver
the shares of common stock to purchasers on , 1999.
------------------------
BANCBOSTON ROBERTSON STEPHENS
BEAR, STEARNS & CO. INC.
SOUNDVIEW TECHNOLOGY GROUP
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE>
EDGAR
ARTWORK DESCRIPTIONS
------------------------
Outside gatefold
[Images of QuickLogic products]
[QuickLogic logo]
BEYOND PROGRAMMABLE LOGIC
QuickLogic's user-configurable FPGA and ESP semiconductors are used to implement
logic in complex, high-performance electronic systems in data and
telecommunications, video, graphics, and imaging, instrumentation and test,
computing and military applications.
Our technology enables the manufacturers of these systems to get to market
quickly with products that have the best possible features and performance.
<PAGE>
[QuickLogic logo]
gatefold
Images of QuickLogic products pointing to and describing the QuickLogic product
application in the following customer end-use products: Military aircraft,
notebook computer, fiber optic transmission device, handheld computer,
electronic projector and network server].
WITH PROGRAMMABLE SILICON ONE CHIP CAN SERVE MANY APPLICATIONS
QuickLogic's FPGA and ESP products feature a unique combination of high
performance, reliability, and security along with low power consumption and
short development times. As a result, a number of leading companies in a broad
range of industries use QuickLogic devices in their systems, including the
following:
DATA AND TELECOMMUNICATIONS
Alcatel, Ericcson, IBM, NEC, and Philips
VIDEO/AUDIO, GRAPHICS AND IMAGING
Digidesign, Eastman Kodak, Honeywell, Mitsubishi, NEC, Sony, and Texas
Instruments
INSTRUMENTATION AND TEST
ABB, LTX, National Instruments, Teradyne, and Toshiba
ENTERPRISE AND PERSONAL COMPUTING
Compaq Computer, IBM, and Mitsubishi
MILITARY SYSTEMS
B.F. Goodrich, DY-4, Hamilton Standard, Hughes Aircraft, McDonnell Douglas, and
Raytheon
The above products represent end applications for QuickLogic chips.
<PAGE>
EDGAR GRAPHIC DESCRIPTION
INSIDE BACK COVER
[Image of QuickLogic ESp device, projecting to a circuitboard]
QUICKLOGIC--PROGRAMMABLE LOGIC WITH THE POWER TO REPLACE MANY DEVICES
QuickLogic's ESP devices integrate standard functions along with high
performance embedded memory and programmable logic. This "system-on-a-chip"
approach allows a single ESP device to replace the function of many different
devices--reducing the cost and development time of a system and increasing its
performance, functionality and reliability.
[QuickLogic logo]
Embedded Standard Products ... a generation ahead
W W W . Q U I C K L O G I C . C O M
<PAGE>
EDGAR GRAPHIC DESCRIPTION
OBC
[QuickLogic LOGO]
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK. IN THIS PROSPECTUS, REFERENCES TO
"QUICKLOGIC," "WE," "OUR" AND "US" REFER TO QUICKLOGIC CORPORATION.
UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 7
Use of Proceeds............................................................................................ 18
Dividend Policy............................................................................................ 18
Cautionary Statement Regarding Forward-Looking Statements.................................................. 18
Capitalization............................................................................................. 19
Dilution................................................................................................... 20
Selected Consolidated Financial Data....................................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 22
Business................................................................................................... 31
Management................................................................................................. 45
Certain Transactions....................................................................................... 54
Principal and Selling Stockholders......................................................................... 56
Description of Capital Stock............................................................................... 59
Shares Eligible for Future Sale............................................................................ 62
Underwriting............................................................................................... 63
Legal Matters.............................................................................................. 65
Experts.................................................................................................... 65
Where You Can Find Additional Information.................................................................. 65
Index to Financial Statements.............................................................................. F-1
</TABLE>
------------------------
We have registered the trademarks QUICKLOGIC and its logo, VIALINK, PASIC,
QUICKWORKS and DESKFAB. We have trademarks pending for QuickPCI and QuickRAM.
QuickTOOLS, QuickPRO and WebASIC are trademarks of QuickLogic Corporation. All
other trademarks or service marks appearing in this prospectus are the property
of their respective companies.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY DOES NOT CONTAIN ALL THE INFORMATION YOU SHOULD CONSIDER BEFORE
BUYING SHARES IN THE OFFERING. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY.
EXCEPT AS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS ASSUMES THE
CONVERSION OF EACH OUTSTANDING SHARE OF CONVERTIBLE PREFERRED STOCK INTO ONE
SHARE OF COMMON STOCK AND ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION. INFORMATION CONTAINED IN THIS PROSPECTUS REFLECTS A
ONE-FOR-SIX REVERSE STOCK SPLIT EFFECTIVE UPON OUR REINCORPORATION IN THE STATE
OF DELAWARE, WHICH WILL OCCUR PRIOR TO THE CLOSING OF THIS OFFERING.
OUR COMPANY
QuickLogic develops, markets and supports advanced field programmable gate
array semiconductors, or FPGAs, and associated software tools. In addition to
our FPGAs, we have pioneered the development of embedded standard products, or
ESPs. Our ESPs combine the flexibility and time-to-market advantages of our
FPGAs with the predictability and high performance of standard semiconductor
products, thereby enabling our customers to integrate increased amounts of
functionality on a single semiconductor device. Our FPGA and ESP products target
complex, high-performance systems in rapidly changing markets, including
telecommunications and data communications; video/ audio, graphics and imaging;
instrumentation and test; high-performance computing; and military systems.
Competitive pressures are forcing manufacturers of electronic systems to
rapidly bring to market products with improved functionality, higher performance
and greater reliability, all at lower cost. Providers of systems requiring
high-speed data transmission and processing face some of the most intense
time-to-market pressures in the technology industry. These market forces have
driven the evolution of logic semiconductors which are used in complex
electronic systems to coordinate the functions of other semiconductors.
Programmable Logic Devices, or PLDs, are logic semiconductors which provide
systems designers with the flexibility to implement designs after the wafer
manufacturing process is completed. FPGAs are types of PLDs used for complex
functions. We believe that our FPGAs offer higher performance and greater
flexibility at lower overall systems cost than competing FPGA solutions.
According to Cahners In-Stat Group, the projected total market size for high-
complexity programmable logic devices in 1999 is approximately $2.1 billion, of
which FPGAs are estimated to account for $1.1 billion. For the first six months
of 1999, our FPGA sales totaled approximately $17.0 million.
We have leveraged our unique FPGA technology, which delivers the advantages
offered by both FPGAs and application specific standard products in a single
chip solution, a "system-on-a-chip." These ESPs link blocks of user-configurable
standard functions with field programmable logic through a high-performance
interface. We believe ESPs offer the following specific advantages over chip-set
solutions:
- increased performance,
- decreased cost,
- increased reliability, and
- shorter development time.
We have introduced our first two ESP product lines, the QuickRAM and QuickPCI
families. According to Cahners In-Stat Group, the total ESP market size in 1998
was $13.8 million, and is projected to increase to $43.9 million in 1999. For
the first six months of 1999, our ESP sales totaled approximately $1.5 million.
4
<PAGE>
Our objective is to be the leading provider of high-speed, flexible,
cost-effective FPGAs and ESPs. We feel we can achieve this objective by offering
systems manufacturers the ability to accelerate design cycles to satisfy
demanding time-to-market requirements. We believe we will meet our objective by:
- continuing to invest in the development of FPGA and ESP technologies;
- capitalizing on cross-selling opportunities between our FPGA and ESP
products;
- broadening our ESP product lines;
- creating innovative, industry-leading customer services; and
- targeting high-performance, rapidly changing markets.
We were incorporated in California in April 1988 and changed our name in
February 1991 to QuickLogic Corporation. Prior to the closing of this offering,
we will reincorporate in the State of Delaware. The address of our corporate
headquarters is 1277 Orleans Drive, Sunnyvale, California 94089. Our telephone
number is (408) 990-4000. Our web site is located at http://www.quicklogic.com.
Information contained on our web site and web sites linked to our web site are
not a part of this prospectus.
------------------------
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by
QuickLogic...................... 3,333,500 shares
Common stock offered by the
selling stockholder............. 3,333,500 shares
Common stock to be outstanding
after the offering.............. 17,555,644 shares
Use of proceeds................... For general corporate purposes, principally working
capital, and for payment of an outstanding settlement
obligation. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol.......................... QUIK
</TABLE>
The table set forth above is based on shares of common stock outstanding as of
August 31, 1999. This table excludes:
- 2,543,000 shares issuable upon exercise of outstanding options under our
1989 stock option plan at a weighted average exercise price of $3.64 per
share;
- 5,000,000 shares reserved for issuance under our 1999 stock plan; and
- 2,000,000 shares available for issuance under our 1999 employee stock
purchase plan.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- --------------------
1996 1997 1998 1998 1999
--------- ---------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................................... $ 23,758 $ 28,460 $ 30,007 $ 14,078 $ 18,425
Gross profit.............................................. 12,600 11,605 15,704 7,275 10,467
Contract termination and legal.......................... 4,125 28,309 -- -- --
Net operating income (loss)............................... (3,897) (33,920) 42 (305) 900
Net income (loss)......................................... (3,597) (33,648) 245 (189) 987
Net income (loss) per share:
Basic................................................... $ (4.66) $ (10.41) $ 0.06 $ (0.05) $ 0.23
Diluted................................................. $ (4.66) $ (10.41) $ 0.02 $ (0.05) $ 0.07
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash...................................................................................... $ 8,185 $ 29,086
Working capital (deficit)................................................................. (2,742) 24,159
Total assets.............................................................................. 19,406 40,307
Long-term obligations..................................................................... 161 161
Stockholders' equity...................................................................... 302 27,203
</TABLE>
See note 2 of notes to financial statements for an explanation of the
determination of the number of shares used in computing per share data.
"As Adjusted" amounts have been adjusted to give effect to receipt of the
net proceeds from the sale of the 3,333,500 shares of common stock offered by us
at an assumed price of $9.00 per share, after deducting the underwriting
discount, estimated offering expenses and payment of an outstanding settlement
obligation. See "Use of Proceeds" and "Capitalization."
6
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE PURCHASING
THE COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS
COULD BE MATERIALLY HARMED, AND OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS COULD BE MATERIALLY AND ADVERSELY AFFECTED. AS A RESULT, THE TRADING
PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MIGHT LOSE ALL OR PART OF YOUR
INVESTMENT.
OUR FUTURE OPERATING RESULTS ARE LIKELY TO FLUCTUATE AND THEREFORE MAY FAIL TO
MEET EXPECTATIONS WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE
Our operating results have varied widely in the past and are likely to do so
in the future. In addition, our operating results may not follow any past
trends. Our future operating results will depend on many factors and may fail to
meet our expectations for a number of reasons, including those set forth in
these risk factors. Any failure to meet expectations could cause our stock price
to significantly fluctuate or decline.
Factors that could cause our operating results to fluctuate that relate to
our internal operations include:
- the need for continual, rapid new product introductions;
- changes in our product mix; and
- our inability to adjust our fixed costs in the face of any declines in
sales.
Factors that could cause our operating results to fluctuate that depend upon
our suppliers and customers include:
- the timing of significant product orders, order cancellations and
reschedulings;
- the availability of production capacity and fluctuations in the
manufacturing yields at the facilities that manufacture our devices;
and
- the cost of raw materials and manufacturing services from our
suppliers.
Factors that could cause our operating results to fluctuate that are
industry risks include:
- intense competitive pricing pressures;
- introductions of or enhancements to our competitors' products; and
- the cyclical nature of the semiconductor industry.
Our day-to-day business decisions are made with these factors in mind. Although
certain of these factors are out of our immediate control, unless we can
anticipate, and be prepared with contingency plans that respond to these
factors, we will be unsuccessful in carrying out our business plan.
WE CANNOT ASSURE YOU THAT WE WILL REMAIN PROFITABLE BECAUSE WE HAVE A HISTORY OF
LOSSES AND HAVE ONLY RECENTLY BECOME PROFITABLE
We incurred significant losses from our inception in 1988 through 1997. Our
accumulated deficit as of June 30, 1999 was $60.2 million. We had net income of
$245,000 in 1998. We cannot assure you that we will be profitable in any future
periods and you should not rely on the historical growth of our revenue and our
recent profitability as any indication of our future operating results or
prospects.
7
<PAGE>
IF WE FAIL TO SUCCESSFULLY DEVELOP, INTRODUCE AND SELL NEW PRODUCTS, WE MAY BE
UNABLE TO COMPETE EFFECTIVELY IN THE FUTURE
We operate in a highly competitive, quickly changing environment marked by
rapid obsolescence of existing products. Our future success depends on our
ability to develop, introduce and successfully market new products, including
embedded standard products, or ESPs. We introduced our ESPs in September 1998.
To date, we have been selling our ESPs in limited quantities, and revenue from
our ESPs has been immaterial. If any of the following occur, our business will
be materially harmed:
- we fail to complete and introduce new product designs in a timely manner;
- we are unable to have these new products manufactured according to design
specifications;
- our customers do not successfully introduce new systems or products
incorporating our products;
- our sales force and independent distributors do not create adequate demand
for our products; or
- market demand for our new products, such as ESPs, does not develop as
anticipated.
WE HAVE ONLY RECENTLY INTRODUCED OUR EMBEDDED STANDARD PRODUCTS; THEREFORE, WE
CANNOT ACCURATELY PREDICT THEIR FUTURE LEVEL OF ACCEPTANCE BY OUR CUSTOMERS,
AND WE MAY NOT BE ABLE TO GENERATE ANTICIPATED REVENUE FROM THESE PRODUCTS
We have only recently started selling embedded standard products. In the
first six months of 1999, ESPs accounted for approximately 4.7% of our revenue.
We do not know the extent to which systems manufacturers will purchase or
utilize our ESPs. Since we anticipate that ESPs will become an increasingly
larger component of our business, their failure to gain acceptance with our
customers would materially harm our business. We cannot assure you that our ESPs
will be commercially successful or that these products will result in
significant additional revenues or improved operating margins in future periods.
IF THE MARKET IN WHICH WE SELL OUR EMBEDDED STANDARD PRODUCTS DOES NOT GROW AS
WE ANTICIPATE, IT WILL MATERIALLY AND ADVERSELY AFFECT OUR ANTICIPATED REVENUE
The market for embedded standard products is relatively new and still
emerging. If this market does not grow at the rate we anticipate, our business
will be materially harmed. One of the reasons that this market might not grow as
we anticipate is that many systems manufacturers are not yet fully aware of the
benefits provided by embedded standard products, in general, or the benefits of
our ESPs, specifically. Additionally, systems manufacturers may use existing
technologies other than embedded standard products or yet to be introduced
technologies to satisfy their needs. Although we have devoted and intend to
continue to devote significant resources promoting market awareness of the
benefits of embedded standard products, our efforts may be unsuccessful or
insufficient.
WE EXPEND SUBSTANTIAL RESOURCES IN DEVELOPING AND SELLING OUR PRODUCTS, AND WE
MAY BE UNABLE TO GENERATE SIGNIFICANT REVENUE AS A RESULT OF THESE EFFORTS
To establish market acceptance of our products, we must dedicate significant
resources to research and development, production and sales and marketing. We
experience a long delay between the time when we expend these resources and the
time when we begin to generate revenue, if any, from these expenditures.
Typically, this delay is one year or more. We record as expenses the costs
related to the development of new semiconductor products and software as these
expenses are incurred. As a result, our profitability from quarter to quarter
and from year to year may be materially and adversely affected by the number and
timing of our new product introductions in any period and the level of
acceptance gained by these products.
8
<PAGE>
OUR CUSTOMERS MAY CANCEL OR CHANGE THEIR PRODUCT PLANS AFTER WE HAVE EXPENDED
SUBSTANTIAL TIME AND RESOURCES IN THE DESIGN OF THEIR PRODUCTS
If one of our potential customers cancels, reduces or delays product orders
from us or chooses not to release equipment that incorporates our products after
we have spent substantial time and resources in designing a product, our
business could be materially harmed. Our customers often evaluate our products
for six to twelve months or more before designing them into their systems, and
they may not commence volume shipments for up to an additional six to twelve
months, if at all. During this lengthy sales cycle, our potential customers may
also cancel or change their product plans. Even when customers incorporate one
or more of our products into their systems, they may ultimately discontinue the
shipment of their systems that incorporate our products. Customers whose
products achieve high volume production may choose to replace our products with
lower cost customized semiconductors.
WE WILL BE UNABLE TO COMPETE EFFECTIVELY IF WE FAIL TO ANTICIPATE PRODUCT
OPPORTUNITIES BASED UPON EMERGING TECHNOLOGIES AND STANDARDS AND FAIL TO
DEVELOP PRODUCTS THAT INCORPORATE THESE TECHNOLOGIES AND STANDARDS
We may spend significant time and money on research and development to
design and develop products around an emerging technology or industry standard.
To date, we have introduced only one product family, QuickPCI, that is designed
to support a specific industry standard. If an emerging technology or industry
standard that we have identified fails to achieve broad market acceptance in our
target markets, we may be unable to generate significant revenue from our
research and development efforts. Moreover, even if we are able to develop
products using adopted standards, our products may not be accepted in our target
markets. As a result, our business would be materially harmed.
We have limited experience in designing and developing products that support
industry standards. If systems manufacturers move away from the use of industry
standards that we support with our products and adopt alternative standards, we
may be unable to design and develop new products that conform to these new
standards. The expertise required is unique to each industry standard, and we
would have to either hire individuals with the required expertise or acquire
such expertise through a licensing arrangement or by other means. The demand for
individuals with the necessary expertise to develop a product relating to a
particular industry standard is generally high, and we may not be able to hire
such individuals. The cost to acquire such expertise through licensing or other
means may be high and such arrangements may not be possible in a timely manner,
if at all.
WE MAY ENCOUNTER PERIODS OF INDUSTRY-WIDE SEMICONDUCTOR OVERSUPPLY, RESULTING IN
PRICING PRESSURE AND UNDERUTILIZATION OF MANUFACTURING CAPACITY, AS WELL AS
UNDERSUPPLY, RESULTING IN A RISK THAT WE COULD BE UNABLE TO FULFILL OUR
CUSTOMERS' REQUIREMENTS
The semiconductor industry has historically been characterized by wide
fluctuations in the demand for, and supply of, its products. These fluctuations
have resulted in circumstances when supply and demand for the industry's
products have been widely out of balance. Our operating results may be
materially harmed by industry-wide semiconductor oversupply, which could result
in severe pricing pressure and underutilization of our manufacturing capacity.
In a market with undersupply, we would have to compete with larger foundry
customers for limited manufacturing capacity. In such an environment, we may be
unable to have our products manufactured in a timely manner or in quantities
necessary to meet our requirements. Since we outsource all of our manufacturing,
we are particularly vulnerable to such supply shortages. As a result, we may be
unable to fulfill orders and may lose customers. Any future industry-wide
oversupply or undersupply of semiconductors would materially harm our business.
9
<PAGE>
NONE OF OUR PRODUCTS IS CURRENTLY MANUFACTURED BY MORE THAN ONE MANUFACTURER,
WHICH EXPOSES US TO THE RISK OF HAVING TO IDENTIFY AND QUALIFY ONE OR MORE
SUBSTITUTE SUPPLIERS
We depend upon independent third parties to manufacture, assemble and test
our semiconductor products. None of our products is currently manufactured by
more than one manufacturer. We have contractual arrangements with our two
foundry manufacturers of semiconductors, Taiwan Semiconductor Manufacturing
Company and Cypress Semiconductor Corporation, to provide us with specified
manufacturing capacity. Our assembly and test work is done on a purchase order
basis. If we are unable to secure adequate manufacturing capacity from TSMC or
Cypress or other suppliers to meet our supply requirements, our business will be
materially harmed. Processes used to manufacture our products are complex,
customized to our specifications and can only be performed by a limited number
of manufacturing facilities. If our current manufacturing suppliers are unable
to provide us with adequate manufacturing capacity, we would have to identify
and qualify one or more substitute suppliers for a substantial majority of our
products. Introducing new products or transferring existing products to a new
third party manufacturer would require significant development time to adapt our
designs to their manufacturing processes and could cause product shipment
delays. In addition, the costs associated with manufacturing our products may
increase if we are required to use a new third party manufacturer. If we fail to
satisfy our manufacturing requirements, our business would be materially harmed.
IF WE FAIL TO ADEQUATELY FORECAST DEMAND FOR OUR PRODUCTS, WE MAY INCUR PRODUCT
SHORTAGES OR EXCESS PRODUCT INVENTORY
Our agreements with third-party manufacturers require us to provide
forecasts of our anticipated manufacturing orders, and place binding
manufacturing orders in advance of receiving purchase orders from our customers.
This may result in product shortages or excess product inventory because we are
not permitted to increase or decrease our rolling forecasts under such
agreements. Obtaining additional supply in the face of product shortages may be
costly or not possible, especially in the short term. Our failure to adequately
forecast demand for our products would materially harm our business.
FLUCTUATIONS IN OUR PRODUCT YIELDS, ESPECIALLY OUR NEW PRODUCTS, MAY INCREASE
THE COSTS OF OUR MANUFACTURING PROCESS
Difficulties in the complex semiconductor manufacturing process can render a
substantial percentage of semiconductor wafers nonfunctional. We have, in the
past, experienced manufacturing runs that have contained substantially reduced
or no functioning devices. Varying degrees of these yield reductions occur
frequently in our manufacturing process. These yield reductions, which can occur
without warning, may result in substantially higher manufacturing costs and
inventory shortages to us. We may experience yield problems in the future which
may materially harm our business. In addition, yield problems may take a
significant period of time to analyze and correct. Our reliance on third party
suppliers may extend the period of time required to analyze and correct these
problems. As a result, if we are unable to respond rapidly to market demand, our
business would suffer.
Yield reductions frequently occur in connection with the manufacture of
newly introduced products. Newly introduced products, such as our QuickPCI
family of ESPs, are often more complex and more difficult to produce, increasing
the risk of manufacturing-related defects. While we test our products, these
products may still contain errors or defects that we find only after we have
commenced commercial production. Our customers may not place new orders for our
products if the products have reliability problems, which would materially harm
our business.
10
<PAGE>
WE MAY BE UNABLE TO GROW OUR BUSINESS IF THE MARKETS IN WHICH OUR CUSTOMERS SELL
THEIR PRODUCTS DO NOT GROW
Our success depends in large part on the continued growth of various markets
that use our products. Any decline in the demand for our products in the
following markets could materially harm our business:
- telecommunications and data communications;
- video/audio, graphics and imaging;
- instrumentation and test;
- high-performance computing; or
- military systems.
Slower growth in any of the other markets in which our products are sold may
also materially harm our business. Many of these markets are characterized by
rapid technological change and intense competition. As a result, systems sold by
our customers that use our products may face severe price competition, become
obsolete over a short time period, or fail to gain market acceptance. Any of
these occurrences would materially harm our business.
IN ORDER TO REMAIN PROFITABLE, WE WILL NEED TO OFFSET THE GENERAL PATTERN OF
DECLINES AND FLUCTUATIONS IN THE PRICES OF OUR PRODUCTS
The average selling prices of our products historically have declined during
the products' lives by, on average, approximately 7% per year, and we expect
this trend to continue. If we are unable to achieve cost reductions, increase
unit demand or introduce new higher-margin products in a timely manner to offset
these price declines, our business would be materially harmed.
In addition, the selling prices for our products fluctuate significantly
with real and perceived changes in the balance of supply and demand for our
products and comparable products. The growth in the worldwide supply of field
programmable gate arrays in recent periods has added to the decrease in the
average selling prices for our products. In addition, we expect our competitors
to invest in new manufacturing process technologies and achieve significant
manufacturing yield improvements in the future. These developments could
increase the worldwide supply of field programmable gate arrays and alternate
products and create additional downward pressure on pricing. If the worldwide
supply of field programmable gate arrays grows faster than the demand for such
products in the future, the price for which we can sell such products may
decline, which would materially harm our business.
WE DEPEND UPON THIRD PARTY DISTRIBUTORS TO MARKET AND SELL OUR PRODUCTS, AND
THEY MAY DISCONTINUE SALE OF OUR PRODUCTS, FAIL TO GIVE OUR PRODUCTS PRIORITY
OR BE UNABLE TO SUCCESSFULLY MARKET, SELL AND SUPPORT OUR PRODUCTS
We employ independent, third-party distributors to market and sell a
significant portion of our products. During the six months ended June 30, 1999,
approximately 85% of our sales were made through our distributors. We rely on
four principal distributors to market and sell a majority of our products,
particularly in North America. Although we have contracts with our distributors,
any of them may terminate their relationship with us on short notice. The loss
of one or more of our principal distributors, or our inability to attract new
distributors, would materially harm our business. We may lose distributors in
the future and we may be unable to recruit additional or replacement
distributors. As a result, our future performance will depend in part on our
ability to retain our existing distributors and attract new distributors that
will be able to market, sell and support our products effectively.
11
<PAGE>
Many of our distributors, including our principal distributors, market and
sell products for other companies, and many of these products may compete
directly or indirectly with our products. We generally are not one of the
principal suppliers of products to our distributors. If our distributors give
higher priority or greater attention to the products of other companies,
including products that compete with our products, our business would be
materially harmed.
WE MAY BE UNABLE TO ACCURATELY PREDICT QUARTERLY RESULTS IF DISTRIBUTORS ARE
INACCURATE OR UNTIMELY IN PROVIDING US WITH THEIR RESALE REPORTS, WHICH COULD
ADVERSELY AFFECT THE TRADING PRICE OF OUR STOCK
Since we generally recognize revenue from sales to our distributors only
when these distributors make sales to customers, we are highly dependent on the
accuracy and timeliness of their resale reports. Inaccurate resale reports
contribute to our difficulty in predicting and reporting our quarterly revenue
and results of operations, particularly in the last month of the quarter. If we
fail to accurately predict our revenue and results of operations on a quarterly
basis, our stock price could materially fluctuate. Distributors occasionally
increase their inventories of our products in anticipation of growth in the
demand for our products. If this growth does not occur, distributors will
decrease their orders for our products in subsequent periods, and our business
would be materially harmed.
CUSTOMERS MAY CANCEL OR DEFER SIGNIFICANT PURCHASE ORDERS OR OUR DISTRIBUTORS
MAY RETURN OUR PRODUCTS, WHICH WOULD CAUSE OUR INVENTORY LEVELS TO INCREASE
AND OUR REVENUES TO DECLINE
We sell our products on a purchase order basis through our distributors and
direct sales channels, and our distributors or customers may cancel purchase
orders at any time with little or no penalty. In addition, our distributor
agreements generally permit our distributors to return products to us.
Contractually, our distributors are permitted to return up to 10%, by value, of
the products they purchase from us every six months. In early 1998, for example,
a distributor cancelled a significant purchase order as a result of a customer
switching from a product we supply to a competitor's product. The distributor
also returned a significant amount of inventory of the product to us, which took
approximately 18 months for us to resell. If our customers cancel or defer
significant purchase orders or our distributors return our products, our
inventories would increase, which would materially harm our business.
MANY SYSTEMS MANUFACTURERS MAY BE UNWILLING TO SWITCH TO OUR PRODUCTS, BECAUSE
OF THEIR FAMILIARITY WITH THE PRODUCTS OFFERED BY OUR DIRECT COMPETITORS SUCH
AS XILINX AND ALTERA, WHICH DOMINATE THE PROGRAMMABLE LOGIC MARKET
The semiconductor industry is intensely competitive and characterized by:
- erosion of selling prices over product lives;
- rapid technological change;
- short product life cycles; and
- strong domestic and foreign competition.
If we are not able to compete successfully in this environment, our business
will be materially harmed. A primary cause of this highly competitive
environment is the strengths of our competitors. Our industry consists of major
domestic and international semiconductor companies, many of which have
substantially greater financial, technical, marketing, distribution and other
resources than we do. Our current direct competitors include suppliers of
complex programmable logic devices and field programmable gate arrays, such as
Xilinx, Altera, Actel, Lattice Semiconductor and Lucent. Xilinx and Altera
together have a majority share of the programmable logic market. Many systems
manufacturers
12
<PAGE>
may be unwilling or unable to switch to our products due to their familiarity
with competitors' products or other inhibiting factors.
We also face competition from companies that offer application specific
integrated circuits, which may be obtained at lower costs for higher volumes and
typically have greater logic capacity, additional features and higher
performance than those of our products. We may also face competition from
suppliers of products based on new or emerging technologies, including ESPs. Our
inability to successfully compete in any of the following areas could materially
harm our business:
- the development of new products and manufacturing technologies;
- the quality and price of products and devices;
- the diversity of product lines; or
- the cost effectiveness of design, development, manufacturing and marketing
efforts.
WE MAY BE UNABLE TO SUCCESSFULLY MANAGE OUR GROWTH IF WE FAIL TO COMPETE
EFFECTIVELY WITH OTHERS TO ATTRACT AND RETAIN KEY PERSONNEL
We believe our future success will depend upon our ability to successfully
manage our growth, including attracting and retaining engineers and other highly
skilled personnel. Our employees are at-will and not subject to employment
contracts. Hiring qualified sales and technical personnel will be difficult due
to the limited number of qualified professionals. Competition for these types of
employees is intense. We have in the past experienced difficulty in recruiting
and retaining qualified sales and technical personnel. For example, in the past
12 months, two of our executive officers resigned to pursue other opportunities.
Failure to attract and retain personnel, particularly sales and technical
personnel, would materially harm our business.
As we seek to expand our operations, we may also significantly strain our
management and financial systems and other resources. We cannot be certain that
our systems, procedures, controls and existing space will be adequate to support
our operations.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, AND MAY
FACE SIGNIFICANT EXPENSES AS A RESULT OF FUTURE LITIGATION
Protection of intellectual property rights is crucial to our business, since
that is how we keep others from copying the innovations which are central to our
existing and future products. From time to time, we receive letters alleging
patent infringement or inviting us to take a license to other parties' patents.
We evaluate these letters on a case-by-case basis. Inquiries with respect to the
coverage of our intellectual property could lead to litigation. We have in the
past and may again become involved in litigation relating to alleged
infringement by us of others' patents or other intellectual property rights.
This kind of litigation is expensive to all parties and consumes large amounts
of management's time and attention. For example, we incurred substantial costs
associated with the litigation and settlement of our dispute with Actel
Corporation, which materially harmed our business. In addition, if we lose in
this kind of litigation a court could require us to pay substantial damages
and/or royalties, and prohibit us from using essential technologies. For these
and other reasons, this kind of litigation would materially harm our business.
Also, although we may seek to obtain a license under a third party's
intellectual property rights in order to bring an end to certain claims or
actions asserted against us, we may not be able to obtain such a license on
reasonable terms or at all. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview."
We have entered into technology license agreements with third parties which
give those parties the right to use patents and other technology developed by
us, and which give us the right to use patents and other technology developed by
them. We anticipate that we will continue to enter into these kinds
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<PAGE>
of licensing arrangements in the future; however, it is possible that desirable
licenses will not be available to us on commercially reasonable terms. If we
lose existing licenses to key technology, or are unable to enter into new
licenses which we deem important, it could materially harm our business, and
materially and adversely affect our business.
Because it is critical to our success that we are able to prevent
competitors from copying our innovations, we intend to continue to seek patent
and trade secret protection for our products. The process of seeking patent
protection can be long and expensive, and we cannot be certain that any
currently pending or future applications will actually result in issued patents,
or that, even if patents are issued, they will be of sufficient scope or
strength to provide meaningful protection or any commercial advantage to us.
Furthermore, others may develop technologies that are similar or superior to our
technology or design around the patents we own. We also rely on trade secret
protection for our technology, in part through confidentiality agreements with
our employees, consultants and third parties. However, employees may breach
these agreements, and we may not have adequate remedies for any breach. In any
case, others may come to know about or determine our trade secrets through a
variety of methods. In addition, the laws of certain territories in which we
develop, manufacture or sell our products may not protect our intellectual
property rights to the same extent as do the laws of the United States.
PROBLEMS ASSOCIATED WITH INTERNATIONAL BUSINESS OPERATIONS COULD AFFECT OUR
ABILITY TO MANUFACTURE AND SELL OUR PRODUCTS
Most of our products are manufactured outside of the United States at
manufacturing facilities operated by our suppliers in Taiwan, South Korea and
the Philippines. As a result, our manufacturing operations are subject to risks
of political instability, including the risk of conflict between Taiwan and the
People's Republic of China and conflict between North Korea and South Korea.
Moreover, the majority of available manufacturing capacity for our products is
located in Taiwan and South Korea.
Sales to customers located outside the United States accounted for 25%, 43%,
47% and 50% of our total sales in 1996, 1997, 1998, and the six months ended
June 30, 1999, respectively. We anticipate that sales to customers located
outside the United States will continue to represent a significant portion of
our total sales in future periods and the trend of foreign customers accounting
for an increasing portion of our total sales may continue. In addition, most of
our domestic customers sell their products outside of North America, thereby
indirectly exposing us to risks associated with foreign commerce. Asian economic
instability could also materially and adversely affect our business,
particularly to the extent that this instability impacts the sales of products
manufactured by our customers. Accordingly, our operations and revenues are
subject to a number of risks associated with foreign commerce, including the
following:
- managing foreign distributors;
- staffing and managing foreign branch offices;
- political and economic instability;
- foreign currency exchange fluctuations;
- changes in tax laws, tariffs and freight rates;
- timing and availability of export licenses;
- inadequate protection of intellectual property rights in some countries;
and
- obtaining governmental approvals for certain products.
In the past we have denominated sales of our products in foreign countries
exclusively in United States dollars. As a result, any increase in the value of
the United States dollar relative to the local
14
<PAGE>
currency of a foreign country will increase the price of our products in that
country so that our products become relatively more expensive to customers in
the local currency of that foreign country. As a result, sales of our products
in that foreign country may decline. To the extent any such risks materialize,
our business would be materially harmed.
IF OUR OPERATIONS AND PRODUCTS DO NOT FUNCTION PROPERLY IN THE YEAR 2000, OUR
BUSINESS OPERATIONS COULD BE DISRUPTED
We are highly dependent on third party computer software programs and
operating systems used in our business. We also depend on proper functioning of
computer systems of third parties, such as suppliers, distributors and
customers. Any computer programs that have date-sensitive software may
erroneously recognize a date using "00" as the year 1900 instead of the year
2000. We have completed audits of our internal systems, including our
accounting, sales and technical support automation system, and obtained
assurances from our major suppliers, distributors and customers that they have
done the same. However, we do not have the resources to verify these assurances.
Thus, there is a risk that some of our customers', distributors' and suppliers'
systems will not function adequately. If they do not, the result could be a
system failure or miscalculation causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
We have developed two products, QuickWorks and QuickTools, which are design
software tools that support our FPGA and ESP devices. QuickWorks operates on
Microsoft Windows, while QuickTools runs on UNIX platforms. We have tested these
products and found them to be Year 2000 compliant. Our software products
integrate software tools that have been developed and are maintained by third
party vendors. We have contacted these vendors and have confirmed that such
software products are Year 2000 compliant. However, any failure of Windows, UNIX
or the integrated third party software tools due to Year 2000 problems, will
adversely impact the performance of our software design tools, and our business
could be materially harmed. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Readiness Disclosure."
OUR PRINCIPAL STOCKHOLDERS HAVE SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS
THAT MAY NOT BE IN THE BEST INTERESTS OF OUR OTHER STOCKHOLDERS
After this offering, our officers, directors and principal stockholders will
together control approximately 51.23% of our outstanding common stock. As a
result, these stockholders, if they act together, will be able to control the
management and affairs of QuickLogic and all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may have the effect of
delaying or preventing a change in control and might affect the market price of
our common stock. This concentration of ownership may not be in the best
interest of our other stockholders.
OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE LAW CONTAIN PROVISIONS
THAT COULD DISCOURAGE A TAKEOVER
In connection with this offering, we are reincorporating in the State of
Delaware. Our basic corporate documents and Delaware law contain provisions that
might enable our management to resist a takeover. These provisions might
discourage, delay or prevent a change in the control of QuickLogic or a change
in our management. Our certificate of incorporation filed in connection with
this offering provides that when we are eligible, we will have a classified
board of directors, with each class of directors subject to re-election every
three years. This classified board when implemented will have the effect of
making it more difficult for third parties to insert their representatives on
our board of directors and gain control of QuickLogic. These provisions could
also discourage proxy contests and make it more difficult for you and other
stockholders to elect directors and take other corporate
15
<PAGE>
actions. The existence of these provisions could limit the price that investors
might be willing to pay in the future for shares of the common stock. See
"Description of Capital Stock."
Our certificate of incorporation also provides that our board of directors
may, without further action by the stockholders, issue shares of preferred stock
in one or more series and to fix the rights, preferences, privileges and
restrictions thereof. The issuance of preferred stock could adversely affect the
voting power of holders of common stock and the likelihood that such holders
will receive dividend payments and payments upon liquidation. In addition, the
issuance of preferred stock could have the effect of delaying, deferring or
preventing a change in control of QuickLogic. We have no present plan to issue
any shares of preferred stock.
A SALE OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK MAY CAUSE THE PRICE
OF OUR COMMON STOCK TO DECLINE
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options, in the public market
following this offering, the market price of our common stock could fall. Such
sales also might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we deem appropriate. Upon
completion of this offering, we will have outstanding 17,555,644 shares of
common stock, based upon shares outstanding as of August 31, 1999 and assuming
no exercise of outstanding options after August 31, 1999. Of these shares, the
6,667,000 shares sold in this offering will be freely tradable. The remaining
shares of common stock outstanding after this offering will be available for
sale in the public market as follows:
<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR SALE NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
The date of this prospectus................................................ 0
180 days after the date of this prospectus................................. 10,888,644
</TABLE>
The above table assumes the effectiveness of certain lock-up arrangements
with the underwriters, under which the stockholders have agreed not to sell or
otherwise dispose of their shares of common stock. Most of the shares that will
be available for sale after the 180th day after the date of this prospectus will
be subject to certain volume restrictions because they are held by affiliates of
QuickLogic. In addition, we cannot assure you that some or all of these lock-up
restrictions will not be removed prior to 180 days after the offering without
prior notice by the underwriters.
The holders of an aggregate of 9,053,036 shares of our common stock,
assuming the conversion of our preferred stock into common stock, and Cypress,
with respect to any remaining shares of common stock held by it after this
offering, have certain registration rights, including the right to require us to
register the sale of their shares and the right to include their shares in
public offerings we undertake in the future. See "Description of Capital
Stock--Registration Rights."
OUR COMMON STOCK HAS NOT BEEN PUBLICLY TRADED, AND WE EXPECT THAT THE PRICE OF
OUR COMMON STOCK WILL FLUCTUATE SUBSTANTIALLY
Prior to this offering, there has been no public market for shares of our
common stock. An active public trading market may not develop following
completion of this offering or, if developed, may not be sustained. The price of
the shares of common stock sold in this offering will be determined by
negotiation between us and the underwriters. This price will not necessarily
reflect the market price of the common stock following this offering. See
"Underwriting" for a discussion of the factors to be considered in determining
the price. The market price for the common stock following this offering will be
affected by a number of factors, including:
- the announcement of new products or product enhancements by us or our
competitors;
- quarterly variations in our or our competitors' results of operations;
16
<PAGE>
- changes in earnings estimates or recommendations by securities analysts;
- developments in our industry; and
- general market conditions and other factors, including factors unrelated
to our operating performance or the operating performance of our
competitors.
In addition, stock prices for many companies in the technology and emerging
growth sectors have experienced wide fluctuations that have often been unrelated
to the operating performance of such companies. Such factors and fluctuations
may materially and adversely affect the market price of our common stock.
NEW INVESTORS IN OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION FOLLOWING THE OFFERING
If you purchase shares of our common stock in this offering, you will incur
immediate and substantial dilution in pro forma net tangible book value of
$7.45. If the holders of outstanding options exercise those options, you will
incur further dilution. See "Dilution."
OUR MANAGEMENT WILL RETAIN BROAD DISCRETION IN THE USE OF PROCEEDS FROM THIS
OFFERING AND MAY FAIL TO USE SUCH FUNDS EFFECTIVELY TO ACHIEVE OUR OTHER
BUSINESS GOALS
Other than the payment of approximately $6.0 million to pay an outstanding
settlement obligation, we currently have no specific plans for using the
proceeds of this offering. As a consequence, our management will have broad
discretion to allocate a large percentage of the proceeds to uses which the
stockholders may not deem desirable or to uses that fail to achieve our business
goals effectively. See "Use of Proceeds."
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<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds of $26.9 million. This assumes
our sale of 3,333,500 shares of common stock at an at an assumed offering price
of $9.00 per share, after deducting underwriting discounts, commissions and
estimated offering expenses. We will not receive any proceeds from the sale of
the shares to be sold by the selling stockholder, including the sale of shares
pursuant to the underwriters over-allotment option.
We expect to use approximately $20.9 million for general corporate purposes
and $6.0 million for payment of an outstanding settlement obligation with Actel
Corporation. In addition, we may use a portion of the net proceeds to acquire
complementary products, technologies or businesses; however, we currently have
no commitments or agreements and are not involved in any negotiations to do so.
See "Principal and Selling Stockholders."
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance, or achievements expressed or implied
by such forward-looking statements. Such factors include, among other things,
those listed under "Risk Factors" and elsewhere in this prospectus. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "could," "expects," "plans," "intends," "anticipates,"
"believes," "estimates," "predicts," "potential" or "continue" or the negative
of such terms and other comparable terminology. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. Moreover, neither we nor anyone else assumes responsibility for
the accuracy and completeness of such statements. We are under no duty to update
any of the forward-looking statements after the date of this prospectus.
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<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization as of June 30,
1999. It also sets forth our capitalization on a pro forma basis for:
- the conversion into common stock of our preferred stock
and capitalization on a pro forma, as adjusted basis for:
- the sale of 3,333,500 shares of common stock by us at an assumed price of
$9.00 per share, less underwriting discounts and commissions and estimated
offering expenses.
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Long-term obligations................................... $ 161 $ 161 $ 161
---------- ----------- -----------
Stockholders' equity:
Preferred stock, $0.001 par value; 61,568,000 shares
authorized; 9,912,000 shares issued and outstanding,
actual; 10,000,000 shares authorized; no shares
issued and outstanding, as adjusted and pro forma as
adjusted............................................ 10 -- --
Common stock, $0.001 par value; 105,000,000 shares
authorized; 4,301,000 shares issued and outstanding,
actual; 100,000,000 shares authorized; 14,213,000
and 17,546,500 issued and outstanding, as adjusted,
and pro forma, as adjusted, respectively............ 4 14 18
Additional paid-in capital.............................. 61,730 61,730 88,627
Stockholder note receivable............................. (121) (121) (121)
Deferred compensation................................... (1,136) (1,136) (1,136)
Accumulated deficit..................................... (60,185) (60,185) (60,185)
---------- ----------- -----------
Total stockholders' equity............................ 302 302 27,203
---------- ----------- -----------
Total capitalization................................ $ 463 $ 463 $ 27,364
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The table set forth above is based on shares of common stock outstanding as
of June 30, 1999. This table excludes:
- 2,549,000 shares issuable upon exercise of outstanding options under our
1989 stock option plan at a weighted average exercise price of $3.55 per
share; and
- 5,000,000 shares reserved for issuance under our 1999 stock plan; and
- 2,000,000 shares available for issuance under our 1999 employee stock
purchase plan.
See "Management--Employee Benefit Plans" and "Description of Capital Stock."
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<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
our common stock after this offering. The pro forma net tangible book value of
our common stock as of June 30, 1999, was $302,000, or $0.02 per share. Pro
forma net tangible book value per share represents the amount of our total
tangible assets reduced by the amount of our 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.
Dilution in net tangible book value per share represents the difference between
the amount per share paid by purchasers of shares of our common stock in this
offering and the net tangible book value per share of our common stock
immediately afterwards. After giving effect to our sale of 3,333,500 shares of
common stock offered by this prospectus and after deducting the underwriting
discount, estimated offering expenses payable by us and payment of an
outstanding settlement obligation, our pro forma as adjusted net tangible book
value as of June 30, 1999 was $27,203,000, or approximately $1.55 per share.
This represents an immediate increase in net tangible book value of $1.53 per
share to existing stockholders and an immediate dilution in net tangible book
value of $7.45 per share to new investors.
<TABLE>
<S> <C> <C>
Assumed price per share................................... $ 9.00
Pro forma net tangible book value per share
as of June 30, 1999................................... $ 0.02
Increase per share attributable to new investors........ 1.53
---------
As adjusted pro forma net tangible book value per share
after the offering...................................... 1.55
---------
Dilution per share to new investors....................... $ 7.45
---------
---------
</TABLE>
The table above assumes no exercise of options after June 30, 1999. The
number of shares outstanding as of June 30, 1999 excludes 2,549,000 shares of
common stock issuable upon exercise of options outstanding as of June 30, 1999,
having a weighted average exercise price of $3.55 per share. The exercise of
outstanding options having an exercise price less than the offering price would
increase the dilutive effect to new investors.
The following table sets forth, on a pro forma basis as of June 30, 1999,
the differences between the number of shares of common stock purchased from us,
the total consideration paid and average price per share paid by existing
stockholders and by the new investors, before deducting expenses payable by us,
using an assumed price of $9.00 per share.
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
------------------------- ------------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------- ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................................. 14,213,000 81% $ 61,744,000 67% $ 4.34
New investors.......................................... 3,333,500 19 30,001,500 33 9.00
------------- ---------- ------------- ----------
Total................................................ 17,546,500 100% $ 91,745,500 100%
------------- ---------- ------------- ----------
------------- ---------- ------------- ----------
</TABLE>
- ---------
If the underwriters' over-allotment option is exercised in full, the
following will occur:
- the number of shares of common stock held by existing stockholders will
decrease to approximately 79% of the total number of shares of
common stock outstanding; and
- the number of shares held by new investors will be increased to 3,770,635
or approximately 21% of the total number of shares of our common stock
outstanding after this offering.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of December 31, 1997
and 1998 and for the years ended December 31, 1996, 1997 and 1998, have been
derived from our audited consolidated financial statements and notes thereto,
which are included elsewhere in this prospectus. The selected consolidated
financial data as of December 31, 1994, 1995 and 1996 and for the years ended
December 31, 1994 and 1995 were derived from our audited consolidated financial
statements, which do not appear in this prospectus. The consolidated financial
data as of June 30, 1999 and for the six months ended June 30, 1998 and 1999
were derived from unaudited financial statements included elsewhere in this
prospectus. We have prepared this unaudited information on the same basis as the
audited consolidated financial statements and have included all adjustments,
consisting only of normal recurring adjustments that we consider necessary for a
fair presentation of our financial position and operating results for such
periods. When you read this selected consolidated financial data, it is
important that you also read the historical consolidated financial statements
and related notes included in this prospectus, as well as the section of this
prospectus entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Historical results are not necessarily indicative of
future results. Operating results for the six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the full year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................................................... $ 6,024 $15,148 $23,758 $ 28,460 $30,007
Cost of revenue.................................................. 4,053 7,739 11,158 16,855 14,303
------- ------- ------- -------- -------
Gross profit..................................................... 1,971 7,409 12,600 11,605 15,704
Operating expenses:
Research and development....................................... 3,172 3,599 4,642 6,235 6,294
Selling, general and administrative............................ 4,408 5,770 7,730 10,981 9,368
Contract termination and legal(1).............................. -- 2,700 4,125 28,309 --
------- ------- ------- -------- -------
Net operating income (loss).................................. (5,609) (4,660) (3,897) (33,920) 42
Interest expense................................................. (240) (200) (60) (162) (161)
Interest income and other, net................................... 21 153 360 434 364
------- ------- ------- -------- -------
Net income (loss)................................................ $(5,828) $(4,707) $(3,597) $(33,648) $ 245
------- ------- ------- -------- -------
------- ------- ------- -------- -------
Net income (loss) per share:
Basic.......................................................... $(10.69) $ (7.59) $ (4.66) $ (10.41) $ 0.06
------- ------- ------- -------- -------
------- ------- ------- -------- -------
Diluted........................................................ $(10.69) $ (7.59) $ (4.66) $ (10.41) $ 0.02
------- ------- ------- -------- -------
------- ------- ------- -------- -------
Weighted average shares:
Basic.......................................................... 545 620 772 3,232 4,231
Diluted........................................................ 545 620 772 3,232 14,645
Pro forma income per share:
Basic.......................................................... $ 0.02
-------
-------
Diluted........................................................ $ 0.02
-------
-------
Pro forma weighted average shares:
Basic.......................................................... 14,143
Diluted........................................................ 14,645
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------
1998 1999
------- -------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................................................... $14,078 $18,425
Cost of revenue.................................................. 6,803 7,958
------- -------
Gross profit..................................................... 7,275 10,467
Operating expenses:
Research and development....................................... 2,932 3,567
Selling, general and administrative............................ 4,648 6,000
Contract termination and legal(1).............................. -- --
------- -------
Net operating income (loss).................................. (305) 900
Interest expense................................................. (86) (49)
Interest income and other, net................................... 202 136
------- -------
Net income (loss)................................................ $ (189) $ 987
------- -------
------- -------
Net income (loss) per share:
Basic.......................................................... $ (0.05) $ 0.23
------- -------
------- -------
Diluted........................................................ $ (0.05) $ 0.07
------- -------
------- -------
Weighted average shares:
Basic.......................................................... 4,200 4,286
Diluted........................................................ 4,200 15,042
Pro forma income per share:
Basic.......................................................... $ 0.07
-------
-------
Diluted........................................................ $ 0.07
-------
-------
Pro forma weighted average shares:
Basic.......................................................... 14,198
Diluted........................................................ 15,042
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash..................................................... $ 488 $ 3,856 $ 10,336 $ 7,331 $ 7,595 $ 8,185
Working capital (deficit)................................ (4,792) 7,068 10,650 2,395 (3,319) (2,742)
Total assets............................................. 2,531 12,199 22,577 19,951 16,168 19,406
Long-term obligations(2)................................. 509 137 602 7,724 591 161
Total stockholders' equity (deficit)..................... (4,848) 7,149 11,799 (1,756) (975) 302
</TABLE>
- ------------
(1) Contract termination and legal expenses include a charge of $23.0 million in
the year ended December 31, 1997 for termination of an agreement with
Cypress Semiconductor Corporation, and charges of $2.7 million, $4.1 million
and $5.3 million in the years ended December 31, 1995, 1996 and 1997,
respectively, for the legal and settlement costs associated with the Actel
Corporation litigation. See notes 8 and 12 of notes to consolidated
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(2) Long term obligations at December 31, 1997 include obligations under the
Actel litigation settlement. At December 31, 1998 and June 30, 1999, this
obligation is classified as a current liability because under the terms of
the settlement, we will pay the remaining obligation out of the proceeds of
this offering. See notes 4 and 12 of notes to consolidated financial
statements.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS FOR MANY REASONS, INCLUDING THE RISKS
DESCRIBED IN "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We design and sell field programmable gate arrays, embedded standard
products and associated software and programming hardware. From our inception in
April 1988 through the third quarter of 1991, we were primarily engaged in
product development. In 1991, we introduced our first line of field programmable
gate array products, or FPGAs, based upon our ViaLink technology. FPGAs have
accounted for substantially all of our product revenue to date. We currently
have three FPGA product families: pASIC 1, introduced in 1991; pASIC 2,
introduced in 1996; and pASIC 3, introduced in 1997. The newer product families
generally contain greater logic capacity, but do not necessarily replace sales
of older generation products. In fact, for the first six months of 1999, pASIC 1
revenue accounted for approximately half of our total revenue.
In September 1998, we introduced QuickRAM, our first line of embedded
standard products, or ESPs. Our ESPs are based on our FPGA technology. In April
1999, we introduced QuickPCI, our second line of ESPs. Revenue for our QuickRAM
and QuickPCI products together accounted for approximately 5% of sales for the
first six months of 1999. We also license our QuickWorks and QuickTools design
software and sell our programming hardware, which together have typically
accounted for less than 5% of total revenue.
We sell our products through three channels. First, we sell the majority of
our products through distributors who have contractual rights to earn a
negotiated margin on the sale of our products and who have limited rights to
return unsold product. We refer to these distributors as point-of-sale
distributors. We defer recognition of revenue for sales to these point-of-sale
distributors until after they have sold our products to systems manufacturers.
Second, we sell our products through certain foreign distributors who have no
contractual rights to earn a negotiated margin and who may only return defective
products to us. We recognize revenue from sales to these distributors at the
time of shipment. Finally, we sell our products directly to systems
manufacturers and recognize revenue at the time of shipment to these systems
manufacturers. The percentage of sales derived through each of these three
channels in 1998 was 54%, 32% and 14%, respectively, and 61%, 24% and 15% for
the first six months of 1999, respectively. We believe that this trend of an
increasing percentage of our sales being made through our point-of-sale
distribution channel will continue as we convert more of our foreign
distributors to point-of-sale distributors.
Four of our distributors accounted for approximately 27%, 10%, 10% and 6% of
sales, respectively, in 1998, and the same four distributors accounted for 28%,
9%, 9% and 8% of sales, respectively, for the six months ended June 30, 1999. No
other distributor or direct customer accounted for more than 5% of sales in 1998
or the six months ended June 30, 1999. We expect that a limited number of
distributors will continue to account for a significant portion of our total
sales.
Our international sales were 25%, 43% and 47% of our total sales for 1996,
1997 and 1998, respectively, and 50% for the six months ended June 30, 1999. We
expect that revenue derived from sales to international customers will continue
to represent a significant and growing portion of our total revenue. All of our
sales are denominated in U.S. dollars.
22
<PAGE>
Average selling prices for our products typically decline rapidly during the
first six to 12 months after their introduction, then decline less rapidly as
the products mature. We attempt to maintain gross margins even as average
selling prices decline through the introduction of new products with higher
margins and through manufacturing efficiencies and cost reductions. However, the
markets in which we operate are highly competitive, and there can be no
assurance that we will be able to successfully maintain gross margins. Any
significant decline in our gross margins will materially harm our business.
We outsource the wafer manufacturing, assembly and test of all of our
products. We rely upon TSMC and Cypress to manufacture our products, and we rely
primarily upon Amkor and ChipPAC to assemble and test our products. Under our
arrangements with these manufacturers, we are obligated to provide forecasts and
enter into binding obligations for anticipated purchases. This limits our
ability to react to fluctuations in demand for our products, which could lead to
excesses or shortages of wafers for a particular product.
We entered into an agreement with Cypress in 1992 to obtain guaranteed
fabrication capacity and to secure a second source for our FPGA products. By
1997, wafer fabrication capacity was no longer scarce and we had established a
customer base and reputation. In March 1997, our agreement with Cypress was
terminated. In exchange for the termination and the reversion to us of the
rights to the intellectual property covered by that agreement, we paid Cypress
$4.5 million in cash and agreed to issue to Cypress 3,037,786 shares of our
common stock, resulting in a charge of approximately $23.0 million in the first
quarter of 1997.
In 1996 and 1997, we recorded an accrual for legal and settlement fees of
$4.1 million and $5.3 million, respectively, associated with the settlement of
patent litigation with Actel Corporation in 1998. We have made quarterly
payments to Actel since the settlement date. The remainder of the settlement
will be paid to Actel immediately after this offering.
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenue for certain items
in our statements of operations for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------- (UNAUDITED)
1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue............................................... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenue....................................... 47.0 59.2 47.7 48.3 43.2
----- ------ ----- ----- -----
Gross profit.......................................... 53.0 40.8 52.3 51.7 56.8
Operating expenses:
Research and development............................ 19.5 21.9 21.0 20.8 19.4
Selling, general and administrative................. 32.5 38.6 31.2 33.0 32.6
Contract termination and legal...................... 17.4 99.5 -- -- --
----- ------ ----- ----- -----
Net operating income (loss)........................... (16.4) (119.2) 0.1 (2.1) 4.8
Interest expense...................................... (0.3) (0.6) (0.5) (0.6) (0.3)
Interest income and other, net........................ 1.6 1.6 1.2 1.4 0.9
----- ------ ----- ----- -----
Net income (loss)..................................... (15.1)% (118.2)% 0.8 % (1.3)% 5.4 %
----- ------ ----- ----- -----
----- ------ ----- ----- -----
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1999
REVENUE. Revenue increased 30.9% from $14.1 million for the six months
ended June 30, 1998 to $18.4 million for the six months ended June 30, 1999. The
increase in revenue resulted from increased
23
<PAGE>
sales of our pASIC 2 and pASIC 3 products and initial sales of our QuickRAM
ESPs, offset in part by declines in sales of our pASIC 1 product family. Our
pASIC 2 and pASIC 3 revenues, together, increased by approximately $3.8 million.
QuickRAM revenue increased by approximately $0.9 million and pASIC 1 and other
revenue declined by approximately $0.4 million. We expect this trend in product
mix to continue.
GROSS PROFIT. Gross profit increased 43.9% from $7.3 million for the six
months ended June 30, 1998 to $10.5 million for the six months ended June 30,
1999. Gross margin improved between those periods from 51.7% to 56.8%. This
increase in gross profit was primarily due to higher revenue. The gross margin
improvement was primarily due to increased sales of our higher margin pASIC 2
and pASIC 3 products and higher revenue over relatively fixed production costs.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense includes
personnel and other costs associated with the development of product designs,
process technology, software and programming hardware. Research and development
expense increased from $2.9 million for the six months ended June 30, 1998 to
$3.6 million for the six months ended June 30, 1999. As a percentage of revenue,
research and development expense declined from 20.8% to 19.4% for the same
periods. The increase in dollars spent on research and development was primarily
due to investments in the development of our new ESP products. These efforts
required the use of consultants and the hiring of additional personnel, which
increased costs. We believe that continued investments in process technology and
product development are essential for us to remain competitive in the markets we
serve. Specifically in regard to our ESPs, we expect to continue to increase
research and development spending.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling expense consists
primarily of personnel, commissions and other costs associated with the
marketing and sale of our products. General and administrative expense consists
primarily of personnel and other costs associated with the management of our
business. Selling, general and administrative expense increased from $4.6
million for the six months ended June 30, 1998 to $6.0 million for the six
months ended June 30, 1999. Selling, general and administrative expense declined
as a percentage of revenue from 33.0% for the first six months of 1998 to 32.6%
for the first six months of 1999 due to higher revenues in the later period. The
1999 increase of approximately $1.4 million was due to increased advertising
expense of approximately $1.1 million related to the introduction of our ESPs
and to hiring of additional sales, marketing, finance and administrative
personnel. We anticipate that selling, general and administrative expense will
continue to increase in absolute dollars as we invest in our business and seek
to find new customers for our products.
INTEREST AND OTHER INCOME, NET. Interest income, interest expense and other
income, net was $116,000 in the six months ended June 30, 1998 compared to
$87,000 for the six months ended June 30, 1999. A gain on the disposal of fixed
assets of $5,000 was recorded in 1998.
DEFERRED COMPENSATION. We grant incentive stock options to hire, motivate
and retain employees. With respect to the grant of stock options to employees,
we recorded aggregate deferred compensation of approximately $332,000 for the
six months ended June 30, 1999. We currently expect to record amortization of
deferred compensation of approximately $485,000, $499,000 and $337,000 during
the years ended December 31, 1999, 2000 and 2001, respectively. The amount of
deferred compensation is presented as a reduction of stockholders' equity and
amortized ratably over the vesting period of the applicable options, generally
four years.
PROVISION FOR INCOME TAXES. No provision for income taxes was recorded for
the six-month period ended June 30, 1998, as we incurred an operating loss
during that period. No provision for income taxes was recorded for the six-month
period ended June 30, 1999, due to our ability to utilize a portion of our state
and federal net operating loss carryforwards.
24
<PAGE>
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
REVENUE. Our revenue for 1996, 1997 and 1998 was $23.8 million, $28.5
million and $30.0 million, respectively, representing growth of 19.8% from 1996
to 1997 and 5.4% from 1997 to 1998. The majority of the 1997 increase in revenue
was due to growth in sales of our pASIC 2 products, the second generation of our
FPGAs. Our pASIC 2 revenue increased in 1997 by approximately $4.9 million,
partially offset by a decrease in pASIC 1 and other revenue of approximately
$0.2 million. The 1998 revenue growth reflected increasing sales of our pASIC 2
products as well as the initial shipments of our pASIC 3 products. The increase
in 1998 was partially offset by declines in sales of our mature pASIC 1
products. In 1998, our pASIC 2 and pASIC 3 revenues together increased by
approximately $3.8 million, while our pASIC 1 and other revenue declined by
approximately $1.7 million and $0.6 million, respectively. In aggregate, unit
sales increased in both 1997 and 1998 and were only partially offset by
declining average selling prices of our pASIC 1 and pASIC 2 products.
GROSS PROFIT. Gross profit was $12.6 million, $11.6 million and $15.7
million in 1996, 1997 and 1998, respectively, which was 53.0%, 40.8% and 52.3%
of revenue for those periods. The decline in 1997 was primarily attributable to
inventory write-downs for obsolescence of approximately $3.6 million, associated
with higher than desired inventory levels due to inventory acquired from Cypress
as part of the termination of our agreement with Cypress in 1997. The increase
in gross profit in 1998 was attributable to the growth in sales, the
introduction of higher-margin pASIC 3 products, the absence of any inventory
write-downs, and the maintenance of margin levels on our pASIC 1 and pASIC 2
products.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense was $4.6
million, $6.2 million, and $6.3 million in 1996, 1997 and 1998, respectively,
which was 19.5%, 21.9% and 21.0% of revenue for those periods. The increases in
research and development spending in 1997 and 1998 were primarily due to
increases in the number of employees involved in research and development as we
accelerated the introduction of new products, particularly the pASIC 3 family of
products and our first ESPs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense was $7.7 million, $11.0 million and $9.4 million in 1996,
1997 and 1998, respectively, which was 32.5%, 38.6% and 31.2% of revenue for
those periods. The increase in selling, general and administrative expense in
1997 was primarily attributable to increases in personnel and sales and
marketing efforts in support of existing and new products. The decreases in
selling, general and administrative expenses in 1998 were attributable to
reduced personnel costs due to temporary vacancies in senior management
positions.
CONTRACT TERMINATION AND LEGAL EXPENSE. We recorded an expense of $23.0
million in the first quarter of 1997 as a result of the termination of our 1992
agreement with Cypress. Legal and settlement costs associated with the Actel
litigation were $4.1 million and $5.3 million in 1996 and 1997, respectively. No
additional charges were recorded upon settlement of this litigation in 1998.
DEFERRED COMPENSATION. With respect to the grant of stock options to
employees, we recorded aggregate deferred compensation of $851,000, $1.9 million
and $204,000 in 1996, 1997 and 1998, respectively. The amount of deferred
compensation is presented as a reduction of stockholders' equity and amortized
ratably over the vesting period of the applicable options, generally four years.
We amortized $43,000, $625,000 and $426,000 in 1996, 1997 and 1998,
respectively. The amortization of deferred compensation will be recorded as
research and development and selling, general and administrative expenses in
those periods.
INTEREST AND OTHER INCOME, NET. Interest and other income, net was
$300,000, $272,000 and $203,000 in 1996, 1997 and 1998, respectively. Interest
and other income decreased in 1997 and 1998 as
25
<PAGE>
interest income on increased cash balances was offset by interest expense
incurred as a result of new equipment financing arrangements.
PROVISION FOR INCOME TAXES. No provision for income taxes was recorded in
the years ended December 31, 1996 and 1997, as we incurred net operating losses
in those years. No provision for income taxes was recorded for the year ended
December 31, 1998, as we were able to utilize a portion of our state and federal
net operating loss carryforwards. At December 31, 1998, we had net operating
loss carryforwards for federal and state tax purposes of approximately $44.0
million and $21.0 million, respectively. These carryforwards, if not utilized to
offset future taxable income and income taxes payable, will begin to expire in
1999 and will continue to expire through 2013.
QUARTERLY RESULTS OF OPERATIONS
The following tables contain unaudited statement of operations data for our
six most recent quarters. The first table contains revenue and expense data
expressed in dollars, while the second table contains the same data expressed as
a percentage of our revenue for the periods indicated. The data has been derived
from unaudited financial statements that, in our opinion, include all
adjustments necessary for a fair presentation of the information. Our quarterly
results have been in the past, and in the future may be, subject to
fluctuations. As a result, we believe 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,
1998 1998 1998 1998
-------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Revenue........................................... $7,751 $6,327 $7,883 $8,046
Cost of revenue................................... 3,638 3,165 3,825 3,675
-------- -------- --------- --------
Gross profit...................................... 4,113 3,162 4,058 4,371
Operating expenses:
Research and development........................ 1,394 1,538 1,586 1,776
Selling, general and administrative............. 2,391 2,257 2,302 2,418
-------- -------- --------- --------
Net operating income (loss)....................... 328 (633) 170 177
Interest expense.................................. (44) (42) (46) (29)
Interest income and other, net.................... 134 68 83 79
-------- -------- --------- --------
Net income (loss)................................. $ 418 $ (607) $ 207 $ 227
-------- -------- --------- --------
-------- -------- --------- --------
AS A PERCENTAGE OF REVENUE
Revenue........................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenue................................... 46.9 50.0 48.5 45.7
-------- -------- --------- --------
Gross profit...................................... 53.1 50.0 51.5 54.3
Operating expenses:
Research and development........................ 18.0 24.3 20.1 22.1
Selling, general and administrative............. 30.8 35.7 29.2 30.0
-------- -------- --------- --------
Net operating income (loss)....................... 4.3 (10.0) 2.2 2.2
Interest expense.................................. (0.6) (0.7) (0.6) (0.4)
Interest income and other, net.................... 1.7 1.1 1.0 1.0
-------- -------- --------- --------
Net income (loss)................................. 5.4% (9.6%) 2.6% 2.8%
-------- -------- --------- --------
-------- -------- --------- --------
<CAPTION>
QUARTER ENDED
--------------------
MARCH 31, JUNE 30,
1999 1999
--------- --------
<S> <C> <C>
STATEMENT OF OPERATIONS
Revenue........................................... $8,597 $9,828
Cost of revenue................................... 3,722 4,236
--------- --------
Gross profit...................................... 4,875 5,592
Operating expenses:
Research and development........................ 1,780 1,787
Selling, general and administrative............. 2,856 3,144
--------- --------
Net operating income (loss)....................... 239 661
Interest expense.................................. (26) (23)
Interest income and other, net.................... 69 67
--------- --------
Net income (loss)................................. $ 282 $ 705
--------- --------
--------- --------
AS A PERCENTAGE OF REVENUE
Revenue........................................... 100.0% 100.0%
Cost of revenue................................... 43.3 43.1
--------- --------
Gross profit...................................... 56.7 56.9
Operating expenses:
Research and development........................ 20.7 18.2
Selling, general and administrative............. 33.2 32.0
--------- --------
Net operating income (loss)....................... 2.8 6.7
Interest expense.................................. (0.3) (0.2)
Interest income and other, net.................... 0.8 0.7
--------- --------
Net income (loss)................................. 3.3% 7.2%
--------- --------
--------- --------
</TABLE>
Over the six quarters presented, our quarterly revenue grew from $7.8
million to $9.8 million. Revenues have fluctuated over this time, and were
negatively affected in the quarter ended June 30, 1998, when sales declined
18.4% primarily as a result of the Asian financial crisis which had a dramatic
effect on the global semiconductor industry. Revenue growth commencing in the
quarter ended September 30, 1998 has been a result of renewed strength in our
core FPGA business, and the
26
<PAGE>
introduction of our pASIC 3 product family. Beginning in the quarter ended March
31, 1999, revenue included sales from our QuickRAM product family, the first of
our ESPs.
Gross profit declined in the quarter ended June 30, 1998, along with
revenue, for the reasons described above. Gross profit began to improve during
the third quarter of 1998 as revenue increased. Gross margins increased from
54.3% in the quarter ended December 31, 1998 to 56.9% in the quarter ended June
30, 1999. This recent improvement was caused by favorable product mix shifts as
newer, higher margin pASIC 2, pASIC 3 and QuickRAM products comprised a higher
percentage of our overall revenue.
Over the last six quarters, research and development expenses increased from
$1.4 million to $1.8 million. To serve the evolving needs of systems
manufacturers in our target markets, we have spent aggressively to develop new
products and technologies. Our research and development expenses over this
period have averaged 20.6% of revenues. Selling, general and administrative
expenses over this period have fluctuated between $2.3 million and $3.1 million.
We have accumulated substantial net operating loss carryforwards. As a
result, we have not paid income taxes. Although we have been increasingly
profitable over the past four quarters, we expect to have minimal tax
obligations over the next several quarters due to application of net operating
loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
We financed our operating losses in 1996 and 1997 through the issuance of
common stock, the sales of preferred stock, the deferral of litigation
settlement obligations and the incurrence of debt to finance capital equipment
purchases. We have been profitable since the third quarter of 1998. At June 30,
1999, we had $8.2 million in cash, a decrease of $2.2 million from cash held at
December 31, 1996, but an increase of $590,000 from cash held at December 31,
1998. As of June 30, 1999, we had an accumulated deficit of $60.2 million.
During 1996 and 1997, working capital increased due to growth in accounts
receivable and inventories. During 1998 and the first six months of 1999,
inventory balances have been substantially reduced.
We have an equipment financing line with a commercial bank. At June 30,
1999, we had obligations of $806,000 outstanding under this equipment line and a
remaining available balance of $137,000, which can be drawn upon through the
fourth quarter of 1999. The outstanding obligations under the equipment line are
due over the next one to three years. The interest rate on these borrowings is
at the bank's prime interest rate plus 0.5%.
Net cash provided by (used for) operating activities was $(4.6) million,
$(1.4) million, $2.3 million and $2.3 million in 1996, 1997, 1998 and the first
six months of 1999, respectively. The decreases in cash in 1996 and 1997 were
primarily attributable to increases in working capital, particularly accounts
receivable and inventory. Inventory reductions were the primary source of cash
in 1998. Net income and an increase in accounts payable were the primary sources
of cash in the first six months of 1999. Our operating cash flow activities are
affected by changes in our accounts receivable and related allowances. At
December 31, 1997 and 1998 and June 30, 1999, we had allowances for doubtful
accounts totaling $226,000, $245,000, and $245,000, respectively. We have not
had any material collection issues to date. At December 31, 1997 and 1998 and
June 30, 1999, we had sales returns and allowance reserves totaling $2,402,000,
$3,027,000, and $2,095,000, respectively, offsetting accounts receivable
balances for contractual obligations for potential product returns and
discounts. The increase in sales returns and allowances at December 31, 1998 was
due to timing of credits earned in 1998 and not taken by distributors until
1999.
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<PAGE>
Net cash provided by (used for) investing activities was $2.5 million,
$(2.6) million, $(679,000), and $(1.0) million in 1996, 1997, 1998 and the first
six months of 1999, respectively. In 1995, we invested $4.0 million in
short-term investments which were sold in 1996. We acquired $1.5 million, $2.6
million, $679,000 and $1.0 million of property and equipment in 1996, 1997, 1998
and the first six months of 1999, respectively. The increases in property and
equipment in 1996 and 1997 were comprised primarily of furniture, leasehold
improvements and computer and networking equipment as a result of our move to
our new facility in December 1996. The majority of these acquisitions were
financed under our equipment financing line. We intend to purchase approximately
$800,000 of additional capital assets during the remainder of 1999.
Net cash provided by (used for) financing activities was $8.5 million, $1.1
million, $(1.4) million and $(664,000) in 1996, 1997, 1998 and the first six
months of 1999, respectively, and resulted primarily from the issuance of $8.9
million of preferred stock in 1996 and 1997, borrowings under equipment debt
facilities of $2.0 million in 1996 and 1997 and repayment of bank debt of
$124,000, $1.5 million, $1.5 million and $832,000 in 1996, 1997, 1998 and the
first six months of 1999, respectively.
Our relationship with TSMC requires that we provide a forecast of the
minimum level of our wafer requirements for the following year. This creates a
minimum wafer purchase commitment to TSMC for such year. For 1999, our committed
purchases from TSMC are $2.8 million. None of our other agreements with
manufacturing subcontractors has similar minimum purchase commitments.
We require substantial working capital to fund our business, particularly to
finance inventories and accounts receivable. Our future capital requirements
will depend on many factors, including the rate of sales growth, market
acceptance of our existing and new products, the amount and timing of research
and development expenditures, the timing of the introduction of new products and
expansion of sales and marketing efforts. There can be no assurance that
additional equity or debt financing, if required, will be available on
satisfactory terms. We believe the net proceeds of this offering combined with
existing capital resources and cash generated from operations will be sufficient
to meet our needs for the next 12 months, although we could seek to raise
additional capital during that period. After the next 12 months, our capital and
operating requirements will depend on many factors, including the levels at
which we maintain inventory and accounts receivable, costs of securing access to
adequate manufacturing capacity and increases in our operating expenses.
INFLATION
The impact of inflation on our business has not been material for the fiscal
years ended December 31, 1996, 1997 and 1998 or for the six month period ended
June 30, 1999.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement on
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 establishes a new model for accounting for
derivatives and hedging activities and supersedes and amends a number of
existing accounting standards. SFAS No. 133 requires that all derivatives be
recognized in the balance sheet at their fair market value, and the
corresponding derivative gains or losses be either reported in the statement of
operations or as a deferred item depending on the type of hedge relationship
that exists with respect to such derivative. SFAS No. 133, as amended by SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral
of Effective Date of FASB Statement No. 133," is effective for all fiscal
quarters and years beginning after June 15, 2000. We do not currently have, or
plan to enter into, forward exchange contracts to hedge exposures denominated in
foreign currencies or any other derivative financial instruments for trading or
speculative purposes.
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<PAGE>
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position, or SOP, No. 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. We do not expect that the
adoption of SOP No. 98-1 will have material impact on our consolidated financial
statements.
YEAR 2000 READINESS DISCLOSURE
STATE OF READINESS. We utilize a number of computer software programs and
operating systems across our entire organization, including applications used in
financial business systems and various administrative functions. We have a team
of eight employees representing each of our major departments, led by our
manager of information systems, to identify and correct non-compliant systems.
To the extent that any of our software applications had source code unable to
appropriately interpret the upcoming Year 2000 and beyond, we have completed
modification or replacement of such applications. We have certain computer
hardware that we are in the process of replacing in connection with our Year
2000 readiness program and expect to have completed such efforts by September
30, 1999.
We are highly dependent on semiconductor foundry companies to produce our
FPGA and ESP products. We have contacted these suppliers and have received
assurances that Year 2000 issues will not affect their ability to deliver
product. We are also dependent upon third party software for the functioning of
our software design tools, QuickWorks and QuickTools, that support our FPGA and
ESP products. QuickWorks operates on Microsoft Windows while QuickTools runs on
UNIX platforms. Our software products integrate software tools that have been
developed and are maintained by third party vendors. We have contacted these
vendors and have confirmed that such software products are Year 2000 compliant.
We have also tested these products and found them to be Year 2000 compliant.
However, any failure of Windows, UNIX or the integrated third party software
tools due to Year 2000 problems, will adversely impact the performance of our
software design tools, and our business could be materially harmed.
COSTS OF ADDRESSING YEAR 2000 ISSUES. Given the information known at this
time about our non-compliant systems, coupled with our ongoing process of
monitoring our third party suppliers and vendors for Year 2000 compliance, as
well as implementing contingency plans, we do not expect Year 2000 compliance
costs to have any material adverse impact on our business. We estimate that
total costs for the Year 2000 compliance assessment and remediation will not
exceed $400,000. The costs of this assessment and remediation will be paid out
of general and administrative expenses. Through June 30, 1999, we have incurred
expenses of approximately $300,000 in addressing the year 2000 problem. We
expect to incur expenses of approximately $100,000 more for remediation, testing
and contingency planning.
RISKS OF YEAR 2000 ISSUES. In light of our assessment and remediation
efforts to date, and the planned upgrades, testing and contingency planning, we
believe that our Year 2000 risk is limited to non-critical business applications
and support hardware. No assurance can be given, however, that:
- our systems will be Year 2000 compliant;
- the manufacturers who supply semiconductors for us will be Year 2000
compliant with their internal systems; or
- other major suppliers, vendors, distributors and customers, upon whom our
business is materially dependant, will be Year 2000 compliant.
If our internal operations or those of our suppliers, vendors, distributors
or customers are adversely impacted because they are not Year 2000 compliant,
our business could be materially harmed.
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<PAGE>
CONTINGENCY PLANS. In the event any Year 2000 issues relating to key
suppliers, vendors, distributors or customers are identified and not
successfully resolved, based on information available to us at present, we
believe that the most likely worst case scenario is a temporary disruption in
infrastructure service, particularly power and telecommunications, which could
materially and adversely impact supplier deliveries or customer shipments. If
severe disruptions occur in these areas and are not corrected in a timely
manner, a revenue or profit shortfall may result in the Year 2000. We are in the
process of developing a contingency plan for all operations to address the most
reasonably likely worst case scenarios regarding Year 2000 compliance. We expect
contingency planning to be completed by September 30, 1999.
30
<PAGE>
BUSINESS
INTRODUCTION
QuickLogic develops, markets and supports advanced field programmable gate
array, or FPGA, semiconductors and the software tools needed for our customers
to use our products. In addition to our FPGA semiconductors, we have pioneered
the development of embedded standard products, or ESPs. Our ESPs combine the
flexibility and time-to-market advantages of our FPGAs with the predictable,
high performance of standard semiconductor products, thereby enabling our
customers to integrate increased amounts of functionality on a single
semiconductor device. Our FPGA and ESP products target complex, high-performance
systems in rapidly changing markets where system manufacturers seek to minimize
time-to-market and maximize product differentiation and functionality. Examples
of markets we sell to include telecommunications and data communications;
video/audio, graphics and imaging; instrumentation and test; high-performance
computing; and military systems.
The key components of our FPGA and ESP product families are our ViaLink
programmable metal technology, our pASIC architecture and the associated
software tools used for product design. Our ViaLink technology allows us to
create smaller devices than competitors' comparable products, thereby minimizing
silicon area and cost. In addition, our ViaLink technology has lower electrical
resistance and capacitance than other programmable technologies and,
consequently, supports higher signal speed. Our FPGA and ESP architectures
provide full routability and utilization of a device's logic cells, thereby
enabling greater usable device density and design flexibility. Finally, our
software enables our customers to efficiently implement their designs using our
products.
INDUSTRY BACKGROUND
Competitive pressures are forcing manufacturers of electronic systems to
rapidly bring to market products with improved functionality, higher performance
and greater reliability, all at lower cost. Providers of systems requiring
high-speed data transmission and processing such as communications equipment,
digital image products, test and instrumentation and storage subsystems face
some of the most intense time-to-market pressures in the technology industry.
These market forces have driven the evolution of logic semiconductors, which are
used in complex electronic systems to coordinate the functions of other
semiconductors, such as microprocessors or memory. There are three types of
advanced logic semiconductors:
- Application Specific Integrated Circuits, or ASICs, are special purpose
devices designed for a particular manufacturer's electronic system. These
devices are customized during wafer manufacturing.
- Application Specific Standard Products, or ASSPs, are fixed-function
devices designed to comply with industry standards that can be used by a
variety of electronic systems manufacturers. Their functions are fixed
prior to wafer manufacturing.
- Programmable Logic Devices, or PLDs, are general purpose devices which can
be used by a variety of electronic systems manufacturers, and are
customized after purchase for a specific application. Field Programmable
Gate Arrays, or FPGAs, are types of PLDs used for complex functions.
Systems manufacturers have relied heavily on ASICs to implement the advanced
logic required for their products. ASICs provide high performance due to
customized circuit design. However, because ASICs are design-specific devices,
they require long development and manufacturing cycles, delaying product
introductions. In addition, because of the expense associated with the design of
ASICs, they are cost effective only if they can be manufactured in high volumes.
Finally, once ASICs are manufactured, their functionality cannot be changed to
respond to evolving market demands.
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<PAGE>
ASSPs have become widely utilized as industry standards have developed to
address increasing system complexity and the need for communication between
systems and system components. These standards include:
- Peripheral Component Interconnect, or PCI, a standard developed to provide
a high performance, reliable and cost-effective method of connecting
high-speed devices within a system.
- SONET, or Synchronous Optical NETwork, a fiber-optic transmission standard
for high-speed digital traffic, employed mainly by telephone companies and
other network service providers.
- Ethernet, a widely-used local area network, or LAN, transport standard
which controls the interconnection between servers and computers.
- Fibre Channel Interconnect Protocol, an industry networking standard for
storage area networks, or SANs, which controls the interconnection between
servers and storage devices.
Compared to ASICs, ASSPs offer the systems designer shorter development time,
lower risk and reduced development cost. However, ASSPs generally cannot be used
by systems manufacturers to differentiate their products.
To address markets where industry standards do not exist or are changing and
time-to-market is important, FPGAs are often used. FPGAs provide systems
manufacturers with the flexibility to customize and thereby differentiate their
systems, unlike ASSPs. FPGAs also enable systems manufacturers to change the
logic functionality of their systems after product introduction without the
expense and time of redesigning an ASIC. However, most FPGAs are more expensive
than ASSPs and even ASICs of equivalent functionality because they require more
silicon area. In addition, most FPGAs offer lower performance than
nonprogrammable solutions, such as ASSPs and ASICs. According to Cahners In-Stat
Group, the projected total market size for high-complexity programmable logic
devices in 1999 is approximately $2.10 billion, of which FPGAs are estimated to
account for $1.12 billion.
QUICKLOGIC'S FPGA SOLUTION
QuickLogic's FPGAs offer higher performance at lower overall systems cost
than competing FPGA solutions, in addition to offering the advantages typically
associated with FPGAs. Specifically, our products provide greater design
flexibility than standard FPGAs and enable designers of complex systems to
achieve rapid time-to-market with highly differentiated products. Our products
are based on our ViaLink technology and pASIC architectures, and our associated
QuickWorks and QuickTools design software:
- VIALINK PROGRAMMABLE METAL TECHNOLOGY. Unlike conventional SRAM-based
FPGAs, our ViaLink programmable metal technology embeds logic
interconnects between the metal layers of a chip, instead of on the
silicon substrate. As a result, we are able to provide a programmable
switch at every intersection in the wire grid, as illustrated in the graph
below. This vertical interconnect structure is more efficient and flexible
than that of conventional FPGAs, minimizing silicon area and therefore
cost. The ViaLink technology also features lower resistance and
capacitance than competing interconnect technologies, thereby optimizing
the device's performance.
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<PAGE>
[GRAPHIC DEPICTING A CONVENTIONAL SRAM-BASED
FPGA ARCHITECTURE AND QUICKLOGIC'S PASIC ARCHITECTURE]
- PASIC ARCHITECTURE. FPGA device architectures consist of logic cells,
routing wires and interconnect elements. Unlike conventional SRAM-based
FPGA architectures, our pASIC architectures facilitate full utilization of
a device's logic cells and Input/Output pins. These logic cells have been
optimized to efficiently implement a wide range of logic functions at high
speed. Our pASIC architectures use our ViaLink technology to maximize
interconnects at every routing wire intersection. The abundance of
interconnect resources allows more paths between logic cells. As a
consequence, system designers are able to use QuickLogic FPGAs with
smaller gate counts than competing FPGAs to implement their designs. These
smaller gate count FPGAs require less silicon area and as a result are
able to be offered at a lower price.
- QUICKWORKS AND QUICKTOOLS DESIGN SOFTWARE. Our design software for
Windows and Unix operating systems provides systems manufacturers with the
ability to easily customize QuickLogic FPGAs for their specific needs.
These design tools feature 100% fully automatic place and route
capabilities, which speed design development by permitting very complex
designs to be implemented quickly. Once a design has been completed,
systems manufacturers can use the DeskFab device programmer to transfer
their design to an FGPA in minutes. Alternatively, systems manufacturers
can use our unique WebASIC program to transmit their design to QuickLogic
in order to receive a programmed device for evaluation within two business
days.
THE ADVENT OF SYSTEM-ON-A-CHIP
Over the past few years, semiconductor manufacturers have migrated to
smaller process geometries. These smaller process geometries enable more logic
elements to be incorporated in a single chip using less silicon area. More
recently, advances have been made in the integration of logic and memory on a
single chip, which had been difficult previously due to incompatible process
technologies. Advantages of the single chip approach to systems manufacturers
include:
- simplified system development,
- reduced time-to-market,
- elimination of delays associated with the transfer of data between chips,
- smaller physical size,
- lower power dissipation,
- greater reliability and
- lower cost.
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<PAGE>
However, as levels of logic integration have increased, devices have become more
specific to a particular application. This fact limits their use and potential
market size.
QUICKLOGIC'S ESP SOLUTION
QuickLogic has leveraged its unique FPGA technology to address the
limitations inherent in current system-on-a-chip approaches. The result is
embedded standard products, or ESPs, that deliver the advantages offered by both
FPGAs and ASSPs. In its simplest form, an ESP contains four basic parts: a
programmable logic array, an embedded standard function, an optional
programmable read-only memory to configure the embedded function, and an
interface that allows communication between the standard function and
programmable logic array. Our ESP products combine the system-level
functionality of ASSPs with the flexibility of FPGAs. We believe ESPs offer the
following specific advantages:
- INCREASED PERFORMANCE. In a typical design, data must travel between an
ASSP and an FPGA across a printed circuit board. The limited number of
connections available and the distance between the devices can degrade the
system's overall performance. Our ESP solution allows all data to be
processed on a single chip.
- DECREASED COST. Because our ESP is a single chip solution, it requires
less silicon area, and therefore is less expensive to produce.
Additionally, this single chip approach lowers the component, assembly and
test cost for the system manufacturer.
- INCREASED RELIABILITY. ESP designs are more reliable because single chip
solutions contain fewer components and circuit board connections that are
subject to failure.
- SHORTER DEVELOPMENT TIME. With a multiple chip design, systems designers
must solve complex routing and timing issues between devices. A single
chip ESP solution eliminates the timing issues between devices and
simplifies software simulation, leading to shorter development time.
We have introduced our first two ESP product lines, the QuickRAM and
QuickPCI families. Both families are designed for a wide range of
performance-driven applications. For example, QuickRAM products, which combine
blocks of embedded, high-performance memory with our FPGA logic, are used by
Alcatel in its Lightwave telecommunication transmission systems. QuickPCI
products combine PCI controllers with our FPGA logic. We completed development
of our first QuickPCI product in April 1999, and have shipped development
quantities to several customers.
According to Cahners In-Stat Group, the total ESP market size in 1998 was
$13.8 million, and is projected to increase to $43.9 million in 1999.
THE QUICKLOGIC STRATEGY
Our objective is to be the leading provider of high-speed, flexible,
cost-effective FPGAs and ESPs. We feel we can achieve this objective by offering
systems manufacturers the ability to accelerate design cycles to satisfy
demanding time-to-market requirements. To achieve our objective, we have adopted
the following strategies:
EXTEND TECHNOLOGY LEADERSHIP
Our ViaLink technology, pASIC architectures and proprietary software design
tools enable us to offer flexible, high-performance FPGA and ESP products. We
intend to continue to invest in the development of these technologies and to
utilize such developments in future innovations of both our FPGA and our ESP
products. We also intend to focus our resources on building critical
systems-level expertise to introduce new ESP products and enhance existing ESP
product families.
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<PAGE>
CAPITALIZE ON CROSS-SELLING OPPORTUNITIES BETWEEN OUR FPGA AND ESP PRODUCTS
Because our development tools share many of the same features for both FPGAs
and ESPs, once a manufacturer designs a system with either product, we believe
the manufacturer will recognize the advantages of our other products.
Accordingly, we intend to leverage our FPGA and ESP design wins to pursue
additional design wins on complementary products with the same customer.
BROADEN ESP PRODUCT LINES
In addition to our QuickRAM and QuickPCI families, we intend to focus on the
needs of large, high-growth, performance-driven market segments. Our product
design approach consists of continuous solicitation of feedback from existing
and prospective customers.
CREATE INNOVATIVE, INDUSTRY-LEADING CUSTOMER SERVICES
We continue to develop and implement innovative ways to serve and
communicate with our customers. For example, we recently introduced our WebASIC
service. This service allows our customers to use our development software to
design a circuit, transmit design information over the Internet and receive a
QuickLogic FPGA or ESP device programmed with their design within one business
day in North America and Europe or within two business days in Asia. We are in
the process of deploying ProChannel, a web-based system which will allow our
customers to obtain promotional material, receive quotations, place orders for
our products and view their order status over the Internet. This system will
complement the Electronic Data Interchange systems that we have used for the
past several years with our largest customers.
TARGET HIGH-PERFORMANCE, RAPIDLY CHANGING MARKETS
We will continue to focus our design and marketing efforts on systems
manufacturers who sell complex systems that require high performance, design
flexibility, low cost and rapid time-to-market. Such applications include
telecommunications and data communications; video/audio, graphics and imaging
systems; instrumentation and test; high-performance computing; and military
systems.
MARKETS AND APPLICATIONS
Our FPGA and ESP products are targeted at high growth markets that have
demanding performance, design flexibility, cost and time-to-market requirements.
Examples of the markets and applications in which our products are used include:
TELECOMMUNICATIONS AND DATA COMMUNICATIONS
Telecommunications and data communications companies require logic devices
with high performance, low power consumption and design flexibility.
QuickLogic's single-chip QuickRAM devices meet this need by providing
comprehensive solutions that eliminate the need for multiple chip solutions.
Alcatel uses our QuickRAM products in their fiber optic Lightwave transmission
equipment.
VIDEO/AUDIO, GRAPHICS AND IMAGING
Honeywell uses our QuickRAM and FPGA products for their Primus Epic
commercial avionics display systems. Their applications for QuickLogic's devices
include flight data managers, back panel interfaces, flat panel display
interfaces, and PCI interfaces.
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<PAGE>
INSTRUMENTATION AND TEST
Instrumentation and industrial controls manufacturers require logic devices
with low power consumption, high reliability and, often, high performance.
Teradyne uses our QuickRAM and FPGA devices in their semiconductor test
equipment.
HIGH-PERFORMANCE COMPUTING
IBM uses our FPGA devices in numerous applications, including controllers
for its redundant array of independent disks, or RAID, products. Compaq Computer
also uses our FPGAs in their Alpha-based workstations and servers.
MILITARY SYSTEMS
Military electronics systems manufacturers have demanding reliability and
performance requirements. Military applications require devices that remain
configured even when power is lost or interrupted. Our ViaLink technology
creates connections within the device which are permanent, unlike reprogrammable
FPGAs, which must be reconfigured after losing power. We provide several product
lines that are specially assembled and tested to meet demanding military
requirements. Hamilton Standard, a division of United Technologies, uses our
FPGA devices for a flight computer in the F-117 stealth fighter.
CUSTOMERS
Through our ten years of business in the FPGA market, we have developed a
strong customer base. Our customers include leading systems manufacturers, such
as IBM, which recently added QuickLogic to its recommended supplier list for
high performance FPGA products. The following chart provides a representative
list by industry of our current customers:
<TABLE>
<S> <C> <C>
INDUSTRY CUSTOMER APPLICATION
Data Communications and Alcatel Fiber optic transmission equipment
Telecommunications Ericsson GSM base stations
IBM Data encryption, network servers
NEC PBX electronics, wireless base stations
Philips Data encryption
Video/Audio, Graphics and Digidesign PC-based audio editing
Imaging Eastman Kodak High-speed video motion analysis
Honeywell Aircraft navigation and flight controls
Mitsubishi Large screen displays
NEC Solid state video cameras
Sony Industrial video cameras
Texas Instruments Digital micro mirror applications
Instrumentation and Test ABB Industrial power management systems
LTX Semiconductor test equipment
National PC-based instrumentation boards
Instruments
Teradyne Semiconductor test equipment
Toshiba Mail sorting equipment
High-Performance Computing Compaq Computer Alpha processor motherboards
IBM RAID controller, ThinkPad display
controls
Mitsubishi Mobile PC pen-input display controllers
Military Systems B.F. Goodrich Launch vehicle for Delta Four rockets
DY-4 VME-based computer systems
Hamilton Standard Flight computers
Hughes Aircraft Helicopter motor controls and radar
McDonnell Douglas C-17 flight controllers
Raytheon Tornado missile
</TABLE>
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<PAGE>
PRODUCTS
We make field programmable gate arrays and embedded standard products based
on our ViaLink technology and pASIC architecture. Each product family includes a
range of devices to address differing performance and cost requirements. A
variety of package types are available to satisfy varying customer requirements
for physical size and the number of input and output connections to the circuit
board. We also offer most of our devices in commercial, industrial and military
temperature ranges.
FIELD PROGRAMMABLE GATE ARRAYS
Our pASIC products are general purpose FPGAs that address the
high-performance segments of the programmable logic market. Our current product
line consists of three families of FPGAs. Each of these product families include
devices with a range of logic capacities and number of input and output pins.
Having such a range of devices is important to design engineers whose device
requirements can vary broadly from one application to another. Smaller devices
address simpler applications at lower cost, while larger devices cost more but
can support larger and more complex applications. The following tables describe
these families:
PASIC 3 FPGA FAMILY
<TABLE>
<CAPTION>
LOGIC CAPACITY MAXIMUM INPUTS AND
DEVICE (GATES) OUTPUTS(#) INTRODUCTION DATE
<S> <C> <C> <C>
QL3004 4,000 76 Q3 1999
QL3012 12,000 118 Q2 1998
QL3025 25,000 204 Q4 1997
QL3040 40,000 252 Q3 1998
QL3060 60,000 316 Q2 1998
</TABLE>
PASIC 2 FPGA FAMILY
<TABLE>
<CAPTION>
LOGIC CAPACITY MAXIMUM INPUTS AND
DEVICE (GATES) OUTPUTS(#) INTRODUCTION DATE
<S> <C> <C> <C>
QL2003 6,000 118 Q1 1997
QL2005 12,000 156 Q4 1996
QL2007 18,000 174 Q4 1995
QL2009 25,000 225 Q2 1996
</TABLE>
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<PAGE>
PASIC 1 FPGA FAMILY
<TABLE>
<CAPTION>
LOGIC CAPACITY MAXIMUM INPUTS AND
DEVICE (GATES) OUTPUTS(#) INTRODUCTION DATE
<S> <C> <C> <C>
QL8x12B 2,000 64 Q4 1991
QL12x16B 4,000 88 Q4 1992
QL16x24B 8,000 122 Q4 1993
QL24x32B 16,000 180 Q2 1995
</TABLE>
EMBEDDED STANDARD PRODUCTS
ESPs are single chip solutions that combine the system-level functionality
of ASSPs with the flexibility of FPGAs. ESPs link blocks of user-configurable
standard functions with field programmable logic through a high-performance
interface. We have introduced our first two lines of ESPs, the QuickRAM and
QuickPCI families.
QUICKRAM. Our QuickRAM family of products, which began shipping in June
1998, combines blocks of high-performance, embedded memory with our high-speed
programmable logic. The QuickRAM family includes five devices that span a range
of logic and memory sizes, allowing design engineers to choose the optimal part
for a particular application. Larger devices feature more memory and logic
supporting more complex designs, while smaller devices offer lower cost. The
QuickRAM family includes four available devices and one planned device that span
a wide range of logic and memory sizes:
QUICKRAM ESP FAMILY
<TABLE>
<CAPTION>
MEMORY CAPACITY LOGIC CAPACITY MAXIMUM INPUTS INTRODUCTION
DEVICE (BITS) (GATES) AND OUTPUTS(#) DATE
<S> <C> <C> <C> <C>
QL4009 9,216 6,000 82 Q3 1999
QL4016 11,520 12,000 118 Q2 1999
QL4036 16,128 25,000 204 Q4 1998
QL4058 20,736 40,000 252 Q2 1999
QL4090 25,344 60,000 316 Q2 1998
</TABLE>
QUICKPCI. The PCI bus, or Peripheral Component Interconnect, is a standard
hardware architecture that manages the transfer of data among major components
in an electronic system at high speed. The master PCI bus function controls the
PCI bus while the target function only operates under the control of the PCI
bus. The QuickPCI family includes five devices that span a range of PCI bus
capabilities and memory and programmable logic capacities, with both master and
target functions. Our QuickPCI family of products combines high-performance
embedded PCI bus controllers with our high-speed programmable logic. We
completed development of our first QuickPCI product in April 1999, and we have
shipped development quantities of devices to several customers.
The PCI bus is available in two basic configurations: 32 bits wide and 64
bits wide. Clock speeds for the PCI bus range from 33MHz to 75MHz. Devices which
support the smaller, slower PCI configurations cost less than devices which
support the wider, faster configurations. While many
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<PAGE>
semiconductor vendors offer devices that address one particular PCI
configuration, very few offer a full range of devices to meet all of the
possible configurations.
QUICKPCI ESP FAMILY
<TABLE>
<CAPTION>
MEMORY LOGIC
PCI BUS MAX. PCI BUS CAPACITY CAPACITY INTRODUCTION
DEVICE FUNCTION SPEED/WIDTH (BITS) (GATES) DATE
<S> <C> <C> <C> <C> <C>
QL5030 Target 33MHz/32-bits 11,500 4,500 Expected Q3 1999
QL5130 Target 33MHz/32-bits 16,000 17,500 Expected Q3 1999
QL5032 Master/Target 33MHz/32-bits 16,000 14,500 Q2 1999
QL5232 Master/Target 33MHz/32-bits 25,344 49,500 Expected Q3 1999
QL5064 Master/Target 75MHz/64-bits 25,344 30,000 Q3 1999
</TABLE>
FPGA AND ESP DEVELOPMENT TOOLS
Our FPGA and ESP devices are supported by a complete range of development
tools including software and device programming hardware.
QUICKWORKS. QuickWorks is a fully integrated design solution consisting of
internally developed and licensed third-party software operating on Microsoft
Windows. QuickWorks includes industry-standard, hardware description languages,
including VHDL and Verilog, as well as schematic and mixed-mode entry for fast
and efficient logic design. Our suite provides a complete FPGA software
solution, including design entry, logic synthesis, place and route, and
simulation. A derivative product, called QuickWorks-Lite, offers basic design
entry via schematic capture along with place and route free to designers.
QUICKTOOLS. QuickTools provides optimization, place and route, timing
analysis and back-annotation support for all our devices on UNIX platforms. The
QuickTools package provides a software solution for designers who use Cadence,
Mentor, Synario Design Automation, Synopsys, Veribest, Viewlogic Systems or
other third-party software tools for design entry, synthesis or simulation.
PROGRAMMING HARDWARE. After a design has been completed using our software,
the device is configured using our line of DeskFAB programming hardware and
associated device adapters.
SALES, MARKETING AND TECHNICAL SUPPORT
We sell our products through a network of sales managers, independent sales
representatives and electronics distributors in North America, Europe and Asia.
In addition to our corporate headquarters in Sunnyvale, we have regional sales
operations in Los Angeles, Dallas, Boston, Raleigh, Chicago, London and Hong
Kong. Our direct sales organization consists of a staff of 22, including sales
managers, field application engineers and administrative personnel. In North
America, our six sales managers direct the activities of 19 independent sales
representative firms operating out of more than 40 offices totaling
approximately 180 sales representatives, as well as the activities of four
electronics distributors with more than 230 locations. Internationally, three
sales managers direct the activities of nine distributors and three independent
sales representatives in Europe and nine distributors in Asia. Our marketing
organization consists of 14 employees. All of the foregoing numbers are as of
August 31, 1999.
Our major distributors, Arrow Electronics, Bell Microproducts, Future
Electronics and Sterling Electronics accounted for approximately 53% of our
sales in 1998 and 54% of our sales in the six
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months ended June 30, 1999. Our international sales were 25%, 43% and 47% of our
total sales for 1996, 1997 and 1998, respectively and 50% for the six months
ended June 30, 1999. We anticipate that sales to customers located outside the
United States will continue to represent a significant portion of our total
sales in future periods and the trend of foreign customers accounting for an
increasing portion of our total sales may continue. No end customer accounted
for more than 5% of sales in 1998 or the six months ended June 30, 1999.
We sell our products on a purchase order basis through our distributors and
direct sales channels, and our distributors or customers may cancel purchase
orders at any time with little or no penalty. In addition, our distributor
agreements generally permit our distributors to return products to us.
Contractually, our distributors are permitted to return up to 10%, by value, of
the products they purchase from us every six months.
We provide systems manufacturers with comprehensive technical support, which
we believe is critical to remaining competitive in the markets we serve. As of
August 31, 1999, our applications support organization included four direct
field application engineers and over 200 application engineers employed by our
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. In 1998, we established a design
center to develop new embedded functions for ESPs, and to provide in-depth,
system-level technical support to our customers.
Our WebASIC program allows systems manufacturers to download our design
software from our web site and create a custom design for a QuickLogic device at
their desktop. They can then transmit the design data to us via e-mail and
request configured sample devices. We also use our web site to provide product
documentation and technical support information.
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RESEARCH AND DEVELOPMENT
Our future success will depend to a large extent on our ability to rapidly
develop and introduce new products and enhancements to our existing products
that meet emerging industry standards and satisfy changing customer
requirements. We have made and expect to continue to make substantial
investments in research and development and to participate in the development of
new and existing industry standards.
As of August 31, 1999, the research and development staff consisted of 39
employees. Our research and development efforts are focused on standard function
development and integration, device architecture, development tools and foundry
process development. Our standard function development and integration personnel
create circuit designs for inclusion in our ESP products. They also evaluate
circuit designs by third parties for inclusion in our ESP products and integrate
those circuit designs with our FPGA technology. Our device architecture
personnel develop new and improved architectures for our FPGA and ESP products
to better serve the needs of our customers. Our software engineering group
develops place and route tools, which fit the design into specific logic cell
elements within a device and determine the necessary interconnections. They also
develop delay modeling tools, which estimate the timing of all the circuit paths
for accurate simulation. The software group incorporates third-party software
tools into the QuickWorks design software suite, and develops the design
libraries needed for the QuickWorks and QuickTools products to integrate with
third-party design environments. Our process engineering group maintains our
proprietary wafer manufacturing processes, oversees product manufacturing and
process development with our third-party foundries, and is involved in ongoing
process improvements to increase yields and optimize device characteristics.
Our research and development expense for 1996, 1997 and 1998 and for the
first half of 1999 were $4.6 million, $6.2 million, $6.3 million and $3.6
million, respectively. We anticipate that we will continue to commit substantial
resources to research and development in the future.
MANUFACTURING
We have established close relationships with third-party manufacturers for
our wafer fabrication, package assembly, test and programming requirements to
ensure stability in the supply of our products and minimize the risk of
localized capacity constraints.
We outsource all of our wafer manufacturing to Taiwan Semiconductor
Manufacturing Company at its Taiwan facilities and Cypress Semiconductor
Corporation at its Round Rock, Texas facility. TSMC manufactures our pASIC 3,
QuickRAM and QuickPCI product families using a four-layer metal, 0.35 micron
CMOS process on eight-inch wafers. Cypress manufactures our pASIC 1 and pASIC 2
product families using a three-layer metal, 0.65 micron CMOS process on six-inch
wafers. Our foundry agreement with TSMC is effective through August 2002 with
successive automatic one-year renewal terms. We have committed to purchase
approximately $2.8 million under this agreement in 1999. Our foundry agreement
with Cypress is effective through 2001. Each of our foundry agreements guarantee
capacity availability and provide for volume commitments. We purchase all of our
pASIC 1 and pASIC 2 requirements from Cypress. TSMC's manufacturing commitment
is based upon our forecasted requirements. TSMC requires that we purchase a
minimum percentage of our total production requirements in any one year from
them.
We outsource our product packaging, test and programming to Amkor and
ChipPAC at their South Korea facilities and to Advanced Semiconductor
Engineering at its Taiwan facility.
COMPETITION
The semiconductor industry is intensely competitive and is characterized by
constant technological change, rapid rates of product obsolescence and price
erosion. Our existing competitors include
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suppliers of conventional standard products, such as PLX Technology and Applied
Micro Circuits Corporation, or AMCC; suppliers of complex programmable logic
devices, or CPLDs, including Lattice Semiconductor and Altera; and suppliers of
FPGAs, particularly Xilinx and Actel. The PLD market is dominated by Xilinx and
Altera, which together control over 60% of the market, according to Cahners
In-Stat Group, a semiconductor market research firm. Xilinx dominates the FPGA
segment of the market while Altera dominates the CPLD segment of the market. We
also face 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 our products. As we introduce additional ESPs,
we will also face competition from standard product manufacturers who are
already servicing or who may decide to enter the markets addressed by these new
ESP devices. In addition, we expect significant competition in the future from
major domestic and international semiconductor suppliers. We also may face
competition from suppliers of products based on new or emerging technologies.
We believe that important competitive factors in our 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, technical service and support,
wafer fabrication capacity and sources of raw materials, and protection of
products by effective utilization of intellectual property laws.
TECHNOLOGY
We believe that our FPGA and ESP products have distinct advantages over
traditional FPGA solutions and multiple chip solutions combining FPGAs and ASSPs
with regard to speed, design flexibility, cost and time-to-market. Our key
technologies are the ViaLink programmable metal technology, pASIC architectures,
and the QuickWorks and QuickTools design software.
VIALINK PROGRAMMABLE METAL TECHNOLOGY. Our ViaLink programmable metal
technology embeds programmable switches between the metal layers of a device
without consuming silicon surface area. As a result, we are able to provide a
programmable switch at every intersection in the wire grid. The abundance of
programmable switches allows for more complex paths between logic cells and
facilitates full utilization of an FPGA's logic cells and input/output pins. As
a consequence, system designers using QuickLogic FPGAs can be assured that their
design can consume all of the logic capacity of the FPGA and will have enough
resources to route their signals in very complex designs. Changes in our
customers' designs will not move the positions of their inputs and outputs. The
programming resources of our FPGAs allow designers to select smaller, less
expensive QuickLogic FPGAs to implement their designs as opposed to customary
SRAM-based FPGAs. In addition, our ViaLink technology also features lower
resistance and capacitance than competing programming technologies, thereby
optimizing the device's performance.
PASIC ARCHITECTURE. Our FPGA device architecture consists of logic cells,
routing wires and interconnect switches. Our pASIC logic cell is optimized to
efficiently implement a wide range of logic functions at high speed. Each cell
can implement one large function, five smaller independent functions, or any
combination in-between. The logic cell has abundant inputs that allow many user
functions to be implemented with a single logic delay, resulting in high
performance. The flexibility of the pASIC architecture is especially important
for designs synthesized from hardware design languages. The pASIC architecture
gives logic synthesis tools the needed degrees of freedom for high logic
utilization without sacrificing performance.
QUICKWORKS AND QUICKTOOLS DESIGN SOFTWARE. Our comprehensive QuickWorks
design software provides high-level design entry, schematic capture, logic
synthesis, functional and timing simulation, placement and routing on the
Windows operating system. QuickWorks incorporates standard design languages,
Verilog and VHDL, and leading third-party software to integrate with all leading
third-party design environments to support our pASIC products. A derivative
product, called QuickWorks-Lite,
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offers basic design entry via schematic capture along with place and route free
to designers. QuickTools is QuickLogic's place and route software for UNIX
platforms. These tools optimize designs for device utilization and in-system
operation speed and create an output file which allows users to transfer their
designs to our programmable devices.
INTELLECTUAL PROPERTY
Our future success and competitive position depend upon our ability to
obtain and maintain the proprietary technology used in our principal products.
We hold 54 U.S. patents and have 20 pending applications for additional U.S.
patents containing claims covering various aspects of programmable integrated
circuits, programmable interconnect structures and programmable metal devices.
In addition, we have three patent applications pending in Japan. Our issued
patents expire between 2009 and 2016. We have also registered five of our
trademarks in the U.S. with applications to register an additional two
trademarks now pending.
Because it is critical to our success that we are able to prevent
competitors from copying our innovations, we intend to continue to seek patent
protection for our products. The process of seeking patent protection can be
long and expensive, and we cannot be certain that any currently pending or
future applications will actually result in issued patents, or that, even if
patents are issued, they will be of sufficient scope or strength to provide
meaningful protection or any commercial advantage to us. Furthermore, others may
develop technologies that are similar or superior to our technology or design
around the patents we own.
We also rely on trade secret protection for our technology, in part through
confidentiality agreements with our employees, consultants and third parties.
However, employees may breach these agreements, and we may not have adequate
remedies for any breach. In any case, others may come to know about or determine
our trade secrets through a variety of methods. In addition, the laws of certain
territories in which we develop, manufacture or sell our products may not
protect our intellectual property rights to the same extent as do the laws of
the United States.
In March 1997, we entered into a patent cross-license agreement with
Cypress, whereby we granted Cypress a nonexclusive license to our patents and
intellectual property rights in exchange for Cypress' nonexclusive license to
their programmable logic technology patents. In August 1998, we also entered
into a patent cross-license agreement with Actel pursuant to which we have each
granted the other a nonexclusive license to certain of our respective
programmable logic device technology patents. We anticipate that we will
continue to enter into licensing arrangements in the future; however, it is
possible that desirable licenses will not be available to us on commercially
reasonable terms. If we lose existing licenses to key technology, or are unable
to enter into new licenses which we deem important, it could materially harm our
business.
From time to time, we receive letters alleging patent infringement or
inviting us to take a license to other parties' patents. We evaluate these
letters on a case-by-case basis. Inquiries with respect to the coverage of our
intellectual property could lead to litigation.
We have entered into technology license agreements with third parties which
give those parties the right to use patents and other technology developed by
us, and which give us the right to use patents and other technology developed by
them. The failure to obtain a license from a third party for technology used by
us could cause us to incur substantial liabilities and to suspend the
manufacture or shipment of products or our use of processes requiring the
technology. Litigation could result in significant expenses to us, adversely
affect sales of the challenged product or technology and divert the efforts of
our technical and management personnel, whether or not the litigation is
determined in our favor. In the event of an adverse result in any litigation, we
could be required to pay substantial damages, cease the manufacture, use, sale
or importation of infringing products, expend significant resources to develop
or acquire non-infringing technology, and discontinue the use of processes
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requiring the infringing technology or obtain licenses to the infringing
technology. We may not be successful in the development or acquisition, or the
necessary licenses may not be available under reasonable terms, and any
development, acquisition or license could require expenditures by us of
substantial time and other resources. Any of these developments would have a
material adverse effect on our business. We may be unable to adequately protect
our intellectual property rights, and may face significant expenses as a result
of future litigation.
EMPLOYEES
As of August 31, 1999, we had a total of 152 employees worldwide, with 52
people in operations, 39 people in research and development, 20 people in sales,
19 people in marketing, 19 people in administration and three people in
management information systems. We believe that our future success will depend
in part on our continued ability to attract, hire and retain qualified
personnel. None of our employees is represented by a labor union, and we believe
our employee relations are good.
FACILITIES
Our 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 2003 with an
option to renew through 2006. In addition, we lease sales offices near London
and in Hong Kong. The London office is leased through September 2004, and the
Hong Kong office is leased on a month-to-month basis. We believe that our
existing facilities are adequate for our current needs.
LITIGATION
QuickLogic is not a party to any pending litigation.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning our current
executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
E. Thomas Hart....................................... 57 President, Chief Executive Officer and Director
John M. Birkner...................................... 55 Vice President, Chief Technical Officer
Michael R. Brown..................................... 49 Vice President, Worldwide Sales
Andrew K. Chan....................................... 48 Vice President, Research and Development
Hua-Thye Chua........................................ 64 Vice President, Process Technology and Director
Reynold W. Simpson................................... 50 Vice President, Operations
Arthur O. Whipple.................................... 51 Vice President, Finance, Chief Financial Officer and
Secretary
Ronald D. Zimmerman.................................. 51 Vice President, Human Resources
Irwin Federman....................................... 64 Chairman of the Board of Directors
Donald P. Beadle..................................... 63 Director
Michael J. Callahan.................................. 63 Director
</TABLE>
E. THOMAS HART has served as our President, Chief Executive Officer and a
member of our board of directors since June 1994. Prior to joining QuickLogic,
Mr. Hart was Vice President and General Manager of the Advanced Networks
Division at National Semiconductor, 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 holds a B.S.E.E. from the University of Washington.
JOHN M. BIRKNER, a co-founder of QuickLogic, has served with us since April
1988, serving as Vice President, Chief Technical Officer since 1993. From
September 1975 to June 1986, Mr. Birkner was a fellow at Monolithic Memories, a
semiconductor manufacturing company. Mr. Birkner holds a B.S.E.E. from the
University of California, Berkeley and an M.S.E.E. from the University of Akron.
MICHAEL R. BROWN has served as our Vice President, Worldwide Sales since
January 1999. From 1984 until January 1999, he was employed by Hitachi America,
a semiconductor manufacturing company, in a variety of sales management
positions, most recently as the Vice President of Sales for the Americas. Mr.
Brown holds a B.A. in Kinesiology/Psychology from California State University,
Northridge and attended the U.S. Navy Aviation Electronics School. Mr. Brown
holds a certificate in Advanced Management from Stanford University.
ANDREW K. CHAN, a co-founder of QuickLogic, has served with us since April
1988, most recently as Vice President, Research and Development. Prior to
joining QuickLogic, Mr. Chan was a design engineering manager at Monolithic
Memories. Mr. Chan holds a B.S.E.E. in Electrical Engineering from Washington
State University and an M.S.E.C. in Electrical Sciences from the University of
New York, Stonybrook.
HUA-THYE CHUA, a co-founder of QuickLogic, has served as a member of our
board of directors since QuickLogic's inception in April 1988. Since December
1996, Mr. Chua has served as our Vice President, Process Technology. He served
as our Vice President of Technology Development from April 1989 to December
1996. During the prior 25 years, Mr. Chua worked at semiconductor manufacturing
companies, including Fairchild Semiconductor, Intel and Monolothic Memories.
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Mr. Chua holds a B.S.E.E. from Ohio University and an M.S.E.E. from the
University of California, Berkeley.
REYNOLD W. SIMPSON has served as our Vice President, Operations since August
1997. From February 1996 to July 1997, Mr. Simpson was Vice President of
Manufacturing at GateField, a semiconductor manufacturing company. Prior to
joining GateField, Mr. Simpson was Operations Manager at LSI Logic, a
semiconductor manufacturing company, from March 1990 to February 1996 and
Quality Director from February 1989 to March 1990. Mr. Simpson holds a
Mechanical Engineering Certificate from the Coatbridge Polytechnic Institute in
Scotland, a degree in Technical Horology (Mechanical Engineering) from the
Barmulloch Polytechnic Institute in Scotland and studied for a degree in
Electronic Engineering at the Kingsway Polytechnic Institute in Scotland.
ARTHUR O. WHIPPLE has served as our Vice President, Finance, Chief Financial
Officer and Secretary since April 1998. From April 1994 to April 1998, Mr.
Whipple was employed by ILC Technology, a manufacturer of high performance
lighting products, as its Vice President of Engineering and by its subsidiary,
Precision Lamp, a manufacturer of high-performance lighting products, as its
Vice President of Finance and Operations. From February 1990 to April 1994, Mr.
Whipple served as the President of Aqua Design, a privately-held provider of
water treatment services and equipment. Mr. Whipple holds a B.S.E.E. from the
University of Washington and an M.B.A. from Santa Clara University.
RONALD D. ZIMMERMAN has served as our Vice President, Human Resources since
October 1996. From August 1988 to October 1996, Mr. Zimmerman was Human
Resources Director of the Analog Products Group at National Semiconductor
Corporation, as well as group human resources director of the corporate
technology and quality/reliability organizations and the human resources
director of corporate administration. Mr. Zimmerman holds a B.A. in Sociology
and Psychology and an M.A. in Psychology from San Jose State University.
IRWIN FEDERMAN has served as chairman of our board of directors 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 the following public companies: TelCom
Semiconductor, a semiconductor company; SanDisk, a semiconductor company;
Western Digital, a disk drive manufacturer; Komag, a thin film media
manufacturer; NeoMagic, a developer of multimedia accelerators; and Check Point
Software Technologies, a network security software company. Mr. Federman holds a
B.S. in Economics from Brooklyn College, is a Certified Public Accountant, and
holds an honorary Doctorate of Engineering Science from Santa Clara University.
DONALD P. BEADLE has served as a member of our board of directors since July
1997. Since June 1994, Mr. Beadle has been President of Beadle Associates, a
consulting firm. From May 1997 to July 1997, Mr. Beadle was a consultant at
Interwave Communications, a developer of microcell systems, where he served as
Acting Vice President of Sales and Sales Operations. From October 1994 to
December 1996, he was a consultant for Asian business development at National
Semiconductor. At National Semiconductor, he was Managing Director, Southeast
Asia from 1993 until June 1994, Vice President of Worldwide Marketing and Sales,
International Business Group from 1987 until 1993, and Managing Director, Europe
from 1982 to 1986. Mr. Beadle was employed by National Semiconductor in
executive sales and marketing positions for 34 years until June 1994, at which
time he was Executive Vice President, Worldwide Sales and Marketing. Mr. Beadle
serves on the board of directors of one public company, HMT Technology, a disk
media manufacturer. He received his technical education at the University of
Connecticut and the Bridgeport Institute of Engineering.
MICHAEL J. CALLAHAN has served as a member of our board of directors since
July 1997. Since March 1990, Mr. Callahan has served as Chairman of the Board,
President and Chief Executive Officer of Waferscale Integration, a producer of
peripheral integrated circuits. From 1987 to March 1990,
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Mr. Callahan was President of Monolithic Memories, or MMI, which became a
subsidiary of Advanced Micro Devices, a semiconductor manufacturing company, or
AMD. Also during this time, he was Senior Vice President of Programmable
Products at AMD. From 1978 to 1987, Mr. Callahan held a number of positions at
MMI including Vice President of Operations and Chief Operating Officer. Prior to
joining MMI, he worked at Motorola Semiconductor, a semiconductor manufacturing
company, for 16 years where he was Director of Research and Development as well
as Director of Linear Operations. Mr. Callahan holds a B.S.E.E. from the
Massachusetts Institute of Technology.
EXECUTIVE OFFICERS
Our executive officers are elected by, and serve at the discretion of, our
board of directors. There are no family relationships among our directors and
officers.
BOARD OF DIRECTORS
We currently have authorized five directors. Our directors consist of
Messrs. Beadle, Callahan, Chua, Federman and Hart. All directors hold office
until the next annual meeting of stockholders or until their successors are duly
qualified and elected. Our certificate of incorporation filed in connection with
this offering provides that, as of the first annual meeting of stockholders
following this offering, our board of directors will be divided into three
classes, each with staggered three-year terms. As a result, only one class of
directors will be elected at each annual meeting of our stockholders, with the
other classes continuing for the remainder of their respective three-year terms.
Messrs. Beadle and Callahan have been designated as Class I directors, whose
term expires at the 2000 annual meeting of stockholders; Messrs. Chua and
Federman have been designated as Class II directors, whose term expires at the
2001 annual meeting of stockholders; and Mr. Hart has been designated as a Class
III director, whose term expires at the 2002 annual meeting of stockholders.
BOARD COMMITTEES
Our board of directors has an audit committee and a compensation committee.
AUDIT COMMITTEE. The audit committee was formed in June 1995 and currently
consists of Messrs. Beadle, Callahan and Federman. The audit committee reviews
the results and scope of the annual audit and other services provided by our
independent accountants, reviews and evaluates our internal control functions
and monitors financial transactions between us and our employees, officers and
directors.
COMPENSATION COMMITTEE. The compensation committee was formed in June 1995
and currently consists of Messrs. Beadle, Callahan and Federman. The
compensation committee administers the 1989 stock option plan, 1999 stock plan
and 1999 employee stock purchase plan, and reviews the compensation and benefits
for our executive officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to establishing the compensation committee, the board of directors as
a whole performed the functions delegated to the compensation committee. No
member of the compensation committee or executive officer of QuickLogic has a
relationship that would constitute an interlocking relationship with executive
officers or directors of another entity.
DIRECTOR COMPENSATION
Our non-employee directors are reimbursed for their out-of-pocket expenses
incurred in connection with attending board and committee meetings but are not
compensated for their services as board members. We have in the past granted to
our non-employee directors options to purchase our
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common stock pursuant to the terms of our 1989 stock option plan. We intend to
grant to our non-employee directors options to purchase our common stock
pursuant to the terms of our 1999 stock plan. See "--Benefit Plans."
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
of our chief executive officer and each of the next four most highly compensated
executive officers as of December 31, 1998, and one former executive officer,
whose aggregate cash compensation exceeded $100,000 during the year ended
December 31, 1998. We refer to these persons as the "named executive officers"
elsewhere in this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL -------------
COMPENSATION SECURITIES
------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY OPTIONS COMPENSATION
- ------------------------------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
E. Thomas Hart President, ......................................... $ 269,208 166,667 $ 12,693
Chief Executive Officer and Director
Scott D. Ward ..................................................... 196,961 25,000 --
Vice President, Engineering
Michael Burger .................................................... 174,117 183,334 30,954
Former Vice President, Worldwide Sales
Reynold W. Simpson ................................................ 180,868 41,667 --
Vice President, Operations
Ronald D. Zimmerman ............................................... 177,162 -- --
Vice President, Human Resources
Andrew K. Chan .................................................... 130,999 16,667 --
Vice President, Research and Development
</TABLE>
A portion of each executive officer's salary is dependent upon their meeting
of certain sales, gross margin and other management objectives.
The amounts listed under the column captioned "All Other Compensation"
represent automobile allowances we have given to Mr. Hart and Mr. Burger and a
relocation fee for Mr. Burger. Mr. Burger terminated employment with us in
December 1998 and Mr. Ward terminated employment with us in August 1999.
Mr. Whipple, Vice President, Finance, Chief Financial Officer and Secretary,
commenced employment with us in April 1998 and received $99,007 in salary in
1998. On an annualized basis, his salary for 1998 would have been $170,000. In
addition, during the year ended December 31, 1998, Mr. Whipple received options
to purchase 108,334 shares of QuickLogic common stock. Mr. Brown, Vice
President, Worldwide Sales, joined QuickLogic in January 1999 at an annual base
salary of $225,000 and received options to purchase 166,667 shares of QuickLogic
common stock.
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OPTION GRANTS IN FISCAL YEAR 1998
The following table sets forth certain information with respect to stock
options granted to each of our named executive officers during the fiscal year
ended December 31, 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
-------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL APPRECIATION
UNDERLYING OPTIONS EXERCISE FOR OPTION TERM
OPTIONS GRANTED TO PRICE PER EXPIRATION --------------------------
NAME GRANTED EMPLOYEES SHARE DATE 5% 10%
- ------------------------------------------ ----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
E. Thomas Hart............................ 166,667 14.52% $ 4.50 8-19-08 $ 471,671 $ 1,195,307
Scott D. Ward............................. 25,000 2.18% 4.50 8-19-08 70,751 179,296
Michael Burger............................ 166,667 14.52% 4.50 1-20-08 471,671 1,195,307
16,667 1.45% 4.50 8-19-08 47,167 119,531
Reynold W. Simpson........................ 41,667 3.63% 4.50 8-19-08 117,918 298,827
Ronald D. Zimmerman....................... -- -- -- -- -- --
Andrew K. Chan............................ 16,667 1.45% 4.50 8-19-08 47,167 119,531
</TABLE>
Mr. Burger terminated employment with us in December 1998. Mr. Burger
exercised none of the options shown above and such options have since expired.
Mr. Ward terminated employment with us in August 1999. Of the shares shown
above, 4,688 shares are vested and may be exercised by Mr. Ward prior to
September 8, 1999, at which date that option will expire.
In the last fiscal year, we granted options to purchase an aggregate of
1,151,000 shares. Options to purchase shares generally vest at the rate of 12.5%
after six months of service from the date of grant, and 6.25% at the end of each
three-month period thereafter. Options have a term of ten years but may
terminate before their expiration dates if the optionee's status as an employee
is terminated or upon the optionee's death or disability.
The amounts disclosed in the column captioned "Exercise Price Per Share"
represent the fair market value of the underlying shares of common stock on the
dates the respective options were granted as determined by our board of
directors.
With respect to the amounts disclosed in the column captioned "Potential
Realizable Value At Assumed Annual Rates Of Stock Price Appreciation For Option
Term," the 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the Securities and Exchange Commission and
do not represent our estimate or projection of our future common stock prices.
The potential realizable values are calculated by assuming that $4.50 per share
was the fair market value of our common stock at the time of grant, that the
common stock appreciates at the indicated rate for the entire term of the option
and that the option is exercised at the exercise price and sold on the last day
of the option term at the appreciated price.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth certain information concerning the number and
value of unexercised options held by each of the named executive officers on
December 31, 1998. No options were exercised by the named executive officers in
1998.
Options generally vest at the rate of 12.5% after six months of service from
the date of grant, and 6.25% at the end of each three-month period thereafter.
The value of "In-the-Money" stock options represents the positive spread
between the exercise price of stock options and the fair market value of the
options of $4.50 per share, as determined by our board of directors, at December
31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS
1998 AT DECEMBER 31, 1998
-------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------ ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
E. Thomas Hart.................................. 416,667 250,000 $ 1,520,001 $ 189,999
Scott D. Ward................................... 57,292 109,375 76,563 98,438
Michael Burger.................................. -- -- -- --
Reynold W. Simpson.............................. 30,209 111,459 -- --
Ronald D. Zimmerman............................. 38,750 44,853 124,374 125,624
Andrew K. Chan.................................. 20,833 54,167 21,875 28,125
</TABLE>
LIMITATIONS ON LIABILITY AND INDEMNIFICATION
Our bylaws provide that we will indemnify our directors and executive
officers and may indemnify our other officers, employees and other agents to the
fullest extent permitted by Delaware law. Our bylaws allow us to enter into
indemnification agreements with our directors and officers and to purchase
insurance for any person whom we are required or permitted to indemnify. We are
obtaining a policy of directors' and officers' liability insurance that insures
such persons against the cost of defense, settlement or payment of a judgment
under certain circumstances.
We intend to enter into agreements with our directors and executive officers
regarding indemnification. Under these agreements we will indemnify them against
amounts actually and reasonably incurred in connection with an actual, or a
threatened, proceeding if any of them may be made a party because of their role
as one of our directors or officers. We are obligated to pay these amounts only
if the officer or director acted in good faith and in a manner that he or she
reasonably believed to be in or not opposed to our best interests. With respect
to any criminal proceeding, we are obligated to pay these amounts only if the
officer or director had no reasonable cause to believe his or her conduct was
unlawful. The indemnification agreements also set forth procedures that will
apply in the event of a claim for indemnification thereunder.
In addition, our certificate of incorporation filed in connection with this
offering provides that the liability of our directors for monetary damages shall
be eliminated to the fullest extent permissible under Delaware law. This
provision does not eliminate a director's duty of care. Each director will
continue to be subject to liability for:
- breach of the director's duty of loyalty to us,
- acts or omissions not in good faith or involving intentional misconduct or
knowing violations of law,
- acts or omissions that the director believes to be contrary to our best
interests or our stockholders,
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- any transaction from which the director derived an improper personal
benefit,
- improper transactions between the director and us, and
- for improper distributions to stockholders and loans to directors and
officers. This provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws
or state or federal environmental laws.
There is no pending litigation or proceeding involving any of our directors
or officers for which indemnification is being sought, nor are we aware of any
pending or threatened litigation that may result in claims for indemnification
by any director or officer.
BENEFIT PLANS
1989 STOCK OPTION PLAN
Our 1989 stock plan provides for the granting to employees of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code and
for the granting to employees, directors and consultants of nonstatutory stock
options. As of August 31, 1999, options to purchase an aggregate of 2,542,665
shares of common stock were outstanding under our 1989 plan. Our board of
directors has determined that no further options will be granted under the 1989
plan after this offering. The 1989 plan provides that in the event of a merger
of QuickLogic with or into another corporation, each outstanding option will be
assumed or substituted for by the successor corporation. If the successor
corporation refuses to assume or substitute for the QuickLogic options, the
QuickLogic options will terminate as of the closing of the merger.
1999 STOCK PLAN
Our 1999 stock plan was adopted by our board of directors in August 1999 and
is expected to be approved by the stockholders in September 1999. As of the date
of this prospectus, no options have been granted under the 1999 stock plan.
The 1999 stock plan provides for the grant of incentive stock options to
employees, including officers and employee directors, and for the grant of
nonstatutory stock options and stock purchase rights to employees, directors and
consultants.
The total shares of common stock currently reserved for issuance from the
1999 stock plan equals:
- 5,000,000 shares of common stock;
- the shares of common stock which have been reserved but unissued under the
1989 stock option plan as of the effective date of the offering (as of
August 31, 1999, there were 1,275,351 shares reserved but unissued under
the 1989 stock option plan); and
- any shares returned to the 1989 stock option plan as a result of
termination of options under such plan.
In addition, commencing on the first day of our next fiscal year, annual
increases will be added to the 1999 stock plan equal to the lesser of 5,000,000
shares, or 5% of the outstanding shares or such lesser amount as provided by the
board.
Unless terminated sooner, the 1999 stock plan will terminate automatically
ten years from its effective date.
The administrator of our 1999 stock plan has the power to determine:
- the terms of the options or stock purchase rights granted, including the
exercise price of the option or stock purchase right;
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<PAGE>
- the number of shares subject to each option or stock purchase right;
- the exercisability of each option or stock purchase right; and
- the form of consideration payable upon the exercise of each option or
stock purchase right.
In addition, the board has the authority to amend, suspend or terminate the
1999 stock plan, so long as no such action affects any shares of common stock
previously issued and sold or any option previously granted under the plan. The
maximum number of shares each optionee may be granted during a fiscal year is
1,000,000 shares. In addition, in connection with an optionee's initial
employment with us, such optionee may be granted an option covering an
additional 1,000,000 shares.
Options and stock purchase rights granted under our 1999 stock plan are
generally not transferable by the optionee, and each option and stock purchase
right is exercisable during the lifetime of the optionee and only by such
optionee. Options granted under the 1999 stock plan must generally be exercised
within three months after the end of optionee's status as an employee, director
or consultant of QuickLogic, or within twelve months after such optionee's
termination by death or disability, but in no event later than the expiration of
the option's term.
In the case of stock purchase rights, unless the administrator determines
otherwise, the restricted stock purchase agreement shall grant QuickLogic a
repurchase option exercisable after the purchaser's employment or consulting
relationship with QuickLogic has ended 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 QuickLogic.
The repurchase option shall lapse at a rate determined by the administrator.
The exercise price of all incentive stock options granted under the 1999
stock 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 stock
purchase rights granted under the 1999 stock 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, the exercise price must be at least equal to the
fair market value of our 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 our outstanding capital stock, the exercise price of any incentive
stock option granted must at least equal 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 1999 stock plan may not
exceed ten years.
The 1999 stock plan provides that in the event that we merge with or into
another corporation, or sell substantially all of our assets, each option and
stock purchase right shall be assumed or an equivalent option substituted for by
the successor corporation. If the outstanding options and stock purchase rights
are not assumed or substituted for by the successor corporation, the option
holder will fully vest in and have the right to exercise the option or stock
purchase right as to all of the optioned stock, including shares as to which the
holder would not otherwise be entitled to exercise. If an option or stock
purchase right becomes exercisable in full in the event of a merger or sale of
assets, the administrator shall notify the optionee that the option or stock
purchase right shall be fully exercisable for a period of 15 days from the date
of such notice, and the option or stock purchase right will terminate upon the
expiration of such period.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our 1999 employee stock purchase plan was adopted by our board of directors
in August 1999, and is expected to be approved by the stockholders in September
1999. A total of 2,000,000 shares of our common stock has been reserved for
issuance under the 1999 purchase plan, plus annual increases
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<PAGE>
equal to the lesser of: 1,500,000 shares, or 4% of the outstanding shares on
such date or a lesser amount as provided by the board. As of the date of this
prospectus, no shares have been issued under the 1999 purchase plan.
The 1999 purchase plan, which is intended to qualify under Section 423 of
the Internal Revenue Code, contains consecutive, overlapping, twenty-four 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 April
1 and October 1 of each year, except for the first such offering period which
commences on the first trading day on or after the effective date of this
offering and ends on the last trading day on or before September 30, 2001. The
Board has the power to change the duration of the offering periods.
Employees are eligible to participate if they are in our employ for at least
20 hours per week and more than five months in any calendar year. However,
employees may not be granted an option to purchase stock under the 1999 purchase
plan if they either:
- immediately after grant, own stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock; or
- hold rights to purchase stock under all our employee stock purchase plan
which accrue at a rate which exceeds $25,000 worth of stock for each
calendar year.
The 1999 purchase plan permits participants to purchase our common stock
through payroll deductions of up to 20% of their total compensation. The maximum
number of shares a participant may purchase during a single purchase period is
20,000 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 1999 purchase plan is generally 85% of the lower of the fair
market value of the common stock either at the beginning or at the end of the
offering 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. 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 QuickLogic.
Rights granted under the 1999 purchase plan are not transferable by a
participant other than upon death or by a special determination by the plan
administrator. The 1999 purchase plan provides that if we merge with or into
another corporation or sell substantially all of our 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.
Our board of directors has the authority to amend or terminate the 1999
purchase plan, except that no such action may adversely affect any outstanding
rights to purchase stock under the 1999 purchase plan, provided that the board
of directors may terminate an offering period on any exercise date if the board
determines that the termination of the 1999 purchase plan is in the best
interests of QuickLogic and its stockholders. Notwithstanding anything to the
contrary, the board of directors may in its sole discretion amend the 1999
purchase plan to the extent necessary and desirable to avoid unfavorable
financial accounting consequences by altering the purchase price for any
offering period, shortening any offering period or allocating remaining shares
among the participants. Unless sooner terminated by our board of directors, the
1999 purchase plan will terminate automatically ten years from its effective
date.
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<PAGE>
CERTAIN TRANSACTIONS
SERIES F PREFERRED FINANCING
In November 1996 and January 1997, we sold 1,286,020 shares of our Series F
convertible preferred stock at a price of $6.96 per share. We sold the shares
pursuant to a preferred stock purchase agreement and a registration rights
agreement under which we 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 stock included the following principal
stockholders, directors and affiliated entities:
<TABLE>
<CAPTION>
COMMON
EQUIVALENT AGGREGATE
STOCKHOLDERS, DIRECTORS AND AFFILIATED ENTITIES SHARES PURCHASE PRICE
- -------------------------------------------------------------------------------------- ---------- --------------
<S> <C> <C>
Hua-Thye Chua......................................................................... 16,667 $ 116,000
Morgenthaler Venture Partners III..................................................... 92,014 640,416
New Enterprise Associates and affiliated funds........................................ 132,048 919,050
Sequoia Capital and affiliated funds.................................................. 35,920 250,000
Technology Venture Investors IV LP and affiliated funds............................... 143,679 1,000,000
U.S. Venture Partners and affiliated funds............................................ 86,207 600,000
Vertex Investments and affiliated funds............................................... 215,517 1,500,000
</TABLE>
All shares listed as held by Hua-Thye Chua are held in trust for his
children.
CYPRESS TRANSACTION
We entered into an agreement with Cypress in 1992 to obtain guaranteed
fabrication capacity and to secure a second source for our FPGA products. By
1997, wafer fabrication capacity was no longer scarce and we had established a
customer base and reputation. Accordingly, we determined that the agreement with
Cypress was no longer beneficial to us. In March 1997, we terminated the
agreement and entered into a wafer fabrication agreement and cross license
agreement. See "Business-- Manufacturing." In exchange for the termination and
the reversion of the rights to the intellectual property covered by that
agreement to us, we also paid Cypress $4.5 million in cash and agreed to issue
3,037,786 shares of our common stock to Cypress, resulting in a charge of
approximately $23.0 million in the first quarter of 1997.
In addition to the amounts paid in connection with the termination of the
1992 agreement, payments to Cypress in connection with our foundry agreements
were $7.6 million, $13.0 million, $2.7 million, and $1.4 million for 1996, 1997,
1998 and for the first six months of 1999, respectively.
Under the terms of the cross-license agreement, Cypress granted us a
royalty-free, non-exclusive, non-sublicensable license to make and sell
programmable logic products under patents that are currently issued to Cypress
or that issue prior to March 2007. We granted a reciprocal right to Cypress
under our patents, except that the license does not extend to programmable metal
FPGAs or products that are pin-compatible with our existing pASIC 1 and pASIC 2
products. In the event we are acquired, the license continues only as to those
products that were commercially available as of the acquisition or subsequently
become commercially available within one year after the acquisition. We also
licensed to each other rights to use the technology developed under the 1992
agreement. The shares we issued to Cypress in connection with the termination of
the 1992 agreement contained the same contractual rights as the shares of
preferred stock held by Cypress. We also granted the following registration
rights to Cypress that other holders of registration rights were not granted:
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<PAGE>
- Cypress may require us to use our best efforts to file a registration
statement with respect to all of the shares held by Cypress and not sold
in this offering, 180 days following this offering.
- Cypress may not be cut-back to less than one-third of the shares of common
stock to be registered by Cypress in subsequent public offerings.
- Our other stockholders do not have the right to have their shares included
in the Cypress registration. See "Description of Capital
Stock--Registration Rights."
LOANS TO EXECUTIVE OFFICER
We have made loans to John Birkner, Vice President, Chief Technical Officer.
Mr. Birkner's current loan obligation to us totals $121,000 plus accrued
interest of approximately $76,000 at annual rates ranging from 6.7% to 8.5%.
This loan is evidenced by demand promissory notes from Mr. Birkner to us,
secured by a pledge of shares of QuickLogic stock held by Mr. Birkner. The
largest principal amount ever outstanding under these loans is $121,000. These
loans were approved by our board of directors.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to us with respect
to beneficial ownership of our common stock as of August 31, 1999, as adjusted
to reflect the sale of shares offered by:
- each person known by us to own beneficially more than 5% of our
outstanding stock, including the selling stockholder;
- each of our directors;
- each named executive officer; and
- all current executive officers and directors as a group.
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 held by that person that are currently
exercisable or exercisable within 60 days of August 31, 1999 are deemed
outstanding. Percentage of beneficial ownership is based upon 14,222,144 shares
of common stock outstanding prior to this offering and 17,555,644 shares of
common stock outstanding after this offering based on the number of shares
outstanding as of August 31, 1999. To our knowledge, except as set forth in the
footnotes to this table and subject to applicable community property laws, each
person named in the table has sole voting and investment power with respect to
the shares set forth opposite such person's name.
All shares shown below for Messrs. Hart, Burger, Zimmerman, Ward, Simpson,
Beadle and Callahan represent shares issuable upon exercise of stock options. Of
the shares shown below for Messrs. Chan and Chua, 35,938 shares represent shares
issuable upon exercise of stock options for Mr. Chan and 10,417 shares represent
shares issuable upon exercise of stock options for Mr. Chua.
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<PAGE>
<TABLE>
<CAPTION>
BENEFICIALLY OWNED SHARES BENEFICIALLY
PRIOR TO OFFERING NUMBER OF OWNED AFTER OFFERING
----------------------- SHARES BEING ----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------------------------------------- ---------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Cypress Semiconductor Corporation .................. 3,896,415 27.40% 3,333,500 562,915 3.21%
3901 N. First Street
San Jose, CA 95134
Technology Venture Investors (1) ................... 1,682,040 11.83% -- 1,682,040 9.58%
3000 Sand Hill Road
Bldg. 4, Suite 280
Menlo Park, CA 94025
U.S. Venture Partners (2) .......................... 1,406,615 9.89% -- 1,406,615 8.01%
2180 Sand Hill Road
Suite 300
Menlo Park, CA 94025
Vertex Investments (3) ............................. 1,360,869 9.57% -- 1,360,869 7.75%
3 Lagoon Drive, Ste. 220
Redwood City, CA 94065
Sequoia Capital (4) ................................ 1,122,446 7.82% -- 1,122,447 6.34%
3000 Sand Hill Road
Bldg. 4, Suite 280
Menlo Park, CA 94025
New Enterprise Associates (5) ...................... 893,953 6.29% -- 893,953 5.09%
1119 St. Paul Street
Baltimore, MD 21202
Morganthaler Venture Partners ...................... 821,311 5.77% -- 821,311 4.68%
2780 Sand Hill Road, Suite 280
Menlo Park, CA 94025
E. Thomas Hart...................................... 497,397 3.38% -- 497,397 2.76%
Andrew K. Chan (6).................................. 202,605 1.42% -- 202,605 1.15%
Hua-Thye Chua (7)................................... 193,750 1.36% -- 193,750 1.10%
Scott D. Ward....................................... 90,105 * -- 90,105 *
Reynold W. Simpson.................................. 59,376 * -- 59,376 *
Ronald D. Zimmerman................................. 54,375 * -- 54,375 *
Donald P. Beadle.................................... 23,730 * -- 23,730 *
Michael J. Callahan................................. 22,167 * -- 22,167 *
Irwin Federman (8).................................. -- -- -- -- --
Michael Burger...................................... -- -- -- -- --
All current executive officers and directors as a
group (11 persons)................................ 1,153,088 7.67% -- 1,153,088 6.28%
</TABLE>
- ---------
* Less than 1% of the outstanding common stock.
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(1) Includes 1,596,294 shares held by Technology Investors Group LLC-IV; 84,131
shares held by Technology Venture Investors IV LP-3, L.P.; and 1,615 shares
held by TVI Management-3, L.P.
(2) Includes 936,455 shares held by U.S. Venture Partners III; 359,874 shares
held by U.S.V. Entrepreneur Partners; 45,270 shares held by Second Ventures
II, L.P.; 29,264 shares held by Second Ventures Limited Partnership by BHMS
Partners III; 22,818 shares held by U.S. Venture Partners IV, L.P.; and
12,934 shares held by U.S.V.P. Entrepreneur Partners II, L.P.
(3) Includes 1,026,303 shares held by Vertex Investment International III, Inc.;
214,824 shares held by Vertex Investment (II) Limited; 95,776 shares held by
Vertex Asia Limited; and 23,965 shares held by HWH Investment Pte. Ltd.
(4) Includes 1,019,887 shares held by Sequoia Capital V; 55,800 shares held by
Sequoia Technology Partners V; 17,990 shares hold by Sequoia XXI; 12,744
shares held by Sequoia XXIV; 7,751 shares held by Sequoia Capital XXI; 5,000
shares held by Sequoia XX; and 3,275 shares held by Sequoia XXIII.
(5) Includes 858,033 shares held by New Enterprise Associates VI, Limited
Partnership and 35,920 shares held by New Venture Partners III L.P.
(6) Includes 146,667 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; 5,000 shares beneficially owned by Mr. Chan for
Michael P. Gamboa, Trustee under Erica H. Chan trust agreement dated May 14,
1992; 5,000 shares beneficially owned by Mr. Chan for Michael P. Gamboa,
Trustee under Rebecca H. Chan trust agreement dated May 14, 1992; 5,000
shares beneficially owned by Mr. Chan for Michael P. Gamboa, Trustee under
Vicki H. Chan trust agreement dated May 14, 1992; 2,500 shares beneficially
owned by Mr. Chan for Clement Chan and Susie S.J. Chan, Trustees under
Nicholas Chan trust agreement dated July 3, 1997; 2,500 shares beneficially
owned by Mr. Chan for Clement Chan and Susie S.J. Chan, Trustees under
Phillip Chan trust agreement dated July 3, 1996.
(7) Includes 64,792 shares owned by Mr. Chua; 35,209 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; 20,833 shares beneficially owned by
Mr. Chua, as custodian for The Bryan Shyang-Ming Chua Trust dated December
19, 1975; 20,833 shares beneficially owned by Mr. Chua, as custodian for
Caroline Siok-Yau Chua Trust dated December 19, 1975; 20,833 shares
beneficially owned by Mr. Chua, as custodian for Cathleen Siok-Syuan Chua
Trust dated December 19, 1975; and 20,833 shares beneficially owned by Mr.
Chua, as custodian for Christine Siok-Pee Chua Trust dated December 19,
1975.
(8) Excludes 1,406,614 shares held by U.S. Venture Partners. Mr. Federman is a
general partner of U.S. Venture Partners. See footnote 2 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
Upon the completion of this offering, we will be authorized to issue up to
110,000,000 shares, $0.001 par value, to be divided into two classes to be
designated, respectively, "common stock" and "preferred stock." Of such shares
authorized, 100,000,000 shares shall be designated as common stock, and
10,000,000 shares shall be designated as preferred stock.
COMMON STOCK
As of August 31, 1999, there were 14,222,144 shares of common stock
outstanding that were held of record by approximately 263 stockholders (assuming
conversion of all shares of preferred stock outstanding as of August 31, 1999
into 9,911,665 shares of common stock). There will be 17,555,644 shares of
common stock outstanding (assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options) after giving
effect to the sale of common stock offered in this offering. As of August 31,
1999, there are outstanding options to purchase a total of 2,542,665 shares of
our common stock under our stock plans.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Our stockholders
do not have cumulative voting rights in the election of directors. Accordingly,
holders of a majority of the shares voting are able to elect all of the
directors. Subject to preferences that may be granted to any then outstanding
preferred stock, holders of common stock are entitled to receive ratably only
those dividends as may be declared by the board of directors out of funds
legally available therefor, as well as any distributions to the stockholders.
See "Dividend Policy." In the event of our liquidation, dissolution or winding
up, holders of common stock are entitled to share ratably in all of our assets
remaining after we pay our liabilities and distribute the liquidation preference
of any then outstanding preferred stock. Holders of common stock have no
preemptive or other subscription or conversion rights. There are no redemption
or sinking fund provisions applicable to the common stock.
PREFERRED STOCK
Our board of directors will have the authority, without further action by
the stockholders, to issue up to 10,000,000 shares of preferred stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof. These rights, preferences and privileges include dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences,
sinking fund terms and the number of shares constituting any series or the
designation of such series, any or all of which may be greater than the rights
of common stock. The issuance of preferred stock could adversely affect the
voting power of holders of common stock and the likelihood that such holders
will receive dividend payments and payments upon liquidation. In addition, the
issuance of preferred stock could have the effect of delaying, deferring or
preventing a change in control of QuickLogic. We have no present plan to issue
any shares of preferred stock.
REGISTRATION RIGHTS
Following the closing of this offering, the holders of approximately
9,911,665 shares of our common stock will be entitled to certain rights with
respect to the registration of such shares under the Securities Act. In the
event that we propose to register any of our securities under the Securities
Act, either for our own account or for the account of other security holders,
these holders are entitled to notice of such registration and are entitled to
include their common stock 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 these securities, or the holders of a lesser
percentage if the amount registered is greater than $5 million, have the right
to require us, 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
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<PAGE>
common stock. We 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, these holders may require us
to register all or a portion of their shares on Form S-3, subject to certain
conditions and limitations.
In connection with our transaction with Cypress, we granted Cypress
registration rights in addition to those held by our other stockholders. See
"--Certain Transactions--Cypress Transaction."
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND
BYLAWS
Our certificate of incorporation provides for our board of directors to be
divided into three classes, with staggered three-year terms. When this
classification is effective, only one class of directors will be elected at each
annual meeting of our stockholders, with the other classes continuing for the
remainder of their respective three-year terms. However, until this
classification of our board of directors is effective, and because our
stockholders have no cumulative voting rights, our stockholders representing a
majority of the shares of common stock outstanding will be able to elect all of
the directors. Our certificate of incorporation and bylaws also provide that all
stockholder action must be effected at a duly called meeting of stockholders and
not by a consent in writing, and that only our board of directors, or special
committee thereof, may call a special meeting of stockholders.
The combination of the classification of our board of directors, when
effective, and lack of cumulative voting will make it more difficult for our
existing stockholders to replace our board of directors as well as for another
party to obtain control of QuickLogic by replacing our board of directors. Since
the board of directors has the power to retain and discharge our officers, these
provisions could also make it more difficult for existing stockholders or
another party to effect a change in management. In addition, the authorization
of undesignated preferred stock makes it possible for the board of directors to
issue preferred stock with voting or other rights or preferences that could
impede the success of any attempt to change control of QuickLogic.
These provisions may have the effect of deterring hostile takeovers or
delaying changes in control or management of QuickLogic. These provisions are
intended to enhance the likelihood of continued stability in the composition of
our board of directors and in the policies approved by it and to discourage
certain types of transactions that may involve an actual or threatened change of
control of QuickLogic. These provisions are designed to reduce our vulnerability
to an unsolicited acquisition proposal. The provisions also are intended to
discourage certain tactics that may be used in proxy fights. However, such
provisions could have the effect of discouraging others from making tender
offers for our shares and, as a consequence, they also may inhibit fluctuations
in the market price of our shares that could result from actual or rumored
takeover attempts. Such provisions may also have the effect of preventing
changes in our management.
SECTION 203 OF THE DELAWARE CORPORATION LAW
We are subject to Section 203 of the Delaware Corporation Law, which
prohibits a Delaware corporation from engaging in any business combination with
any interested stockholder for a period of three years following the date that
such stockholder became an interested stockholder, with the following
exceptions:
- prior to such date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested holder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of
60
<PAGE>
determining the number of shares outstanding those shares owned by persons
who are directors and also officers and by certain employee stock plans;
or
- on or subsequent to such date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of the
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines business combinations to include the following:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
- subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation to
the interested stockholder;
- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock or any class or series of
the corporation beneficially owned by the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any losses,
advances, guarantees, pledges or other financial benefits by or through
the corporation.
In general, Section 203 defines interested stockholder as an entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation or any entity or person affiliated with or controlling or controlled
by such entity or person.
NASDAQ NATIONAL MARKET LISTING
Application has been made for quotation of our common stock on the Nasdaq
National Market under the symbol "QUIK."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Mellon Bank.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 17,555,644 shares of common
stock outstanding based on shares outstanding as of August 31, 1999. Of these
shares, the 6,667,000 shares sold in this offering will be freely transferable
without restriction under the Securities Act, unless they are held by our
"affiliates" as that term is used under the Securities Act and the regulations
promulgated thereunder.
Of these shares, the remaining 10,888,644 shares were sold by us in reliance
on exemptions from the registration requirements of the Securities Act, are
restricted securities within the meaning of Rule 144 under the Securities Act
and become eligible for sale in the public market as follows:
- beginning 90 days after the effective date, no shares will become eligible
for sale subject to the provisions of Rules 144 and 701 as a result of
agreements not to sell such shares entered into with us and the
underwriters, or lock-up agreements; and
- beginning 180 days after the date of this prospectus, 10,888,644
additional shares will become eligible for sale, subject to the provisions
of Rule 144, Rule 144(k) or Rule 701, upon the expiration of lock-up
agreements.
Beginning 180 days after the date of this prospectus, 1,418,387 additional
shares subject to vested options as of the date of completion of this offering
will be available for sale subject to compliance with Rule 701 and upon the
expiration of lock-up agreements. Any shares subject to lock-up agreements may
be released at any time without notice by the underwriters.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
restricted shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of completion of this
offering, a number of shares that does not exceed the greater of 1% of the then
outstanding shares of common stock (approximately 175,600 shares immediately
after this offering), or the average weekly trading volume in the common stock
during the four calendar weeks preceding such sale, subject to the filing of a
Form 144 with respect to such sale and certain other limitations and
restrictions. In addition, a person who is not deemed to have been an affiliate
of QuickLogic at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years, would
be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above.
Any of our employees, officers, directors or consultants who purchased his
or her shares prior to the date of completion of this offering or who holds
vested options as of that date pursuant to a written compensatory plan or
contract is entitled to rely on the resale provisions of Rule 701, which permits
non-affiliates to sell their Rule 701 shares without having to comply with the
public-information, holding-period, volume-limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding-period restrictions, in each case commencing 90
days after the date of completion of this offering. However, we and certain
officers, directors and other stockholders have agreed not to sell or otherwise
dispose of any shares of our common stock for the 180-day period after the date
of this prospectus without the prior written consent of the underwriters. See
"Underwriting."
After this offering, we intend to file a registration statement on Form S-8
under the Securities Act to register outstanding options to purchase common
stock and shares of common stock reserved for issuance under the 1989 stock
option plan, 1999 stock option plan and 1999 employee stock purchase plan, thus
permitting the resale of such shares by non-affiliates in the public market
without restriction under the Securities Act. Such registration statement will
become effective immediately upon filing. As of August 31, 1999, options to
purchase a total of 2,542,665 shares were outstanding and 5,000,000 shares were
reserved for future issuance under our 1999 stock option plan; 1,275,351 shares
were reserved but unissued under our 1989 stock option plan; and 2,000,000
shares were reserved for issuance under our employee stock purchase plan. All
such options are subject to lock-up agreements.
Prior to this offering, there has been no public market for our common
stock, and any sale of substantial amounts in the open market may adversely
affect the market price of our common stock offered hereby.
62
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Bear, Stearns & Co. Inc., and SoundView
Technology Group, Inc. have severally agreed with QuickLogic, subject to the
terms and conditions set forth in the underwriting agreement, to purchase from
QuickLogic and the selling stockholder the number of shares of common stock set
forth opposite their names below. The underwriters are committed to purchase and
pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
BancBoston Robertson Stephens Inc................................................
Bear, Stearns & Co. Inc..........................................................
SoundView Technology Group, Inc..................................................
----------
<CAPTION>
INTERNATIONAL UNDERWRITER
- ---------------------------------------------------------------------------------
<S> <C>
BancBoston Robertson Stephens International Limited..............................
Bear, Stearns International Limited..............................................
SoundView Technology Group, Inc..................................................
----------
Total........................................................................ 6,667,000
----------
----------
</TABLE>
QuickLogic and the selling stockholder have been advised by the
representatives of the underwriters that the underwriters propose to offer the
shares of common stock to the public at the initial public offering price set
forth on the cover page of this prospectus and to certain dealers at such price
less a concession of not in excess of $ per share, of which
$ may be reallowed to other dealers. After the initial public
offering, the public offering price, concession and reallowance to dealers may
be reduced by the representatives. No such reduction shall change the amount of
proceeds to be received by QuickLogic and the selling stockholder as set forth
on the cover page of this prospectus. The common stock is offered by the
underwriters as stated herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. The underwriters
do not intend to confirm sales to any accounts over which they exercise
discretionary authority.
OVER-ALLOTMENT OPTION. QuickLogic and the selling stockholder have granted
to the underwriters an option, exercisable during the 30-day period after the
date of this prospectus, to purchase up to 1,000,050 additional shares of common
stock at the same price per share as QuickLogic and the selling stockholder will
receive for their 6,667,000 shares that the underwriters have agreed to
purchase. To the extent that the underwriters exercise this option, each of the
underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of common stock
to be purchased by it shown in the above table represents as a percentage of the
shares offered hereby. If purchased, such additional shares will be sold by the
underwriters on the same terms as those on which the 6,667,000 shares are being
sold. QuickLogic and the selling stockholder will be obligated, pursuant to the
option, to sell shares to the extent the option is exercised. The underwriters
may exercise such option only to cover over-allotments made in connection with
the sale of the shares of common stock offered hereby. If such option is
exercised in full, the total public offering price, underwriting discounts and
commissions, and proceeds to QuickLogic and the selling stockholder will be
$ , $ , $ and $ , respectively.
63
<PAGE>
The following table summarizes the compensation and expenses we will pay.
<TABLE>
<CAPTION>
TOTAL
------------------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
---------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by QuickLogic and the
selling stockholder................................................. $ $ $
Expenses payable by us................................................ $ $ $
</TABLE>
INDEMNITY. The underwriting agreement contains covenants of indemnity among
the underwriters, QuickLogic and the selling stockholder against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
underwriting agreement.
LOCK-UP AGREEMENTS. Each of QuickLogic's executive officers, directors, and
1% stockholders has agreed with the representatives of the underwriters, for a
period of 180 days after the date of this prospectus, subject to certain
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of common stock,
any options or warrants to purchase any shares of common stock, or any
securities convertible into or exchangeable for shares of common stock owned as
of the date of this prospectus or thereafter acquired directly by such holders
or with respect to which they have or hereafter acquire the power of
disposition, without the prior written consent of BancBoston Robertson Stephens
Inc. However, BancBoston Robertson Stephens Inc. may, in its sole discretion and
at any time without notice, release all or any portion of the securities subject
to the lock-up agreements. There are no agreements between the representatives
and any of QuickLogic's stockholders providing consent by the representatives to
the sale of shares prior to the expiration of the lock-up period.
FUTURE SALES. In addition, we have agreed that during the lock-up period,
we will not, without the consent of BancBoston Robertson Stephens Inc., subject
to certain exceptions,
- consent to the disposition of any shares held by stockholders subject to
lock-up agreements prior to the expiration of the lock-up period or
- issue, sell, contract to sell, or otherwise dispose of, any shares of
common stock, any options to purchase any shares of common stock or any
securities convertible into, exercisable for or exchangeable for shares of
common stock other than QuickLogic's sale of shares in this offering, the
issuance of common stock upon the exercise of outstanding options, and the
issuance of options under existing stock option and incentive plans
provided such options do not vest prior to the expiration of the lock-up
period. See "Shares Eligible for Future Sale."
LISTING. Application has been made for quotation on the Nasdaq National
Market under the symbol "QUIK."
NO PRIOR PUBLIC MARKET. Prior to this offering, there has been no public
market for the common stock of QuickLogic. Consequently, the initial public
offering price for the common stock offered hereby will be determined through
negotiations between QuickLogic and the representatives of the underwriters.
Among the factors to be considered in such negotiations are prevailing market
conditions, certain financial information of QuickLogic, market valuations of
other companies that QuickLogic and the representatives believe to be comparable
to QuickLogic, estimates of the business potential of QuickLogic, the present
state of QuickLogic's development and other factors deemed relevant.
STABILIZATION. The representatives of the underwriters have advised
QuickLogic that, pursuant to Regulation M under the Securities Act, certain
persons participating in this offering may engage in transactions, including
stabilizing bids, syndicate covering transactions or the imposition of penalty
bids
64
<PAGE>
that may have the effect of stabilizing or maintaining the market price of the
common stock at a level above that which might otherwise prevail in the open
market. A "stabilizing bid" is a bid for or the purchase of the common stock on
behalf of the underwriters for the purpose of fixing or maintaining the price of
the common stock. A "syndicate covering transaction" is the bid for or the
purchase of the common stock on behalf of the underwriters to reduce a short
position incurred by the underwriters in connection with this offering. A
"penalty bid" is an arrangement permitting the representatives to reclaim the
selling concession otherwise accruing to an underwriter or syndicate member in
connection with this offering if the common stock originally sold by such
underwriter or syndicate member is purchased by the representatives in a
syndicate covering transaction and has therefore not been effectively placed by
such underwriter or syndicate member. The representatives have advised
QuickLogic that such transactions may be effected on the Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time.
DIRECTED SHARE PROGRAM. At the request of QuickLogic, the underwriters have
reserved up to shares of common stock to be issued by us and offered
hereby for sale, at the initial public offering price, to customers, sales
representatives and other business associates of QuickLogic. The number of
shares of common stock available for sale to the general public will be reduced
to the extent that such individuals purchase all or a portion of these reserved
shares. Any reserved shares which are not purchased will be offered by the
underwriters to the general public on the same basis as the shares of common
stock offered hereby.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Orrick, Herrington & Sutcliffe LLP, Menlo
Park, California. As of the date of this prospectus, WS Investment Company, an
investment partnership composed of certain current and former members of and
persons associated with Wilson Sonsini Goodrich & Rosati, Professional
Corporation, as well as certain individual attorneys of that firm, beneficially
own an aggregate of 18,884 shares of QuickLogic common stock.
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1998 and
for each of the three years in the period ended December 31, 1998 appearing in
this prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including the exhibits, schedules and amendments to the
registration statement, under the Securities Act with respect to the shares of
common stock to be sold in this offering. This prospectus does not contain all
the information set forth in the registration statement. For further information
with respect to our company and the shares of common stock to be sold in this
offering, we refer you to the registration statement. Statements contained in
this prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete, and in each instance we refer you to
the copy of such contract, agreement or other document filed as an exhibit to
the registration statement, each such statement being qualified in all respects
by such reference.
You may read and copy all or any portion of the registration statement or
any other information we file at the Securities and Exchange Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating
65
<PAGE>
fee, by writing to the Securities and Exchange Commission. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the operation of the public reference rooms. Our Securities and Exchange
Commission filings, including the registration statement, are also available to
you on the Commission's Web site at http://www.sec.gov.
As a result of this offering, we will become subject to the information and
reporting requirements of the Exchange Act, and, in accordance therewith, will
file periodic reports, proxy statements and other information with the
Securities and Exchange Commission.
We intend to furnish our stockholders with annual reports containing audited
consolidated financial statements and with quarterly reports for the first three
quarters of each year containing unaudited interim consolidated financial
information.
66
<PAGE>
QUICKLOGIC CORPORATION
INDEX TO CONSOLIDATED FINANCIAL SATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheet as of December 31, 1997, 1998 and June 30, 1999 (unaudited)..................... F-3
Consolidated Statement of Operations for the Years Ended December 31, 1996, 1997 and 1998 and the Six
Months Ended June 30, 1998 (unaudited) and 1999 (unaudited).............................................. F-4
Consolidated Statement of Stockholders' Equity (Deficit) for the Years Ended December 31, 1996, 1997 and
1998 and the Six Months Ended June 30, 1999 (unaudited).................................................. F-5
Consolidated Statement of Cash Flows for the Three Years Ended December 31, 1996, 1997 and 1998 and the Six
Months Ended June 30, 1998 (unaudited) and 1999 (unaudited).............................................. F-6
Notes to Consolidated 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 13 to the financial statements has not
been consummated at June 30, 1999. When it has been consummated, we will be in a
position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity (deficit) and
of cash flows present fairly, in all material respects, the financial
position of QuickLogic Corporation and its subsidiary at December 31, 1998
and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998, 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 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."
PricewaterhouseCoopers LLP
San Jose, California
June 7, 1999, except as to Note
13,
which is as of , 1999
F-2
<PAGE>
QUICKLOGIC CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
---------------------- JUNE 30, JUNE 30,
1997 1998 1999 1999
---------- ---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................................................................ $ 7,331 $ 7,595 $ 8,185
Accounts receivable, net of allowances for doubtful accounts and
sales returns and allowances of $2,628, $3,272 and $2,340
(unaudited)....................................................... 2,892 2,031 4,505
Inventory........................................................... 5,869 2,877 2,613
Other current assets................................................ 286 730 898
---------- ---------- ----------
Total current assets.............................................. 16,378 13,233 16,201
Property and equipment, net........................................... 3,530 2,892 3,162
Other assets.......................................................... 43 43 43
---------- ---------- ----------
$ 19,951 $ 16,168 $ 19,406
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Trade payables...................................................... $ 2,801 $ 2,204 $ 4,117
Accrued liabilities................................................. 2,440 2,425 2,312
Deferred income on shipments to distributors........................ 5,996 4,737 5,617
Current portion of long-term obligations............................ 2,746 7,186 6,897
---------- ---------- ----------
Total current liabilities......................................... 13,983 16,552 18,943
Long-term obligations............................................... 7,724 591 161
---------- ---------- ----------
21,707 17,143 19,104
---------- ---------- ----------
Commitments and contingencies (Notes 11 and 12)
Stockholders' equity (deficit)
Preferred stock, $0.001 par value; 61,568 shares authorized; 9,912
shares outstanding; 10,000 authorized, none issued or outstanding
at June 30, 1999 on a pro forma basis (unaudited)................. 10 10 10 --
Common stock, $0.001 par value; 105,000 shares authorized; 1,159 and
4,279 and 4,301 (unaudited) shares outstanding; 100,000
authorized, 14,213 shares issued and outstanding at June 30, 1999
on a pro forma basis (unaudited).................................. 1 4 4 14
Common stock to be issued: 3,038 shares............................. 18,409 -- -- --
Additional paid-in capital.......................................... 43,435 61,388 61,730 61,730
Stockholder note receivable......................................... (121) (121) (121) (121)
Deferred compensation............................................... (2,073) (1,084) (1,136) (1,136)
Accumulated deficit................................................. (61,417) (61,172) (60,185) (60,185)
---------- ---------- ---------- ------------
Total stockholders' equity (deficit).............................. (1,756) (975) 302 302
---------- ---------- ---------- ------------
------------
$ 19,951 $ 16,168 $ 19,406
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
QUICKLOGIC CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- --------------------
1996 1997 1998 1998 1999
--------- ---------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue................................................ $ 23,758 $ 28,460 $ 30,007 $ 14,078 $ 18,425
Cost of revenue........................................ 11,158 16,855 14,303 6,803 7,958
--------- ---------- --------- --------- ---------
Gross profit........................................... 12,600 11,605 15,704 7,275 10,467
Operating expenses:
Research and development............................. 4,642 6,235 6,294 2,932 3,567
Selling, general and administrative.................. 7,730 10,981 9,368 4,648 6,000
Contract termination and legal....................... 4,125 28,309 -- -- --
--------- ---------- --------- --------- ---------
Net operating income (loss)........................ (3,897) (33,920) 42 (305) 900
Interest expense..................................... (60) (162) (161) (86) (49)
Interest income and other, net....................... 360 434 364 202 136
--------- ---------- --------- --------- ---------
Net income (loss)...................................... $ (3,597) $ (33,648) $ 245 $ (189) $ 987
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
Net income (loss) per share:
Basic................................................ $ (4.66) $ (10.41) $ 0.06 $ (0.05) $ 0.23
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
Diluted.............................................. $ (4.66) $ (10.41) $ 0.02 $ (0.05) $ 0.07
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
Weighted average shares:
Basic................................................ 772 3,232 4,231 4,200 4,286
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
Diluted.............................................. 772 3,232 14,645 4,200 15,042
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
Pro forma net income per share:
Basic (unaudited).................................... $ 0.02 $ 0.07
--------- ---------
--------- ---------
Diluted (unaudited).................................. $ 0.02 $ 0.07
--------- ---------
--------- ---------
Pro forma weighted average shares:
Basic (unaudited).................................... 14,143 14,198
--------- ---------
--------- ---------
Diluted (unaudited).................................. 14,645 15,042
--------- ---------
--------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
QUICKLOGIC CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
--------------- ---------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 8,622 $ 9 638 $ 1
Common stock issued under stock option plan, net of
repurchases........................................ -- -- 190 --
Issuance of Series E preferred stock in exchange for
services........................................... 4 -- -- --
Issuance of Series F preferred stock for cash, net of
issuance cost...................................... 1,167 1 -- --
Deferred compensation, net of terminations........... -- -- -- --
Amortization of deferred compensation................ -- -- -- --
Net loss............................................. -- -- -- --
------ ------ ------ ------
Balance at December 31, 1996........................... 9,793 10 828 1
Common stock issued under stock option plan, net of
repurchases........................................ -- -- 331 --
Issuance of Series F preferred stock for cash, net of
issuance cost...................................... 119 -- -- --
Common stock to be issued in exchange for contract
termination........................................ -- -- -- --
Deferred compensation, net of terminations........... -- -- -- --
Amortization of deferred compensation................ -- -- -- --
Note receivable from stockholder..................... -- -- -- --
Net loss............................................. -- -- -- --
------ ------ ------ ------
Balance at December 31, 1997........................... 9,912 10 1,159 1
Common stock issued under stock option plan, net of
repurchases........................................ -- -- 82 --
Common stock issued in exchange for contract
termination........................................ -- -- 3,038 3
Deferred compensation, net of terminations........... -- -- -- --
Amortization of deferred compensation................ -- -- -- --
Net income........................................... -- -- -- --
------ ------ ------ ------
Balance at December 31, 1998........................... 9,912 10 4,279 4
Common stock issued under stock option plan, net of
repurchases (unaudited)............................ -- -- 22 --
Deferred compensation, net of terminations
(unaudited)........................................ -- -- -- --
Amortization of deferred compensation (unaudited).... -- -- -- --
Net income (unaudited)............................... -- -- -- --
------ ------ ------ ------
Balance at June 30, 1999 (unaudited)................... 9,912 $10 4,301 $ 4
------ ------ ------ ------
------ ------ ------ ------
<CAPTION>
COMMON STOCK
TO BE ISSUED ADDITIONAL STOCKHOLDER
---------------- PAID-IN NOTE DEFERRED ACCUMULATED
SHARES AMOUNT CAPITAL RECEIVABLE COMPENSATION DEFICIT
------ -------- ---------- ----------- ------------ -----------
<S> <C>
Balance at December 31, 1995 -- $ -- $31,430 $(119) $ -- $(24,172)
Common stock issued under stock option plan, net of
repurchases........................................ -- -- 99 -- -- --
Issuance of Series E preferred stock in exchange for
services........................................... -- -- 15 -- -- --
Issuance of Series F preferred stock for cash, net of
issuance cost...................................... -- -- 8,089 -- -- --
Deferred compensation, net of terminations........... -- -- 851 -- (851) --
Amortization of deferred compensation................ -- -- -- -- 43 --
Net loss............................................. -- -- -- -- -- (3,597)
------ -------- ---------- ----------- ------------ -----------
Balance at December 31, 1996........................... -- -- 40,484 (119) (808) (27,769)
Common stock issued under stock option plan, net of
repurchases........................................ -- -- 280 -- -- --
Issuance of Series F preferred stock for cash, net of
issuance cost...................................... -- -- 781 -- -- --
Common stock to be issued in exchange for contract
termination........................................ 3,038 18,409 -- -- -- --
Deferred compensation, net of terminations........... -- -- 1,890 -- (1,890) --
Amortization of deferred compensation................ -- -- -- -- 625 --
Note receivable from stockholder..................... -- -- -- (2) -- --
Net loss............................................. -- -- -- -- -- (33,648)
------ -------- ---------- ----------- ------------ -----------
Balance at December 31, 1997........................... 3,038 18,409 43,435 (121) (2,073) (61,417)
Common stock issued under stock option plan, net of
repurchases........................................ -- -- 110 -- -- --
Common stock issued in exchange for contract
termination........................................ (3,038) (18,409) 18,406 -- -- --
Deferred compensation, net of terminations........... -- -- (563) -- 563 --
Amortization of deferred compensation................ -- -- -- -- 426 --
Net income........................................... -- -- -- -- -- 245
------ -------- ---------- ----------- ------------ -----------
Balance at December 31, 1998........................... -- -- 61,388 (121) (1,084) (61,172)
Common stock issued under stock option plan, net of
repurchases (unaudited)............................ -- -- 55 -- -- --
Deferred compensation, net of terminations
(unaudited)........................................ -- -- 287 -- (287) --
Amortization of deferred compensation (unaudited).... -- -- -- -- 235 --
Net income (unaudited)............................... -- -- -- -- -- 987
------ -------- ---------- ----------- ------------ -----------
Balance at June 30, 1999 (unaudited)................... -- $ -- $61,730 $(121) $(1,136) $(60,185)
------ -------- ---------- ----------- ------------ -----------
------ -------- ---------- ----------- ------------ -----------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
Balance at December 31, 1995 $ 7,149
Common stock issued under stock option plan, net of
repurchases........................................ 99
Issuance of Series E preferred stock in exchange for
services........................................... 15
Issuance of Series F preferred stock for cash, net of
issuance cost...................................... 8,090
Deferred compensation, net of terminations........... --
Amortization of deferred compensation................ 43
Net loss............................................. (3,597)
-------------
Balance at December 31, 1996........................... 11,799
Common stock issued under stock option plan, net of
repurchases........................................ 280
Issuance of Series F preferred stock for cash, net of
issuance cost...................................... 781
Common stock to be issued in exchange for contract
termination........................................ 18,409
Deferred compensation, net of terminations........... --
Amortization of deferred compensation................ 625
Note receivable from stockholder..................... (2)
Net loss............................................. (33,648)
-------------
Balance at December 31, 1997........................... (1,756)
Common stock issued under stock option plan, net of
repurchases........................................ 110
Common stock issued in exchange for contract
termination........................................ --
Deferred compensation, net of terminations........... --
Amortization of deferred compensation................ 426
Net income........................................... 245
-------------
Balance at December 31, 1998........................... (975)
Common stock issued under stock option plan, net of
repurchases (unaudited)............................ 55
Deferred compensation, net of terminations
(unaudited)........................................ --
Amortization of deferred compensation (unaudited).... 235
Net income (unaudited)............................... 987
-------------
Balance at June 30, 1999 (unaudited)................... $ 302
-------------
-------------
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
QUICKLOGIC CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- --------------------
1996 1997 1998 1998 1999
--------- ---------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $ (3,597) $ (33,648) $ 245 $ (189) $ 987
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and other non-cash charges................ 235 817 1,322 614 761
Provision for doubtful accounts and sales returns...... 1,102 1,015 644 1,254 (932)
Amortization of deferred compensation.................. 43 625 426 221 235
Gain on disposal of assets............................. -- -- (5) (5) --
Contract termination and other......................... 4,125 28,309 -- -- --
Changes in assets and liabilities:
Accounts receivable.................................. (1,031) (1,298) 217 410 (1,542)
Inventory............................................ (1,924) (1,225) 2,992 1,222 264
Prepaid and other assets............................. (4,555) (253) (444) (25) (168)
Accounts payable..................................... 1,434 (243) (597) (451) 1,913
Accrued liabilities and other........................ (409) 4,453 (2,477) (1,336) 767
--------- ---------- --------- --------- ---------
Net cash provided by (used for) operating
activities....................................... (4,577) (1,448) 2,323 1,715 2,285
--------- ---------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures for property and equipment, net of
dispositions........................................... (1,478) (2,639) (679) (174) (1,031)
Proceeds on sale of investments.......................... 4,000 -- -- -- --
--------- ---------- --------- --------- ---------
Net cash provided by (used for) investing
activities....................................... 2,522 (2,639) (679) (174) (1,031)
--------- ---------- --------- --------- ---------
Cash flows from financing activities:
Payment of debt obligations.............................. (124) (1,473) (1,490) (1,631) (832)
Proceeds from issuance of common stock, net.............. 99 280 110 85 55
Proceeds from issuance of preferred stock, net........... 8,090 781 -- -- --
Note receivable from stockholder......................... -- (2) -- -- --
Borrowings from bank..................................... 470 1,496 -- 83 113
--------- ---------- --------- --------- ---------
Net cash provided by (used for) financing
activities....................................... 8,535 1,082 (1,380) (1,463) (664)
--------- ---------- --------- --------- ---------
Net increase (decrease) in cash............................ 6,480 (3,005) 264 78 590
Cash at beginning of period................................ 3,856 10,336 7,331 7,331 7,595
--------- ---------- --------- --------- ---------
Cash at end of period...................................... $ 10,336 $ 7,331 $ 7,595 $ 7,409 $ 8,185
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
Non-cash transactions:
Inventory acquired in exchange for note payable.......... $ -- $ 1,396 $ -- $ -- $ --
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO CONSOLIDATED 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 operates in a single industry segment
where it designs, develops, markets and supports advanced field programmable
gate array semiconductors ("FPGAs"), embedded standard products ("ESPs") and
associated software tools.
The Company's fiscal year ends on the Sunday closest to December 31. The six
month periods end on the Sunday closest to June 30. For presentation purposes,
the financial statements and notes have been presented as ending on the last day
of the nearest calendar month.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, QuickLogic International, Inc. All significant
intercompany accounts and transactions are eliminated in consolidation.
USES 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 as of 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, and product obsolescence.
INTERIM RESULTS (UNAUDITED)
The accompanying balance sheet as of June 30, 1999, the statements of
operations and of cash flows for the six months ended June 30, 1998 and 1999 and
the statement of stockholders' equity (deficit) for the six months ended June
30, 1999 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 six months
ended June 30, 1999 are not necessarily indicative of the results that may be
expected for the full year.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
All highly-liquid investments purchased with a remaining maturity of three
months or less are considered cash equivalents. 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.
F-7
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value 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 value of all financial instruments
at December 31, 1997 and 1998, approximate the amounts presented in the balance
sheet.
INVENTORY
Inventory is stated at the lower of cost or market, cost being determined
under the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated on a straight-line basis over the asset's estimated
useful life of two 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.
LONG-LIVED ASSETS
The Company reviews the impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. An impairment loss would be recognized when estimated future
cash flows expected to result from the use of the asset and its eventual
disposition is less than its carrying amount. No such impairment losses have
been identified by the Company.
REVENUE RECOGNITION
The Company sells to certain distributors under agreements which allow
certain rights of return and price adjustments on unsold inventory. Amounts
billed to such distributors for shipments are included as accounts receivable,
inventory is relieved, and the related revenue and cost of revenue are deferred
and the resultant gross profit is recorded as a current liability, deferred
income on shipments to distributors, until the inventory is resold by the
distributor. Reserves for estimated returns and distributor price adjustments
are provided against accounts receivable. Revenue to all other customers is
recognized upon shipment. Software revenue is recognized when persuasive
evidence of an agreement exists, delivery of the software has occurred, no
significant Company obligations with regard to implementation or integration
exist, the fee is fixed or determinable and collectibility is probable. Software
revenues typically amount to less than 5% of total revenues.
STOCK-BASED COMPENSATION
The Company has elected 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 Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."
F-8
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Bad debt write-offs to date
have been immaterial.
At December 31, 1998, accounts receivable from two customers both of which
were distributors of the Company's products represent 18% and 15% of the
Company's accounts receivable. At December 31, 1997, accounts receivable from
the same two customers represented 24% and 29%, respectively, of the Company's
accounts receivable.
LITIGATION LIABILITIES
The Company accrues for the cost of litigation in the period that costs
become estimable and occurrence is determined to be probable. Accrued litigation
liabilities of $8,203,000 and $6,500,000 at December 31, 1997 and 1998,
respectively, include estimated settlement costs and related legal fees (see
Notes 4 and 12).
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 the insignificant development costs incurred during
the short time period between the establishment of technological feasibility and
general availability.
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 9,912,000
shares of preferred stock outstanding into 9,912,000 shares of common stock. The
pro forma effect of this transaction has been reflected in the accompanying
unaudited pro forma stockholders' equity as if such conversion had occurred as
of June 30, 1999.
NET INCOME (LOSS) PER SHARE
Basic EPS is computed by dividing net income available to common
stockholders (numerator) by the weighted average number of common shares
outstanding (denominator) during the period. Diluted EPS is computed using the
weighted average number of common shares and dilutive potential common shares
outstanding during the period. In computing diluted EPS, the average stock price
for the period is used in determining the number of share assumed to be
purchased from the exercise of stock
F-9
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
options. A reconciliation of the numerators and denominators of the basic and
diluted per share computations is as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------- --------------------
1996 1997 1998 1998 1999
--------- ---------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss)............................... $ (3,597) $ (33,648) $ 245 $ (189) $ 987
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
Denominator:
Common stock.................................... 794 1,005 3,490 2,710 4,294
Common stock to be issued....................... -- 2,278 759 1,519 --
Less: Unvested common stock option exercises.... (22) (51) (18) (29) (8)
--------- ---------- --------- --------- ---------
Weighted average shares outstanding for basic... 772 3,232 4,231 4,200 4,286
--------- ---------- --------- --------- ---------
Convertible preferred stock..................... -- -- 9,912 -- 9,912
Stock options and warrants...................... -- -- 484 -- 836
Unvested common stock option exercises.......... -- -- 18 -- 8
--------- ---------- --------- --------- ---------
Weighted average shares outstanding for
diluted....................................... 772 3,232 14,645 4,200 15,042
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
Net income (loss) per share
Basic......................................... $ (4.66) $ (10.41) $ 0.06 $ (0.05) $ 0.23
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
Diluted....................................... $ (4.66) $ (10.41) $ 0.02 $ (0.05) $ 0.07
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
</TABLE>
As a result of the net losses incurred by the Company during fiscal years
1996 and 1997 and for the six months ended June 30, 1998, all potential common
shares were anti-dilutive and have been excluded from the diluted net loss per
share calculation. For fiscal year 1998 and the six months ended June 30, 1999,
stock options with an exercise price that equals or exceeds the average fair
market value of the Company's common stock have been excluded from the
computation of diluted net income per share as they would be anti-dilutive. The
following table summarizes total securities outstanding as of each period end,
on an as-converted basis, which were not included in the calculation of diluted
net loss per share since their inclusion would have been anti-dilutive.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------------- --------------------
1996 1997 1998 1998 1999
--------- ---------- --------- --------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Preferred stock...................................... 9,793 9,912 -- 9,912 --
Unvested common stock subject to repurchase.......... 22 51 -- 29 --
Stock options........................................ 1,284 2,006 -- 1,983 --
Preferred stock warrants............................. 22 22 -- 22 --
</TABLE>
F-10
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRO FORMA NET INCOME PER SHARE (UNAUDITED)
Pro forma basic net income per share for the year ended December 31, 1998
and six months ended June 30, 1999 is computed using the weighted average number
of common shares outstanding, including the conversion of the Company's
Convertible Preferred Stock outstanding into shares of the Company's common
stock effective upon the closing of the Company's initial public offering as if
such conversion occurred on January 1, 1998 and January 1, 1999, respectively.
Pro forma diluted net income per share is computed using the pro forma weighted
average number of common and potential common shares outstanding. Pro forma
potential common shares consist of Common Stock subject to repurchase and stock
options and warrants using the treasury stock method.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 established a model for
accounting for derivatives and hedging activities and supercedes and amends a
number of existing accounting standards. SFAS No. 133 requires that all
derivatives be recognized in the balance sheet at their fair market value, and
the corresponding derivative gains or losses be either reported in the statement
of operations or as a deferred item depending on the type of hedge relationship
that exists with respect to such derivative. SFAS No. 133, as amended by SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities--
Deferral of Effective Date of FASB Statement No. 133," is effective for all
fiscal quarters and years beginning after June 15, 2000. The Company does not
currently, nor does it plan to, enter into, forward exchange contracts to hedge
exposures denominated in foreign currencies or any other derivative financial
instruments for trading or speculative purposes.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") No. 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. The Company does not expect
that the adoption of SOP No. 98-1 will have a material impact on its
consolidated financial statements.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under SFAS 109, deferred tax liabilities and assets are determined based
on the differences between the financial statements and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse.
OTHER COMPREHENSIVE INCOME (LOSS)
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes standards for reporting comprehensive income
(loss) and its components in financial statements. Comprehensive income (loss)
as defined, includes all changes in equity (net assets) during a period from
nonowner sources. No items were included in other comprehensive income (loss)
during 1996, 1997 and 1998.
F-11
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
--------- --------- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Inventory:
Raw materials............................................. $ 441 $ 56 $ 136
Work-in-process........................................... 4,926 2,611 2,426
Finished goods............................................ 502 210 51
--------- --------- -----------
$ 5,869 $ 2,877 $ 2,613
--------- --------- -----------
--------- --------- -----------
Property and equipment:
Equipment................................................. $ 4,326 $ 4,733 $ 5,584
Software.................................................. 991 1,059 1,231
Furniture and fixtures.................................... 766 761 770
Leasehold improvements.................................... 554 564 563
--------- --------- -----------
6,637 7,117 8,148
Accumulated depreciation.................................... (3,107) (4,225) (4,986)
--------- --------- -----------
$ 3,530 $ 2,892 $ 3,162
--------- --------- -----------
--------- --------- -----------
Accrued liabilities:
Accrued employee compensation............................. $ 739 $ 935 $ 1,091
Other liabilities......................................... 1,701 1,490 1,221
--------- --------- -----------
$ 2,440 $ 2,425 $ 2,312
--------- --------- -----------
--------- --------- -----------
</TABLE>
NOTE 4--LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Installment notes payable to bank.......................... $ 1,743 $ 966
Installment notes payable to vendor........................ 295 --
Litigation accrual......................................... 8,203 6,500
Other...................................................... 229 311
--------- ---------
10,470 7,777
Current portion of long-term obligations................... (2,746) (7,186)
--------- ---------
Long-term obligations...................................... $ 7,724 $ 591
--------- ---------
--------- ---------
</TABLE>
At December 31, 1997 and 1998, the Company had outstanding bank installment
notes totaling $1,743,000 and $966,000, respectively. The notes bear interest at
prime plus 0.25% (8.0% as of December 31, 1998), 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 1999 and 2000. At December 31,
1998, the Company was in violation of its bank covenants. Subsequently, the
Company obtained a waiver for the covenants. In the quarter ended June 30, 1999,
the Company entered into an extension to borrow up to $250,000 using bank
installment notes which are secured by the specific
F-12
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--LONG-TERM OBLIGATIONS (CONTINUED)
equipment financed. At June 30, 1999, the Company had borrowed $113,000 under
this facility. These notes mature in 2002. At June 30, 1999, the Company was in
compliance with its covenants.
At December 31, 1997, the Company had a $6.0 million bank facility which
includes a $1.0 million export/import revolving line of credit and a $5.0
million domestic revolving line of credit. At December 31, 1997, no borrowings
were outstanding against the revolving lines of credit. The Company elected not
to renew the revolving lines of credit which expired in October 1998.
In March 1997, the Company entered into an agreement to purchase certain
inventory from Cypress Semiconductor Corporation payable under nine month
interest-free notes. Purchases totaled approximately $1.4 million. The notes
were fully paid by March 1998.
In August 1998, the Company settled its lawsuit with Actel Corporation. The
obligation for settlement and legal costs is payable quarterly through August
2001, subject to acceleration upon the completion of the Company's initial
public offering. Management intends to complete such an initial public offering
during 1999 and, accordingly, such obligations have been classified as current
at December 31, 1998 (see Note 12).
NOTE 5--STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1997 1998 1999
----- ----- ---------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C>
Series A, $0.001 par value; 418,000 shares designated, issued and
outstanding..................................................... $ -- $ -- $ --
Series B, $0.001 par value; 1,713,000 shares designated, issued
and outstanding................................................. 2 2 2
Series C, $0.001 par value; 2,018,000 shares designated, 1,996,000
issued and outstanding.......................................... 2 2 2
Series D, $0.001 par value; 520,000 shares designated, issued and
outstanding..................................................... -- -- --
Series E, $0.001 par value; 3,979,000 shares designated, issued
and outstanding................................................. 4 4 4
Series F, $0.001 par value; 1,581,000 shares designated, 1,286,000
issued and outstanding.......................................... 2 2 2
--- --- ---
$ 10 $ 10 $ 10
--- --- ---
--- --- ---
</TABLE>
The holders of the outstanding Series A, Series B, Series C, Series D,
Series E and Series F preferred stock are entitled to annual dividends of
$0.198, $0.0246, $0.384, $0.384, $0.42 and $0.696 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, 1998.
F-13
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--STOCKHOLDERS' EQUITY (CONTINUED)
In the event of liquidation, dissolution or winding up of the Company, the
holders of Series F preferred stock are entitled to receive $6.96 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 are entitled to receive $1.998, $2.478, $3.84, $3.84
and $4.20 per share, respectively, plus declared but unpaid dividends thereon,
prior to any distribution to holders of common stock. As of December 31, 1998,
the liquidation preference of Series A, Series B, Series C, Series D, Series E
and Series F preferred stock is approximately $40.4 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
million, at a per share issuance price of at least $19.98 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 at least two-thirds of the holders of such
outstanding preferred shares, voting together as a single class, 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 January 1992, in conjunction with the issue of Series C preferred stock,
the Company issued warrants to purchase 21,875 shares of Series C preferred
stock at $3.84 per share. The warrants expired unexercised in January 1999.
COMMON STOCK
In March 1997, in conjunction with the issuance of Series F preferred stock,
the Company authorized an additional 20,000,000 shares of common stock for a
total authorized amount of 105,000,000 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, 1996 and 1997 as the Company incurred operating losses
during these periods. No provision for federal or state income taxes has been
recorded for the year ended December 31, 1998 and the six-month period ended
June 30, 1999 (unaudited) as the Company had the ability to utilize federal and
state net operating loss carryforwards.
F-14
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--INCOME TAXES (CONTINUED)
A rate reconciliation between income tax provisions at the US federal
statutory rate and the effective rate reflected in the Statement of Operations
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Provision at statutory rate.................................................. (34)% (34)% 34
Utilization of operating loss and credit carryforwards....................... -- -- (34)
Future benefit of deferred tax assets not recognized......................... 34 34 --
--------- --------- ---------
--% --% --%
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company did not have any significant foreign tax liability during the
periods presented.
Deferred tax balances are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward........................................ $ 7,252 $ 15,728
Contract termination charge............................................ 7,389 --
Accruals and reserves.................................................. 7,509 5,970
Credit carryforward.................................................... 1,951 2,351
Capitalized research and development................................... 449 633
--------- ---------
24,550 24,682
Valuation allowances..................................................... (24,550) (24,682)
--------- ---------
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, 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, 1998, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $44 million and $21
million, respectively. These carryforwards, if not utilized to offset future
taxable income and income taxes payable, will expire in the years 1999 through
2013.
F-15
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--INCOME TAXES (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. Since inception, the Company believes cumulative
changes in ownership have invoked the loss carryforward deduction limitation
under IRC Section382. However, the Company believes that such limitations will
not have a material effect on the future utilization of the losses.
NOTE 7--EMPLOYEE AND DIRECTOR BENEFIT PLANS
1989 STOCK OPTION PLAN
In July 1996, the 1989 Stock Plan (the "Plan") was amended to allow options
to be exercised prior to vesting. Unvested shares are deposited to an escrow
agent and the Company has a right to repurchase unvested shares at the original
issuance price if the employee is terminated. In April 1999, an additional
1,333,000 shares were authorized for issuance. The Plan provides for the
issuance of incentive and nonqualified options for the purchase of up to
4,617,000 shares of Common Stock. Options may be granted to employees, directors
and consultants to the Company. The fair value of the Company's common stock was
determined by the Board of Directors considering operating results, current
legal developments, product life cycle, general market conditions, independent
valuations and other relevant factors.
The following table summarizes all of the Company's stock option activity
and related weighted average exercise price for each of the years ended December
31, 1996, 1997 and 1998 and the six month period ended June 30, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE
OUTSTANDING PRICE
--------------- -----------
<S> <C> <C>
(IN THOUSANDS)
Balance at December 31, 1995....................................... 1,373 $ 0.60
Granted.......................................................... 369 0.84
Canceled......................................................... (233) 0.60
Exercised........................................................ (225) 0.54
-----
Balance at December 31, 1996....................................... 1,284 0.66
Granted.......................................................... 1,636 4.53
Canceled......................................................... (558) 5.30
Exercised........................................................ (356) 0.88
-----
Balance at December 31, 1997....................................... 2,006 2.49
Granted.......................................................... 1,151 4.50
Canceled......................................................... (703) 3.26
Exercised........................................................ (89) 1.30
-----
Balance at December 31, 1998....................................... 2,365 3.26
Granted (unaudited).............................................. 395 5.41
Canceled (unaudited)............................................. (186) 4.33
Exercised (unaudited)............................................ (25) 2.31
-----
Balance at June 30, 1999 (unaudited)............................... 2,549 3.55
-----
-----
</TABLE>
F-16
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--EMPLOYEE AND DIRECTOR BENEFIT PLANS (CONTINUED)
As of December 31, 1998, 223,000 shares were available for grant, 18,000
unvested shares had been exercised and remain subject to the Company's buyback
rights and options to purchase 1,601,000 shares were vested.
On October 20, 1997, the Company repriced options to purchase 316,000 shares
of common stock that were issued to employees at exercise prices of $6.00 to
$9.00 between April and September 1997 to an exercise price of $4.50. The
original vesting terms of these options remained unchanged.
Related weighted average exercise price and contractual life information at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPTIONS WITH OUTSTANDING AND REMAINING
EXERCISE PRICES OF: EXERCISABLE SHARES LIFE (YEARS)
- -------------------------------------------------------------- ------------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
$0.30......................................................... 15 1.1
$0.60......................................................... 450 6.0
$0.90......................................................... 110 7.8
$1.80......................................................... 10 8.1
$3.00......................................................... 426 8.1
$4.50......................................................... 1,354 9.3
-----
2,365
-----
-----
</TABLE>
The weighted average estimated grant date fair values, as defined by SFAS
123, for options granted during 1996, 1997 and 1998 was $3.18, $2.52 and $1.02
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 1996, 1997 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Expected life (years)............................................... 5.0 5.3 5.3
Risk-free interest rate............................................. 6.05% 6.20% 4.99%
Volatility.......................................................... -- -- --
Dividend yield...................................................... -- -- --
</TABLE>
F-17
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--EMPLOYEE AND DIRECTOR BENEFIT PLANS (CONTINUED)
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
plans, the Company's pro forma net loss would have been as follows for the years
ended December 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1997 1998
--------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Pro forma net loss............................................ $ (3,676) $ (33,953) $ (663)
Pro forma net loss per share:
Basic....................................................... $ (4.76) $ (10.51) $ (0.16)
Diluted..................................................... $ (4.76) $ (10.51) $ (0.16)
</TABLE>
DEFERRED COMPENSATION
During the year ended December 31, 1996, 1997, 1998 and the six months ended
June 30, 1999, the Company granted options and recorded related deferred
compensation of $851,000, $1,890,000, $204,000 and $332,000 (unaudited),
respectively, net of reversals associated with unvested shares of terminated
employees. Such deferred compensation is being 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 certain wafer start capacity. The Company
purchased all of its wafers under this agreement during 1996 and 1997.
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 3,037,786 shares of Common Stock to Cypress, resulting in a
charge of approximately $23.0 million in the first quarter of 1997. The
Company's revenue and net income were not measurably enhanced by the termination
of the Existing Agreement nor the reversion of the related rights to the
Company-developed intellectual property. The 3,037,786 shares of Common Stock
were issued to Cypress on April 1, 1998. 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 an initial public offering.
The parties also entered into a new foundry agreement and a cross-license
agreement.
F-18
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--RELATED PARTY TRANSACTIONS (CONTINUED)
NOTES RECEIVABLE FROM STOCKHOLDER
As of December 31, 1998, the Company had $121,000 of demand promissory notes
due from a stockholder. The notes bear interest at rates ranging from 6.7% to
8.5% per annum and are secured by shares of the Company's common stock held by
the stockholder.
NOTE 9--MANUFACTURING AGREEMENT
In July 1997, the Company entered into a manufacturing agreement with Taiwan
Semiconductor Manufacturing Company, Ltd. ("TSMC") for a term of three years
renewable annually as a rolling three-year agreement. The agreement guarantees
certain capacity availability and requires that a minimum percentage of the
total number of wafers required by the Company in any one year are purchased
from TSMC (excluding wafers purchased from Cypress and certain other wafer
requirements), and requires "take or pay" volume commitments twelve months in
length based upon usage forecasts supplied by the Company. Obligations are
payable in U.S. dollars. However, the purchase price for wafers shall be
adjusted for any fluctuation in the New Taiwan Dollar exchange rate greater than
5%. The Company has committed to purchase approximately $2.8 million under this
agreement in 1999. Purchases under this agreement totaled $202,000 and $1.0
million in 1997 and 1998, respectively.
NOTE 10--INFORMATION CONCERNING BUSINESS SEGMENTS AND MAJOR CUSTOMERS
INFORMATION ABOUT GEOGRAPHIC AREAS
All of the Company's sales are originated in the United States. Shipments to
some of the Company's distributors are made to centralized purchasing and
distributing locations, which in turn sell through to other locations. As a
result of these factors, the Company believes that sales to certain geographic
locations might be higher or lower, though accurate data is difficult to obtain.
The following is a breakdown of revenues by shipment destination for the
years ended 1996, 1997 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
United States................................................ $ 17,759 $ 16,222 $ 15,784
Germany...................................................... 2,419 1,451 1,800
Other........................................................ 3,580 10,787 12,423
--------- --------- ---------
$ 23,758 $ 28,460 $ 30,007
--------- --------- ---------
--------- --------- ---------
</TABLE>
The countries comprising the "other" category include Japan, the UK, Korea
and other countries in western Europe and Asia, none of which individually
comprise more than 10% of the Company's sales.
Three customers, distributors of the Company's products, accounted for
approximately 27%, 10% and 10% of revenues in 1998. Three customers,
distributors of the Company's products, accounted for approximately 20%, 15% and
13% of revenue in 1997. Four customers, distributors of the Company's
F-19
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--INFORMATION CONCERNING BUSINESS SEGMENTS AND MAJOR CUSTOMERS
(CONTINUED)
products, accounted for 19%, 14%, 12% and 12% of revenue in 1996. All sales are
made from the United States and are denominated in U.S. dollars.
Less than 10% of the Company's long-lived assets, including property and
equipment and other assets, were located outside the United States.
NOTE 11--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 certificate of deposit which matures in 1999.
Rent expense for the years ended December 31, 1996, 1997 and 1998 was
approximately $358,000, $478,000 and $531,000, respectively.
The Company also leases certain equipment and leasehold improvements under
capital leases which expire in 2003. At December 31, 1998 and 1997, $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:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Year Ending December 31,
1999................................................................... $ 594 $ 67
2000................................................................... 632 67
2001................................................................... 638 67
2002................................................................... 664 66
2003 and thereafter.................................................... 590 47
----------- -----
$ 3,118 314
-----------
-----------
Less amount representing interest........................................ (75)
-----
Present value of capital lease obligations............................... 239
Less current portion..................................................... (40)
-----
Long term portion of capital lease obligations........................... $ 199
-----
-----
</TABLE>
NOTE 12--LITIGATION SETTLEMENT
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. The Company countersued alleging that Actel's
products infringed on the Company's patents. During 1995 and 1996, Actel's suit
was amended to include a trade misappropriation claim and additional patent
infringement claims. Actel and the Company settled their litigation in August
1998. The Company and Actel have granted each other non-exclusive, royalty free,
worldwide, perpetual cross licenses of their existing technology, excluding only
certain SRAM technology owned by Actel. The Company has made quarterly payments
to Actel since the settlement date. The remainder of the settlement will be paid
to Actel immediately after the Company's initial public offering. The agreement
also includes certain
F-20
<PAGE>
QUICKLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--LITIGATION SETTLEMENT (CONTINUED)
assignment and adverse monetary provisions in the event of a change in ownership
of either party. The accrual of $6.5 million at December 31, 1998 (Note 4)
represents the remaining obligation under the settlement.
NOTE 13--SUBSEQUENT EVENTS
In August 1999, the Board of Directors authorized the reincorporation of the
Company in Delaware and, in conjunction with such reincorporation, a 6-for-1
reverse stock split (the "Reverse 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 Reverse Stock
Split. The Board of Directors also approved a recapitalization that would
authorize 100 million shares of common stock and ten million shares of
undesignated preferred stock.
The 1999 Stock Plan was adopted by the Board of Directors in August 1999 and
is expected to be approved by the stockholders. The total number of shares of
common stock reserved for issuance under this plan is 5,000,000 shares of common
stock, the shares of common stock which have been reserved but unissued under
the 1989 Stock Option Plan as of the effective date of the initial public
offering (1,184,000 as of July 31, 1999) and any shares returned to the 1989
plan as a result of the termination of options under the 1989 plan. In addition,
commencing January 2000, an annual increase will be added to the 1999 stock plan
equal to the lesser of 5,000,000 shares or 5% of the outstanding shares on such
date. Unlike the 1989 Stock Plan, the 1999 Stock Plan does not allow for the
exercise of stock options prior to vesting.
The 1999 Employee Stock Purchase Plan was adopted by the Board of Directors
in August 1999 and is expected to be approved by the stockholders. The total
number of shares of common stock reserved for issuance under this plan is
2,000,000 plus annual increases equal to the lesser of 1,500,000 shares or 4% of
the outstanding shares on such date.
All of the above items will be effected prior to the date of the Initial
Public Offering.
F-21
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by QuickLogic in connection with
the sale of the Common Stock being registered hereby, other than underwriting
commissions and discounts. All amounts are estimates except the SEC Registration
Fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 21,315
NASD Filing Fee................................................. 8,167
Nasdaq National Market Listing Fee.............................. 95,000
Blue Sky Fees and Expenses...................................... 5,000
Printing and Engraving Expenses................................. 200,000
Legal Fees and Expenses......................................... 375,000
Accounting Fees and Expenses.................................... 275,000
Transfer Agent and Registrar Fees............................... 10,000
Miscellaneous................................................... 10,518
---------
Total......................................................... $1,000,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
Article IX of the Registrant's Certificate of Incorporation provides for the
indemnification of directors to the fullest extent permissible under Delaware
law.
Article VI of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the Registrant if such
person acted in good faith and in a manner reasonably believed to be in and not
opposed to the best interest of the Registrant, and, with respect to any
criminal action or proceeding, the indemnified party had no reason to believe
his or her conduct was unlawful.
The Registrant intends to enter into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for in
the Registrant's Bylaws, and intends to enter into indemnification agreements
with any new directors and executive officers in the future.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the registrant and its executive officers and directors,
and by the registrant of the underwriters for certain liabilities, including
liabilities arising under the Securities Act, in connection with matters
specifically provided in writing by the Underwriters for inclusion in the
Registration Statement.
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 or her and incurred by him or her 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 September 1, 1996, the Registrant has issued and sold the following
securities:
1. From September 1, 1996 through August 31, 1999, the Registrant issued
and sold 515,549 shares of Common Stock to employees of the Registrant at
prices ranging from $0.90 to $6.00 per share upon exercise of stock
options pursuant to Registrant's 1989 Stock Option Plan, as amended.
2. On November 27, 1996 and January 24, 1997, the Registrant issued and
sold to 65 private investors an aggregate of 1,286,020 shares of Series F
Preferred Stock at a purchase price per share of Common Stock of $6.96.
3. On March 29, 1997, the Registrant agreed to issue an aggregate of
3,037,786 shares of Common Stock to Cypress Semiconductor Corporation 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 6 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, with respect to item 2 above in reliance on Regulation D
promulgated under Section 4(2) of the Securities Act, with respect to item 3
above in reliance on Section 4(2) of the Securities Act, and with respect to
item 1 above 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** Amended and Restated Certificate of Incorporation of the Registrant (Delaware) to
be effective upon closing of the offering.
3.2** Bylaws of the Registrant (Delaware) to be effective upon 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** 1999 Stock Plan and form of Option Agreement thereunder.
10.3** 1999 Employee Stock Purchase Plan.
10.4** 1989 Stock Option Plan.
10.5** Series F Preferred Stock Purchase Agreement dated November 27, 1996 and January
24, 1997 by and among the Registrant and the Purchasers named therein.
10.6+** Termination Agreement dated March 29, 1997 between the Registrant and Cypress
Semiconductor Corporation.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.7** Cross License Agreement dated March 29, 1997 between the Registrant and Cypress
Semiconductor Corporation.
10.8+** Wafer Fabrication Agreement March 29, 1997 between the Registrant and Cypress
Semiconductor Corporation.
10.9** Sixth Amended and Restated Shareholder Agreement dated March 29, 1997 by and among
the Registrant, Cypress Semiconductor Corporation and certain stockholders.
10.10** Sixth Amended and Restated Registration Rights Agreement dated March 29, 1997 by
and among the Registrant, Cypress and certain stockholders.
10.11** Technical Transfer, Joint Development License and Foundry Supply Agreement, dated
October 2, 1992, between the Registrant and Cypress.
10.12** 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.
10.13** Business Loan Agreement dated August 9, 1995 between the Registrant and Silicon
Valley Bank, as amended.
10.14** Loan and Security Agreement dated August 8, 1996 between the Registrant and
Silicon Valley Bank, as amended.
10.15** Export-Import Bank Loan and Security Agreement dated August 8, 1996 between the
Registrant and Silicon Valley Bank.
10.16** First Amended and Restated Common Stock Purchase Agreement dated June 13, 1997
between the Registrant and Cypress.
10.17+** Take or Pay Agreement dated July 21, 1997 between the Registrant and Taiwan
Semiconductor Manufacturing Company, Ltd.
10.18+** Patent Cross License Agreement, dated August 25, 1998, between the Registrant and
Actel Corporation.
16.1** Letter of Deloitte & Touche LLP, Independent Accountants, dated July 28, 1997
regarding change in certifying accountant.
23.1 Consent of Independent Accountants.
23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (See Exhibit
5.1).
24.1** Power of Attorney.
27.1** Financial Data Schedule.
</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
<TABLE>
<CAPTION>
INDEX
-----------
<S> <C>
Report of Independent Accountants on Financial Statement Schedules......................................... S-1
Schedule II - Valuation and Qualifying Accounts--Allowance for Doubtful Accounts........................... S-2
Schedule II - Valuation and Qualifying Accounts--Sales Return and Allowance Reserve........................ S-3
</TABLE>
II-3
<PAGE>
All other schedules are omitted because they are inapplicable or the
requested information is shown in the financial statements of the Registrant or
notes thereto.
ITEM 17. UNDERTAKINGS
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.
Insofar as indemnification by the Registrant 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.
(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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Sunnyvale, State of
California, on the 15th day of September, 1999.
<TABLE>
<S> <C> <C>
QUICKLOGIC CORPORATION
By: /s/ E. THOMAS HART*
-----------------------------------------
E. Thomas Hart
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
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:
SIGNATURE TITLE DATE
- ---------------------------- -------------------------- -------------------
President, Chief Executive
/s/ E. THOMAS HART* Officer and Director
- ---------------------------- (Principal Executive September 15, 1999
E. Thomas Hart Officer)
Vice President, Finance,
/s/ ARTHUR O. WHIPPLE Chief Financial Officer
- ---------------------------- and Secretary (Principal September 15, 1999
Arthur O. Whipple Financial Officer)
- ---------------------------- Director
Irwin B. Federman
/s/ HUA-THYE CHUA*
- ---------------------------- Director September 15, 1999
Hua-Thye Chua
/s/ DONALD P. BEADLE*
- ---------------------------- Director September 15, 1999
Donald P. Beadle
/s/ MICHAEL J. CALLAHAN*
- ---------------------------- Director September 15, 1999
Michael J. Callahan
By: /s/ ARTHUR O.
WHIPPLE
- ----------------------------
Arthur O. Whipple
ATTORNEY-IN-FACT
II-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of QuickLogic Corporation
Our audits of the consolidated financial statements as of December 31, 1997 and
1998 and for the three years then ended referred to in our report dated June 7,
1999 appearing on page F-2 of the consolidated financial statements in this
Registration Statement on Form S-1 also included an audit of the Financial
Statement Schedules listed in Item 16(b) in this Registration Statement on Form
S-1. In our opinion, these financial statement schedules present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
June 7, 1999
S-1
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
QUICKLOGIC CORPORATION
(in thousands)
<TABLE>
<CAPTION>
ADDITIONS
--------------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER
BEGINNING COSTS AND ACCOUNTS- DEDUCTIONS- BALANCE AT
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE END OF PERIOD
- ------------------------------------------------ ------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Reserves and allowances deducted from asset
accounts; Allowance for Doubtful Accounts $ 226 29 -- (10) $ 245
Year ended December 31, 1997:
Reserves and allowances deducted from asset
accounts; Allowance for Doubtful Accounts $ 105 121 -- -- $ 226
Year ended December 31, 1996:
Reserves and allowances deducted from asset
accounts; Allowance for Doubtful Accounts $ 160 5 -- (60) $ 105
</TABLE>
S-2
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
QUICKLOGIC CORPORATION
(in thousands)
<TABLE>
<CAPTION>
ADDITIONS
------------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER
BEGINNING COSTS AND ACCOUNTS- DEDUCTIONS- BALANCE AT
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE END OF PERIOD
- ------------------------------------------------ ----------- ------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Reserves and allowances deducted from asset
accounts; Sales Return and Allowance Reserve $ 2,402 5,002 -- (4,377) $ 3,027
Year ended December 31, 1997:
Reserves and allowances deducted from asset
accounts; Sales Return and Allowance Reserve $ 1,979 5,880 -- (5,457) $ 2,402
Year ended December 31, 1996:
Reserves and allowances deducted from asset
accounts; Sales Return and Allowance Reserve $ 522 3,245 -- 1,788 $ 1,979
</TABLE>
S-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation of the Registrant (Delaware) to be effective upon
closing of the offering.
3.2** Bylaws of the Registrant (Delaware) to be effective upon 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** 1999 Stock Plan and form of Option Agreement thereunder.
10.3** 1999 Employee Stock Purchase Plan.
10.4** 1989 Stock Option Plan.
10.5** Series F Preferred Stock Purchase Agreement dated November 27, 1996 and January 24, 1997 by and among
the Registrant and the Purchasers named therein.
10.6+** Termination Agreement dated March 29, 1997 between the Registrant and Cypress Semiconductor
Corporation.
10.7** Cross License Agreement dated March 29, 1997 between the Registrant and Cypress Semiconductor
Corporation.
10.8+** Wafer Fabrication Agreement March 29, 1997 between the Registrant and Cypress Semiconductor
Corporation.
10.9** Sixth Amended and Restated Shareholder Agreement dated March 29, 1997 by and among the Registrant,
Cypress Semiconductor Corporation and certain stockholders.
10.10** Sixth Amended and Restated Registration Rights Agreement dated March 29, 1997 by and among the
Registrant, Cypress and certain stockholders.
10.11** Technical Transfer, Joint Development License and Foundry Supply Agreement, dated October 2, 1992,
between the Registrant and Cypress.
10.12** 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.
10.13** Business Loan Agreement dated August 9, 1995 between the Registrant and Silicon Valley Bank, as
amended.
10.14** Loan and Security Agreement dated August 8, 1996 between the Registrant and Silicon Valley Bank, as
amended.
10.15** Export-Import Bank Loan and Security Agreement dated August 8, 1996 between the Registrant and Silicon
Valley Bank.
10.16** First Amended and Restated Common Stock Purchase Agreement dated June 13, 1997 between the Registrant
and Cypress.
10.17+** Take or Pay Agreement dated July 21, 1997 between the Registrant and Taiwan Semiconductor
Manufacturing Company, Ltd.
10.18+** Patent Cross License Agreement, dated August 25, 1998, between the Registrant and Actel Corporation.
16.1** Letter of Deloitte & Touche LLP, Independent Accountants, dated July 28, 1997 regarding change in
certifying accountant.
23.1 Consent of Independent Accountants.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (See Exhibit 5.1).
24.1** Power of Attorney.
27.1** Financial Data Schedule.
</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 1.1
UNDERWRITING AGREEMENT
__________ __, 1999
BancBoston Robertson Stephens Inc.
Bear, Stearns & Co. Inc.
SoundView Technology Group, Inc.
As Representatives of the several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
Ladies and Gentlemen:
INTRODUCTORY. QuickLogic Corporation, a Delaware corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
SCHEDULE A (the "Underwriters") an aggregate of [___] shares of its Common
Stock, par value $0.001 per share (the "Common Shares"); and the stockholder
of the Company named in SCHEDULE B (the "Selling Stockholder") severally
propose to sell to the Underwriters an aggregate of [___] Common Shares. The
[___] Common Shares to be sold by the Company and the [___] shares of Common
Shares to be sold by the Selling Stockholder are collectively called the
"Firm Shares". In addition, the Company has granted to the Underwriters an
option to purchase up to an additional [___] Common Shares and the Selling
Stockholder has granted to the Underwriters an option to purchase up to an
additional [___] Common Shares, all as provided in Section 2. The [___]
additional Common Shares to be sold by the Company and the additional [___]
Common Shares to be sold by the Selling Stockholder pursuant to such option
are collectively called the "Option Shares". The Firm Shares and, if and to
the extent such option is exercised, the Option Shares are collectively
called the "Shares". BancBoston Robertson Stephens Inc., Bear, Stearns & Co.
Inc., and SoundView Technology Group, Inc. have agreed to act as
representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Common
Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-28833), which contains a form of prospectus to be used in connection with
the public offering and sale of the Shares. Such registration statement, as
amended, including the financial statements, exhibits and schedules thereto,
in the form in which it was declared effective by the Commission under the
Securities Act
<PAGE>
of 1933 and the rules and regulations promulgated thereunder (collectively,
the "Securities Act"), including any information deemed to be a part thereof
at the time of effectiveness pursuant to Rule 430A or Rule 434 under the
Securities Act, is called the "Registration Statement". Any registration
statement filed by the Company pursuant to Rule 462(b) under the Securities
Act is called the "Rule 462(b) Registration Statement", and from and after
the date and time of filing of the Rule 462(b) Registration Statement the
term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Shares, is called the "Prospectus"; provided, however,
if the Company has, with the consent of BancBoston Robertson Stephens Inc.,
elected to rely upon Rule 434 under the Securities Act, the term "Prospectus"
shall mean the Company's prospectus subject to completion (each, a
"preliminary prospectus") dated [____________] (such preliminary prospectus
is called the "Rule 434 preliminary prospectus"), together with the
applicable term sheet (the "Term Sheet") prepared and filed by the Company
with the Commission under Rules 434 and 424(b) under the Securities Act and
all references in this Agreement to the date of the Prospectus shall mean the
date of the Term Sheet. All references in this Agreement to (i) the
Registration Statement, the Rule 462(b) Registration Statement, a preliminary
prospectus, the Prospectus or the Term Sheet, or any amendments or
supplements to any of the foregoing, shall include any copy thereof filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval System ("EDGAR").
The Company and the Selling Stockholder hereby confirm their
respective agreements with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES.
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents, warrants and covenants to each Underwriter as follows:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has
complied to the Commission's satisfaction with all requests of the Commission
for additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been
instituted or are pending or, to the best knowledge of the Company, are
contemplated or threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and, if filed by
electronic transmission pursuant to EDGAR (except as may be permitted by
Regulation S-T
2
<PAGE>
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Shares.
Each of the Registration Statement, any Rule 462(b) Registration Statement
and any post-effective amendment thereto, at the time it became effective and
at all subsequent times, complied and will comply in all material respects
with the Securities Act and did not and will not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Prospectus, as amended or supplemented, as of its date and at all subsequent
times, did not and will not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The representations and warranties set forth in the two
immediately preceding sentences do not apply to statements in or omissions
from the Registration Statement, any Rule 462(b) Registration Statement, or
any post-effective amendment thereto, or the Prospectus, or any amendments or
supplements thereto, made in reliance upon and in conformity with information
relating to any Underwriter furnished to the Company in writing by the
Representatives expressly for use therein. There are no contracts or other
documents required to be described in the Prospectus or to be filed as
exhibits to the Registration Statement which have not been described or filed
as required.
(b) OFFERING MATERIALS FURNISHED TO UNDERWRITERS. The Company has
delivered to the Representatives three complete conformed copies of the
Registration Statement and of each consent and certificate of experts filed
as a part thereof, and conformed copies of the Registration Statement
(without exhibits) and preliminary prospectuses and the Prospectus, as
amended or supplemented, in such quantities and at such places as the
Representatives have reasonably requested for each of the Underwriters.
(c) DISTRIBUTION OF OFFERING MATERIAL BY THE COMPANY. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.
(d) THE UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement
of, the Company, enforceable in accordance with its terms, except as rights
to indemnification hereunder may be limited by applicable law and except as
the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles.
(e) AUTHORIZATION OF THE SHARES TO BE SOLD BY THE COMPANY. The Shares
to be purchased by the Underwriters from the Company have been duly
authorized
3
<PAGE>
for issuance and sale pursuant to this Agreement and, when issued and
delivered by the Company pursuant to this Agreement, will be validly issued,
fully paid and nonassessable.
(f) AUTHORIZATION OF THE SHARES TO BE SOLD BY THE SELLING
STOCKHOLDER. The Common Shares to be purchased by the Underwriters from the
Selling Stockholder, when issued, were validly issued, fully paid and
nonassessable.
(g) NO APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included
in the offering contemplated by this Agreement, other than the Selling
Stockholder with respect to the Shares included in the Registration
Statement, except for such rights as have been duly waived.
(h) NO MATERIAL ADVERSE CHANGE. Subsequent to the respective dates as
of which information is given in the Prospectus: (i) there has been no
material adverse change, or any development that could reasonably be expected
to result in a material adverse change, in the condition, financial or
otherwise, or in the earnings, business, operations or prospects, whether or
not arising from transactions in the ordinary course of business, of the
Company and its subsidiaries, considered as one entity (any such change or
effect, where the context so requires, is called a "Material Adverse Change"
or a "Material Adverse Effect"); (ii) the Company and its subsidiaries,
considered as one entity, have not incurred any material liability or
obligation, indirect, direct or contingent, not in the ordinary course of
business nor entered into any material transaction or agreement not in the
ordinary course of business; and (iii) there has been no dividend or
distribution of any kind declared, paid or made by the Company or, except for
dividends paid to the Company or other subsidiaries, any of its subsidiaries
on any class of capital stock or repurchase or redemption by the Company or
any of its subsidiaries of any class of capital stock.
(i) INDEPENDENT ACCOUNTANTS. Pricewaterhouse Coopers LLP, who have
expressed their opinion with respect to the financial statements (which term
as used in this Agreement includes the related notes thereto) filed with the
Commission as a part of the Registration Statement and included in the
Prospectus, are independent public or certified public accountants as
required by the Securities Act.
(j) PREPARATION OF THE FINANCIAL STATEMENTS. The financial statements
filed with the Commission as a part of the Registration Statement and
included in the Prospectus present fairly the consolidated financial position
of the Company and its subsidiaries as of and at the dates indicated and the
results of their operations and cash flows for the periods specified. Such
financial statements have been prepared in conformity with generally accepted
accounting principles as applied in the United
4
<PAGE>
States, applied on a consistent basis throughout the periods involved, except
as may be expressly stated in the related notes thereto. No other financial
statements or supporting schedules are required to be included in the
Registration Statement. The financial data set forth in the Prospectus under
the captions "Prospectus Summary--Summary Consolidated Financial Data",
"Selected Consolidated Financial Data" and "Capitalization" fairly present
the information set forth therein on a basis consistent with that of the
audited financial statements contained in the Registration Statement.
(k) COMPANY'S ACCOUNTING SYSTEM. The Company and each of its
subsidiaries maintain a system of accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles as applied in the
United States and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared
with existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(l) SUBSIDIARIES OF THE COMPANY. The Company does not own or control,
directly or indirectly, any corporation, association or other entity other
than the subsidiaries listed in Exhibit 21 to the Registration Statement.
(m) INCORPORATION AND GOOD STANDING OF THE COMPANY AND ITS
SUBSIDIARIES. Each of the Company and its subsidiaries has been duly
organized and is validly existing as a corporation or limited liability
company, as the case may be, in good standing under the laws of the
jurisdiction in which it is organized with full corporate power and authority
to own its properties and conduct its business as described in the
prospectus, and is duly qualified to do business as a foreign corporation and
is in good standing under the laws of each jurisdiction which requires such
qualification.
(n) CAPITALIZATION OF THE SUBSIDIARIES. All the outstanding shares of
capital stock of each subsidiary have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as otherwise set
forth in the Prospectus, all outstanding shares of capital stock of the
subsidiaries are owned by the Company either directly or through wholly owned
subsidiaries free and clear of any security interests, claims, liens or
encumbrances.
(o) NO PROHIBITION ON SUBSIDIARIES FROM PAYING DIVIDENDS OR MAKING
OTHER DISTRIBUTIONS. No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from making
any other distribution on such subsidiary's capital stock, from repaying to
the Company any loans or advances to such subsidiary from the Company or from
transferring any of
5
<PAGE>
such subsidiary's property or assets to the Company or any other subsidiary
of the Company, except as described in or contemplated by the Prospectus.
(p) CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options described in the
Prospectus). The Common Shares (including the Shares) conform in all material
respects to the description thereof contained in the Prospectus. All of the
issued and outstanding Common Shares have been duly authorized and validly
issued, are fully paid and nonassessable and have been issued in compliance
with federal and state securities laws. None of the outstanding Common Shares
were issued in violation of any preemptive rights, rights of first refusal or
other similar rights to subscribe for or purchase securities of the Company.
There are no authorized or outstanding options, warrants, preemptive rights,
rights of first refusal or other rights to purchase, or equity or debt
securities convertible into or exchangeable or exercisable for, any capital
stock of the Company or any of its subsidiaries other than those accurately
described in the Prospectus. The description of the Company's stock option,
stock bonus and other stock plans or arrangements, and the options or other
rights granted thereunder, set forth in the Prospectus accurately and fairly
presents the information required to be shown with respect to such plans,
arrangements, options and rights.
(q) STOCK EXCHANGE LISTING. The Shares have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(r) NO CONSENTS, APPROVALS OR AUTHORIZATIONS REQUIRED. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made under the
Securities Act and such as may be required (i) under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the Shares
by the Underwriters in the manner contemplated here and in the Prospectus,
(ii) by the National Association of Securities Dealers, LLC and (iii) by the
federal and provincial laws of Canada.
(s) NON-CONTRAVENTION OF EXISTING INSTRUMENTS AGREEMENTS. Neither the
issue and sale of the Shares nor the consummation of any other of the
transactions herein contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any of
its subsidiaries pursuant to, (i) the charter or by-laws of the Company or
any of its subsidiaries, (ii) the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or other agreement,
obligation, condition, covenant or instrument to
6
<PAGE>
which the Company or any of its subsidiaries is a party or bound or to which
its or their property is subject or (iii) any statute, law, rule, regulation,
judgment, order or decree applicable to the Company or any of its
subsidiaries of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction over the
Company or any of its subsidiaries or any of its or their properties.
(t) NO DEFAULTS OR VIOLATIONS. Neither the Company nor any subsidiary
is in violation or default of (i) any provision of its charter or by-laws,
(ii) the terms of any indenture, contract, lease, mortgage, deed of trust,
note agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument to which it is a party or bound or to which its
property is subject or (iii) any statute, law, rule, regulation, judgment,
order or decree of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction over the
Company or such subsidiary or any of its properties, as applicable, except
any such violation or default which would not, singly or in the aggregate,
result in a Material Adverse Change except as otherwise disclosed in the
Prospectus.
(u) NO ACTIONS, SUITS OR PROCEEDINGS. No action, suit or proceeding
by or before any court or governmental agency, authority or body or any
arbitrator involving the Company or any of its subsidiaries or its or their
property is pending or, to the best knowledge of the Company, threatened that
(i) could reasonably be expected to have a Material Adverse Effect on the
performance of this Agreement or the consummation of any of the transactions
contemplated hereby or (ii) could reasonably be expected to result in a
Material Adverse Effect.
(v) ALL NECESSARY PERMITS, ETC. The Company and each subsidiary
possess such valid and current certificates, authorizations or permits issued
by the appropriate state, federal or foreign regulatory agencies or bodies
necessary to conduct their respective businesses, and neither the Company nor
any subsidiary has received any notice of proceedings relating to the
revocation or modification of, or non-compliance with, any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, could result in a Material
Adverse Change.
(w) TITLE TO PROPERTIES. The Company and each of its subsidiaries has
good and marketable title to all the properties and assets reflected as owned
in the financial statements referred to in Section 1(A) (i) above, in each
case free and clear of any security interests, mortgages, liens,
encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not
materially interfere with the use made or proposed to be made of such
property by the Company or such subsidiary. The real property, improvements,
equipment and personal property held under lease by the Company or any
subsidiary are held under valid and enforceable leases, with such exceptions
7
<PAGE>
as are not material and do not materially interfere with the use made or
proposed to be made of such real property, improvements, equipment or
personal property by the Company or such subsidiary.
(x) TAX LAW COMPLIANCE. The Company and its consolidated subsidiaries
have filed all necessary federal, state and foreign income and franchise tax
returns and have paid all taxes required to be paid by any of them and, if
due and payable, any related or similar assessment, fine or penalty levied
against any of them. The Company has made adequate charges, accruals and
reserves in the applicable financial statements referred to in Section
1(A)(i) above in respect of all federal, state and foreign income and
franchise taxes for all periods as to which the tax liability of the Company
or any of its consolidated subsidiaries has not been finally determined. The
Company is not aware of any tax deficiency that has been or might be asserted
or threatened against the Company that could result in a Material Adverse
Change.
(y) INTELLECTUAL PROPERTY RIGHTS. Each of the Company and its
subsidiaries owns or possesses adequate rights to use all patents, patent
rights or licenses, inventions, collaborative research agreements, trade
secrets, know-how, trademarks, service marks, trade names and copyrights
which are necessary to conduct its businesses as described in the
Registration Statement and Prospectus; the expiration of any patents, patent
rights, trade secrets, trademarks, service marks, trade names or copyrights
would not result in a Material Adverse Change that is not otherwise disclosed
in the Prospectus; the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any patent, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names or
copyrights; and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names or copyrights which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, might have a Material Adverse Change. There is no claim being made
against the Company regarding patents, patent rights or licenses, inventions,
collaborative research, trade secrets, know-how, trademarks, service marks,
trade names or copyrights. The Company and its subsidiaries do not in the
conduct of their business as now or proposed to be conducted as described in
the Prospectus infringe or conflict with any right or patent of any third
party, or any discovery, invention, product or process which is the subject
of a patent application filed by any third party, known to the Company or any
of its subsidiaries, which such infringement or conflict is reasonably likely
to result in a Material Adverse Change.
(z) YEAR 2000 PREPAREDNESS. There are no issues related to the
Company's, or any of its subsidiaries', preparedness for the Year 2000 that
(i) are of a character required to be described or referred to in the
Registration Statement
8
<PAGE>
or Prospectus by the Securities Act which have not been accurately described
in the Registration Statement or Prospectus or (ii) might reasonably be
expected to result in any Material Adverse Change or that might materially
affect their properties, assets or rights. All internal computer systems and
each Constituent Component (as defined below) of those systems and all
computer-related products and each Constituent Component (as defined below)
of those products of the Company and each of its subsidiaries fully comply
with Year 2000 Qualification Requirements. "Year 2000 Qualifications
Requirements" means that the internal computer systems and each Constituent
Component (as defined below) of those systems and all computer-related
products and each Constituent Component (as defined below) of those products
of the Company and each of its subsidiaries (i) have been reviewed to confirm
that they store, process (including sorting and performing mathematical
operations, calculations and computations), input and output data containing
date and information correctly regardless of whether the date contains dates
and times before, on or after January 1, 2000, (ii) have been designated to
ensure date and time entry recognition and calculations, and date data
interface values that reflect the century, (iii) accurately manage and
manipulate data involving dates and times, including single century formulas
and multi-century formulas, and will not cause an abnormal ending scenario
within the application or generate incorrect values or invalid results
involving such dates, (iv) accurately process any date rollover, and (v)
accept and respond to two-digit year date input in a manner that resolves any
ambiguities as to the century. "Constituent Component" means all software
(including operating systems, programs, packages and utilities), firmware,
hardware, networking components, and peripherals provided as part of the
configuration. The Company has inquired of material vendors as to their
preparedness for the Year 2000 and has disclosed in the Registration
Statement or Prospectus any issues that might reasonably be expected to
result in any Material Adverse Change.
(aa) NO TRANSFER TAXES OR OTHER FEES. There are no transfer taxes or
other similar fees or charges under Federal law or the laws of any state, or
any political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the
Company of the shares.
(bb) COMPANY NOT AN "INVESTMENT COMPANY". The Company has been
advised of the rules and requirements under the Investment Company Act of
1940, as amended (the "Investment Company Act"). The Company is not, and
after receipt of payment for the Shares will not be, an "investment company"
or an entity "controlled" by an "investment company" within the meaning of
the Investment Company Act and will conduct its business in a manner so that
it will not become subject to the Investment Company Act.
(cc) INSURANCE. Each of the Company and its subsidiaries are insured
by recognized, financially sound and reputable institutions with policies in
such amounts and with such deductibles and covering such risks as are
generally
9
<PAGE>
deemed adequate and customary for their businesses including, but not limited
to, policies covering real and personal property owned or leased by the
Company and its subsidiaries against theft, damage, destruction, acts of
vandalism and earthquakes, general liability and Directors and Officers
liability. The Company has no reason to believe that it or any subsidiary
will not be able (i) to renew its existing insurance coverage as and when
such policies expire or (ii) to obtain comparable coverage from similar
institutions as may be necessary or appropriate to conduct its business as
now conducted and at a cost that would not result in a Material Adverse
Change. Neither of the Company nor any subsidiary has been denied any
insurance coverage which it has sought or for which it has applied.
(dd) LABOR MATTERS. To the best of Company's knowledge, no labor
disturbance by the employees of the Company or any of its subsidiaries exists
or is imminent; and the Company is not aware of any existing or imminent
labor disturbance by the employees of any of its principal suppliers,
subassemblers, value added resellers, subcontractors, original equipment
manufacturers, authorized dealers or international distributors that might be
expected to result in a Material Adverse Change.
(ee) NO PRICE STABILIZATION OR MANIPULATION. The Company has not
taken and will not take, directly or indirectly, any action designed to or
that might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or
resale of the Shares.
(ff) LOCK-UP AGREEMENTS. Each officer and director of the company,
the Selling Stockholder and each beneficial owner of one or more percent of
the outstanding issued share capital of the Company has agreed to sign an
agreement substantially in the form attached hereto as EXHIBIT A (the
"Lock-up Agreements"). The Company has provided to counsel for the
Underwriters a complete and accurate list of all securityholders of the
Company and the number and type of securities held by each securityholder.
The Company has provided to counsel for the Underwriters true, accurate and
complete copies of all of the Lock-up Agreements presently in effect or
effected hereby. The Company hereby represents and warrants that it will not
release any of its officers, directors or other stockholders from any Lock-up
Agreements currently existing or hereafter effected without the prior written
consent of BancBoston Robertson Stephens Inc.
(gg) RELATED PARTY TRANSACTIONS. There are no business relationships
or related-party transactions involving the Company or any subsidiary or any
other person required to be described in the Prospectus which have not been
described as required.
(hh) ENVIRONMENTAL LAWS. (i) The Company is in compliance with all
rules, laws and regulations relating to the use, treatment, storage and
disposal of toxic substances and protection of health or the environment
("Environmental Laws")
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which are applicable to its business, except where the failure to comply
would not result in a Material Adverse Change, (ii) the Company has received
no notice from any governmental authority or third party of an asserted claim
under Environmental Laws, which claim is required to be disclosed in the
Registration Statement and the Prospectus, (iii) the Company will not be
required to make future material capital expenditures to comply with
Environmental Laws and (iv) no property which is owned, leased or occupied by
the Company has been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended
(42 U.S.C. Section 9601, ET SEQ.), or otherwise designated as a contaminated
site under applicable state or local law.
(ii) PERIODIC REVIEW OF COSTS OF ENVIRONMENTAL COMPLIANCE. In the
ordinary course of its business, the Company conducts a periodic review of
the effect of Environmental Laws on the business, operations and properties
of the Company and its subsidiaries, in the course of which it identifies and
evaluates associated costs and liabilities (including, without limitation,
any capital or operating expenditures required for clean-up, closure of
properties or compliance with Environmental Laws or any permit, license or
approval, any related constraints on operating activities and any potential
liabilities to third parties). On the basis of such review and the amount of
its established reserves, the Company has reasonably concluded that such
associated costs and liabilities would not, individually or in the aggregate,
result in a Material Adverse Change.
(jj) ERISA COMPLIANCE. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or maintained
by the Company, its subsidiaries or their "ERISA Affiliates" (as defined
below) are in compliance in all material respects with ERISA. "ERISA
Affiliate" means, with respect to the Company or a subsidiary, any member of
any group of organizations described in Sections 414(b),(c),(m) or (o) of the
Internal Revenue Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "Code") of which the Company or such
subsidiary is a member. No "reportable event" (as defined under ERISA) has
occurred or is reasonably expected to occur with respect to any "employee
benefit plan" established or maintained by the Company, its subsidiaries or
any of their ERISA Affiliates. No "employee benefit plan" established or
maintained by the Company, its subsidiaries or any of their ERISA Affiliates,
if such "employee benefit plan" were terminated, would have any "amount of
unfounded benefit liabilities" (as defined under ERISA). Neither the Company,
its subsidiaries nor any of their ERISA Affiliates has incurred or reasonably
expects to incur any liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "employee benefit plan" or (ii)
Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their
ERISA Affiliates that is intended to be qualified under Section 401(a) of the
Code is so
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qualified and nothing has occurred, whether by action or failure to act,
which would cause the loss of such qualification.
Any certificate signed by an officer of the Company and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to each Underwriter
as to the matters set forth therein.
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDER. The
Selling Stockholder represents, warrants and covenants to each Underwriter as
follows:
(a) THE UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by or on behalf of the Selling Stockholder
and is a valid and binding agreement of the Selling Stockholder, enforceable
in accordance with its terms, except as rights to indemnification hereunder
may be limited by applicable law and except as the enforcement hereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or
by general equitable principles.
(b) THE CUSTODY AGREEMENT AND POWER OF ATTORNEY. Each of the (i)
Custody Agreement signed by the Selling Stockholder and [___], as custodian
(the "Custodian"), relating to the deposit of the Shares to be sold by the
Selling Stockholder (the "Custody Agreement") and (ii) Power of Attorney
appointing certain individuals named therein as the Selling Stockholder's
attorneys-in-fact (each, an "Attorney-in-Fact") to the extent set forth
therein relating to the transactions contemplated hereby and by the
Prospectus (the "Power of Attorney"), of the Selling Stockholder has been
duly authorized, executed and delivered by the Selling Stockholder and is a
valid and binding agreement of the Selling Stockholder, enforceable in
accordance with its terms, except as rights to indemnification thereunder may
be limited by applicable law and except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or
by general equitable principles. The Selling Stockholder agrees that the
Shares to be sold by the Selling Stockholder on deposit with the Custodian is
subject to the interests of the Underwriters, that the arrangements made for
such custody are to that extent irrevocable, and that the obligations of the
Selling Stockholder hereunder shall not be terminated, except as provided in
this Agreement or in the Custody Agreement, by any act of the Selling
Stockholder, by operation of law, by death or incapacity of the Selling
Stockholder or by the occurrence of any other event. If the Selling
Stockholder should die or become incapacitated, or in any other event should
occur, before the delivery of the Shares to be sold by the Selling
Stockholder hereunder, the documents evidencing the Shares to be sold by the
Selling Stockholder then on deposit with the Custodian shall be delivered by
the Custodian in accordance with the terms and conditions of
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this Agreement as if such death, incapacity or other event had not occurred,
regardless of whether or not the Custodian shall have received notice thereof.
(c) TITLE TO SHARES TO BE SOLD. The Selling Stockholder is the lawful
owner of the Shares to be sold by the Selling Stockholder hereunder and upon
sale and delivery of, and payment for, such Shares, as provided herein, the
Selling Stockholder will convey good and marketable title to such Shares,
free and clear of all liens, encumbrances, equities and claims whatsoever.
(d) ALL AUTHORIZATIONS OBTAINED. The Selling Stockholder has, and on
the First Closing Date and the Second Closing Date (as defined below) will
have, good and valid title to all of the Company Shares which may be sold by
the Selling Stockholder pursuant to this Agreement on such date and the legal
right and power, and all authorizations and approvals required by law and
under its charter or by-laws, to enter into this Agreement and its Custody
Agreement and Power of Attorney, to sell, transfer and deliver all of the
Shares which may be sold by the Selling Stockholder pursuant to this
Agreement and to comply with its other obligations hereunder and thereunder.
(e) NO FURTHER CONSENTS, AUTHORIZATION OR APPROVALS. No consent,
approval, authorization or order of any court or governmental agency or body
is required for the consummation by the Selling Stockholder of the
transactions contemplated herein, except such as may have been obtained under
the Securities Act and such as may be required under the federal and
provincial securities laws of Canada or the blue sky laws or any jurisdiction
in connection with the purchase and distribution of the Shares by the
Underwriters and such other approvals as have been obtained.
(f) NON-CONTRAVENTION. Neither the sale of the Securities being sold
by the Selling Stockholder nor the consummation of any other of the
transactions herein contemplated by the Selling Stockholder or the
fulfillment of the terms hereof by the Selling Stockholder will conflict
with, result in a breach or violation of, or constitute a default under any
law or the terms of any indenture or other agreement or instrument to which
the Selling Stockholder is party or bound, any judgment, order or decree
applicable to the Selling Stockholder or any court or regulatory body,
administrative agency, governmental body or arbitrator having jurisdiction
over the Selling Stockholder.
(g) NO REGISTRATION OR OTHER SIMILAR RIGHTS. The Selling Stockholder
does not have any registration or other similar rights to have any equity or
debt securities registered for sale by the Company under the Registration
Statement or included in the offering contemplated by this Agreement, except
for such rights as are described in the Prospectus under "Shares Eligible for
Future Sale".
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(h) NO PREEMPTIVE, CO-SALE OR OTHER RIGHTS. The Selling Stockholder
does not have, or has waived prior to the date hereof, any preemptive right,
co-sale right or right of first refusal or other similar right to purchase
any of the Shares that are to be sold by the Company to the Underwriters
pursuant to this Agreement; and the Selling Stockholder does not own any
warrants, options or similar rights to acquire, and does not have any right
or arrangement to acquire, any capital stock, right, warrants, options or
other securities from the Company, other than those described in the
Registration Statement and the Prospectus.
(i) DISCLOSURE MADE BY THE SELLING STOCKHOLDER IN THE PROSPECTUS. All
information furnished by or on behalf of the Selling Stockholder in writing
expressly for use in the Registration Statement and Prospectus is, and on the
First Closing Date and the Second Closing Date (as defined below) will be,
true, correct, and complete in all material respects, and does not, and on
the First Closing Date and the Second Closing Date will not, contain any
untrue statement of a material fact or omit to state any material fact
necessary to make such information not misleading. The Selling Stockholder
confirms as accurate the number of shares of Company Shares set forth
opposite the Selling Stockholder's name in the Prospectus under the caption
"Principal and Selling Stockholder" (both prior to and after giving effect to
the sale of the Shares).
(j) NO PRICE STABILIZATION OR MANIPULATION. The Selling Stockholder
has not taken and will not take, directly or indirectly, any action designed
to or that might be reasonably expected to cause or result in stabilization
or manipulation of the price of the Common Stock to facilitate the sale or
resale of the Shares.
(k) NO TRANSFER TAXES OR OTHER FEES. There are no transfer taxes or
other similar fees or charges under Federal law or the laws of any state, or
any political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the sale by the Selling
Stockholder of the Shares.
(l) DISTRIBUTION OF OFFERING MATERIALS BY THE SELLING STOCKHOLDER.
The Selling Stockholder has not distributed and will not distribute, prior to
the later of the Second Closing Date (as defined below) and the completion of
the Underwriters' distribution of the Shares, any offering material in
connection with the offering and sale of the Shares by the Selling
Stockholder other than a preliminary prospectus, the Prospectus or the
Registration Statement.
(m) CONFIRMATION OF COMPANY REPRESENTATIONS AND WARRANTIES. The
Selling Stockholder has no reason to believe that the representations and
warranties of the Company contained in Section 1(A) hereof are not true and
correct, is familiar with the Registration Statement and the Prospectus and
has no knowledge of any material fact, condition or information not disclosed
in the Registration Statement or the Prospectus which has had or may result
in a Material Adverse Change on the condition, financial or otherwise, or on
the earnings,
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business, operation or prospects, whether or not arising from transactions in
the ordinary course of business of the Company and its subsidiaries,
considered as one entity, and is not prompted to sell the Shares to be sold
by the Selling Stockholder by any information concerning the Company which is
not set forth in the Registration Statement and the Prospectus.
Any certificate signed by or on behalf of the Selling Stockholder
and delivered to the Representatives or to counsel for the Underwriters shall
be deemed to be a representation and warranty by the Selling Stockholder to
each Underwriter as to the matters covered thereby.
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SECTION 2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) THE FIRM SHARES. Upon the terms herein set forth, (i) the Company
agrees to issue and sell to the several Underwriters an aggregate of [___]
Firm Shares and (ii) the Selling Stockholder agrees to sell to the several
Underwriters an aggregate of [___] Firm Shares. On the basis of the
representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company and the Selling
Stockholder the respective number of Firm Shares set forth opposite their
names on SCHEDULE A. The purchase price per Firm Share to be paid by the
several Underwriters to the Company and the Selling Stockholder shall be
$[___] per share.
(b) THE FIRST CLOSING DATE. Delivery of the Firm Shares to be
purchased by the Underwriters and payment therefor shall be made by the
Company and the Representatives at 6:00 a.m. San Francisco time, at the
offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650
Page Mill Road, Palo Alto, California (or at such other place as may be
agreed upon among the Representatives and the Company), (i) on the third
(3rd) full business day following the first day that Shares are traded, (ii)
if this Agreement is executed and delivered after 1:30 P.M., San Francisco
time, the fourth (4th) full business day following the day that this
Agreement is executed and delivered or (iii) at such other time and date not
later that seven (7) full business days following the first day that Shares
are traded as the Representatives and the Company may determine (or at such
time and date to which payment and delivery shall have been postponed
pursuant to Section 8 hereof), such time and date of payment and delivery
being herein called the "Closing Date;" provided, however, that if the
Company has not made available to the Representatives copies of the
Prospectus within the time provided in Section 4(d) hereof, the
Representatives may, in its sole discretion, postpone the Closing Date until
no later that two (2) full business days following delivery of copies of the
Prospectus to the Representative.
(c) THE OPTION SHARES; THE SECOND CLOSING DATE. In addition, on the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Company
and the Selling Stockholder hereby grant an option to the several
Underwriters to purchase, severally and not jointly, up to an aggregate of
[___] Option Shares from the Company and the Selling Stockholder at the
purchase price per share to be paid by the Underwriters for the Firm Shares.
The option granted hereunder is for use by the Underwriters solely in
covering any over-allotments in connection with the sale and distribution of
the Firm Shares. The option granted hereunder may be exercised at any time
upon notice by the Representatives to the Company and the Selling
Stockholder, which notice may be given at any time within 30 days from the
date of this Agreement. The time and date of delivery of the Option Shares,
if subsequent to the First Closing Date, is called the "Second Closing Date"
and shall
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be determined by the Representatives and shall not be earlier than three nor
later than five full business days after delivery of such notice of exercise.
If any Option Shares are to be purchased, (i) each Underwriter agrees,
severally and not jointly, to purchase the number of Option Shares (subject
to such adjustments to eliminate fractional shares as the Representatives may
determine) that bears the same proportion to the total number of Option
Shares to be purchased as the number of Firm Shares set forth on SCHEDULE A
opposite the name of the Underwriter bears to the total number of Firm Shares
and (ii) the Company and the Selling Stockholder agree, severally and not
jointly, to sell the number of Option Shares (subject to such adjustments to
eliminate fractional shares as the Representatives may determine) that bears
the same proportion to the total number of Option Shares to be sold as the
number of Option Shares set forth in SCHEDULE B opposite the name of the
Selling Stockholder (or, in the case of the Company, as the number of Option
Shares to be sold by the Company as set forth in the paragraph "Introductory"
of this Agreement) bears to the total number of Option Shares. The
Representatives may cancel the option at any time prior to its expiration by
giving written notice of such cancellation to the Company and the Selling
Stockholder.
(d) PUBLIC OFFERING OF THE SHARES. The Representatives hereby advise
the Company and the Selling Stockholder that the Underwriters intend to offer
for sale to the public, as described in the Prospectus, their respective
portions of the Shares as soon after this Agreement has been executed and the
Registration Statement has been declared effective as the Representative, in
its sole judgment, has determined is advisable and practicable.
(e) PAYMENT FOR THE SHARES. Payment for the Shares to be sold by the
Company shall be made at the First Closing Date (and, if applicable, at the
Second Closing Date) by wire transfer of immediately available funds to the
order of the Company. Payment for the Shares to be sold by the Selling
Stockholder shall be made at the First Closing Date (and, if applicable, at
the Second Closing Date) by wire transfer of immediately available funds to
the order of the Custodian.
It is understood that the Representatives have been authorized,
for their own account and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Shares and any Option Shares the Underwriters have agreed to purchase.
BancBoston Robertson Stephens Inc., individually and not as the
Representatives of the Underwriters, may (but shall not be obligated to) make
payment for any Shares to be purchased by any Underwriter whose funds shall
not have been received by the Representatives by the First Closing Date or
the Second Closing Date, as the case may be, for the account of such
Underwriter, but any such payment shall not relieve such Underwriter from any
of its obligations under this Agreement.
The Selling Stockholder hereby agrees that (i) it will pay all
stock transfer taxes, stamp duties and other similar taxes, if any, payable
upon the sale
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or delivery of the Shares to be sold by the Selling Stockholder to the
several Underwriters, or otherwise in connection with the performance of the
Selling Stockholder's obligations hereunder and (ii) the Custodian is
authorized to deduct for such payment any such amounts from the proceeds to
the Selling Stockholder hereunder and to hold such amounts for the account of
the Selling Stockholder with the Custodian under the Custody Agreement.
(f) DELIVERY OF THE SHARES. The Company and the Selling Stockholder
shall deliver, or cause to be delivered a credit representing the Firm Shares
to an account or accounts at The Depository Trust Company as designated by
the Representatives for the accounts of the Representatives and the several
Underwriters at the First Closing Date, against the irrevocable release of a
wire transfer of immediately available funds for the amount of the purchase
price therefor. The Company and the Selling Stockholder shall also deliver,
or cause to be delivered a credit representing the Option Shares to an
account or accounts at The Depository Trust Company as designated by the
Representatives for the accounts of the Representatives and the several
Underwriters, at the First Closing Date or the Second Closing Date, as the
case may be, against the irrevocable release of a wire transfer of
immediately available funds for the amount of the purchase price therefor.
Time shall be of the essence, and delivery at the time and place specified in
this Agreement is a further condition to the obligations of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00
noon on the second business day following the date the Shares are released by
the Underwriters for sale to the public, the Company shall deliver or cause
to be delivered copies of the Prospectus in such quantities and at such
places as the Representatives shall request.
SECTION 3. Covenants of the Company and the Selling Stockholder.
A. COVENANTS OF THE COMPANY. The Company further covenants and
agrees with each Underwriter as follows:
(a) REGISTRATION STATEMENT MATTERS. The Company will (i) use its best
efforts to cause a registration statement on Form 8-A (the "Form 8-A
Registration Statement") as required by the Securities Exchange Act of 1934
(the "Exchange Act") to become effective simultaneously with the Registration
Statement, (ii) use its best efforts to cause the Registration Statement to
become effective or, if the procedure in Rule 430A of the Securities Act is
followed, to prepare and timely file with the Commission under Rule 424(b)
under the Securities Act a Prospectus in a form approved by the
Representatives containing information previously omitted at the time of
effectiveness of the Registration Statement in reliance on Rule 430A of the
Securities Act and (iii) not file any amendment to the Registration Statement
or
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supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Securities Act. If the Company elects to rely on Rule
462(b) under the Securities Act, the Company shall file a Rule 462(b)
Registration Statement with the Commission in compliance with Rule 462(b)
under the Securities Act prior to the time confirmations are sent or given,
as specified by Rule 462(b)(2) under the Securities Act, and shall pay the
applicable fees in accordance with Rule 111 under the Securities Act.
(b) SECURITIES ACT COMPLIANCE. The Company will advise the
Representatives promptly (i) when the Registration Statement or any
post-effective amendment thereto shall have become effective, (ii) of receipt
of any comments from the Commission, (iii) of any request of the Commission
for amendment of the Registration Statement or for supplement to the
Prospectus or for any additional information and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to
prevent the issuance of any such stop order preventing or suspending the use
of the Prospectus and to obtain as soon as possible the lifting thereof, if
issued.
(c) BLUE SKY COMPLIANCE. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify
the Shares for sale under the securities laws of such jurisdictions (both
national and foreign) as the Representatives may reasonably have designated
in writing and will make such applications, file such documents, and furnish
such information as may be reasonably required for that purpose, provided the
Company shall not be required to qualify as a foreign corporation or to file
a general consent to service of process in any jurisdiction where it is not
now so qualified or required to file such a consent. The Company will, from
time to time, prepare and file such statements, reports and other documents,
as are or may be required to continue such qualifications in effect for so
long a period as the Representatives may reasonably request for distribution
of the Shares.
(d) AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER SECURITIES
ACT MATTERS. The Company will comply with the Securities Act and the Exchange
Act, and the rules and regulations of the Commission thereunder, so as to
permit the completion of the distribution of the Shares as contemplated in
this Agreement and the Prospectus. If during the period in which a prospectus
is required by law to be delivered by an Underwriter or dealer, any event
shall occur as a result of which, in the judgment of the Company or in the
reasonable opinion of the Representatives or counsel for the Underwriters, it
becomes necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances existing at the time
the Prospectus is delivered to a purchaser,
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not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission, and furnish at its own expense to the Underwriters and
to dealers, an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.
(e) COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS. The
Company agrees to furnish the Representative, without charge, during the
period beginning on the date hereof and ending on the later of the First
Closing Date or such date, as in the opinion of counsel for the Underwriters,
the Prospectus is no longer required by law to be delivered in connection
with sales by an Underwriter or dealer (the "Prospectus Delivery Period"), as
many copies of the Prospectus and any amendments and supplements thereto
(including any documents incorporated or deemed incorporated by reference
therein) as the Representatives may request.
(f) INSURANCE. The Company shall (i) obtain Directors and Officers
liability insurance in the minimum amount of $10 million which shall apply to
the offering contemplated hereby and (ii) shall cause BancBoston Robertson
Stephens Inc. to be added as an additional insured to such policy in respect
of the offering contemplated hereby.
(g) NOTICE OF SUBSEQUENT EVENTS. If at any time during the ninety
(90) day period after the Registration Statement becomes effective, any
rumor, publication or event relating to or affecting the Company shall occur
as a result of which in your opinion the market price of the Company Shares
has been or is likely to be materially affected (regardless of whether such
rumor, publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on
such rumor, publication or event.
(h) USE OF PROCEEDS. The Company shall apply the net proceeds from
the sale of the Shares sold by it in the manner described under the caption
"Use of Proceeds" in the Prospectus.
(i) TRANSFER AGENT. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Company Shares.
(j) EARNINGS STATEMENT. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month
period ending
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December 31, 2000 that satisfies the provisions of Section 11(a) of the
Securities Act.
(k) PERIODIC REPORTING OBLIGATIONS. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under
the Exchange Act.
(l) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES. The Company
will not, without the prior written consent of BancBoston Robertson Stephens
Inc., for a period of 180 days following the date of the Prospectus, offer,
sell or contract to sell, or otherwise dispose of or enter into any
transaction which is designed to, or could be expected to, result in the
disposition (whether by actual disposition or effective economic disposition
due to cash settlement or otherwise by the Company or any affiliate of the
Company or any person in privity with the Company or any affiliate of the
Company) directly or indirectly, or announce the offering of, any other
Common Shares or any securities convertible into, or exchangeable for, Common
Shares; provided, however, that the Company may (i) issue and sell Common
Shares pursuant to any director or employee stock option plan, stock
ownership plan or dividend reinvestment plan of the Company in effect at the
date of the Prospectus and described in the Prospectus so long as none of
those shares may be transferred on during the period of 180 days from the
date that the Registration Statement is declared effective (the "Lock-Up
Period") and the Company shall enter stop transfer instructions with its
transfer agent and registrar against the transfer of any such Common Shares
and (ii) the Company may issue Common Shares issuable upon the conversion of
securities or the exercise of warrants outstanding at the date of the
Prospectus and described in the Prospectus.
(m) FUTURE REPORTS TO THE REPRESENTATIVE. During the period of five
years hereafter the Company will furnish to the Representatives (i) as soon
as practicable after the end of each fiscal year, copies of the Annual Report
of the Company containing the balance sheet of the Company as of the close of
such fiscal year and statements of income, stockholders' equity and cash
flows for the year then ended and the opinion thereon of the Company's
independent public or certified public accountants; (ii) as soon as
practicable after the filing thereof, copies of each proxy statement, Annual
Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form
8-K or other report filed by the Company with the Commission, the National
Association of Securities Dealers, LLC or any securities exchange; and (iii)
as soon as available, copies of any report or communication of the Company
mailed generally to holders of its capital stock.
B. COVENANTS OF THE SELLING STOCKHOLDER. The Selling Stockholder
further covenants and agrees with each Underwriter:
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(a) NOT TO OFFER OR SELL ADDITIONAL SECURITIES. The Selling
Stockholder will not, during the Lock-Up Period, make a disposition of
Securities (as defined in EXHIBIT A hereto) now owned or hereafter acquired
directly by such person or with respect to which such person has or hereafter
acquires the power of disposition, otherwise than (i) as a bona fide gift or
gifts, provided the donee or donees thereof agree in writing to be bound by
this restriction, (ii) as a distribution to partners or shareholders of such
person, provided that the distributees thereof agree in writing to be bound
by the terms of this restriction, (iii) with respect to dispositions of
Common Shares acquired on the open market or (iv) with the prior written
consent of BancBoston Robertson Stephens Inc. The foregoing restriction has
been expressly agreed to preclude the holder of the Securities from engaging
in any hedging or other transaction which is designed to or reasonably
expected to lead to or result in a disposition of Securities during the
Lock-Up Period, even if such Securities would be disposed of by someone other
than such holder. Such prohibited hedging or other transactions would
include, without limitation, any short sale (whether or not against the box)
or any purchase, sale or grant of any right (including, without limitation,
any put or call option) with respect to any Securities or with respect to any
security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from Securities.
Furthermore, such person has also agreed and consented to the entry of stop
transfer instructions with the Company's transfer agent against the transfer
of the Securities held by such person except in compliance with this
restriction.
(b) DELIVERY OF FORMS W-8 AND W-9. To deliver to the Representatives
prior to the First Closing Date a properly completed and executed United
States Treasury Form W-9.
(c) NOTIFICATION OF UNTRUE STATEMENTS, ETC. If, at any time prior to
the date on which the distribution of the Common Shares as contemplated
herein and in the Prospectus has been completed, as determined by the
Representative, the Selling Stockholder has knowledge of the occurrence of
any event as a result of which the Prospectus or the Registration Statement,
in each case as then amended or supplemented, would include an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, the Selling Stockholder will promptly notify the
Company and the Representative.
SECTION 4. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date and, with respect to the Option
Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Stockholder set forth in Section 1 Sections 1(A) and 1(B) hereof as of the
date hereof and as of the First Closing Date as though then made and, with
respect to the Option Shares, as of
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the Second Closing Date as though then made, to the timely performance by the
Company and the Selling Stockholder of their respective covenants and other
obligations hereunder, and to each of the following additional conditions:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER; NO
OBJECTION FROM THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, LLC. The
Registration Statement shall have become effective prior to the execution of
this Agreement, or at such later date as shall be consented to in writing by
you; and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to
the knowledge of the Company, the Selling Shareholder or any Underwriter,
threatened by the Commission, and any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the satisfaction of
Underwriters' Counsel; and the National Association of Securities Dealers,
LLC shall have raised no objection to the fairness and reasonableness of the
underwriting terms and arrangements.
(b) CORPORATE PROCEEDINGS. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to
Underwriters' Counsel, and such counsel shall have been furnished with such
papers and information as they may reasonably have requested to enable them
to pass upon the matters referred to in this Section.
(c) NO MATERIAL ADVERSE CHANGE. Subsequent to the execution and
delivery of this Agreement and prior to the First Closing Date, or the Second
Closing Date, as the case may be, there shall not have been any Material
Adverse Change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is
material and adverse and that makes it, in your sole judgment, impracticable
or inadvisable to proceed with the public offering of the Shares as
contemplated by the Prospectus.
(d) OPINION OF COUNSEL FOR THE COMPANY. You shall have received on
the First Closing Date, or the Second Closing Date, as the case may be, an
opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation counsel
for the Company substantially in the form of EXHIBIT B attached hereto, dated
the First Closing Date, or the Second Closing Date, addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for
each of the Underwriters.
Counsel rendering the opinion contained in EXHIBIT B may rely as to
questions of law not involving the laws of the United States or the State of
California and Delaware upon opinions of local counsel, and as to questions
of fact upon
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representations or certificates of officers of the Company, the Selling
Stockholder or officers of the Selling Stockholder (when the Selling
Stockholder is not a natural person), and of government officials, in which
case their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of
the Underwriters, and to Underwriters' Counsel.
(e) OPINION OF INTELLECTUAL PROPERTY COUNSEL FOR THE COMPANY. You
shall have received on the First Closing Date, or the Second Closing Date, as
the case may be, an opinion of Skjerven, Morrill, MacPherson, Franklin &
Friel LLP, intellectual property counsel for the Company substantially in the
form of EXHIBIT C attached hereto.
(f) OPINION OF COUNSEL FOR THE UNDERWRITERS. You shall have received
on the First Closing Date or the Second Closing Date, as the case may be, an
opinion of Orrick, Herrington & Sutcliffe LLP, substantially in the form of
EXHIBIT D hereto. The Company shall have furnished to such counsel such
documents as they may have requested for the purpose of enabling them to pass
upon such matters.
(g) ACCOUNTANTS' COMFORT LETTER. You shall have received on the First
Closing Date and on the Second Closing Date, as the case may be, a letter
from Pricewaterhouse Coopers LLP addressed to the Underwriters, dated the
First Closing Date or the Second Closing Date, as the case may be, confirming
that they are independent certified public accountants with respect to the
Company within the meaning of the Act and the applicable published Rules and
Regulations and based upon the procedures described in such letter delivered
to you concurrently with the execution of this Agreement (herein called the
"Original Letter"), but carried out to a date not more than four (4) business
days prior to the First Closing Date or the Second Closing Date, as the case
may be, (i) confirming, to the extent true, that the statements and
conclusions set forth in the Original Letter are accurate as of the First
Closing Date or the Second Closing Date, as the case may be, and (ii) setting
forth any revisions and additions to the statements and conclusions set forth
in the Original Letter which are necessary to reflect any changes in the
facts described in the Original Letter since the date of such letter, or to
reflect the availability of more recent financial statements, data or
information. The letter shall not disclose any change in the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise
from that set forth in the Registration Statement or Prospectus, which, in
your sole judgment, is material and adverse and that makes it, in your sole
judgment, impracticable or inadvisable to proceed with the public offering of
the Shares as contemplated by the Prospectus. The Original Letter from
Pricewaterhouse Coopers LLP shall be addressed to or for the use of the
Underwriters in form and substance satisfactory to the Underwriters and
PricewaterhouseCoopers LLP and shall (i) represent, to the extent true, that
they are independent certified public
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accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations, (ii) set forth their opinion with
respect to their examination of the consolidated balance sheet of the Company
as of December 31, 1998 and 1997 and related consolidated statements of
operations, stockholders' equity, and cash flows for the twelve (12) months
ended December 31, 1998, 1997 and 1996, (iii) state that
PricewaterhouseCoopers LLP has performed the procedures set out in Statement
on Auditing Standards No. 71 ("SAS 71") for a review of interim financial
information on the financial statements for each of the quarters in the
two-quarter period ended June 30, 1999 (the "Quarterly Financial
Statements"), (iv) state that in the course of such review, nothing came to
their attention that leads them to believe that any material modifications
need to be made to any of the Quarterly Financial Statements in order for
them to be in compliance with generally accepted accounting principles
consistently applied across the periods presented, and address other matters
agreed upon by PricewaterhouseCoopers LLP and you. In addition, you shall
have received from Pricewaterhouse Coopers LLP a letter addressed to the
Company and made available to you for the use of the Underwriters stating
that their review of the Company's system of internal accounting controls, to
the extent they deemed necessary in establishing the scope of their
examination of the Company's consolidated financial statements as of
December 31, 1998, did not disclose any weaknesses in internal controls
that they considered to be material weaknesses.
(h) OFFICERS' CERTIFICATE. You shall have received on the First
Closing Date and the Second Closing Date, as the case may be, a certificate
of the Company, dated the First Closing Date or the Second Closing Date, as
the case may be, signed by the Chief Executive Officer and Chief Financial
Officer of the Company, to the effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the First
Closing Date or the Second Closing Date, as the case may be, and the
Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to
the First Closing Date or the Second Closing Date, as the case may
be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the
Act;
(iii) When the Registration Statement became effective and at all
times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto contained all material information required to
be included therein by the Securities Act and the applicable rules
and regulations of the Commission
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thereunder, and in all material respects conformed to the
requirements of the Securities Act and the applicable rules and
regulations of the Commission thereunder, the Registration Statement
and the Prospectus, and any amendments or supplements thereto, did
not and does not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and, since
the effective date of the Registration Statement, there has occurred
no event required to be set forth in an amended or supplemented
Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, there has not
been (a) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of
the Company and its subsidiaries considered as one enterprise, (b)
any transaction that is material to the Company and its subsidiaries
considered as one enterprise, except transactions entered into in
the ordinary course of business, (c) any obligation, direct or
contingent, that is material to the Company and its subsidiaries
considered as one enterprise, incurred by the Company or its
subsidiaries, except obligations incurred in the ordinary course of
business, (d) any change in the capital stock or outstanding
indebtedness of the Company or any of its subsidiaries that is
material to the Company and its subsidiaries considered as one
enterprise, (e) any dividend or distribution of any kind declared,
paid or made on the capital stock of the Company or any of its
subsidiaries, or (f) any loss or damage (whether or not insured) to
the property of the Company or any of its subsidiaries which has
been sustained or will have been sustained which has a material
adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise.
(i) LOCK-UP AGREEMENT FROM CERTAIN STOCKHOLDERS OF THE COMPANY. The
Company shall have obtained and delivered to you an agreement substantially
in the form of EXHIBIT A attached hereto from each officer and director of
the Company, the Selling Shareholder and each beneficial owner of one or more
percent of the outstanding issued share capital of the Company.
(j) OPINION OF COUNSEL FOR THE SELLING STOCKHOLDER. You shall have
received on the First Closing Date and the Second Closing Date, as the case
may be, the following opinion of [NAME OF SELLING STOCKHOLDER'S COUNSEL],
counsel for the Selling Stockholder substantially in the form of EXHIBIT E
attached hereto, dated as of such Closing Date, addressed to the Underwriters
and with reproduced copies or signed counterparts thereof for each of the
Underwriters.
In rendering such opinion, such counsel may rely as to questions of
law not involving the laws of the United States or State of Delaware upon
opinions of local
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<PAGE>
counsel and as to questions of fact upon representations or certificates of
the Selling Stockholder or officers of the Selling Stockholder and of
governmental officials, in which case their opinion is to state that they are
so relying and that they have no knowledge of any material misstatement or
inaccuracy of any material misstatement or inaccuracy in any such opinion,
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
(k) SELLING STOCKHOLDER'S CERTIFICATE. On each of the First Closing
Date and the Second Closing Date, as the case may be, the Representatives
shall received a written certificate executed the Selling Stockholder, dated
as of such Closing Date, to the effect that:
(i) the representations, warranties and covenants of the Selling
Stockholder set forth in Section 1(B) of this Agreement are true and
correct with the same force and effect as though expressly made by
the Selling Stockholder on and as of such Closing Date; and
(ii) the Selling Stockholder has complied with all the agreements
and satisfied all the conditions on its part to be performed or
satisfied at or prior to such Closing Date.
(l) SELLING STOCKHOLDER'S DOCUMENTS. At least three business days
prior to the date hereof, the Company and the Selling Stockholder shall have
furnished for review by the Representatives copies of the Powers of Attorney
and Custody Agreements executed by each of the Selling Stockholder and such
further information, certificates and documents as the Representatives may
reasonably request.
(m) STOCK EXCHANGE LISTING. The Shares shall have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(n) COMPLIANCE WITH PROSPECTUS DELIVERY REQUIREMENTS. The Company
shall have complied with the provisions of Sections 2(g) and 3(e) hereof with
respect to the furnishing of Prospectuses.
(o) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, as the case may be, the Representatives and
counsel for the Underwriters shall have received such information, documents
and opinions as they may reasonably require for the purposes of enabling them
to pass upon the issuance and sale of the Shares as contemplated herein, or
in order to evidence the accuracy of any of the representations and
warranties, or the satisfaction of any of the conditions or agreements,
herein contained.
If any condition specified in this Section 4 is not satisfied when
and as required to be satisfied, this Agreement may be terminated by the
Representatives
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by notice to the Company and the Selling Stockholder at any time on or prior
to the First Closing Date and, with respect to the Option Shares, at any time
prior to the Second Closing Date, which termination shall be without
liability on the part of any party to any other party, except that Section 5
(Payment of Expenses), Section 6 (Reimbursement of Underwriters' Expenses),
Section 7 (Indemnification and Contribution) and Section 10 (Representations
and Indemnities to Survive Delivery) shall at all times be effective and
shall survive such termination.
SECTION 5. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of its
obligations hereunder and in connection with the transactions contemplated
hereby, including without limitation (i) all expenses incident to the
issuance and delivery of the Common Shares (including all printing and
engraving costs), (ii) all fees and expenses of the registrar and transfer
agent of the Common Stock, (iii) all necessary issue, transfer and other
stamp taxes in connection with the issuance and sale of the Shares to the
Underwriters, (iv) all fees and expenses of the Company's counsel,
independent public or certified public accountants and other advisors, (v)
all costs and expenses incurred in connection with the preparation, printing,
filing, shipping and distribution of the Registration Statement (including
financial statements, exhibits, schedules, consents and certificates of
experts), each preliminary prospectus and the Prospectus, and all amendments
and supplements thereto, and this Agreement, (vi) all filing fees, attorneys'
fees and expenses incurred by the Company or the Underwriters in connection
with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Shares for offer and
sale under the state securities or blue sky laws or the provincial securities
laws of Canada or any other country, and, if requested by the Representative,
preparing and printing a "Blue Sky Survey", an "International Blue Sky
Survey" or other memorandum, and any supplements thereto, advising the
Underwriters of such qualifications, registrations and exemptions, (vii) the
filing fees incident to, and the reasonable fees and expenses of counsel for
the Underwriters in connection with, the National Association of Securities
Dealers, LLC review and approval of the Underwriters' participation in the
offering and distribution of the Common Shares, (viii) the fees and expenses
associated with including the Common Shares on the Nasdaq National Market,
(ix) all costs and expenses incident to the preparation and undertaking of
"road show" preparations to be made to prospective investors, and (x) all
other fees, costs and expenses referred to in Item 13 of Part II of the
Registration Statement. Except as provided in this Section 5, Section 6, and
Section 7 hereof, the Underwriters shall pay their own expenses, including
the fees and disbursements of their counsel.
The Selling Stockholder further agrees with each Underwriter to
pay (directly or by reimbursement) all fees and expenses incident to the
performance of their obligations under this Agreement which are not otherwise
specifically
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provided for herein, including but not limited to (i) fees and expenses of
counsel and other advisors for the Selling Stockholder, (ii) fees and
expenses of the Custodian and (iii) expenses and taxes incident to the sale
and delivery of the Common Shares to be sold by the Selling Stockholder to
the Underwriters hereunder (which taxes, if any, may be deducted by the
Custodian under the provisions of Section 2 of this Agreement).
This Section 5 shall not affect or modify any separate, valid
agreement relating to the allocation of payment of expenses between the
Company, on the one hand, and the Selling Stockholder, on the other hand.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement
is terminated by the Representatives pursuant to Section 4, Section 7,
Section 8, Section 9 or Section 15 or if the sale to the Underwriters of the
Shares on the First Closing Date is not consummated because of any refusal,
inability or failure on the part of the Company or the Selling Stockholder to
perform any agreement herein or to comply with any provision hereof, the
Company agrees to reimburse the Representatives and the other Underwriters
(or such Underwriters as have terminated this Agreement with respect to
themselves), severally, upon demand for all out-of-pocket expenses that shall
have been reasonably incurred by the Representatives and the Underwriters in
connection with the proposed purchase and the offering and sale of the
Shares, including but not limited to fees and disbursements of counsel,
printing expenses, travel expenses, postage, facsimile and telephone charges.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION OF THE UNDERWRITERS.
(1) The Company agrees to indemnify and hold harmless each
Underwriter, its officers and employees, and each person, if any, who
controls any Underwriter within the meaning of the Securities Act and the
Exchange Act against any loss, claim, damage, liability or expense, as
incurred, to which such Underwriter or such controlling person may become
subject, under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company, which consent shall not be unreasonably withheld),
insofar as such loss, claim, damage, liability or expense (or actions in
respect thereof as contemplated below) arises out of or is based (i) upon any
untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement, or any amendment thereto, including any
information deemed to be a part thereof pursuant to Rule 430A or Rule 434
under the Securities Act, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein not
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misleading; or (ii) upon any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; or (iii) in whole or in part upon any inaccuracy in the
representations and warranties of the Company contained herein; or (iv) in
whole or in part upon any failure of the Company to perform its obligations
hereunder or under law; or (v) any act or failure to act or any alleged act
or failure to act by any Underwriter in connection with, or relating in any
manner to, the Shares or the offering contemplated hereby, and which is
included as part of or referred to in any loss, claim, damage, liability or
action arising out of or based upon any matter covered by clause (i), (ii),
(iii) or (iv) above, provided that the Company shall not be liable under this
clause (v) to the extent that a court of competent jurisdiction shall have
determined by a final judgment that such loss, claim, damage, liability or
action resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its bad faith or willful
misconduct; and to reimburse each Underwriter and each such controlling
person for any and all expenses (including the fees and disbursements of
counsel chosen by BancBoston Robertson Stephens Inc.) as such expenses are
reasonably incurred by such Underwriter or such controlling person in
connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, liability, expense or action; provided,
however, that the foregoing indemnity agreement shall not apply to any loss,
claim, damage, liability or expense to the extent, but only to the extent,
arising out of or based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by the Representatives expressly
for use in the Registration Statement, any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); and provided, further,
that with respect to any preliminary prospectus, the foregoing indemnity
agreement shall not inure to the benefit of any Underwriter from whom the
person asserting any loss, claim, damage, liability or expense purchased
Shares, or any person controlling such Underwriter, if copies of the
Prospectus were timely delivered to the Underwriter pursuant to Section 2 and
a copy of the Prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was not sent or
given by or on behalf of such Underwriter to such person, if required by law
so to have been delivered, at or prior to the written confirmation of the
sale of the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability or expense. The indemnity agreement set forth in this
Section 7(a) shall be in addition to any liabilities that the Company may
otherwise have.
(2) The Selling Stockholder agrees to indemnify and hold
harmless each Underwriter, its officers and employees, and each person, if any,
who controls any Underwriter within the meaning of the Securities Act and the
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Exchange Act against any loss, claim, damage, liability or expense, as
incurred, to which such Underwriter or such controlling person may become
subject, under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company, which consent shall not be unreasonably withheld),
insofar as such loss, claim, damage, liability or expense (or actions in
respect thereof as contemplated below) arises out of or is based (i) upon any
untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement, or any amendment thereto, including any
information deemed to be a part thereof pursuant to Rule 430A or Rule 434
under the Securities Act, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein not misleading; or (ii) upon any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, in the case of subparagraphs (i) and (ii) of
this Section 7(a)(2) to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company or such Underwriter by the Selling Stockholder, directly or
through the Selling Stockholder's representatives, specifically for use in
the preparation thereof; or (iii) in whole or in part upon any inaccuracy in
the representations and warranties of the Selling Stockholder contained
herein; or (iv) in whole or in part upon any failure of the Selling
Stockholder to perform their respective obligations hereunder or under law;
or (v) any act or failure to act or any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to, the Shares or
the offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action arising out of or
based upon any matter covered by clause (i), (ii), (iii) or (iv) above,
provided that the Selling Stockholder shall not be liable under this clause
(v) to the extent that a court of competent jurisdiction shall have
determined by a final judgment that such loss, claim, damage, liability or
action resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its bad faith or willful
misconduct; and to reimburse each Underwriter and each such controlling
person for any and all expenses (including the fees and disbursements of
counsel chosen by BancBoston Robertson Stephens Inc.) as such expenses are
reasonably incurred by such Underwriter or such controlling person in
connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, liability, expense or action; provided,
however, that the foregoing indemnity agreement shall not apply to any loss,
claim, damage, liability or expense to the extent, but only to the extent,
arising out of or based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity
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with written information furnished to the Selling Stockholder by the
Representatives expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto); and provided, further, that with respect to any preliminary
prospectus, the foregoing indemnity agreement shall not inure to the benefit
of any Underwriter from whom the person asserting any loss, claim, damage,
liability or expense purchased Shares, or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered, at
or prior to the written confirmation of the sale of the Shares to such
person, and if the Prospectus (as so amended or supplemented) would have
cured the defect giving rise to such loss, claim, damage, liability or
expense. The indemnity agreement set forth in this Section 7(a) shall be in
addition to any liabilities that the Selling Stockholder may otherwise have.
(b) INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND OFFICERS. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement, the Selling Stockholder and each person, if any, who
controls the Company or the Selling Stockholder within the meaning of the
Securities Act or the Exchange Act, against any loss, claim, damage,
liability or expense, as incurred, to which the Company, or any such
director, officer, the Selling Stockholder or controlling person may become
subject, under the Securities Act, the Exchange Act, or other federal or
state statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the
written consent of such Underwriter), insofar as such loss, claim, damage,
liability or expense (or actions in respect thereof as contemplated below)
arises out of or is based upon any untrue or alleged untrue statement of a
material fact contained in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto), or
arises out of or is based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Registration Statement, any
preliminary prospectus, the Prospectus (or any amendment or supplement
thereto), in reliance upon and in conformity with written information
furnished to the Company and the Selling Stockholder by the Representatives
expressly for use therein; and to reimburse the Company, or any such
director, officer, the Selling Stockholder or controlling person for any
legal and other expense reasonably incurred by the Company, or any such
director, officer, Selling Stockholder or controlling person in connection
with investigating, defending, settling, compromising or paying any such
loss, claim, damage, liability, expense or
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action. The indemnity agreement set forth in this Section 7(b) shall be in
addition to any liabilities that each Underwriter may otherwise have.
(c) INFORMATION PROVIDED BY THE UNDERWRITERS. Each of the Company
and the Selling Stockholder hereby acknowledges that the only information
that the Underwriters have furnished to the Company and the Selling
Stockholder expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) are the
statements set forth in the table in the first paragraph and the second
paragraph under the caption "Underwriting" in the Prospectus; and the
Underwriters confirm that such statements are correct.
(d) NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES. Promptly
after receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party under this
Section 7, notify the indemnifying party in writing of the commencement
thereof, but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party for
contribution or otherwise than under the indemnity agreement contained in
this Section 7 or to the extent it is not prejudiced as a proximate result of
such failure. In case any such action is brought against any indemnified
party and such indemnified party seeks or intends to seek indemnity from an
indemnifying party, the indemnifying party will be entitled to participate
in, and, to the extent that it shall elect, jointly with all other
indemnifying parties similarly notified, by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party; provided, however, if the defendants
in any such action include both the indemnified party and the indemnifying
party and the indemnified party shall have reasonably concluded that a
conflict may arise between the positions of the indemnifying party and the
indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which
are different from or additional to those available to the indemnifying
party, the indemnified party or parties shall have the right to select
separate counsel to assume such legal defenses and to otherwise participate
in the defense of such action on behalf of such indemnified party or parties.
Upon receipt of notice from the indemnifying party to such indemnified party
of such indemnifying party's election so to assume the defense of such action
and approval by the indemnified party of counsel, the indemnifying party will
not be liable to such indemnified party under this Section 7 for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding
sentence (it being understood, however, that the indemnifying party shall not
be liable for the expenses of more than one separate counsel (together with
local counsel), approved by the indemnifying party (BancBoston Robertson
Stephens Inc. in the case of Section 7(b) and Section 8), representing the
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<PAGE>
indemnified parties who are parties to such action), (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party
to represent the indemnified party within a reasonable time after notice of
commencement of the action, or (iii) the indemnifying party has authorized
the employment of counsel for the indemnified party at the expense of the
indemnifying party, in each of which cases the fees and expenses of counsel
shall be at the expense of the indemnifying party.
(e) SETTLEMENTS. The indemnifying party under this Section 7 shall
not be liable for any settlement of any proceeding effected without its
written consent, which consent shall not be unreasonably withheld, but if
settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party against any
loss, claim, damage, liability or expense by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by Section
7(d) hereof, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified
party is or could have been a party and indemnity was or could have been
sought hereunder by such indemnified party, unless such settlement,
compromise or consent includes (i) an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such action, suit or proceeding and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of
any indemnified party.
(f) CONTRIBUTION. If the indemnification provided for in this
Section 7 is unavailable to or insufficient to hold harmless an indemnified
party under Section 7(a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) then
each indemnifying party shall contribute to the aggregate amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages
34
<PAGE>
or liabilities, (or actions or proceedings in respect thereof), as well as
any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriter on the other shall be
deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bears to the
total underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the Underwriters on the other and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 7(f) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section
7(f). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 7(f) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (f), (i) no Underwriter
shall be required to contribute any amount in excess of the underwriting
discounts and commissions applicable to the Shares purchased by such
Underwriter and (ii) no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 7(f) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(g) TIMING OF ANY PAYMENTS OF INDEMNIFICATION. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled
to indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred, but in all cases, no later than thirty
(30) days of invoice to the indemnifying party.
(h) SURVIVAL. The indemnity and contribution agreements contained in
this Section 7 and the representation and warranties of the Company set forth
in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter, the Company, its directors or
officers or any persons controlling the Company, (ii) acceptance of any
Shares and payment therefor hereunder, and (iii) any termination of this
Agreement. A successor to any Underwriter, or to the
35
<PAGE>
Company, its directors or officers, or any person controlling the Company,
shall be entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 7.
(i) ACKNOWLEDGEMENTS OF PARTIES. The parties to this Agreement
hereby acknowledge that they are sophisticated business persons who were
represented by counsel during the negotiations regarding the provisions
hereof including, without limitation, the provisions of this Section 7, and
are fully informed regarding said provisions. They further acknowledge that
the provisions of this Section 7 fairly allocate the risks in light of the
ability of the parties to investigate the Company and its business in order
to assure that adequate disclosure is made in the Registration Statement and
Prospectus as required by the Securities Act and the Exchange Act.
SECTION 8. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any
one or more of the several Underwriters shall fail or refuse to purchase
Shares that it or they have agreed to purchase hereunder on such date, and
the aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of
the aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the
number of Firm Common Shares set forth opposite their respective names on
SCHEDULE A bears to the aggregate number of Firm Shares set forth opposite
the names of all such non-defaulting Underwriters, or in such other
proportions as may be specified by the Representatives with the consent of
the non-defaulting Underwriters, to purchase the Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date. If, on the First Closing Date or the Second Closing Date, as the case
may be, any one or more of the Underwriters shall fail or refuse to purchase
Shares and the aggregate number of Shares with respect to which such default
occurs exceeds 10% of the aggregate number of Shares to be purchased on such
date, and arrangements satisfactory to the Representatives and the Company
for the purchase of such Shares are not made within 48 hours after such
default, this Agreement shall terminate without liability of any party to any
other party except that the provisions of Section 4, and Section 7 shall at
all times be effective and shall survive such termination. In any such case
either the Representatives or the Company shall have the right to postpone
the First Closing Date or the Second Closing Date, as the case may be, but in
no event for longer than seven days in order that the required changes, if
any, to the Registration Statement and the Prospectus or any other documents
or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be
deemed to include any person substituted for a defaulting Underwriter under
this Section 8. Any action taken under this Section 8 shall not relieve any
defaulting Underwriter
36
<PAGE>
from liability in respect of any default of such Underwriter under this
Agreement.
37
<PAGE>
SECTION 9. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date, this Agreement may be terminated by the Representatives by notice given
to the Company and the Selling Stockholder if at any time (i) trading or
quotation in any of the Company's securities shall have been suspended or
limited by the Commission or by the Nasdaq Stock Market, or trading in
securities generally on either the Nasdaq Stock Market or the New York Stock
Exchange shall have been suspended or limited, or minimum or maximum prices
shall have been generally established on any of such stock exchanges by the
Commission or the National Association of Securities Dealers, LLC; (ii) a
general banking moratorium shall have been declared by any of federal, New
York, Delaware or California authorities; (iii) there shall have occurred any
outbreak or escalation of national or international hostilities or any crisis
or calamity, or any change in the United States or international financial
markets, or any substantial change or development involving a prospective
change in United States' or international political, financial or economic
conditions, as in the judgment of the Representatives is material and adverse
and makes it impracticable or inadvisable to market the Common Shares in the
manner and on the terms described in the Prospectus or to enforce contracts
for the sale of securities; (iv) in the judgment of the Representatives there
shall have occurred any Material Adverse Change; or (v) the Company shall
have sustained a loss by strike, fire, flood, earthquake, accident or other
calamity of such character as in the judgment of the Representatives may
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured. Any
termination pursuant to this Section 9 shall be without liability on the part
of (a) the Company or the Selling Stockholder to any Underwriter, except that
the Company and the Selling Stockholder shall be obligated to reimburse the
expenses of the Representatives and the Underwriters pursuant to Sections 5
and 6 hereof, (b) any Underwriter to the Company or the Selling Stockholder,
or (c) of any party hereto to any other party except that the provisions of
Section 7 shall at all times be effective and shall survive such termination.
SECTION 10. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Stockholder and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or
on behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Stockholder,
as the case may be, and will survive delivery of and payment for the Shares
sold hereunder and any termination of this Agreement.
38
<PAGE>
SECTION 11. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the
parties hereto as follows:
If to the Representative:
BANCBOSTON ROBERTSON STEPHENS INC.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2696
Attention: General Counsel
If to the Company:
QuickLogic Corporation
1277 Orleans Avenue
Sunnyvale, California 94089
Facsimile: [ ]
Attention: E. Thomas Hart
If to the Selling Stockholder:
[Custodian
[address]
Facsimile: [___]
Attention: [___]
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
39
<PAGE>
SECTION 12. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 9 hereof, and to the benefit of the employees, officers
and directors and controlling persons referred to in Section 7, and to their
respective successors, and no other person will have any right or obligation
hereunder. The term "successors" shall not include any purchaser of the
Shares as such from any of the Underwriters merely by reason of such purchase.
SECTION 13. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement
shall not affect the validity or enforceability of any other Section,
paragraph or provision hereof. If any Section, paragraph or provision of this
Agreement is for any reason determined to be invalid or unenforceable, there
shall be deemed to be made such minor changes (and only such minor changes)
as are necessary to make it valid and enforceable.
SECTION 14. GOVERNING LAW PROVISIONS.
(a) GOVERNING LAW. This agreement shall be governed by and construed
in accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.
(b) CONSENT TO JURISDICTION. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America located in the City and County of San Francisco or
the courts of the State of California in each case located in the City and
County of San Francisco (collectively, the "Specified Courts"), and each
party irrevocably submits to the exclusive jurisdiction (except for
proceedings instituted in regard to the enforcement of a judgment of any such
court (a "Related Judgment"), as to which such jurisdiction is non-exclusive)
of such courts in any such suit, action or proceeding. Service of any
process, summons, notice or document by mail to such party's address set
forth above shall be effective service of process for any suit, action or
other proceeding brought in any such court. The parties irrevocably and
unconditionally waive any objection to the laying of venue of any suit,
action or other proceeding in the Specified Courts and irrevocably and
unconditionally waive and agree not to plead or claim in any such court that
any such suit, action or other proceeding brought in any such court has been
brought in an inconvenient forum. Each party not located in the United States
irrevocably appoints CT Corporation System, which currently maintains a San
Francisco office at 49 Stevenson Street, San Francisco, California 94105,
United States of America, as its agent to receive service of process or other
legal summons for purposes of any such suit, action or proceeding that may be
instituted in any state or federal court in the City and County of San
Francisco.
40
<PAGE>
(c) WAIVER OF IMMUNITY. With respect to any Related Proceeding, each
party irrevocably waives, to the fullest extent permitted by applicable law,
all immunity (whether on the basis of sovereignty or otherwise) from
jurisdiction, service of process, attachment (both before and after judgment)
and execution to which it might otherwise be entitled in the Specified
Courts, and with respect to any Related Judgment, each party waives any such
immunity in the Specified Courts or any other court of competent
jurisdiction, and will not raise or claim or cause to be pleaded any such
immunity at or in respect of any such Related Proceeding or Related Judgment,
including, without limitation, any immunity pursuant to the United States
Foreign Sovereign Immunities Act of 1976, as amended.
SECTION 15. FAILURE OF THE SELLING STOCKHOLDER TO SELL AND DELIVER
COMMON SHARES. If the Selling Stockholder shall fail to sell and deliver to
the Underwriters the Shares to be sold and delivered by the Selling
Stockholder at the First Closing Date pursuant to this Agreement, then the
Underwriters may at their option, by written notice from the Representatives
to the Company and the Selling Stockholder, either (i) terminate this
Agreement without any liability on the part of any Underwriter or, except as
provided in Sections 5, 6, and 7 hereof, the Company or the Selling
Stockholder, or (ii) purchase the shares which the Company has agreed to sell
and deliver in accordance with the terms hereof. If the Selling Stockholder
shall fail to sell and deliver to the Underwriters the Shares to be sold and
delivered by the Selling Stockholder pursuant to this Agreement at the First
Closing Date or the Second Closing Date, then the Underwriters shall have the
right, by written notice from the Representatives to the Company and the
Selling Stockholder, to postpone the First Closing Date or the Second Closing
Date, as the case may be, but in no event for longer than seven days in order
that the required changes, if any, to the Registration Statement and the
Prospectus or any other documents or arrangements may be effected.
SECTION 16. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written
or oral and all contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may be
executed in two or more counterparts, each one of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the
same instrument. This Agreement may not be amended or modified unless in
writing by all of the parties hereto, and no condition herein (express or
implied) may be waived unless waived in writing by each party whom the
condition is meant to benefit. The Table of Contents and the Section headings
herein are for the convenience of the parties only and shall not affect the
construction or interpretation of this Agreement.
[The remainder of this page has been intentionally left blank.]
41
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company and the Custodian the enclosed
copies hereof, whereupon this instrument, along with all counterparts hereof,
shall become a binding agreement in accordance with its terms.
Very truly yours,
QUICKLOGIC CORPORATION
By:
------------------------------
[Title]
CYPRESS SEMICONDUCTOR CORPORTION
By:
------------------------------
Attorney-in-fact for the Selling
Stockholder named in SCHEDULE B hereto
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Representatives as of the date first above written.
BANCBOSTON ROBERTSON STEPHENS INC.
BEAR, STEARNS & CO. INC.
SOUNDVIEW TECHNOLOGY GROUP, INC.
On their behalf and on behalf of each of the several underwriters named in
SCHEDULE A hereto.
BY BANCBOSTON ROBERTSON STEPHENS INC.
By:
------------------------------
Authorized Signatory
42
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm
Common Shares
Underwriters To be Purchased
<S> <C>
BANCBOSTON ROBERTSON STEPHENS INC. ..................... [___]
BEAR, STEARNS & CO. INC................................. [___]
SOUNDVIEW TECHNOLOGY GROUP, INC......................... [___]
Total.......................................... [___]
</TABLE>
S-A
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of Maximum Number
Firm Shares of Option Shares
Selling Stockholder to be Sold to be Sold
<S> <C> <C>
Cypress Semiconducor Corporation [___] .............. [---] [---]
Total....................................... [___] [___]
</TABLE>
S-B
<PAGE>
EXHIBIT A
LOCK-UP AGREEMENT
BancBoston Robertson Stephens Inc.
Bear Stearns & Co. Inc.
SoundView Technology Group, Inc.
As Representatives of the Several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104
RE: QuickLogic Corporation (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of
certain shares of Common Stock of the Company ("Common Stock") or securities
convertible into or exchangeable or exercisable for Common Stock. The Company
proposes to carry out a public offering of Common Stock (the "Offering") for
which you will act as the representatives (the "Representatives") of the
underwriters. The undersigned recognizes that the Offering will be of benefit
to the undersigned and will benefit the Company by, among other things,
raising additional capital for its operations. The undersigned acknowledges
that you and the other underwriters are relying on the representations and
agreements of the undersigned contained in this letter in carrying out the
Offering and in entering into underwriting arrangements with the Company with
respect to the Offering.
In consideration of the foregoing, the undersigned hereby
agrees that the undersigned will not offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "Disposition") any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock (collectively, "Securities")
now owned or hereafter acquired directly by such person or with respect to
which such person has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided the donee or donees
thereof agree in writing to be bound by this restriction, (ii) as a
distribution to partners or shareholders of such person, provided that the
distributees thereof agree in writing to be bound by the terms of this
restriction, (iii) with respect to dispositions of Common Shares acquired on
the open market or (iv) with the prior written consent of BancBoston
Robertson Stephens Inc., for a period commencing on the date hereof and
continuing to a date 180 days after the Registration Statement is declared
effective by the Securities and Exchange Commission (the "Lock-up Period").
The foregoing restriction has been
A-1
<PAGE>
expressly agreed to preclude the holder of the Securities from engaging in
any hedging or other transaction which is designed to or reasonably expected
to lead to or result in a Disposition of Securities during the Lock-up
Period, even if such Securities would be disposed of by someone other than
such holder. Such prohibited hedging or other transactions would include,
without limitation, any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including, without limitation, any put
or call option) with respect to any Securities or with respect to any
security (other than a broad-based market basket or index) that included,
relates to or derives any significant part of its value from Securities. The
undersigned also agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent and registrar against the
transfer of shares of Common Stock or Securities held by the undersigned
except in compliance with the foregoing restrictions. BancBoston Robertson
Stephens Inc., acting alone and in its sole discretion, may waive any
provisions of this Lock-Up Agreement without notice to any third party.
This agreement is irrevocable and will be binding on the
undersigned and the respective successors, heirs, personal representatives,
and assigns of the undersigned. In the event that the Registration Statement
shall not have been declared effective on or before December 31, 1999, this
Lock-Up Agreement shall be of no further force or effect.
Dated: __________________________________________
__________________________________________
Printed Name of Holder
By: __________________________________________
Signature
__________________________________________
Printed Name of Person Signing
(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf
of an entity)
2
<PAGE>
EXHIBIT B
MATTERS TO BE COVERED IN THE OPINION OF COMPANY COUNSEL
(i) The Company and each Significant Subsidiary (as that term is
defined in Regulation S-X of the Act) has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation;
(ii) The Company and each Significant Subsidiary has the corporate
power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus;
(iii) The Company and each Significant Subsidiary is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction, if any, in which the ownership or leasing of its
properties or the conduct of its business requires such qualification,
except where the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. To such counsel's knowledge,
the Company does not own or control, directly or indirectly, any
corporation, association or other entity other than [list
subsidiaries];
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein, the issued and
outstanding shares of capital stock of the Company (including the
Selling Stockholder Shares) have been duly and validly issued and are
fully paid and nonassessable, and, to such counsel's knowledge, will
not have been issued in violation of or subject to any preemptive
right, co-sale right, registration right, right of first refusal or
other similar right;
(v) All issued and outstanding shares of capital stock of each
Significant Subsidiary of the Company have been duly authorized and
validly issued and are fully paid and nonassessable, and, to such
counsel's knowledge, have not been issued in violation of or subject to
any preemptive right, co-sale right, registration right, right of first
refusal or other similar right and are owned by the Company free and
clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest;
(vi) The Firm Shares or the Option Shares, as the case may be, to be
issued by the Company pursuant to the terms of this Agreement have been
duly authorized and, upon issuance and delivery against payment
therefor in accordance with the terms hereof, will be duly
B-1
<PAGE>
and validly issued and fully paid and nonassessable, and will not
have been issued in violation of or subject to any preemptive right,
co-sale right, registration right, right of first refusal or other
similar right.
(vii) The Company has the corporate power and authority to enter into
this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by it hereunder;
(viii) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed
and delivered by the Company and, assuming due authorization, execution
and delivery by you, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except
as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally or by general equitable principles;
(ix) The Registration Statement has become effective under the Act
and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Securities Act;
(x) The 8-A Registration Statement complied as to form in all
material respects with the requirements of the Exchange Act; the 8-A
Registration Statement has become effective under the Exchange Act;
and the Firm Shares or the Option Shares have been validly registered
under the Securities Act and the Rules and Regulations of the Exchange
Act and the applicable rules and regulations of the Commission
thereunder;
(xi) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements
(including supporting schedules) and financial data derived therefrom
as to which such counsel need express no opinion), as of the effective
date of the Registration Statement, complied as to form in all material
respects with the requirements of the Act and the applicable Rules and
Regulations;
(xii) The information in the Prospectus under the caption "Description
of Capital Stock," to the extent that it constitutes matters of law or
legal conclusions, has been reviewed by such counsel and is a fair
summary of such matters and conclusions; and
2
<PAGE>
the forms of certificates evidencing the Common Stock and filed as
exhibits to the Registration Statement comply with Delaware law;
(xiii) The description in the Registration Statement and the Prospectus
of the charter and bylaws of the Company and of statutes are accurate
and fairly present the information required to be presented by the
Securities Act;
(xiv) To such counsel's knowledge, there are no agreements, contracts,
leases or documents to which the Company is a party of a character
required to be described or referred to in the Registration Statement
or Prospectus or to be filed as an exhibit to the Registration
Statement which are not described or referred to therein or filed as
required;
(xv) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the
Company's indemnification obligations hereunder, concerning which no
opinion need be expressed) will not (a) result in any violation of the
Company's charter or bylaws or (b) to such counsel's knowledge, result
in a material breach or violation of any of the terms and provisions
of, or constitute a default under, any bond, debenture, note or other
evidence of indebtedness, or any lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or
instrument known to such counsel to which the Company is a party or by
which its properties are bound, or any applicable statute, rule or
regulation known to such counsel or, to such counsel's knowledge, any
order, writ or decree of any court, government or governmental agency
or body having jurisdiction over the Company or any of its
subsidiaries, or over any of their properties or operations;
(xvi) No consent, approval, authorization or order of or qualification
with any court, government or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries, or over any
of their properties or operations is necessary in connection with the
consummation by the Company of the transactions herein contemplated,
except (i) such as have been obtained under the Securities Act, (ii)
such as may be required under state or other securities or Blue Sky
laws in connection with the purchase and the distribution of the Shares
by the Underwriters, (iii) such as may be required by the National
Association of Securities Dealers, LLC and (iv) such as may be required
under the federal or provincial laws of Canada;
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(xvii) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company or any of its
subsidiaries of a character required to be disclosed in the
Registration Statement or the Prospectus by the Securities Act, other
than those described therein;
(xviii) To such counsel's knowledge, neither the Company nor any of its
subsidiaries is presently (a) in material violation of its respective
charter or bylaws, or (b) in material breach of any applicable statute,
rule or regulation known to such counsel or, to such counsel's
knowledge, any order, writ or decree of any court or governmental
agency or body having jurisdiction over the Company or any of its
subsidiaries, or over any of their properties or operations; and
(xix) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Company Shares or
other securities of the Company have registration rights with respect
to securities of the Company and, except as set forth in the
Registration Statement and Prospectus, all holders of securities of the
Company having rights known to such counsel to registration of such
shares of Company Shares or other securities, because of the filing of
the Registration Statement by the Company have, with respect to the
offering contemplated thereby, waived such rights or such rights have
expired by reason of lapse of time following notification of the
Company's intent to file the Registration Statement or have included
securities in the Registration Statement pursuant to the exercise of
and in full satisfaction of such rights.
(xx) The Company is not and, after giving effect to the offering and
the sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be, an "investment company" as
such term is defined in the Investment Company Act of 1940, as amended.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the First Closing Date or Second Closing Date,
as the case may be, the Registration Statement and any amendment or supplement
thereto (other than the
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financial statements including supporting schedules and other financial and
statistical information derived therefrom, as to which such counsel need
express no comment) contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, or at the First Closing Date
or the Second Closing Date, as the case may be, the Registration Statement,
the Prospectus and any amendment or supplement thereto (except as aforesaid)
contained any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
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EXHIBIT C
MATTERS TO BE COVERED IN THE OPINION OF
PATENT COUNSEL FOR THE COMPANY
Such counsel are familiar with the technology used by the
Company in its business and the manner of its use thereof and have read the
Registration Statement and the Prospectus, including particularly the portions
of the Registration Statement and the Prospectus referring to patents, trade
secrets, trademarks, service marks or other proprietary information or materials
and:
(i) The Company is listed in the records of the United States Patent
and Trademark Office as the holder of record of the patents listed on a
schedule to such opinion (the "Patents") and each of the applications
listed on a schedule to such opinion (the "Applications"). To the
knowledge of such counsel, there are no claims of third parties to any
ownership interest or lien with respect to any of the Patents or
Applications. Such counsel is not aware of any material defect in form
in the preparation or filing of the Applications on behalf of the
Company. To the knowledge of such counsel, the Applications are being
pursued by the Company. To the knowledge of such counsel, the Company
owns as its sole property the Patents and pending Applications;
(ii) The Company is listed in the records of the appropriate foreign
offices as the sole holder of record of the foreign patents listed on a
schedule to such opinion (the "Foreign Patents") and each of the
applications listed on a schedule to such opinion (the "Foreign
Applications"). Such counsel knows of no claims of third parties to any
ownership interest or lien with respect to the Foreign Patents or
Foreign Applications. Such counsel is not aware of any material defect
of form in the preparation or filing of the Foreign Applications on
behalf of the Company. To the knowledge of such counsel, the Foreign
Applications are being pursued by the Company. To the knowledge of such
counsel, the Company owns as its sole property the Foreign Patents and
pending Foreign Applications;
(iii) Such counsel knows of no reason why the Patents or Foreign
Patents are not valid as issued. Such counsel has no knowledge of any
reason why any patent to be issued as a result of any Application or
Foreign Application would not be valid or would not afford the Company
useful patent protection with respect thereto;
(iv) As to the statements regarding intellectual property rights,
nothing has come to the attention of such counsel which caused them to
believe that, at the time the Registration Statement became
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effective and at all times subsequent thereto up to and on the Closing
Date and on any later date on which Option Stock are to be purchased
the Registration Statement, Prospectus and any amendment or supplement
thereto made available and reviewed by such counsel contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
(v) Such counsel knows of no material action, suit, claim or proceeding
relating to patents, patent rights or licenses, trademarks or trademark
rights, copyrights, collaborative research, licenses or royalty
arrangements or agreements or trade secrets, know-how or proprietary
techniques, including processes and substances, owned by or affecting
the business or operations of the Company which are pending or
threatened against the Company or any of its officers or directors;
(vi) Nothing has come to the attention of such counsel which caused
them to believe that the Company is infringing or otherwise violating
any trade secrets, trademark rights, service marks or other proprietary
information or materials of others, and nothing has come to the
attention of such counsel which caused them to believe that there are
infringements by others of any of the Company's patents, trade secrets,
trademark rights, service marks or other proprietary information or
materials which in the judgment of such counsel could affect materially
the use thereof by the Company; and
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EXHIBIT D
MATTERS TO BE COVERED IN THE OPINION OF UNDERWRITERS' COUNSEL
(i) The Shares to be issued by the Company have been duly authorized
and, upon issuance and delivery and payment therefor in accordance with
the terms of the Underwriting Agreement, will be validly issued, fully
paid and non-assessable.
(ii) The Registration Statement complied as to form in all material
respects with the requirements of the Act; the Registration Statement
has become effective under the Act and, to such counsel's knowledge, no
stop order proceedings with respect thereto have been instituted or
threatened or are pending under the Act.
(iii) The 8-A Registration Statement complied as to form in all
material respects with the requirements of the Exchange Act; the 8-A
Registration Statement has become effective under the Exchange Act; and
the Firm Shares or the Option Shares have been validly registered under
the Securities Act and the Rules and Regulations of the Exchange Act
and the applicable rules and regulations of the Commission thereunder;
(iv) The Underwriting Agreement has been duly authorized, executed
and delivered by the Company.
Such counsel shall state that such counsel has reviewed the opinions
addressed to the Representatives from [list each set of counsel that has
provided an opinion], each dated the date hereof, and furnished to you in
accordance with the provisions of the Underwriting Agreement. Such opinions
appear on their face to be appropriately responsive to the requirements of the
Underwriting Agreement.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the First Closing Date or Second Closing Date,
as the case may be, the Registration Statement and any amendment or supplement
thereto (other than the financial statements including supporting schedules and
other financial and statistical information derived therefrom, as to which such
counsel need express no comment) contained any untrue statement of a material
fact or omitted to state a
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material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the First Closing Date or the Second
Closing Date, as the case may be, the Registration Statement, the Prospectus
and any amendment or supplement thereto (except as aforesaid) contained any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
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EXHIBIT E
MATTERS TO BE COVERED IN THE OPINION OF SELLING STOCKHOLDER COUNSEL
(i) The Underwriting Agreement has been duly authorized, executed and
delivered by or on behalf of, and is a valid and binding agreement of,
the Selling Stockholder, enforceable in accordance with its terms,
except as rights to indemnification thereunder may be limited by
applicable law and except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles.
(ii) The execution and delivery by the Selling Stockholder of, and the
performance by the Selling Stockholder of its obligations under, the
Underwriting Agreement and its Custody Agreement and its Power of
Attorney will not contravene or conflict with, result in a breach of,
or constitute a default under, the charter or by-laws, partnership
agreement, trust agreement or other organization documents, as the case
may be, of the Selling Stockholder, or, to the best of such counsel's
knowledge, violate, result in a breach of or constitute a default under
the terms of any other agreement or instrument to which the Selling
Stockholder is a party or by which it is bound, or any judgement, order
or decree applicable to the Selling Stockholder of any court,
regulatory body, administrative agency, governmental body or arbitrator
having jurisdiction over the Selling Stockholder.
(iii) The Selling Stockholder has good and valid title to all of the
Common Shares which may be sold by the Selling Stockholder under the
Underwriting Agreement and has the legal right and power, and all
authorization and approvals required under its charter and by-laws, to
enter into the Underwriting Agreement and its Custody Agreement and its
Power of Attorney, to sell, transfer and deliver all of the Common
Shares which may be sold by the Selling Stockholder under the
Underwriting Agreement and to comply with its other obligations under
the Underwriting Agreement, its Custody Agreement and its Power of
Attorney.
(iv) Each of the Custody Agreement and Power of Attorney of the Selling
Stockholder has been duly authorized, executed and delivered by the
Selling Stockholder and is a valid and binding agreement of the Selling
Stockholder, enforceable in accordance with its terms, except as rights
to indemnification thereunder may be limited by applicable law and
except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar
<PAGE>
laws relating to or affecting creditors' rights generally or by
general equitable principles.
(v) Assuming that the Underwriters purchase the Shares which are sold
by the Selling Stockholder pursuant to the Underwriting Agreement for
value, in good faith and without notice of any adverse claims, the
delivery of such Shares pursuant to the Underwriting Agreement will
pass good and valid title to such Shares, free and clear of any
security interest, mortgage, pledge, lieu encumbrance or other claim.
(vi) To the best of such counsel's knowledge, no consent, approval,
authorization or other order of, or registration or filing with, any
court or governmental authority or agency, is required for the
consummation by the Selling Stockholder of the transactions
contemplated in the Underwriting Agreement, except as required under
the Securities Act, applicable state securities or blue sky laws, and
from the National Association of Securities Dealers, LLC.
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Exhibit 5.1
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
TELEPHONE 650-493-9300 FACSIMILE 650-493-6811
WWW.WSGR.COM
September 16, 1999
QuickLogic Corporation
1277 Orleans Drive
Sunnyvale, CA 94089
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 by you with the
Securities and Exchange Commission ("SEC") on June 9, 1997 (Registration No.
333-28833), as amended by Amendment Nos. 1, 2, 3, 4 and 5 thereto filed with the
SEC on June 18, 1997, July 30, 1997, October 27, 1997, August 10, 1999 and
September 16, 1999, respectively (the "Registration Statement"), in connection
with registration under the Securities Act of 1933, as amended, of up to
6,667,000 shares of your Common Stock, par value $0.001 and an over-allotment
option granted to the underwriters of the offering to purchase up to 1,000,050
shares (collectively, the "Shares"). We understand that the Shares are to be
sold to the underwriters of the offering for resale to the public as described
in the Registration Statement. As your legal counsel, we have examined the
proceedings taken, and are familiar with the proceedings proposed to be taken,
by you in connection with the sale and issuance of the Shares.
It is our opinion that the Shares, when issued and sold in the manner
described in the Registration Statement and in accordance with the resolutions
adopted by the Board of Directors of the Company, will be legally and validly
issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendments thereto.
Very truly yours,
/s/ WILSON SONSINI GOODRICH & ROSATI
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated June 7, 1999, relating to the consolidated financial statements
and consolidated financial schedules of QuickLogic Corporation, which appear in
such Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
September 15, 1999
