UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 4, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-21970
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ACTEL CORPORATION
(Exact name of Registrant as specified in its charter)
California 77-0097724
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
955 East Arques Avenue
Sunnyvale, California 94086-4533
(Address of principal executive offices) (Zip Code)
(408) 739-1010
(Registrant's telephone number, including area code)
--------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Number of shares of Common Stock outstanding as of November 17, 1998:
20,943,744
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
ACTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- --------------------------
Oct. 4, Sept. 28, June 28, Oct. 4, Sept. 28,
1998 1997 1998 1998 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues................................ $ 38,628 $ 38,220 $ 37,160 $ 114,253 $ 118,846
Costs and expenses:
Cost of revenues......................... 15,245 15,788 14,815 45,845 48,957
Research and development................. 7,960 6,641 7,527 22,737 19,649
Selling, general, and administrative..... 10,411 10,355 10,392 31,384 30,881
------------ ------------ ------------ ------------ ------------
Total costs and expenses........... 33,616 32,784 32,734 99,966 99,487
------------ ------------ ------------ ------------ ------------
Income from operations...................... 5,012 5,436 4,426 14,287 19,359
Interest income and other, net.............. 672 559 599 1,815 1,312
------------ ------------ ------------ ------------ ------------
Income before tax provision................. 5,684 5,995 5,025 16,102 20,671
Tax provision............................... 1,847 2,074 1,606 5,233 7,285
------------ ------------ ------------ ------------ ------------
Net income.................................. $ 3,837 $ 3,921 $ 3,419 $ 10,869 $ 13,386
============ ============ ============ ============ ============
Net income per share:
Basic.................................... $ 0.18 $ 0.19 $ 0.16 $ 0.51 $ 0.66
============ ============ ============ ============ ============
Diluted.................................. $ 0.18 $ 0.18 $ 0.16 $ 0.50 $ 0.61
============ ============ ============ ============ ============
Shares used in computing net income per share:
Basic.................................... 21,449 20,956 21,288 21,304 20,150
============ ============ ============ ============ ============
Diluted.................................. 21,724 22,172 21,968 21,876 22,050
============ ============ ============ ============ ============
</TABLE>
<PAGE>
ACTEL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Oct. 4, Dec. 28,
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 7,036 $ 7,763
Short-term investments.............................................................. 57,251 51,272
Accounts receivable, net............................................................ 22,620 25,135
Inventories, net.................................................................... 24,740 20,472
Deferred income taxes............................................................... 19,817 20,782
Other current assets................................................................ 2,712 1,839
------------ ------------
Total current assets.......................................................... 134,176 127,263
Property and equipment, net............................................................ 14,375 15,081
Investment in foundry.................................................................. 10,680 10,680
Other assets........................................................................... 17,056 6,970
------------ ------------
$ 176,287 $ 159,994
============ ============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable.................................................................... $ 10,292 $ 12,440
Accrued salaries and employee benefits.............................................. 3,623 4,718
Other accrued liabilities........................................................... 6,638 2,898
Deferred income..................................................................... 31,613 30,928
------------ ------------
Total current liabilities..................................................... 52,166 50,984
Shareholders' equity:
Common stock........................................................................ 22 21
Additional paid-in capital.......................................................... 91,132 85,965
Accumulated earnings................................................................ 33,843 23,024
Treasury stock, at cost............................................................. (876) 0
------------ ------------
Total shareholders' equity.................................................... 124,121 109,010
------------ ------------
$ 176,287 $ 159,994
============ ============
</TABLE>
<PAGE>
ACTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------
Oct. 4, Sept. 28,
1998 1997
------------ ------------
<S> <C> <C>
Operating activities:
Net income $ 10,869 $ 13,386
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization..................................................... 5,690 5,926
Changes in operating assets and liabilities:
Accounts receivable............................................................. 2,515 7,954
Inventories..................................................................... (4,268) 3,777
Other current assets............................................................ (873) (834)
Accounts payable and accrued liabilities........................................ 497 (5,366)
Deferred income................................................................. 685 980
Deferred income taxes........................................................... 965 (144)
------------ ------------
Net cash provided by operating activities........................................... 16,080 25,679
------------ ------------
Investing activities:
Purchases of property and equipment................................................. (4,289) (4,696)
Purchases of short-term investments................................................. (116,383) (89,548)
Sales of short-term investments..................................................... 110,495 71,285
Other assets........................................................................ (10,781) (21)
------------ ------------
Net cash used in investing activities............................................... (20,958) (22,980)
------------ ------------
Financing activities:
Sale of common stock................................................................ 5,027 3,752
Purchases of treasury stock......................................................... (876) 0
------------ ------------
Net cash provided by financing activities........................................... 4,151 3,752
------------ ------------
Net increase (decrease) in cash and cash equivalents................................... (727) 6,451
Cash and cash equivalents, beginning of period......................................... 7,763 3,543
------------ ------------
Cash and cash equivalents, end of period............................................... $ 7,036 $ 9,994
============ ============
Supplemental disclosures of cash flows information and non-cash investing and
financing activities:
Cash paid for taxes................................................................. $ 745 $ 12,460
Conversion of preferred stock....................................................... -- 18,147
</TABLE>
<PAGE>
ACTEL CORPORATION
Notes to Consolidated Condensed Interim Financial Statements
(unaudited)
1. Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements of Actel
Corporation (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these
financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included.
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
The interim financial statements should be read in conjunction with the
audited financial statements included in the Company's Annual Report on Form
10-K for the year ended December 28, 1997.
The results of operations for the nine months ended October 4, 1998,
are not necessarily indicative of results that may be expected for the entire
year ending January 3, 1999.
2. Recent Accounting Pronouncements
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of SFAS 130 had no impact on
the Company's net income or shareholders' equity. SFAS 130 requires unrealized
gains or losses on the Company's available-for-sale securities and foreign
currency translation adjustments, which prior to adoption were reported
separately in shareholders' equity to be included in other comprehensive income.
Prior year financial statements have been reclassified to conform to the
requirements of SFAS 130.
Total comprehensive income for the three- and nine-month periods ended
October 4, 1998 were $3,886,000 and $10,931,000, respectively. Total
comprehensive income for the three- and nine-month periods ended September 28,
1997 were $3,921,000 and $13,386,000, respectively.
The American Institute of Certified Public Accountants issued Statement
of Position 98-1, "Accounting For the Costs of Computer Software Developed or
Obtained For Internal Use" ("SOP 98-1"), on March 4, 1998. SOP 98-1 provides
guidelines for accounting for costs of computer software developed for internal
use. SOP 98-1 is effective for financial statements for fiscal years beginning
after December 15, 1998. The adoption of SOP 98-1 is not expected to materially
impact the Company's results of operations or financial position.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which is required to be
adopted in years beginning after June 15, 1999. The Company is currently
evaluating the impact adoption of SFAS 133 will have on future earnings.
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
Oct. 4, Dec. 28,
1998 1997
------------ ------------
<S> <C> <C>
Inventories:
Purchased parts and raw materials................................................... $ 2,779 $ 3,681
Work-in-process..................................................................... 11,703 8,438
Finished goods...................................................................... 10,258 8,353
------------ ------------
$ 24,740 $ 20,472
============ ============
</TABLE>
Inventories are stated at the lower of cost (first-in, first-out) or
market (net realizable value). Given the volatility of the market for the
Company's products, the Company makes inventory provisions for potentially
excess and obsolete inventory based on backlog and forecast demand. However,
such backlog demand is subject to revisions, cancellations, and rescheduling.
Actual demand will inevitably differ from such backlog and forecast demand, and
such differences may be material to the financial statements. Excess inventory
increases handling costs and the risk of obsolescence, is a non-productive use
of capital resources, and delays realization of the price and performance
benefits associated with more advanced manufacturing processes.
4. Earnings Per Share
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"), beginning with the
financial statements for the year ended December 31, 1997, and all share and per
share data for prior periods have been adjusted retroactively to comply with
SFAS 128.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- --------------------------
Oct. 4, Sept. 28, Oct. 4, Sept. 28,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic:
Average common shares outstanding......................... 21,449 20,956 21,304 20,150
Shares used in computing net income per share............. 21,449 20,956 21,304 20,150
============ ============ ============ ============
Net income................................................ $ 3,837 $ 3,921 $ 10,869 $ 13,386
============ ============ ============ ============
Net income per share...................................... $ 0.18 $ 0.19 $ 0.51 $ 0.66
============ ============ ============ ============
Diluted:
Average common shares outstanding......................... 21,449 20,956 21,304 20,150
Net effect of dilutive stock options and convertible
preferred stock - based on the treasury stock method... 275 1,216 572 1,900
------------ ------------ ------------ ------------
Shares used in computing net income per share............. 21,724 22,172 21,876 22,050
============ ============ ============ ============
Net income................................................ $ 3,837 $ 3,921 $ 10,869 $ 13,386
============ ============ ============ ============
Net income per share...................................... $ 0.18 $ 0.18 $ 0.50 $ 0.61
============ ============ ============ ============
</TABLE>
5. AGL
On May 12, 1998, the Company announced that it had signed a letter of
intent to acquire AutoGate Logic, Inc. ("AGL") of Fremont, California. AGL is a
software service company that offers a range of development tools, including
place and route and timing analysis software. The Company believes that it will
consummate its acquisition of AGL in the fourth quarter of 1998, which may
result in a one-time write-off of in-process research and development and the
booking of additional goodwill. However, there can be no assurance that the
Company and AGL will enter into definitive agreements or that the conditions to
closing contained in such agreements will be satisfied or waived.
6. GateField
During the third quarter, the Company purchased the Design Services
Business of GateField Corporation ("GateField") in a strategic move to position
the Company as a solution provider of reprogrammable ASIC systems. See Exhibit
10.1. In addition, the Company acquired the exclusive right to market and sell
GateField's Standard ProASIC(TM) products in process geometries of 0.25 micron
and smaller, which are currently under development, as part of the Company's
product line. The Company also acquired an equity stake in GateField, purchasing
300,000 shares of Series C Preferred Stock, which are convertible at the
Company's discretion into 2,000,000 shares of GateField Common Stock. In total,
the Company paid approximately $10 million to GateField. The Company obtained
from an independent third party an asset valuation analysis, which was based on
management's assumption that GateField will be able to successfully develop the
technologies and products licensed to the Company and management's expectations
regarding the future market demand for those products. The assets will be
amortized over their expected useful life, which range from 5 to 7 years.
7. Fiscal Quarter
Beginning with the fiscal quarter ended October 4, 1998, the Company's
fiscal quarters will end on the first Sunday in January, April, July, and
October, instead of the Sunday closest to the last day of December, March, June,
and September. As a result of this change, the third quarter was a fourteen week
quarter rather than a normal thirteen week quarter.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This quarterly Report on Form 10-Q contains forward-looking statements
that involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in such forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed under the caption "Year 2000 Risks and Other Factors Affecting
Future Operating Results."
Results of Operations
Net Revenues
Net revenues for the third quarter of fiscal 1998 were $38.6 million,
which represents an increase of 4% compared with the Company's net revenues for
the second quarter of 1998 and an increase of 1% compared with the Company's net
revenues for the third quarter of 1997. Net revenues for the first nine months
of fiscal 1998 were $114.3 million, which represents a decline of 4% compared
with the Company's net revenue for the first nine months of 1997.
The increase in sequential quarterly net revenues resulted primarily
from a 5% increase in unit sales of field programmable gate arrays ("FPGAs"),
while the overall average selling price (ASP) declined by 4%. The ASP on
commercial products was down about 1% and the ASP on space and military products
was also down as the mix changed to include a higher percentage of the lower
gate count RH1020 device.
The year-to-year increase in quarterly net revenues was driven by an
increase of 19% in unit shipments, which was offset by a decline in the ASP of
17%. The decline in the ASP was driven by a higher percentage of shipments of MX
product, coupled with normal average selling price erosion.
As is typical in the semiconductor industry, the average selling prices
of the Company's products generally decline over the lives of such products. To
increase revenues, the Company seeks to increase unit sales of existing
products, principally by reducing prices, and to introduce and sell new
products. No assurance can be given that these efforts will be successful.
Gross Margin
Gross margin for the third quarter of 1998 was a record 60.5% of net
revenues, compared with 60.1% of net revenues for the second quarter of 1998 and
58.7% for the third quarter of 1997. Gross margin for the first nine months of
1998 was 59.9% of net revenues, compared with 58.8% of net revenues for the
first nine months of 1997.
The improved margin was driven by a number of items: continued
reduction of wafer costs at all foundries; improved sort yields, especially on
newer products; better utilization of manufacturing capacity; and favorable
foreign exchange transactions.
As is typical in the semiconductor industry, margins on the Company's
products often decline as the average selling prices of such products decline.
The Company seeks to offset margin erosion by reducing costs and by selling a
higher percentage of new products, which tend to have higher margins than more
mature products after satisfactory, sustainable yields are achieved. The Company
seeks to reduce costs by improving wafer yields, negotiating price reductions
with suppliers, increasing the level and efficiency of its testing and packaging
operations, achieving economies of scale by means of higher production levels,
and increasing the number of die produced per wafer by shrinking the die size of
its products. There can be no assurance that these efforts will be successful.
The ability of the Company to shrink the die size of its FPGAs is dependent on
the availability of more advanced manufacturing processes. Because of the custom
steps involved in manufacturing antifuse-based FPGAs, the Company typically
obtains access to new manufacturing processes later than its competitors using
standard manufacturing processes.
Research and Development
Research and development expenditures for the third quarter of 1998
were $8.0 million, or 21% of net revenues, compared with $7.5 million, or 20% of
net revenues, for the second quarter of 1998 and $6.6 million, or 17% of
revenues, for the third quarter of 1997.
Research and development expenditures for the first nine months of 1998
were $22.7 million, or 20% of net revenues, compared with $19.6 million, or 17%
of net revenues, for the first nine months of 1997. Research and development
expenditures for the first nine months of 1998 increased by 16% compared with
the first nine months of 1997.
The Company has boosted the level of its research and development
expenditures over the last several quarters to accelerate the introduction of
new products. Research and development expenditures for the third quarter and
first nine months of 1998 increased approximately in line with the Company's
expectations.
The Company's research and development consists of circuit design,
software development, and process technology activities. The Company believes
that continued substantial investment in research and development is critical to
maintaining a strong technological position in the industry and, therefore,
expects to continue increasing its research and development expenditures.
Selling, General, and Administrative
Selling, general, and administrative expenses for the third quarter of
1998 were $10.4 million, or 27% of net revenues, compared with $10.4 million, or
28% of net revenues, for the second quarter of 1998 and $10.4 million, or 27% of
net revenues, for the third quarter of 1997. Selling, general, and
administrative expenses for the first nine months of 1998 were 31.4 million, or
27% of net revenues, compared with $30.9 million, or 26% of net revenues, for
the first nine months of 1997.
Selling, general, and administrative expenses for the third quarter and
first nine months of 1998 were approximately in line with the Company's
expectations, remaining flat compared with the second quarter of 1998 and
increasing by $0.5 million compared with the first nine months of 1997.
Tax Provision
The Company's effective tax rate for the nine months ended October 4,
1998, was 32.5%. This rate is based on the estimated annual tax rate complying
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." This rate differs from the federal statutory rate due primarily to state
income taxes (net of federal benefit), the benefits of research and development
credits and tax exempt income, and recognition of certain deferred tax assets
subject to valuation allowances as of December 29, 1997.
Liquidity and Capital Resources
At the end of the third quarter of 1998, the Company's cash, cash
equivalents, and short-term investments were $64.3 million, compared with $59.0
million at the beginning of fiscal 1998. The amount of cash, cash equivalents,
and short-term investments increased principally because of cash provided by
operations.
The Company believes that existing cash, cash equivalents, and
short-term investments, together with cash from operations, will be sufficient
to meet its cash requirements for the foreseeable future. A portion of available
cash may be used for investment in or acquisition of complementary businesses,
products, or technologies.
The Company has a line of credit with a bank that provides for
borrowings not to exceed $5,000,000. The agreement contains covenants that
require the Company to maintain certain financial ratios and levels of net
worth. As of October 4, 1998, the Company was in compliance with the covenants
for the line of credit. Borrowings against the line of credit bear interest at
the bank's prime rate. There were no borrowings against the line of credit at
October 4, 1998. The line of credit, which expires in May 1999, may be
terminated by either party upon not less than thirty days' prior written notice.
The Company currently has no material financial obligations to its
current wafer suppliers. However, wafer manufacturers are increasingly demanding
financial support from customers in the form of equity investments and advance
purchase price deposits, which in some cases are substantial. If the Company
requires additional capacity, it may be required to incur significant
expenditures to secure such capacity.
The Company believes that the availability of adequate financial
resources is a substantial competitive factor. To take advantage of
opportunities as they arise, or to withstand adverse business conditions should
they occur, it may become prudent or necessary for the Company to raise
additional capital. The Company intends to continue monitoring the availability
and cost of potential capital resources, including equity, debt, and off-balance
sheet financing arrangements, and may consider raising additional capital on
terms that are acceptable to the Company. There can be no assurance that
additional capital will become available on acceptable terms.
Additional Quarterly Information
The following table presents certain unaudited quarterly results for
each of the eight quarters in the period ended October 4, 1998. In the opinion
of management, all necessary adjustments (consisting only of normal recurring
accruals) have been included in the amounts stated below to present fairly the
unaudited quarterly results when read in conjunction with the audited
consolidated financial statements of the Company and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 28, 1997.
These quarterly operating results are not necessarily indicative of the results
for any future period.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------------------
Oct. 4, Jun 28, Mar. 29, Dec. 28, Sept. 28, June 29, Mar. 30, Dec. 29,
1998 1998 1998 1997 1997 1997 1997 1996
--------- --------- --------- --------- --------- --------- --------- ---------
(unaudited, in thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues.......................... $ 38,628 $ 37,160 $ 38,465 $ 37,012 $ 38,220 $ 40,823 $ 39,803 $ 39,027
Cost of revenues...................... 15,245 14,815 15,785 15,287 15,788 16,731 16,439 16,381
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit.......................... 23,383 22,345 22,680 21,725 22,432 24,092 23,364 22,646
Research and development.............. 7,960 7,527 7,250 6,816 6,641 6,461 6,547 5,855
Selling, general, and administrative.. 10,411 10,392 10,581 10,313 10,355 10,394 10,131 10,651
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations................ 5,012 4,426 4,849 4,596 5,436 7,237 6,686 6,140
Net income............................ $ 3,837 $ 3,419 $ 3,613 $ 3,382 $ 3,921 $ 4,934 $ 4,531 $ 4,153
Net income per share:
Basic............................... $ 0.18 $ 0.16 $ 0.17 $ 0.16 0.19 $ 0.24 $ 0.24 $ 0.23
========= ========= ========= ========= ========= ========= ========= =========
Diluted............................. $ 0.18 $ 0.16 $ 0.17 $ 0.16 $ 0.18 $ 0.23 $ 0.21 $ 0.19
========= ========= ========= ========= ========= ========= ========= =========
Shares used in computing net income
per share:
Basic............................... 21,449 21,288 21,163 21,032 20,956 20,834 18,636 17,971
========= ========= ========= ========= ========= ========= ========= =========
Diluted............................. 21,724 21,968 21,864 21,623 22,172 21,890 22,082 21,893
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------------------
Oct. 4, Jun 28, Mar. 29, Dec. 28, Sept. 28, June 29, Mar. 30, Dec. 29,
1998 1998 1998 1997 1997 1997 1997 1996
--------- --------- --------- --------- --------- --------- --------- ---------
As a Percentage of Net Revenues:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues.......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues...................... 39.5 39.9 41.0 41.3 41.3 41.0 41.3 42.0
--------- --------- --------- --------- --------- --------- --------- ---------
Gross margin.......................... 60.5 60.1 59.0 58.7 58.7 59.0 58.7 58.0
Research and development.............. 20.6 20.3 18.9 18.4 17.4 15.8 16.4 15.0
Selling, general, and administrative.. 27.0 28.0 27.5 27.9 27.1 25.5 25.5 27.3
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations................ 13.0 11.9 12.6 12.4 14.2 17.7 16.8 15.7
Net income............................ 9.9 9.2 9.4 9.1 10.3 12.1 11.4 10.6
</TABLE>
<PAGE>
Year 2000 Risks
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000.
Based on recent assessments, the Company determined that it would be
required to upgrade, modify, and/or replace portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Company presently believes that with modifications or replacements of
existing software and certain hardware, the Year 2000 issue can be mitigated.
However, if such modifications and replacements are not made, or are not
completed timely, the Year 2000 issue could have a materially adverse impact on
the operations of the Company.
The Company's plan to resolve the Year 2000 issue involves the
following four phases: inventory, assessment, remediation, and
testing/implementation. Both information technology ("IT") and non-information
technology ("Non-IT") systems will be addressed. To date, the Company has fully
completed its assessment of mission-critical business systems that could be
significantly affected by the Year 2000. The completed assessment indicated that
most of the Company's significant IT systems could be affected, particularly the
order entry, general ledger, billing, and inventory systems. Assessment of the
risk involved with non-IT systems is still in progress. Affected systems include
testers and bar-code devices used in various aspects of the manufacturing and
shipping process.
Based on a review of its product lines (FPGA devices and programming
software and hardware), the Company has determined that most of the products it
has sold and will continue to sell do not require remediation to be Year 2000
compliant. Accordingly, the Company does not believe that the Year 2000 presents
a material exposure as it relates to the Company's products. In addition, the
Company has gathered information about the Year 2000 compliance status of its
significant suppliers and subcontractors and continues to monitor their
compliance.
With respect to its IT exposure, to date the Company is 35% complete on
the remediation phase of its ERP systems and expects to complete software
reprogramming and replacement no later than the end of first quarter of 1999.
Once software is reprogrammed or replaced for a system, the Company begins
testing and implementation. These phases run concurrently for different systems.
The Company plans to have all IT systems fully tested and implemented by June
30, 1999, with 100% completion targeted for September 30, 1999.
The remediation of Non-IT solutions is significantly more difficult
than remediation of IT systems due to the dependency on manufacturers for
information on the Year 2000 compliance status of the various components and
products. As such, the Company is still in the inventory/assessment phase. The
Company expects to complete its remediation of Non-IT systems by March 31, 1999.
Testing and implementation of affected equipment is expected to be 80% complete
by June 30, 1999.
The Company has queried its significant suppliers and subcontractors
that do not share information systems with the Company ("External Agents"). To
date, the Company is not aware of any External Agent with a Year 2000 issue that
would materially impact the Company's results of operations, liquidity, or
capital resources. However, the Company has no means of ensuring that External
Agents will be Year 2000 ready. The inability of External Agents to complete
their Year 2000 resolution process in a timely fashion could materially and
adversely impact the Company. The effect of non-compliance by External Agents is
not determinable.
The Company will utilize both internal and external resources to
reprogram, or replace, test, and implement the software and embedded systems for
Year 2000 modifications. To date, the Company has incurred less than $0.5
million on efforts directed solely at Year 2000 compliance. The total cost of
the Year 2000 project is not expected to exceed $2.0 million and is being funded
through operating cash flows.
Management of the Company believes it has an effective program in place
to resolve the Year 2000 issue in a timely manner. As noted above, the Company
has not yet completed all necessary phases of the Year 2000 program. The Company
believes that it is more likely to experience Year 2000 problems with the
systems of key suppliers rather than with the Company's internal systems or
products. The Company's Year 2000 program includes efforts to assess the Year
2000 compliance of its key suppliers.
The Company currently has no contingency plans in place in the event it
does not complete all phases of the Year 2000 program. The Company intends to
develop a contingency plan to deal with Year 2000 issues that may materially
adversely affect its business processes. The Company intends to have a
contingency plan in place no later than June 30, 1999.
Other Factors Affecting Future Operating Results
The Company's operating results are subject to general economic
conditions and a variety of risks characteristic of the semiconductor industry
(including booking and shipment uncertainties, wafer supply fluctuations, and
price erosion) or specific to the Company, any of which could cause the
Company's operating results to differ materially from past results. For a
discussion of such risks, see "Risk Factors" in Part I of the Company's Annual
Report on Form 10-K for 1997, which is incorporated herein by this reference.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
Except as described below, there are no pending legal proceedings of a
material nature to which the Company is a party or of which any of its property
is the subject. There are no such legal proceedings known by the Company to be
contemplated by any governmental authority.
Actel v. QuickLogic (CV C-94 20050 JW (PVT) and CV C-97 21107 JW (EAI))
During the third quarter of 1998, the Company and QuickLogic
Corporation ("QuickLogic") agreed to settle and dismiss with prejudice the two
patent infringement actions between the parties pending before the United States
Court for the Northern District of California, San Jose Division. As part of the
settlement, which management does not believe will have a material impact on the
Company's business, financial condition, or operating results, the Company and
QuickLogic entered into a Patent Cross License Agreement. See Exhibit 10.2.
Lemelson Foundation v. Intel, et al. (CIV98-1413 PHX PGR)
During the third quarter, the Lemelson Medical, Education & Research
Foundation, a Nevada limited partnership (the "Foundation"), filed a lawsuit in
the United States District Court for the District of Arizona, against the
Company and 25 other United States semiconductor companies seeking monetary
damages and injunctive relief based on such companies' alleged infringement of
certain patents held by the Foundation. Management believes the Company has
meritorious defenses, but no assurance can be given that the Foundation will not
succeed in obtaining significant monetary damages or an injunction against the
manufacture and sale of the Company's products. The Company, which has not been
served, is attempting to negotiate a settlement of the case. After considering
the facts currently known, management does not believe that the ultimate outcome
of the lawsuit will have a materially adverse effect on the Company's business,
financial condition, or operating results, although no assurance can be given to
that effect.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following exhibits are filed as part of, or
incorporated by reference into, this Quarterly Report on Form 10-Q:
10.1 Asset Purchase Agreement dated August 14, 1998,
between Actel Corporation and GateField Corporation
(filed as Exhibit 2.1 to GateField Corporation's
Current Report on Form 8-K (File No. 0-13244) on
August 14, 1998, and incorporated herein by this
reference).
10.2* Patent Cross License Agreement dated August 25, 1998,
between Actel Corporation and QuickLogic Corporation.
------------------
* Confidential treatment requested as to a portion
of this Exhibit.
(b) Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACTEL CORPORATION
Date: November 18, 1998 /s/ Henry L. Perret
--------------------------------------------------------
Henry L. Perret
Vice President of Finance
and Chief Financial Officer
(as principal financial officer
and on behalf of Registrant)
PATENT CROSS LICENSE AGREEMENT
THIS AGREEMENT is made and entered into on the 25th day of August, 1998, by
and between QuickLogic Corporation, a corporation incorporated under the laws of
California ("QuickLogic") and headquartered at 1277 Orleans Drive, Sunnyvale,
California 94089, and Actel Corporation, a corporation incorporated under the
laws of California ("Actel") and headquartered at 955 East Arques Avenue,
Sunnyvale, California 94086.
WHEREAS, QuickLogic and Actel are parties to those certain legal actions
entitled Actel Corporation v. QuickLogic Corporation, No. C-94 20050 JW (PVT)
and Actel Corporation v. QuickLogic Corporation, No. C-97 21107JW (EAI)
(collectively, the "Actions") currently pending before the United States
District Court for the Northern District of California, San Jose Division (the
"Court"); and
WHEREAS, QuickLogic and Actel mutually desire to settle the Actions, as
well as certain other actual or potential disputes between them, as part of such
settlement; and
WHEREAS, the Parties have entered into a settlement agreement of even date
herewith defining with particularity the terms of the settlement (the
"Settlement Agreement and Mutual Release");
NOW, THEREFORE, the Parties, in consideration of the premises and the
mutual promises of the Parties hereinafter set forth and intending to be bound
by the terms hereof, hereby agree, effective as of the Effective Date (as
defined below), as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
1.1. "Actel" shall mean Actel Corporation, a California corporation, and
its successor, Actel Corporation, a Nevada corporation.
1.2. "Actel Licensed Patents" shall mean all Patents (a) that Actel or any
of its Affiliates now own or may hereafter during the term of this Agreement own
or (b) under which and to the extent that Actel or any of its Affiliates have
acquired or may hereafter during the term of this Agreement acquire the right to
grant licenses without the payment of a royalty or other consideration to a
third party (excluding consideration paid to an employee in connection with the
assignment to Actel of the employee's rights in an invention that resulted from
any work performed by the employee for Actel).
1.3. "Acquired Party" shall mean a party to this Agreement following a
Change in Ownership of such party.
1.4. "Acquiring Party" shall mean the Person(s), if any, in Control of an
Acquired Party following a Change in Ownership and the Affiliates of such
Person(s).
1.5. "Affiliate" shall mean a Person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, a specified Person.
1.6. "Antifuse" shall mean a two-terminal switch that is open prior to
programming.
1.7. "Antifuse Programmable Logic Device" shall mean any Programmable Logic
Device in which all of the Programmable Switching Elements are Antifuses.
1.8. "Beneficial Owner" shall be used in this Agreement as defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended.
1.9. "Change in Ownership" shall mean the occurrence of any one of the
following:
1.9.1. Any Person is or shall have the right to become the
Beneficial Owner, directly or indirectly, of Voting Securities of such party
representing 50% or more of the Total Voting Power of such party's Voting
Securities.
1.9.2. The shareholders of a party approving a merger or
consolidation of such party with any other corporation, other than a merger or
consolidation that would result in the Voting Securities of such party
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving corporation) 50% or more of the Total Voting Power represented by the
Voting Securities of such party or such surviving corporation outstanding
immediately after such merger or consolidation.
1.9.3. The shareholders of a party approving a plan of dissolution
or liquidation of such party or an agreement for the sale or disposition by such
party of all or substantially all of such party's assets in one or a series of
transactions.
1.10. "Control," including the terms "controlling," "controlled by," and
"under common control with," shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of Voting Securities, by contract, or
otherwise. A Person's Beneficial Ownership of twenty (20%) or more of a
corporation's outstanding Voting Securities shall create a rebuttable
presumption that such Person has control of such corporation. Notwithstanding
the foregoing, a Person shall not be deemed to have control of a corporation if
such Person holds Voting Securities, in good faith and not for the purpose of
circumventing this Section, as an agent, bank, broker, nominee, custodian, or
trustee for one or more Beneficial Owners who do not individually or as a group
have control of such corporation.
1.11. "Effective Date" shall mean the date on which the Stipulations (as
defined in the Settlement Agreement and Mutual Release) are filed with the
Court.
1.12. "Embedded SRAM Programmable Logic Device" shall mean an Embedded
Programmable Logic Device in which any of the Programmable Switching Elements is
controlled by SRAM.
1.13. "Embedded Programmable Logic Device" shall mean a Programmable Logic
Device in which (x) the circuitry controlled by Programmable Switching Elements
and (y) the circuitry containing User Memories contain in the aggregate less
than 80% of the total number of transistors on the die.
1.14. "Flash" shall mean electrically erasable read only memory that can be
erased more than one bit at a time.
1.15. "GateField" shall mean GateField Corporation, a Delaware corporation.
1.16. "Incumbent Directors" shall mean directors who either (a) are
directors of a party to this Agreement as of the Effective Date (or as of the
date of a Change of Ownership, in the case of an Acquiring Party) or (b) are
elected, or nominated for election, to the Board of Directors of such party with
the affirmative votes of a least a majority of the Incumbent Directors at the
time of such election or nomination, but "Incumbent Directors" shall not include
any individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors of such party.
1.17. "Internal Use" by a Person shall mean (a) use by the Person or its
Affiliates without any sale, lease, distribution, or other transfer to a third
party that is not an Affiliate of the Person or (b) incorporation in a
value-added product made by the Person or its Affiliates that is sold, leased,
distributed, or otherwise transferred to a third party that is not an Affiliate
of the Person.
1.18. "Licensee Party" shall mean either Actel or QuickLogic in its
capacity as the recipient of rights under any Patent of the other party pursuant
to this Agreement.
1.19. "Licensor Party" shall mean either Actel or QuickLogic in its
capacity as the grantor of rights under any of its Patents pursuant to this
Agreement.
1.20. "Material Terms" shall refer to the provisions of Sections 3 and 6.4
of this Agreement.
1.21. "Matsushita" shall mean Matsushita Electric Industrial Co., Ltd, a
Japan corporation, Matsushita Electronics Corporation, a Japan corporation, and
their Affiliates.
1.22. "Non-Acquired Party" shall mean the party to this Agreement that is
not the Acquired Party or an Affiliate of the Acquired Party following a Change
in Ownership.
1.23. "Non-Antifuse Programmable Logic Device" shall mean any Programmable
Logic Device that is not an Antifuse Programmable Logic Device.
1.24. Non-Assertion Patent" shall mean (a) any patent (including any
utility patent, design patent, patent of importation, patent of addition,
certificate of addition, certificate or model of utility) granted by the United
States or any other country, (b) any reissue, continuation, parent, division,
extension, renewal, or continuation-in-part of any of the foregoing, and (c) any
counterpart anywhere in the world of any of the foregoing.
1.25. "Patent" shall mean (a) any patent (including any utility patent,
design patent, patent of importation, patent of addition, certificate of
addition, certificate or model of utility) the application for which had a first
effective filing date in any country on or before the Effective Date, (b) any
patent that may issue on any such application, (c) any reissue, continuation,
parent, division, extension, renewal, or continuation-in-part of any of the
foregoing, and (d) any counterpart anywhere in the world of any of the
foregoing.
1.26. "Person" shall be used in this Agreement as defined under Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended.
1.27. "Programmable Logic Device" shall mean any integrated circuit that
implements logic the operation of which is determined after the integrated
circuit has been manufactured.
1.28. "Programmable Switching Element" shall mean a switch controlled by
electrical voltage or electrical currents that is used to configure the logic
function of a Programmable Logic Device. Programmable Switching Elements shall
not include data registers or User Memories or switches controlled by lasers.
1.29. "QuickLogic" shall mean QuickLogic Corporation, a California
corporation.
1.30. "QuickLogic Licensed Patents" shall all Patents (a) that QuickLogic
or any of its Affiliates now own or may hereafter during the term of this
Agreement own or (b) under which and to the extent that QuickLogic or any of its
Affiliates have acquired or may hereafter during the term of this Agreement
acquire the right to grant licenses without the payment of a royalty or other
consideration to a third party (excluding consideration paid to an employee in
connection with the assignment to QuickLogic of the employee's rights in an
invention that resulted from any work performed by the employee for QuickLogic).
1.31. "Security Agreements" shall mean the security agreement of even date
herewith pursuant to which Actel has granted a security interest to QuickLogic
in the proceeds from the sale, assignment, or other transfer of the Actel
Licensed Patents to secure Actel's obligations under Section 6.4.4 of this
Agreement, and the security agreement of even date herewith pursuant to which
QuickLogic has granted a security interest to Actel in the proceeds from the
sale, assignment, or other transfer of the QuickLogic Licensed Patents to secure
QuickLogic's obligations under Sections 3 and 6.4.5 hereof.
1.32. "SRAM" shall mean static random access memory.
1.33. "SRAM Programmable Logic Device" shall mean a Programmable Logic
Device in which any of the Programmable Switching Elements is controlled by
SRAM.
1.34. "Termination Event" shall mean any of the following:
1.34.1. the filing by a party of a petition in Bankruptcy or
insolvency; or
1.34.2. any adjudication that a party is bankrupt or insolvent; or
1.34.3. the appointment of a receiver for all or substantially all
of the property of a party; or
1.34.4. the making by a party of any assignment or attempted
assignment for the benefit of creditors; or
1.34.5. the institution of any proceedings for the liquidation or
winding up of a party's business or for the termination of its corporate
charter; or
1.34.6. any assignment of this Agreement or any exercise of rights
under this Agreement by any successor or assign of a party, except in accordance
with Section 8.
1.35. "Total Voting Power" shall mean the total number of votes that may be
cast in the election of directors at a meeting of the shareholders of a
corporation if all Voting Securities are present and voted to the fullest extent
possible at such meeting.
1.36. "User Memory" shall mean random access memory (RAM), SRAM, read only
memory (ROM), or programmable read only memory (PROM), erasable programmable
read only memory (EPROM), electrically erasable programmable read only memory
(EEPROM), Flash, or variations thereof, used for storing data and control bits
during the logic operation of a Programmable Logic Device. The circuitry of a
Programmable Logic Device controlled by Programmable Switching Elements and the
circuitry of a Programmable Logic Device containing User Memories are mutually
exclusive.
1.37. "Voting Securities" shall mean all securities of a corporation
entitled to vote generally in the election of directors.
2. LICENSES
2.1. Subject to Sections 2.3 and 6.4.2 hereof, QuickLogic hereby grants to
Actel a nonexclusive, royalty-free, worldwide license under the QuickLogic
Licensed Patents (a) to make, have made only for Actel, use, import, offer to
sell, sell, lease, distribute, and otherwise transfer Programmable Logic
Devices, and (b) to grant sublicenses to make, have made only for the
sublicensee, use, import, offer to sell, sell, lease, distribute, and otherwise
transfer Embedded Programmable Logic Devices.
2.2. Subject to the payment of the amounts set forth in Section 3 hereof
and to Sections 2.3, 4.5, 6.4.2, and 6.4.3 hereof, Actel hereby grants to
QuickLogic a nonexclusive, royalty-free, worldwide license under the Actel
Licensed Patents (a) to make, have made only for QuickLogic, use, import, offer
to sell, sell, lease, distribute, and otherwise transfer Programmable Logic
Devices, but excluding all SRAM Programmable Logic Devices, (b) to grant
sublicenses to make, have made only for the sublicensee, use, import, offer to
sell, sell, lease, distribute, and otherwise transfer Embedded Programmable
Logic Devices, but excluding all Embedded SRAM Programmable Logic Devices, and
(c) to grant sublicenses to make, have made (but only for a sublicensee that is
a semiconductor manufacturer or foundry), and use Embedded SRAM Programmable
Logic Devices only for the Internal Use of the sublicensee.
2.3. The licenses granted in Sections 2.1 and 2.2 of this Agreement shall
not include any right in favor of a Licensee Party:
2.3.1. to grant any sublicense to any Person, including any
Affiliate of a Licensee Party other than a wholly-owned subsidiary, except as
expressly provided with respect to Embedded Programmable Logic Devices,
provided, however, that any such sublicense may not be further sublicensed and
may not be assigned or otherwise transferred except in connection with a Change
in Ownership of the sublicensee; or
2.3.2. to offer to sell, sell, lease, distribute, or otherwise
transfer any product to any semiconductor manufacturer or foundry or Affiliate
thereof, except exclusively for the Internal Use of the semiconductor
manufacturer or foundry; provided, however, that Actel may sell or otherwise
transfer products to Matsushita for resale by Matsushita in accordance with the
Distribution Agreement between Matsushita and Actel dated as of June 29, 1995,
and any renewal thereof; or
2.3.3. to sell, lease, distribute, or otherwise transfer all or a
part of the Licensee Party's business or the assets comprising such business, or
transfer control of a subsidiary engaged in such business, to the extent such
part of the Licensee Party's business or such assets or such subsidiary include
the business of making and selling products covered by any license granted to
the Licensee Party in Sections 2.1 or 2.2 of this Agreement, as applicable,
except as may be permitted by Section 8; or
2.3.4. to make, have made, import, offer to sell, sell, lease,
distribute, or otherwise transfer any product that is pin interchangeable in the
final application of the product with a product then offered for sale by the
Licensor Party (excluding products having pinouts originating with a third party
that either (a) are not replicas of a pinout of QuickLogic or Actel or GateField
products or (b) reflect standards promulgated by a standards committee
sanctioned by the IEEE, JEDEC, or an equivalent organization other than the
United States Department of Defense).
2.4. Nothing contained in this Agreement shall be construed as conferring
by implication, estoppel, or otherwise upon either party any license or other
right except the licenses and rights expressly ranted hereunder to that party.
Notwithstanding the foregoing, the Licensee Party and its customers shall have
the right to program the products covered by any license (or covenant not to
sue) granted under this Agreement to the Licensee Party.
2.5. Each party hereby accepts the licenses and rights granted to it by a
party under this Agreement subject to all of the terms and conditions of this
Agreement.
3. PAYMENTS
3.1. As consideration for the license granted to QuickLogic by Actel under
Section 2.2 of this Agreement, QuickLogic grants to Actel the rights set forth
in Section 2.1 of this Agreement and agrees to pay to Actel the sum of
<material has been omitted pursuant to a request for confidential treatment and
filed separately with the Securities and Exchange Commission>. <material has
been omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission> shall be due and payable
on the Effective Date of this Agreement, and (subject to Sections 3.2, 6.4.4,
and 6.4.5 hereof) the balance shall be due and payable in quarterly installments
as follows:
<TABLE>
<S> <C>
3 months after Effective Date <material has been omitted pursuant to a
request for confidential treatment and filed separately
with the Securities and Exchange Commission>
6 months after Effective Date <material has been omitted pursuant to a
request for confidential treatment and filed separately
with the Securities and Exchange Commission>
9 months after Effective Date <material has been omitted pursuant to a
request for confidential treatment and filed separately
with the Securities and Exchange Commission>
12 months after Effective Date <material has been omitted pursuant to a
request for confidential treatment and filed separately
with the Securities and Exchange Commission>
15 months after Effective Date <material has been omitted pursuant to a
request for confidential treatment and filed separately
with the Securities and Exchange Commission>
18 months after Effective Date <material has been omitted pursuant to a
request for confidential treatment and filed separately
with the Securities and Exchange Commission>
21 months after Effective Date <material has been omitted pursuant to a
request for confidential treatment and filed separately
with the Securities and Exchange Commission>
24 months after Effective Date <material has been omitted pursuant to a
request for confidential treatment and filed separately
with the Securities and Exchange Commission>
27 months after Effective Date <material has been omitted pursuant to a
request for confidential treatment and filed separately
with the Securities and Exchange Commission>
30 months after Effective Date <material has been omitted pursuant to a
request for confidential treatment and filed separately
with the Securities and Exchange Commission>
33 months after Effective Date <material has been omitted pursuant to a
request for confidential treatment and filed separately
with the Securities and Exchange Commission>
36 months after Effective Date <material has been omitted pursuant to a
request for confidential treatment and filed separately
with the Securities and Exchange Commission>
</TABLE>
If any such payment is not made when due and is not cured within
fifteen (15) business days after written notice to QuickLogic specifying the
failure to pay, all subsequently due payments shall become immediately due and
payable.
3.2. In the event QuickLogic effects an initial public offering of its
Common Stock pursuant to a registration statement under the Securities Act of
1933, all subsequently due payments shall become immediately due and payable on
the tenth business day following the closing of such offering.
4. NON-ASSERTION AGREEMENTS
4.1. QuickLogic agrees that QuickLogic and its Affiliates will not assert
during the term of this Agreement and thereafter, directly or indirectly, any
cause of action based, in whole or in part, upon the purported infringement by
Actel or its suppliers or customers, mediate or immediate, during the term of
this Agreement of any Non-Assertion Patent, whether granted by the United States
or another country to QuickLogic or its Affiliates or any third party, as a
result of the manufacture, use, importation, offer for sale, sale, lease,
distribution, or other transfer of (a) products first offered for sale by Actel
on or before the second anniversary of the Effective Date of this Agreement and
(b) future generations of such products reflecting the evolution of such
products in the ordinary course of business of QuickLogic's product lines as
they exist on the second anniversary of the Effective Date of this Agreement.
4.2. QuickLogic agrees that no purchaser or transferee of any Non-Assertion
Patent from QuickLogic or its Affiliate and no assignee of the right to enforce
any Non-Assertion Patent from QuickLogic or its Affiliate will assert during the
term of this Agreement or thereafter, directly or indirectly, any cause of
action based, in whole or in part, upon the purported infringement by Actel or
its suppliers or customers, mediate or immediate, during the term of this
Agreement of the Non-Assertion Patent sold, transferred, or assigned as a result
of the manufacture, use, importation, offer for sale, sale, lease, distribution,
or other transfer of (a) products first offered for sale by Actel on or before
the second anniversary of the Effective Date of this Agreement and (b) future
generations of such products reflecting the evolution in the ordinary course of
business of QuickLogic's product lines as they exist on the second anniversary
of the Effective Date of this Agreement.
4.3. Subject to Section 4.5 hereof, Actel agrees that Actel and its
Affiliates will not assert during the term of this Agreement and thereafter,
directly or indirectly, any cause of action based, in whole or in part, upon the
purported infringement by QuickLogic or its suppliers or customers, mediate or
immediate, during the term of this Agreement of any Non-Assertion Patent,
whether granted by the United States or another country to Actel or its
Affiliates or any third party, as a result of the manufacture, use, importation,
offer for sale, sale, lease, distribution, or other transfer of (a) products
first offered for sale by QuickLogic on or before the second anniversary of the
Effective Date of this Agreement and (b) future generations of such products
reflecting the evolution of such products in the ordinary course of business of
Actel's product lines as they exist on the second anniversary of the Effective
Date of this Agreement.
4.4. Subject to Section 4.5 hereof, Actel agrees that no purchaser or
transferee of any Non-Assertion Patent from Actel or its Affiliate and no
assignee of the right to enforce any Non-Assertion Patent from Actel or its
Affiliate will assert during the term of this Agreement or thereafter, directly
or indirectly, any cause of action based, in whole or in part, upon the
purported infringement by QuickLogic or its suppliers or customers, mediate or
immediate, during the term of this Agreement of the Non-Assertion Patent sold,
transferred, or assigned as a result of the manufacture, use, importation, offer
for sale, sale, lease, distribution, or other transfer of (a) products first
offered for sale by QuickLogic on or before the second anniversary of the
Effective Date of this Agreement and (b) future generations of such products
reflecting the evolution of such products in the ordinary course of business of
Actel's product lines as they exist on the second anniversary of the Effective
Date of this Agreement.
4.5. Notwithstanding anything in this Agreement to the contrary, neither
Actel nor its Affiliates shall be precluded or in any way restrained by this
Agreement from asserting against any Person, including QuickLogic and any
Acquiring Person, any claim of infringement of any Actel Licensed Patent or
Non-Assertion Patent as a result of the manufacture, use, importation, offer for
sale, sale, lease, distribution, or other transfer of (a) an SRAM Programmable
Logic Device prior to a Change in Ownership of QuickLogic, (b) a Non-Antifuse
Programmable Logic Device following a Change in Ownership of QuickLogic, or
(c)(i) flash products first offered for sale by GateField on or before the
second anniversary of the Effective Date of this Agreement and future
generations of such products reflecting the evolution of such products in the
ordinary course of business of GateField's product lines as they exist on the
second anniversary of the Effective Date of this Agreement or (ii) "knockoffs"
substantially similar to such products, in each case subject to the rights of
any sublicensee authorized under Sections 2.2(b) and (c) hereof.
5. REPRESENTATIONS, WARRANTIES, AND DISCLAIMERS
5.1. Each Licensor Party represents and warrants that it has all right,
title, and interest in and to the Patents purported to be licensed by it to the
Licensee Party and all power and authority necessary to grant the licenses to
such Patents that are granted by the Licensor Party to the Licensee Party
hereunder.
5.2. Each Licensor Party represents and warrants that neither it nor any of
its Affiliates has the right or power to direct any third party to assert
against the Licensee Party any cause of action based upon the Licensee Party's
purported infringement of any patent owned or enforceable by such third party.
5.3. Nothing contained in this Agreement shall be construed as a warranty
or representation that the manufacture, sale, lease, use, or other transfer of
Programmable Logic Devices by either party or any component thereof will be free
from infringement of patents, trademarks, copyrights, mask work rights, or other
intellectual property or other rights of third parties or of the Licensor Party,
except to the extent of the rights expressly licensed hereunder to the Licensee
Party by the Licensor Party, or that the Licensee Party will be able to
manufacture or to sell or otherwise transfer any product based upon the rights
it receives hereunder from the Licensor Party. Except to the extent, and only to
the extent, expressly stated herein, neither party makes any warranty as to the
accuracy, sufficiency, or suitability of any information contained in any Patent
licensed hereunder. Each Licensee Party assumes the risk of defects or
inaccuracies in the Patent or other data or information, if any, supplied by the
Licensor Party. Neither party shall be under any obligation by this Agreement to
obtain any patent or, once having obtained a patent, to maintain that patent in
force.
5.4. Each party acknowledges and agrees that the other party has made no
statement or representation as to the size of the market for the products that
may be made or sold utilizing the licenses granted or to be granted hereunder or
as to the amount of revenue or profits to be received by the party obtaining
such licenses. Each party acknowledges that, in entering into this Agreement, it
is relying entirely on its own estimate as to the market for the products that
may be made and sold utilizing the license granted and to be granted hereunder.
5.5. Each party acknowledges and agrees that a Programmable Logic Device
containing SRAM is not and shall not be deemed to be an SRAM Programmable Logic
Device if all of the SRAM is User Memory; and a Programmable Logic Device
containing SRAM is and shall be deemed to be an SRAM Programmable Logic Device
only if one or more of the Programmable Switching Elements of the Programmable
Logic Device is controlled by SRAM.
6. TERM AND TERMINATION
6.1. The term of this Agreement shall commence on the Effective Date and,
subject to this Section 6 and to Section 8, shall expire when the last to expire
of the Patents licensed hereunder expires.
6.2. If either party shall fail to perform a Material Term of this
Agreement and such failure is not cured within sixty (60) days after written
notice to the defaulting party specifying the nature of the default, the
complaining party shall have the right at its option:
6.2.1. to terminate all rights and licenses granted by the
complaining party to the defaulting party under this Agreement by giving written
notice of such termination to the defaulting party, effective on the sixtieth
(60th) day after such termination notice is given if the default has not then
been cured; and/or
6.2.2. to seek any other remedies available at law or in equity as a
result of such failure.
6.3. Each party agrees that (a) this Agreement is personal to it; (b) if it
is the subject of a Termination Event described in Section 1.34.1 or 1.34.2
hereof, this Agreement shall automatically terminate; and (c) if it is the
subject of any other Termination Event, the other party shall have the right to
terminate this Agreement by giving written notice of termination to such party,
such termination to be effective on the tenth (10th) day after such notice of
termination under this Section 6.3 is given in accordance with this Agreement.
Upon termination of this Agreement under the provisions of this Section 6.3, the
rights and licenses granted to the party that was the subject of the Termination
Event shall terminate. The rights and licenses granted under this Agreement to
the other party shall survive termination in accordance with the applicable
terms hereof; provided, however, all such licenses to a party shall terminate no
later than the last to expire of any Patents of the other party that are
licensed hereunder. Notwithstanding anything in this Agreement to the contrary,
the parties shall have the right to use, lease, sell, or otherwise dispose of
Programmable Logic Devices in the process of manufacture or in finished goods
inventory upon the termination of this Agreement.
6.4. In the event of a Change in Ownership, the rights and obligations of
the Acquired Party shall continue in full force and effect, and the Acquired
Party shall have the right to assign such rights (including the licenses and
non-assertion covenants) to the Acquiring Party, all subject to the following:
6.4.1. The Acquiring Party shall agree in writing to be fully bound
by all the terms and conditions of this Agreement.
6.4.2. All sublicenses granted by the Acquired Party to the
Acquiring Party and its Affiliates shall be limited to Internal Use.
6.4.3. If QuickLogic is the Acquired Party, the license under
Section 2.1(a) hereof shall be limited to Antifuse Programmable Logic Devices
following the Change in Ownership and any sublicense granted under Section
2.1(b) hereof following the Change in Ownership shall be limited to Internal
Use.
6.4.4. Subject to Section 6.4.6 hereof, if Actel is the Acquired
Party, Actel shall pay to QuickLogic <material has been omitted pursuant to a
request for confidential treatment and filed separately with the Securities and
Exchange Commission> if the Change in Ownership occurs within one year after the
Effective Date, <material has been omitted pursuant to a request for
confidential treatment and filed separately with the Securities and Exchange
Commission> of the Change in Ownership occurs one or more but less than two
years after the Effective Date, <material has been omitted pursuant to a request
for confidential treatment and filed separately with the Securities and Exchange
Commission> if the Change in Ownership occurs two or more but less than three
years after the Effective Date, <material has been omitted pursuant to a request
for confidential treatment and filed separately with the Securities and Exchange
Commission> if the Change in Ownership occurs three or more but less than four
years after the Effective Date, and $0 if the Change in Ownership occurs four or
more years after the Effective Date (in each case, less the balance owed by
QuickLogic to Actel, if any, pursuant to Section 3 hereof).
6.4.5. Subject to Section 6.4.6 hereof, if QuickLogic is the
Acquired Party, QuickLogic shall pay to Actel <material has been omitted
pursuant to a request for confidential treatment and filed separately with the
Securities and Exchange Commission> if the Change in Ownership occurs within one
year after the Effective Date, <material has been omitted pursuant to a request
for confidential treatment and filed separately with the Securities and Exchange
Commission> of the Change in Ownership occurs one or more but less than two
years after the Effective Date, <material has been omitted pursuant to a request
for confidential treatment and filed separately with the Securities and Exchange
Commission> if the Change in Ownership occurs two or more but less than three
years after the Effective Date, <material has been omitted pursuant to a request
for confidential treatment and filed separately with the Securities and Exchange
Commission> if the Change in Ownership occurs three or more but less than four
years after the Effective Date, and $0 if the Change in Ownership occurs four or
more years after the Effective Date (in each case, plus the balance owed by
QuickLogic to Actel, if any, pursuant to Section 3 hereof). 6.4.6. The payments
described in Sections 6.4.4 and 6.4.5 hereof shall be due and payable ten (10)
business days following the Change in Ownership, provided, however, that no
payment shall be due on account of a Change in Ownership if all Programmable
Logic Devices made by or for the Acquiring Party or its Affiliates following the
Change in Ownership are exclusively for the Internal Use of the Acquiring Party
and its Affiliates.
6.5. If, following a Change in Ownership or in anticipation thereof, an
Acquiring Party or its Affiliate asserts during the term of this Agreement or
thereafter, directly or indirectly, any cause of action based, in whole or in
part, upon the purported infringement by the Non-Acquired Party or its suppliers
or customers, mediate or immediate, during the term of this Agreement of any
Non-Assertion Patent as a result of the manufacture, use, importation, offer for
sale, sale, lease, distribution, or other transfer of (a) a Programmable Logic
Device, if Actel is the Non-Acquired Party, (b) a Programmable Logic Device
other than an SRAM Programmable Logic Device, if QuickLogic is the Non-Acquired
Party and QuickLogic had not previously been subject to a Change in Ownership,
or (c) an Antifuse Programmable Logic Device, if QuickLogic is the Non-Acquired
Party and QuickLogic had previously been subject to a Change in Ownership, then
the Non-Acquired Party may terminate all rights and licenses granted by it under
this Agreement by giving written notice of such termination to the Acquiring
Party, effective on the thirtieth (30th) day after such termination notice is
given if the claim is then still being asserted against the Non-Acquired Party,
provided, however, that the Non-Acquired Party shall have no right to terminate
the rights and licensed granted by it under this Agreement if, prior to the
assertion by the Acquiring Party or its Affiliate of a Non-Assertion Patent
referred to above (but following the Change in Ownership or in anticipation
thereof), the Non-Acquired Party had first asserted, directly or indirectly, a
cause of action based, in whole or in part, upon the purported infringement by
the Acquiring Party or its Affiliate of any patent as a result of the
manufacture, use, importation, offer for sale, sale, lease, distribution, or
other transfer of (i) an Antifuse Programmable Logic Device, if Actel is the
Non-Acquired Party and QuickLogic had previously been subject to a Change in
Ownership, (ii) a Programmable Logic Device other than an SRAM Programmable
Logic Device, if Actel is the Non-Acquired Party and QuickLogic had not
previously been subject to a Change in Ownership, or (iii) a Programmable Logic
Device, if QuickLogic is the Non-Acquired Party.
6.6. Neither suspension nor termination shall excuse the defaulting party
from any obligation incurred hereunder prior to the date of suspension or
termination.
6.7. The terms and conditions of Sections 1, 3, 5, 6, 7, 8, and 9 shall
survive the expiration, termination, or cancellation of this Agreement from any
cause.
7. ENFORCEMENT
7.1. The formation, effect, performance, and construction of this Agreement
shall be governed by the laws of the State of California of the United States of
America, except those pertaining to choice of laws, as though made by two
parties residing in California so as to be fully performed with the State of
California.
7.2. IN NO EVENT SHALL EITHER PARTY HAVE ANY LIABILITY TO THE OTHER FOR
INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO
LOST PROFITS, OR FOR SPECIAL, EXEMPLARY, OR PUNITIVE DAMAGES, AND EACH PARTY
COVENANTS NOT TO SEEK ANY SUCH DAMAGES WITH RESPECT TO ANY CLAIM ARISING OUT OF
OR RELATED TO THIS AGREEMENT.
8. ASSIGNMENT OF AGREEMENT
8.1. Except as expressly set forth in Section 6.4 above, neither this
Agreement nor the rights granted and obligations undertaken pursuant to this
Agreement may be assigned, sold, or otherwise transferred, in whole or in part,
provided, however, that this Agreement may be assigned by either party in
connection with its reincorporation under the laws of a state other than
California.
8.2. For all purposes of Section 6, a reference to any license granted by
either party under this Agreement shall also be deemed to be a reference to that
party's covenants under Section 4 of this Agreement not to assert claims under
its patents.
8.3. The parties acknowledge and agree that this Agreement is an executory
contract governed by 11 U.S.C. ss.ss. 365(c)(i), (e)(ii), and (n) in the event
of a bankruptcy case with regard to either party. As such, this Agreement is not
subject to assumption or assignment in the event of bankruptcy without the
consent of the non-debtor party.
9. MISCELLANEOUS
9.1. This Agreement, the Settlement Agreement and Mutual Release, and the
Security Agreements incorporate the entire understanding of the parties with
respect to the subject matter of this Agreement and merge all prior agreements
and understanding between the parties, whether oral or written, with respect to
this subject matter. This Agreement shall be interpreted in accordance with the
law of California such as applied to a contract to be wholly performed within
the state of California.
9.2. Except as may be expressly set forth herein, nothing in this Agreement
shall be construed as obligating any party to manufacture or sell any particular
product hereunder or as restricting the right of either party herein to engage
in any development of, or to make, have made, use, lease, loan, sell, or
otherwise dispose of any product, other than the products with respect to which
licenses are herein granted.
9.3. All notices required or permitted to be given hereunder shall be in
writing and shall be sent by facsimile, receipt to be confirmed by sender via
telephone call, or by registered or certified mail, postage prepaid, addressed
as follows:
If to QuickLogic: QuickLogic Corporation
1277 Orleans Drive
Sunnyvale, California 94089
Telecopier No.: 408-990-4040
Attention: President
If to Actel: Actel Corporation
955 East Arques Avenue
Sunnyvale, CA 94086
Telecopier No.: (408) 739 - 0706
Attention: President
Either party may change its address by a notice given to the other
party in the manner set forth above. Notices given as herein provided shall be
construed to have been given (a) on the day received if sent by facsimile or (b)
five (5) days after the sending thereof by registered or certified mail, unless
the receiving party proves that the notice was actually received at a later
date.
9.4. The failure of any party hereunder to perform any obligation otherwise
due as a result of governmental action, laws, orders, regulations, directions or
requests, or as a result of events, such as war, acts of public enemies, strikes
or other labor disturbances, fires, floods, acts of God, or any causes of like
or different kind beyond the control of the parties is excused for so long as
said cause exists to the extent such failure is caused by such lain, order,
regulation, direction, request, or other event.
9.5. No failure or delay on the part of either party in the exercise of any
right or privilege hereunder shall operate as a waiver thereof or of the
exercise of any other right or privilege hereunder nor shall any single or
partial exercise of any such right or privilege preclude other or further
exercise thereof or of any other right or privilege.
9.6. Any title or caption included herein is for convenience only and is
not to be used in the interpretation of this Agreement.
9.7. Nothing contained herein or done pursuant to this Agreement shall
constitute the parties as entering upon a joint venture or partnership or shall
constitute either party hereto the agent of the other party for any purpose or
in any sense whatsoever.
9.8. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together constitute one and the same Agreement.
9.9. Should any clause, sentence, or paragraph of this Agreement judicially
be declared to be invalid, unenforceable, or void, such decision shall not
invalidate or void the remainder of this Agreement, and the parties hereby agree
that the part or parts of this Agreement so held to be invalid, unenforceable,
or void shall be deemed to have been stricken, and the remainder shall have the
same force and effect as if such part or parts had never been included herein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
in their respective corporate names.
ACTEL CORPORATION QUICKLOGIC CORPORATION
By: /s/ John C. East By: /s/ E. Thomas Hart
Name: John C. East Name: E. Thomas Hart
Title: President & CEO Title: President & CEO
Date: August 25, 1998 Date: August 25, 1998
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