Form 10-Q

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JO//6pVslhxEZiEdM2bMr2FHwweR7V0dNlKqoYc7CZa5hn6M3KWfW//0gWwjMS0m rTmM58eBDDNaX5rSb0I1Og== 0001012870-03-000777.txt : 20030214 0001012870-03-000777.hdr.sgml : 20030214 20030214175439 ACCESSION NUMBER: 0001012870-03-000777 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALIFORNIA MICRO DEVICES CORP CENTRAL INDEX KEY: 0000800460 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 942672609 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15449 FILM NUMBER: 03568746 BUSINESS ADDRESS: STREET 1: 215 TOPAZ ST CITY: MILPITAS STATE: CA ZIP: 95035-5430 BUSINESS PHONE: 4082633214 MAIL ADDRESS: STREET 1: 215 TOPAZ STREET STREET 2: 215 TOPAZ STREET CITY: MILPITAS STATE: CA ZIP: 95035-5430 10-Q 1 d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) Of THE

SECURITIES EXCHANGE ACT OF 1934

For the period ended December 31, 2002

TRANSITION REPORT PURSUANT TO SECTION 10 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-15449

CALIFORNIA MICRO DEVICES CORPORATION

(Exact name of registrant as specified in its charter)

California

94-2672609

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

430 N. McCarthy Blvd. Milpitas, California		95035
(Address of principal executive offices)		(Zip Code)

(408) 263-3214

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address, and former fiscal year if changed since last report)

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 ¨

Applicable Only to Corporate Issuers

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

The number of shares of the registrant’s Common Stock outstanding as of February 13, 2003, was 15,880,926.

CALIFORNIA MICRO DEVICES CORPORATION

INDEX

		Page Number
PART I. FINANCIAL INFORMATION

Item 1.	Condensed Financial Statements

	Condensed Statements of Operations Three and Nine-Months Ended December 31, 2002 and 2001	2

	Condensed Balance Sheets December 31, 2002 and March 31, 2002	3

	Condensed Statements of Cash Flows Nine-Months Ended December 31, 2002 and 2001	4

	Notes to Condensed Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15

Item 4.	Controls and Procedures	15

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	17

Item 2.	Changes in Securities and Use of Proceeds	17

Item 3.	Defaults upon Senior Securities	18

Item 4.	Submission of Maters to a Vote of Security Holders	18

Item 5.	Other Information	18

Item 6.	Exhibits and Reports on Form 8-K	18

Signature		19

ITEM 1. Financial Statements.

CALIFORNIA MICRO DEVICES CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(amounts in thousands, except per share data)

(Unaudited)

	Three Months Ended December 31,						Nine Months Ended December 31,
	2002			2001			2002			2001
Net sales	$	11,284		$	7,045		$	31,413		$	21,788
Costs and expenses:
Cost of sales		8,013			12,676			24,597			28,320
Research and development		923			993			2,699			2,918
Selling, general and administrative		2,452			2,876			7,619			8,053
Special charges		(193	)		45			(193	)		4,155

Total costs and expenses		11,195			16,590			34,722			43,446

Operating profit (loss)		89			(9,545	)		(3,309	)		(21,658	)
Other expense, net		282			162			788			601

Net loss	$	(193	)	$	(9,707	)	$	(4,097	)	$	(22,259	)

Net loss per share—basic and diluted	$	(0.01	)	$	(0.79	)	$	(0.29	)	$	(1.89	)

Weighted average common shares outstanding—basic and diluted		14,871			12,264			14,337			11,771

The accompanying notes are an integral part of these financial statements.

CALIFORNIA MICRO DEVICES CORPORATION

CONDENSED BALANCE SHEETS

(amounts in thousands, except share data)

	December 31, 2002*			March 31, 2002**
ASSETS:
Current assets:
Cash, cash equivalents and short-term investments	$	4,363		$	7,240
Accounts receivable, net		5,596			4,561
Inventories		4,188			2,784
Prepaids and other current assets		684			679

Total current assets		14,831			15,264
Property, plant and equipment, net		10,654			10,853
Restricted cash		1,195			888
Other long-term assets		866			1,232

Total assets	$	27,546		$	28,237

LIABILITIES & SHAREHOLDERS’ EQUITY:
Current liabilities:
Accounts payable		2,787			5,085
Accrued liabilities		2,036			4,345
Deferred margin on shipments to distributors		1,831			1,193
Current maturities of long-term debt and capital lease obligations		1,609			2,256

Total current liabilities		8,263			12,879
Long-term debt and capital lease obligations, less current maturities		8,878			7,069
Other long-term liabilities		262			509

Total liabilities		17,403			20,457

Shareholders’ equity:
Common stock—no par value; 25,000,000 shares authorized; shares issued and outstanding: 15,817,522 as of December 31, 2002 and 13,850,765 as of March 31, 2002		74,195			67,732
Accumulated other comprehensive income		—			2
Accumulated deficit		(64,052	)		(59,954	)
Total shareholders’ equity		10,143			7,780

Total liabilities and shareholders’ equity	$	27,546		$	28,237

December 31^st unaudited

Derived from audited financial statements.

The accompanying notes are an integral part of these financial statements.

CALIFORNIA MICRO DEVICES CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(Unaudited)

	2002			2001
Cash flows from operating activities:
Net (loss)	$	(4,097	)	$	(22,259	)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash portion of special charges		—			3,395
Write-off of discontinued inventory, net		—			3,783
Provision for distributor discontinued inventory, net		—			1,125
Depreciation and amortization		2,037			2,315
Stock based compensation		71
(Loss) on the sale of fixed assets		(3	)
Changes in assets and liabilities:
Accounts receivable		(1,035	)		5,052
Inventories		(1,404	)		3,679
Prepaid expenses and other current assets		(5	)		622
Accounts payable and other current liabilities		(4,309	)		309
Other long term assets		354			(8	)
Other long term liabilities		(247	)		3
Deferred margin on shipments to distributors		638			(447	)

Net cash used in operating activities		(8,000	)		(2,431	)

Cash flows from investing activities:
Purchases of short-term investments		—			(4,772	)
Sales of short-term investments		300			7,493
Capital expenditures		(2,049	)		(1,559	)
Net change in restricted cash		(307	)		(288	)

Net cash (used in) or provided by investing activities		(2,056	)		874

Cash flows from financing activities:
Borrowings of short-term debt		1,094			—
Repayments of short-term debt		(1,094	)		—
Repayments of capital lease obligations		(5	)		(170	)
Repayments of long-term debt		(2,406	)		(1,105	)
Borrowings of long-term debt		3,499			499
Proceeds from private placement offering of common stock, net		4,768			7,610
Proceeds from issuance of common stock		1,623			900

Net cash provided by financing activities		7,479			7,734

Net (decrease) or increase in cash and cash equivalents		(2,577	)		6,177
Cash and cash equivalents at beginning of period		6,940			2,309

Cash and cash equivalents at end of period	$	4,363		$	8,486

Supplemental disclosures of non-cash investing and financing activities:
Assets purchased under capital lease	$	76		$	—
Interest paid	$	537		$	687

The accompanying notes are an integral part of these financial statements.

CALIFORNIA MICRO DEVICES CORPORATION

Notes to Condensed Financial Statements

(unaudited)

1. Basis of Presentation

The accompanying unaudited condensed financial statements 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, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of California Micro Devices Corporation (the “Company”, “we”, “us” or “our”) as of December 31, 2002, results of operations for the three and nine-month periods ended December 31, 2002 and 2001, and cash flows for the nine-months ended December 31, 2002 and 2001. Results for the three and nine-month periods are not necessarily indicative of fiscal year results.

The condensed financial statements should be read in conjunction with the financial statements included with our annual report on Form 10-K for the fiscal year ended March 31, 2002.

2. Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our estimates are based on historical experience, input from sources outside of the company, and other relevant facts and circumstances. Actual results could differ from those estimates.

3. Inventories

The components of inventory consist of the following (amounts in thousands):

	December 31, 2002		March 31, 2002
Raw materials		1,111	$	355
Work-in-process		1,969		1,602
Finished goods		1,594		827

	$	4,188	$	2,784

4. Litigation

We are a party to lawsuits, claims, investigations, and proceedings, including commercial and employment matters, which are being handled and defended in the ordinary course of business. We review the current status of any pending or threatened proceedings with our outside counsel on a regular basis and, considering all the other known relevant facts and circumstances, recognize any loss that we consider probable and estimable as of the balance sheet date. As of December 31, 2002 and March 31, 2002, we had not recorded any liability on our balance sheet for any pending or threatened litigation, claims, or proceedings.

We have two cases pending in the Santa Clara County, State of California Superior Court in which the amount sought by the plaintiffs has been estimated by the Company to be between five and ten million dollars when intangible items are quantified, and therefore a verdict in their favor would be materially adverse to our business. Although several years old, both cases have been stayed by courts until fairly recently; as a result, both cases are early in the discovery phase, making it difficult to assess the probability of the opposing parties or ourselves prevailing with a significant degree of confidence. As a result, we have not made any accrual for these cases.

The first case involves counterclaims brought on August 3, 1995, by our former CEO, Chan Desaigoudar after the company sued him on May 5, 1995, for fraud and breach of fiduciary duty. The counterclaims are for, among other items, wrongful termination and improper termination of his stock option. The second case involves a former employee, Tarsaim L. Batra, who sued the company and three of our former officers, Mr. Desaigoudar, Steve Henke and Surendra Gupta, on September 13, 1993, and April 19, 1994, in two cases which have been consolidated, likewise for wrongful termination of his employment and for deprivation of his stock options. The U.S. government in the past has prosecuted Messrs Desaigoudar, Henke, and Gupta for criminal securities law violations. Mr. Gupta plead guilty before trial while Messrs Desaigoudar and Henke were convicted; however, their convictions were overturned and a retrial was imminent when in May 2002, they each entered a guilty plea as to one or more of the counts.

We believe that we have meritorious defenses to the claims of the opposing parties in both of these cases. Currently, we intend to vigorously pursue our defenses and/or our claims against the opposing parties in these matters. Should we unexpectedly learn facts during discovery which lead us to reasonably estimate a negative outcome to these cases, or should one or both of these cases result in a verdict for the other parties, then we will provide for such liability, as appropriate.

5. Net Loss Per Share

The following table sets forth the computation of basic and diluted loss per share:

	Three Months Ended December 31,						Nine Months Ended December 31,
	2002			2001			2002			2001
	(in thousands, except per share amounts)
Net loss	$	(193	)	$	(9,707	)	$	(4,097	)	$	(22,259	)

Weighted average shares—basic and diluted		14,871			12,264			14,337			11,771

Net loss per share—basic and diluted	$	(0.01	)	$	(0.79	)	$	(0.29	)	$	(1.89	)

Options to purchase 2,905,036 and 2,809,899 shares of common stock were outstanding during the three and nine-month periods ended December 31, 2002, but were not included in the computation of diluted earnings per share because the Company incurred a loss. Options to purchase 1,929,923 and 1,644,871 shares of common stock were outstanding during the three and nine-month periods ended December 31, 2001, but were not included in the computation of diluted earnings per share because the Company incurred a loss. Similarly, warrants to purchase 483,667 and 59,250 shares of common stock outstanding at December 31, 2002 and 2001, respectively, were not included in the diluted earnings per share computation because the Company incurred a loss.

6. Comprehensive Income/(Loss)

Comprehensive income/(loss) is principally comprised of net income (loss) and unrealized gains or losses on the Company’s available-for-sale securities. Comprehensive loss for the three and nine-month periods ended December 31, 2002 and 2001 approximated net loss for the three and nine-month periods ended December 31, 2002 and 2001, respectively.

7. Income Taxes

For the three and nine-month periods ended December 31, 2002 and 2001, there was no provision for income taxes, due to the net loss for the periods.

8. Restructuring & Impairment Charges

In the second quarter of fiscal 2002, our Board of Directors approved and we began to implement a program to streamline our manufacturing operations and focus our business on product and markets in which we have, or believe we can achieve, a leadership position while leveraging our core technology strengths. Key parts of this strategy include the plan to outsource a significant portion of our wafer manufacturing to an independent foundry and to discontinue certain older products.

In connection with outsourcing a significant portion of our wafer manufacturing, we completed the consolidation of all of our internal wafer fabrication activities into our Tempe, AZ facility with selected high-value back-end manufacturing activities continuing at our Milpitas, CA headquarters. In connection with these actions we recorded restructuring and asset impairment charges of $4.2 million in the year ended March 31, 2002, of which $4.1 million had been recorded in the second quarter of fiscal 2002. The restructuring charges included $438,000 related to workforce reduction, $322,000 related to facility and other costs, and $3.4 million of asset impairment charges.

	Restructuring Liability at March 31, 2002		Cash Payments		Adjustments		Restructuring Liability at December 31, 2002
	(in thousands)
Workforce reduction	$	438	$	332	$	106	$	—
Facilities and other		273		61		87		125

	$	711	$	393			$	125

Workforce reduction

In connection with the restructuring program, we reduced our headcount by 61 employees, primarily in the manufacturing functions and primarily at our Milpitas, CA facility. Essentially all of the workforce reductions were accomplished by September 30, 2002; and, the related employee severance, benefits and resulting employer taxes were paid in our third fiscal quarter, and all charges have been incurred and all payments have been made. The excess restructuring reserve of $106,000 related to the workforce reduction was reversed in December 2002.

Facilities and other

The restructuring plan called for us to vacate our Milpitas facility once all internal wafer fabrication activities had been consolidated into our Tempe, AZ facility. As required by the lease for the Milpitas facility, we were obligated to restore the Milpitas facility to its pre-lease condition. Accordingly, we recorded $251,000 in estimated renovation costs related to the Milpitas facility. Fabrication operations at the Milpitas facility ceased as of the end of September 2002 and renovation was complete by the end of December 2002, and all charges have been incurred and all payments have been made except for $125,000 that will be paid by the end of March 2003. The excess restructuring reserve of $87,000 related to the renovation costs was reversed in December 2002.

9. Short and Long-Term Debt

In June 2002, we entered into a Loan and Security Agreement (“Agreement”) that allows us to borrow up to a total of $5.0 million under an equipment line of credit and a revolving line of credit. The amount available under the Agreement is based on the amount of eligible equipment and accounts receivable. Under the Agreement, which includes a subjective acceleration clause, we are subject to certain financial covenants and restrictions and must maintain a compensating balance of $2.75 million in order to maintain the Agreement. The financial covenants relate to a monthly minimum quick ratio and tangible net worth. Borrowings under the equipment line and the revolving line bear interest at an annual rate of prime plus 3.0% and prime plus 0.75%, respectively. Principal, in equal installments, and interest are

due monthly for the term of 36 months for all borrowings made under the equipment line. Borrowings under the revolving credit line have a term of 12 months, with principal due at maturity and interest due in monthly installments. Borrowings under both lines are collateralized by substantially all of our assets. During the nine-months ending December 31, 2002, we had borrowed $3.5 million under the equipment line and $1.1 million under the revolving line of credit, of which $1.5 million was used to pay off other capital equipment financing facilities in full in the first quarter of fiscal 2003. As of December 31, 2002, $3.5 million remained outstanding on the equipment line of credit and the $1.1 million borrowed on the revolving line of credit had been paid in full. Therefore, $1,500,000 was available under the revolving line of credit as of December 31, 2002. We were in compliance with the financial covenants under our Agreement as of December 31, 2002.

As of March 31, 2002, and continuing through December 31, 2002, we were not in compliance with certain financial covenants related to our industrial revenue bonds. The covenants associated with these bonds are requirements to maintain minimum current and quick ratios, shareholders equity, debt coverage, and not to exceed maximum ratios of total liability to equity and long-term debt to working capital. As of December 31, 2002, we were not in compliance with the long-term debt to working capital ratio covenant. In accordance with the terms of the bonds, our non-compliance would need to continue through June 30, 2004 in order for the industrial revenue bonds to become callable and accordingly, there is no impact on our short-term liquidity due to our present non-compliance. We believe we will be in compliance within the period allowed and therefore, we have continued to classify the bonds as long-term debt rather than short-term debt.

10. Lease Commitments

In May 2002, we signed an operating sublease for approximately 26,000 square feet of office and light manufacturing space in Milpitas, CA to be used as our headquarters and for selected back-end manufacturing. The sublease term is through August 31, 2005. Future non-cancelable minimum lease payments under this sublease at December 31, 2002 are $90,400 in the remainder of fiscal 2003, $409,000 in fiscal 2004, $472,000 in fiscal 2005 and $214,000 in fiscal 2006. No major lease commitments were entered into between September 2002 and December 2002.

11. Recent Accounting Pronouncements

In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”). SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” (“EITF 94-3”). The principal difference between SFAS 146 and EITF 94-3 relates to its requirement for recognition of a liability for a cost associated with an exit or disposal activity. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for an exit cost as defined in EITF 94-3 was recognized at the date of an entity’s commitment to an exit plan. This statement also establishes that fair value is the objective for initial measurement of the liability. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. We do not expect adoption of SFAS 146 will have a material impact on our financial statements.

On December 31, 2002, FASB issued SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 148 requires accounting policy note disclosures to provide the method of stock option accounting for each year presented in the financial statements and, for each year until all years presented in the financial statements recognize the fair value of stock-based compensation. Also, SFAS No. 148 provides two additional transition methods that eliminate the ramp-up effect resulting from applying the expense recognition provisions of SFAS No. 123. The transition provisions and annual statement disclosure requirements of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The interim statement disclosure requirements are effective for the first interim statement that includes financial information after December 15, 2002. The Company does not believe there will be a material financial effect from the adoption of this new standard and will ensure any disclosures are included in their interim filings.

In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34.” FIN 45 clarifies the requirements of SFAS No. 5, “Accounting for Contingencies,” relating to the guarantor’s accounting for, and disclosure of, the issuance of certain types of guarantees. The disclosure provisions of FIN 45 are effective for financial statements of periods that end after December 15, 2002. However, the provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002. The Company does not believe there will be a material effect from the adoption of FIN 45.

12. Major Customers

Due to our business focus on key customers in select markets, three end customers (Motorola, Hewlett-Packard, and Guidant) each comprise approximately 10% or more of our revenues during the three-month period ended December 31, 2002, and four end customers (Motorola, Hewlett-Packard, Guidant and Lumileds) each comprise approximately 10% or more of our revenues during the nine-month period ended December 31, 2002, and collectively comprise approximately 50% of such revenues during each period. During the comparable time periods last year, these customers represented approximately 25% of our revenues in aggregate. In addition to these end customers, a single distributor, Epco, represented 12% and 10%, respectively, of revenue for the three- and nine-months ended December 31, 2002, and was less than 10% in the three- and nine-month periods ended December 31, 2001. When we ship product to distributors, we defer our gross selling price of the product shipped and the related cost of the product shipped until that product is shipped by the distributor to the end user. The entries booked to defer revenue from these shipments and the related cost is reflected on our balance sheet as a current liability entitled “deferred margin on shipments to distributors”. Thus, the “deferred margin on shipments to distributors” represents the “margin” on the products we ship to distributors, or the difference between our revenue and cost of the product for inventory held by the distributors at the end of the accounting period.

13. Equity Financing

In the last week of November 2002, we closed a private placement of our common stock and raised $5.16 million, with net proceeds of $4.8 million. We sold 1,518,585 common shares to 22 investors at $3.40 per share and granted them three-year warrants to purchase 379,651 shares of our common stock at an exercise price per share of $4.36 per share. Of these warrants, 373,401 are immediately exercisable, and 6,250 are exercisable after May 2003. Four of our directors participated in this private placement and purchased a total of 25,000 of the 1,518,585 shares and 6,250 of the 379,651 warrants. As part of this private placement, we agreed to register with the Securities Exchange Commission the 1,518,585 shares sold and the 379,651 shares issuable upon exercise of their warrants. If we are unable to do so on or before February 25, 2003, we are required to issue those investors other than our directors at no charge a total of 29,872 shares and we are required to do so each month thereafter until the registration statement is declared effective.

In addition to cash fees, we issued the placement agents three-year warrants to purchase 44,766 shares of our common stock at an exercise price of $4.36 per share, which are exercisable immediately.

ITEM 2. Management’s Discussion And Analysis of Financial Condition and Results of Operations.

Overview

California Micro Devices Corporation designs and sells application specific analog semiconductor products for the mobile, computing, lighting, medical, and other markets. We are a leading supplier of application specific integrated passive (ASIP^TM) devices, including silicon submounts for high brightness light emitting diodes (often referred to as LEDs), and we also offer a growing portfolio of power management integrated circuits (IC’s). Our products provide critical signal integrity, electromagnetic interference (EMI) filtering, electrostatic discharge (ESD) protection, and power management solutions that enable high growth applications including personal computers, wireless communication devices and consumer electronic products. For our ASIPs, through proprietary manufacturing processes, we integrate multiple passive components onto single chips and, in some cases, enhance their functionality with the integration of discrete semiconductor functions to provide single chip solutions for densely populated, high performance electronic systems. For our power management IC’s, we use primarily industry-standard manufacturing processes for cost

effectiveness. Our ASIPs are significantly smaller and provide more functionality than competitive solutions using discrete products. ASIPs replace functional clusters of discrete passive components that are used for ESD protection, signal filtering and termination at buses and input/output ports, wave shaping, clock signal filtering, biasing, and other traditional discrete component functions.

In the second quarter of fiscal 2002, our board of directors approved and we began to implement a program to streamline our manufacturing operations and focus our business on high volume products and in markets where we have, or believe we can achieve, a leadership position while leveraging our core technology strengths. Key parts of this strategy include the plan to become “fab-lite” by outsourcing a significant portion of our wafer manufacturing to independent foundries and to discontinue certain older products.

Results of Operations

Net sales. Net sales for the three and nine-month periods ended December 31, 2002 were $11.3 million and $31.4 million, respectively, indicating an increase of $4.3 million or 61% and $9.6 million or 44% from the three and nine-month periods ended December 31, 2001. Net sales in the mobile, computing, medical and lighting markets increased in the three and nine-month periods ended December 31, 2002 as compared to the same periods in 2001, while net sales in the other markets, which include communication infrastructure and legacy products, decreased. Net sales increased due to increased focus in the mobile market as well as increased orders from our largest customer in the medical market.

Units shipped during the three and nine-month periods ended December 31, 2002 compared to the same periods in 2001, increased 171% to 54 million units, and 122% to 133 million units, respectively. Average selling prices for our products based on units shipped decreased approximately 36% and 33%, respectively, for the three and nine-month periods ended December 31, 2002 from the same periods in 2001, primarily as a result of a change in product mix, especially the increase of mobile product sales with a lower average selling price than other products, and secondarily due to price decreases. Due to our business focus on key customers in select markets, three end customers (Motorola, Hewlett-Packard, and Guidant) each comprise approximately 10% or more of our revenues during the three-month period ended December 31, 2002, and four end customers (Motorola, Hewlett-Packard, Guidant and Lumileds) each comprise approximately 10% or more of our revenues during the nine-month period ended December 31, 2002, and collectively comprise approximately 50% of such revenues. During the comparable time periods last year, these customers represented approximately 25% of our revenues in aggregate.

Gross Margin. Gross margin, as a percentage of net sales, increased to a positive 29% and 22% in the three and nine-month periods ended December 31, 2002, respectively from a negative 80% and a negative 30% in the three and nine-month periods ended December 31, 2001, respectively. Gross margin for the three and nine-month periods ended December 31, 2002, includes the benefit associated with the sale of fully-reserved inventory for which reserves of $300,000 and $1.4 million had been established in prior periods. For the nine-month period ended December 31, 2001, gross margin included a charge of $4.9 million related to the write-off of discontinued products and for the nine-month period ended December 31, 2002 gross margin included expenses of $511,000 for the manufacturing transition. In the second quarter of fiscal 2002, we began to implement a program to become fab-lite by outsourcing much of our manufacturing operations and to focus our business on high volume products and in markets that we have, or believe we can achieve, a leadership position. We concluded that it was not economic to transfer the manufacturing of many of our smaller and older product lines and that these markets were not strategic, being characterized by a large number of customers who purchased products in relatively small volumes. As part of this process, we designated many of its legacy products as “End of Life” (“EOL”) or “Obsolete” in the second and third quarters of fiscal 2002. Based on our forecast of future demand and historical sales rates, and recognizing that minimal sales and marketing resources would be applied both internally and by our distributors for products so designated, much of the existing internal inventory for these legacy products was deemed to be excess or obsolete and accordingly was reserved as well as the cost related to the inventory held by certain of our distributors. We have been scrapping inventory designated as EOL or Obsolete that remains after last-buy opportunities have expired. The manufacturing transition refers to the restructuring charges we incurred in fiscal 2002 as well as certain of the incremental costs incurred related to reducing our internal manufacturing capacity and expanding our use of foundry partners.

Idle capacity charges for the three and nine-month periods ended December 31, 2002, which were expensed as incurred, were approximately $2.3 million and $7.8 million, respectively, and during the comparable periods last year, the idle capacity charges were $2.5 million and $5.7 million, respectively. These idle capacity charges relate to our Tempe facility at which we have determined that we have excess capacity. This excess capacity is expected to continue even if and when our revenues increase because we would choose to meet the bulk of the increased demand with product manufactured at one or more third party foundries. The gross margin improvement in the three and nine-month periods ended December 31, 2002 is the result of decreased fixed manufacturing costs due to closure of the Milpitas manufacturing operation and the impact of our fab-lite wafer fabrication outsourcing strategy that was implemented in fiscal 2002.

Research and Development. Research and development expenses consist primarily of compensation and related costs for employees, prototypes, masks, and other expenses for the development of process technology, new packages and products. Research and development expenses for the three and nine-month periods ended December 31, 2002 were $923,000 and $2.7 million, respectively, and for the same periods ended December 31, 2001, research and development expenses were $1.0 million and $2.9 million, respectively. These reduced expense levels are due to a reduction in internal manufacturing support required for the development of new products partially offset by increased foundry support.

Selling, General and Administrative. Selling, general and administrative expenses consist primarily of compensation and related costs for employees, sales commissions, marketing and promotional expenses, and legal and other professional fees. Selling, general, and administrative expenses were $2.5 million and $7.6 million for the three and nine-month periods ended December 31, 2002, respectively, and for the same periods ended December 31, 2001, selling, general, and administrative expenses were $2.9 million and $8.1 million, respectively. This decrease is a result of lower compensation and related costs for employees due to lower headcount throughout the nine-month period and decreased litigation-related legal costs of $350,000 in the three-month period ended December 31, 2002, which offset increased litigation-related legal costs of $300,000 during the six-month period ended September 30, 2002.

Special Charges. In the second quarter of fiscal 2002, our Board of Directors approved and we began to implement a program to streamline our manufacturing operations and focus our business on product and markets in which we have, or believe we can achieve, a leadership position while leveraging our core technology strengths. Key parts of this strategy include the plan to outsource a significant portion of our wafer manufacturing to an independent foundry and to discontinue certain older products.

	Restructuring Liability at March 31, 2002		Cash Payments		Adjustments		Restructuring Liability at December 31, 2002
	(in thousands)
Workforce reduction	$	438	$	332	$	106	$	—
Facilities and other		273		61		87		125

	$	711	$	393			$	125

Workforce reduction

Facilities and other

Other Expense, Net. Other expense, net for the three and nine-month periods ending December 31, 2002, was $282,000 and $788,000, respectively, and for the three and nine-month periods ended December 31, 2001, was $162,000 and $601,000, respectively. For the three and the nine-month periods ended December 31, 2002, interest expense was higher due to increased borrowings on our equipment lease facility and working capital lines account and interest income was lower due to the lower average investment account balances and lower interest rates.

Pre-Tax Loss. We reduced our pre-tax loss for the three months ended December 31, 2002, to $193,000 from $9.7 million for the three months ended December 31, 2001, for the factors described above. Similarly, we reduced our pre-tax loss for the nine-months ended December 31, 2002, to $4.1 million from $22.3 million for the nine-months ended December 31, 2001. During each of the past four quarters, we have reduced the amount of our loss. Our loss for the three months ended December 31, 2002, included the benefit of $193,000 we received when we reversed $193,000 of previously taken charges associated with our restructuring program as described in special charges above. In order to assist us in our drive to become and remain profitable in the future, during the fourth quarter of fiscal 2003, and for the indefinite future thereafter, we have reduced by ten percent the compensation of our approximately twenty employees who are at the director-level or above.

Income Taxes. For the three and nine-month periods ended December 31, 2002 and 2001, there was no provision for income taxes due to the net losses for the periods.

Recent Accounting Pronouncements.

In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”). SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” (“EITF 94-3”). The principle difference between SFAS 146 and EITF 94-3 relates to its requirement for recognition of a liability for a cost associated with an exit or disposal activity. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for an exit cost as defined in EITF 94-3 was recognized at the date of an entity’s commitment to an exit plan. This statement also establishes that fair value is the objective for initial measurement of the liability. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. We do not expect adoption of SFAS 146 will have a material impact on our financial statements.

Critical Accounting Policies and Estimates

We described our critical accounting policies and estimates in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the year ended March 31, 2002. Our critical accounting policies and estimates are those that relate to financial line items that are key indicators of our financial performance and/or that require significant management judgment. Our critical accounting policies include those regarding (1) revenue recognition, (2) inventory and related reserves, (3) impairment of long-lived assets, and (4) litigation. In regard to revenue recognition, when we ship product to distributors, we defer our gross selling price of the product shipped and the related cost of the product shipped until that product is shipped by the distributor to the end user. The entries booked to defer revenue from these shipments and the related cost is reflected on our balance sheet as a current liability entitled “deferred margin on shipments to distributors”. Thus, the “deferred margin on shipments to distributors” represents the “margin” on the products we ship to distributors, or the difference between our revenue and cost of the product for inventory held by the distributors at the end of the accounting period.

We believe that we have consistently applied judgments and estimates and such consistent application fairly depicts our financial condition and results of operations for all periods presented. During the nine-months ended December 31, 2002, there were no significant changes in the assumptions underlying the judgments and estimates made by management

Liquidity and Capital Resources

We have historically financed our operations through a combination of debt and equity financing and cash generated from operations. Total cash, cash equivalents and short-term investments as of December 31, 2002, was $4.4 million compared to $7.2 million at March 31, 2002. Receivables increased $1.0 million to $5.6 million at December 31, 2002 compared to $4.6 million at March 31, 2002, primarily as a result of increased sales. Receivables days sales outstanding were 47 and 53 days as of December 31, 2002 and March 31, 2002, respectively. Inventories increased $1.4 million from March 31, 2002 to $4.2 million at December 31, 2002, as a result of increased levels of production in response to both expected and actual customer demand. Capital expenditures for the nine-months ended December 31, 2002, totaled $2.0 million, reflecting primarily our investment in new equipment to support our production of chip scale products, which are expected to ramp up throughout this fiscal year. Accounts payable and other accrued liabilities decreased by $4.6 million to $4.8 million in the nine-month period ending December 31, 2002, compared to $9.4 million at March 31, 2002. This was primarily due to a reduction of trade payables of $2.3 million, refinancing a short term equipment lease into a 36 month equipment lease facility of $600,000, lower accrued salary and benefits of $400,000, payment of restructure charges of $393,000, reversal of the excess restructure reserve of $193,000, and the disposition of reserved distributor inventory of $500,000.

Operating activities used $8.0 million of cash in the nine-month period ended December 31, 2002. The most significant usage of our cash was our net loss of $4.1 million and the decrease in accounts payable and other current liabilities of $4.3 million. Increases in accounts receivable and inventories used an additional $2.4 million of cash. These uses of cash were partially offset by depreciation and other non-cash charges of $2.1 million and a decrease in other long-term assets and an increase in deferred margin on shipments to distributors of $638,000.

We used $2.1 million of cash in investing activities during the nine-months ended December 31, 2002, which was the result of capital expenditures of $2.0 million and an increase in restricted cash related to our long-term debt. The sale of short-term investments for $300,000 partially offset this cash usage.

Net cash provided by financing activities of $7.5 million for the nine-months ended December 31, 2002 is the result of net proceeds from a private placement offering of $4.8 million, short and long-term borrowings in excess of debt repayment of $1.1 million, and proceeds from the issuance of common stock related to employee stock compensation plans of $1.6 million.

In June 2002, we entered into a Loan and Security Agreement that allows us to borrow up to a total of $5.0 million under an equipment line of credit and a revolving line of credit, each of which cannot individually exceed $3.5 million. The amount available under the agreement is based on the amount of eligible equipment and accounts receivable. Under this agreement, we are subject to certain financial covenants and restrictions and must maintain a compensating balance of $2.75 million. The agreement also contains a subjective acceleration clause which enables the bank to declare an event of default and call our loan if it determines that there has been a material adverse change in our business or that its security interest has been impaired. The financial covenants relate to a monthly minimum quick ratio and tangible net worth. Borrowings under the equipment line and the revolving line bear interest at an annual rate of prime plus 3.0% and prime plus 0.75%, respectively. Principal, in equal installments, and interest are due monthly for a term of 36 months for all borrowings made under the equipment line. Borrowings under the revolving credit line have a term of 12 months, with principal due at maturity and interest due in monthly installments. Borrowings under both lines are collateralized by substantially all of our assets. In the nine–month period ending December 31, 2002, we borrowed $3.5 million under the equipment line, of which $1.5 million was used to pay off in full borrowings outstanding under our four existing capital equipment financing agreements described below. Future maturities of this debt at December 31, 2002 are $292,000 in the remainder of fiscal 2003, $1.2 million in fiscal 2004, $1.2 million in fiscal 2005 and $442,000 in fiscal 2006. Additionally, we borrowed $1.1 million on the revolving line of credit in the second quarter of fiscal 2003 and repaid the loan in full in the third quarter. During the quarter ended December 31, 2002, we were in violation of the covenants relating to a minimum monthly quick ratio and tangible net worth. However, upon the receipt of the proceeds from the November 2002 private placement, and based upon our operating results during the third fiscal quarter, we were in compliance with these covenants as of December 31, 2002.

During fiscal 2000 through fiscal 2002, we entered into four capital equipment financing facilities for a total of $4.0 million. During fiscal 2000 through fiscal 2002, we borrowed $3.0 million under these facilities. Borrowings under three of these facilities bore interest at an annual rate of prime plus 0.75% and borrowings under the remaining facility bore interest at an annual rate of prime plus 0.5%. Principal, in equal installments, and interest were due in monthly installments through February 2004. In June 2002, we terminated these facilities and paid off the related debt in full with the proceeds received from the Loan and Security Agreement described above.

As of March 31, 2002 and continuing through December 31, 2002, we were not in compliance with certain financial covenants related to our industrial revenue bonds. The covenants associated with these bonds are requirements to maintain minimum current and quick ratios, shareholders equity, and debt coverage, and to not exceed maximum ratios of total liability to equity and long-term debt to working capital. As of December 31, 2002, we were not in compliance with the long-term debt to working capital ratio covenant. In accordance with the terms of the bonds, our non-compliance would need to continue through June 30, 2004 in order for the industrial revenue bonds to become callable and accordingly, there is no impact on our short-term liquidity due to our present non-compliance. While no assurance can be given, the goal of our market focus and fab-lite manufacturing initiatives is to enhance our revenue and gross margin which, together with continuing tight control over operating expenses, would provide operating results enabling us to become in compliance with the long-term debt to working capital covenant and to maintain compliance with our other covenants. We believe we will be in compliance within the period allowed. Future maturities of long-term debt and sinking fund payments associated with the industrial revenue bonds, as of December 31, 2002 are $185,000 in the remainder of fiscal 2003, $205,000 in fiscal 2004, $225,000 in fiscal 2005, $250,000 in fiscal 2006, and $5.9 million thereafter.

In May 2002, we signed an operating sublease for approximately 26,000 square feet of office and light manufacturing space in Milpitas, CA to be used as our headquarters and for selected back-end manufacturing. The sublease term is through August 31, 2005. As of December 31, 2002, future non-cancelable minimum lease payments under this sublease are $90,400 in fiscal 2003, $409,000 in fiscal 2004, $472,000 in fiscal 2005 and $214,000 in fiscal 2006. In July 2002, we entered into a lease amendment for our wafer fabrication facility in Milpitas, CA, extending the term of the lease to October 31, 2002. As of December 31, 2002, the total amount due under the wafer fabrication facility lease extension had been paid in full and there are no lease amounts due.

Operating and capital requirements depend on many factors, including the levels at which we maintain manufacturing capacity, revenue, margins, inventory, accounts receivable, accounts payable, and operating expenses. Our operating plan for fiscal 2003 has to date resulted in revenue growth and a lessening of our losses, due in part to our focused marketing and sales efforts and in part to gross margin improvement resulting from higher revenue and outsourcing most of our wafer production while reducing fixed internal manufacturing costs. The increase in inventory and receivables associated with our revenue growth during the past several quarters has been financed from cash on hand, the $4.8 million of net proceeds from our equity private placement, short term debt of $1.1 million under our $1.5 million working capital credit line, option exercises, and attention to management of accounts receivable and accounts payables. Consistent with our operating plan we have built substantial inventory in advance of firm orders and may continue to do so.

We currently believe that our $4.3 million of cash resources as of December 31, 2002, will be adequate to fund our planned operations for the next twelve months, assuming we achieve the results we expect. However, if expected orders and shipments do not materialize or are delayed, if we are not able to begin to operate profitably, if we cannot collect our receivables on a timely basis, or if our vendors demand shorter payment terms, then we may need to further adjust our operations or else secure additional debt or equity financing to ensure adequate working capital, although such funds may not be available on favorable terms, if at all. In the event that demand growth is more rapid than anticipated, then in order to take advantage of that growth and increase our revenues, we may need to secure additional equipment and working capital financing or equity which may not be available on favorable terms, if at all. In the event we are unable to do so we would be forced to constrain our revenue growth, adversely affecting profitability improvement.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

No material changes have occurred from our report on Form 10-K for the period ending March 31, 2002.

ITEM 4. Controls and Procedures.

The Company’s principal executive officer and principal financial officer have evaluated the Company’s disclosure controls and procedures (as defined in Securities Exchange Act of 1934 Rules 13a-14c and 15d-14c) within 90 days of the filing of this Form 10-Q and have determined that they are reasonably effective.

There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, which was shortly prior to the release of the Company’s earnings statement for the period covered by this Form 10-Q.

Cautionary Statement

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward looking statements are not historical facts and are based on current expectations, estimates, and projections about our industry; our beliefs and assumptions; and our goals and objectives. Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, and “estimates”, and variations of these words and similar expressions are intended to identify forward-looking statements. Examples of the kinds of forward-looking statements in this report include statements regarding the following (1) plan for revenue growth and profit improvement due to focused sales and marketing effort and manufacturing outsourcing, (2) our expectation that we have meritous defenses to pending litigation claims, (3) our belief that we will be in compliance with the financial covenants related to our industrial revenue bonds within the period allowed, (4) the goal of our market focus and fab-lite manufacturing initiatives being to enhance our revenue and gross margin, (5) our drive to become and remain profitable, and (6) our belief that our cash resources will be adequate to fund our operations for the next twelve months. These statements are only predictions, are not guarantees of future performance, and are subject to risks, uncertainties, and other factors, some of which are beyond our control, are difficult to predict, and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. These risks and uncertainties include those set forth in this report and in our other SEC filings, in particular our annual report on Form 10-K for fiscal 2002 ended March 31, 2002, and in our Amendment No. 1 to Form

S-3 filed with the SEC on February 7, 2003, on pages 5 through 16, inclusive. These risks and uncertainties also include whether our marketing and sales focus will enable us to penetrate our selected markets; whether those markets continue to exhibit demand for our products and whether there is price erosion in such markets, in part due to whether there is competition in such markets; whether our market focus, which has lead to Motorola, Hewlett Packard, Guidant Corporation and Lumileds each comprising more than 10% of our sales, will increase our customer concentration and leave us vulnerable to problems involving or sourcing decisions of our larger customers; our ability to forecast our cash requirements and cash availability and our ability to stay in compliance with our bank credit line and bond covenants or else to obtain a waiver of non-compliance or default; and the ability of our third party wafer fab vendor to meet in a timely manner our demand for high yield, high quality wafers. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings.

We have two cases pending in the Santa Clara County, State of California Superior Court in which the amount sought by the plaintiffs has been estimated by the Company to be between five and ten million dollars when intangible items are quantified and therefore a verdict in their favor would be materially adverse to our business. Although several years old, both cases have been stayed by courts until fairly recently; as a result, both cases are early in the discovery phase, making it difficult to assess the probability of the opposing parties or ourselves prevailing with a significant degree of confidence. As a result, we have not made any accrual for these cases.

The first case involves counterclaims brought by our former CEO, Chan Desaigoudar on August 3, 1995, after we sued him on May 5, 1995, for fraud and breach of fiduciary duty. The counterclaims are for, among other items, wrongful termination and improper termination of his stock option. The second case involves a former employee, Tarsaim L. Batra, who has sued the company and three of our former officers, Mr. Desaigoudar, Steve Henke and Surendra Gupta, on September 13, 1993, and April 19, 1994, in two cases which have been consolidated, likewise for wrongful termination of his employment and for deprivation of his stock options. The U.S. government in the past has prosecuted Messrs. Desaigoudar, Henke, and Gupta for criminal securities law violations. Mr. Gupta plead guilty before trial while Messrs. Desaigoudar and Henke were convicted; however, their convictions were overturned and a retrial was imminent when in May 2002, they each entered a guilty plea as to one or more of the counts.

ITEM 2. Changes in Securities and Use of Proceeds

On November 25 and 26, 2002, we closed a private placement of our common stock and raised $5.16 million, with net proceeds of $4.8 million. We sold 1,518,585 shares of our no par value common stock to 22 investors at $3.40 per share and granted them three-year warrants to purchase 379,651 shares of our common stock at an exercise price per share of $4.36 per share. Of these warrants, 373, 401 are immediately exercisable, and 6,250 are exercisable after May 2003. The investors were institutional accredited investors and their affiliates except for (1) four individuals who were employees of the Company’s placement agents and law firm who purchased an aggregate of 28,000 shares and (2) four directors who purchased an aggregate of 25,000 shares.

The private placement was conducted without registration under the Federal Securities Act of 1933, as amended, in reliance upon the exemption provided by Section 4(2) of such Act and Rule 506 promulgated under such Section We agreed to register these shares, and the shares issuable upon exercise of the warrant, with the Securities Exchange Commission and in these regards we filed an S-3 registration statement on December 24, 2002. Should this registration statement not be declared effective on or before February 25, 2003, then we are required to issue those investors other than the directors, at no charge, an aggregate of 29,872 shares and we are required to so each month thereafter that the registration statement has not been declared effective.

In addition to cash fees, on November 26, 2002, we issued the placement agents three-year warrants to purchase 44,766 shares of our no par value common stock at an exercise price of $4.36 per share, which are exercisable immediately. These warrants were sold in reliance upon similar exemptions from registration.

ITEM 3. Defaults Upon Senior Securities

None

ITEM 4. Submission of Matters to a Vote of Security Holders

None

ITEM 5. Other Information.

None.

ITEM 6. Exhibits and Reports on Form 8-K.

(a) Exhibits. The following exhibits are included:


10.14.		License Agreement and its First Amendment with Flip Chip Technologies* +

10.15.		Loan Default Waiver Agreement with Silicon Valley Bank.*

10.16.		Stock and Warrant Purchase Agreement from November, 2002, Private Placement

10.17.		Placement Agency Agreement for November, 2002, Private Placement

* Confidential Treatment has been requested with respect to certain portions of this agreement. + Unless we fail to timely cure any default, this license lasts in perpetuity.

(b) Reports on Form 8-K. The Company filed a Report on Form 8-K on November 27, 2002, which reported under Item 5 the issuance of press releases relating to the Company’s equity private placement.

SIGNATURE

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CALIFORNIA MICRO DEVICES CORPORATION

(Registrant)


Date: February 13, 2003	By:	/s/ Robert V. Dickinson
		Robert V. Dickinson President and CEO

		/s/ Kenneth E. Thornbrugh
		Kenneth E. Thornbrugh Vice President Finance & Administration (Principal Financial Officer)

CERTIFICATIONS

I, Robert V. Dickinson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of California Micro Devices Corporation, a California corporation (“registrant”);

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 13, 2003

By:		/s/ Robert V. Dickinson
		Robert V. Dickinson, President and CEO
		(Principal Executive Officer)

CERTIFICATIONS

I, Kenneth E. Thornbrugh, certify that:

1. I have reviewed this quarterly report on Form 10-Q of California Micro Devices Corporation, a California corporation (“registrant”);

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: February 13, 2003

By:		/s/ Kenneth E. Thornbrugh
		Kenneth E. Thornbrugh, Vice President Finance & Administration
		(Principal Financial Officer)

EX-10.14 3 dex1014.htm LICENSE AGREEMENT AND 1ST AMENDMENT FLIP CHIP License Agreement and 1st Amendment Flip Chip

Exhibit 10.14

CONFIDENTIAL TREATMENT REQUESTED

LICENSE AGREEMENT

This Agreement is made this 30th day of September, 2000 between:

FLIP CHIP TECHNOLOGIES, L.L.C.	)
a Delaware limited liability company,	)	(referred to as “FCT”)
having a principal place of business at	)
3701 E. University Avenue	)
Phoenix, Arizona 85034, USA	)
	)
and	)
	)
CALIFORNIA MICRO DEVICES CORP.	)
a California corporation	)	(referred to as “CMD”)
having a principal place of business at	)
215 Topaz Street	)
Milpitas, California 95035	)
	)

Background

FCT has developed Confidential Information, trade secrets, patents and know-how regarding Ultra CSP^™ wafer bumping in the manufacture of flip chip integrated circuits; and certain Confidential Information, trade secrets, patents and know-how regarding the technology of redistributing bond pads on integrated circuits using a Redistribution Layer (RDL) to facilitate wafer bumping in the manufacture of flip chip integrated circuits.

On February 11, 1999, CMD and FCT entered into a License Agreement pursuant to which CMD received a license to practice the Ultra CSP^™ Technology on non-silicon substrates. CMD now desires access to such Confidential Information, trade secrets, patents and know-how and to obtain the assistance of FCT for implementing the technology, along with a license to use the Confidential Information, trade secrets, patents and know-how to produce flip chip integrated circuits on silicon wafers, with and without RDL as practiced for Ultra CSP^™.

FCT is willing to license CMD to use the Confidential Information, trade secrets, patents and know-how in accordance with this Agreement. A separate royalty-free cross license agreement between the parties defines a technology transfer to FCT of CMD proprietary wafer thinning technology.

Therefore FCT and CMD agree as follows:

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS AGREEMENT.

License Agreement

Page 1 of 11

Confidential

CONFIDENTIAL TREATMENT REQUESTED

1. Definitions

1.1 “Ultra CSP^™” means the solder bumping process practiced by FCT at the effective date of this Agreement using an under-bump metal (UBM) structure patterned prior to deposition of the solder in the form of a solder ball in conjunction with the manufacture of flip chip integrated circuits.

1.2 “Confidential Information” means unpublished research and development information, know-how, trade secrets, and technical data in the possession of, or under development by FCT, at the effective date of this Agreement used by FCT to practice the Ultra CSP^™ Technology, including but not limited to those items specified in Attachment C, except as noted in Paragraph 4.1 below. Confidential Information includes, but is not limited to, any documents or information provided under any prior Non-Disclosure Agreement (NDA) between the parties that are not in the public domain, or have not been published. Information in the public domain that has been published without the involvement of CMD, is not Confidential Information.

1.3 “Improvement” means any modification of the Ultra CSP^™ Technology, or the equipment or materials used for Ultra CSP^™ and which tend to improve the Ultra CSP^™ Technology, or make the process more reliable, less expensive, or otherwise more advantageous as compared with the Ultra CSP^™ Technology initially disclosed by FCT pursuant to this Agreement.

1.4 “Licensed Site” means CMD’s facility located at Milpitas, California. Additional sites may be licensed based on additions to Attachment B and in accordance with the provisions noted in Section 4 below.

1.5 “Wafer” means flat disks formed from silicon substrate material from which electronic devices are produced, typically in diameters of 4, 5, 6, 8, or 12 inches, the devices from which are intended for sale to a third party.

1.6 “Packages” means finished flip chip integrated circuit assemblies, which include at least one integrated circuit die and at least one substrate, joined together by solder balls.

1.7 “Affiliate” means any corporation or other business entity, which directly or indirectly, controls or is controlled by, or is under common control with a party to this Agreement.

1.8 “Patents” means all patents throughout the world owned by FCT covering any aspect of the Confidential Information, know-how, and trade secrets or manufacturing processes disclosed under this Agreement.

1.9 “Trade Secrets” means information of a technical nature, such as formula, manufacturing processes or machines, materials, inventions, and research projects; business data such as costs, profits, markets, sales, customer lists, plans for future development, and other information of a similar nature not generally available to the public.

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS AGREEMENT.

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2. Disclosure of Confidential Information

2.1 Within thirty (30) days of the effective date of this agreement, FCT will disclose Confidential Information regarding the Ultra CSP^™ Technology sufficient for CMD to practice production solder bumping of Wafers ranging from 4 inch (100mm) diameter to 8 inch (200mm) diameter.

2.2 The disclosure of Confidential Information regarding the Ultra CSP^™ Technology described in Paragraph 2.1 above will include written documentation directed to the subject matter, set forth in Attachment A. Written documentation will be provided at CMD’s request, given prior documentation provided under the previous License Agreement dated February 11, 1999.

2.3 FCT warrants that the written documentation, material lists, drawings, specifications, instructions, and other Confidential Information supplied to CMD will be the same as those used by FCT as of the effective date of this Agreement in the practice of the Ultra CSP^™ Technology in FCT’s production facility, and that it comprises information sufficient for one skilled in the art to practice that Technology. CMD expressly agrees that the foregoing warranty is in lieu of all other warranties, express or implied.

2.4 CMD agrees that the disclosure in this Section does not include the transfer of any physical equipment or materials, other than documentation, and that CMD will bear the cost of acquiring any equipment and/or materials that may be required to practice the Ultra CSP^™ Technology at the Licensed Site.

3. Duty to Hold Confidential Information In Confidence

3.1 CMD agrees not to disclose Confidential Information to any third party, except as stated in this section, and to take such precautions to prevent disclosure of Confidential Information by using the same degree of care taken to safeguard CMD’s own proprietary information.

3.2 CMD agrees to limit disclosure of Confidential Information to those CMD employees having a reasonable need to know such Confidential Information and for CMD to practice the Ultra CSP^™ Technology in accordance with the terms of this Agreement.

3.3 CMD is not obligated to hold in confidence any information that appears in issued patents or printed publications, nor any information that is shown to be in the public domain for reasons other than a breach of this Agreement, nor any information shown by CMD’s written records to have been in CMD’s possession prior to disclosure of such information by FCT, nor any information that has legally come into CMD’s possession through channels independent of FCT.

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS AGREEMENT.

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4. License

4.1 FCT grants to CMD, during the term of this Agreement, a non-exclusive, personal license to use the Ultra CSP^™ Technology, and to make and sell products embodying Ultra CSP^™ Technology and for CMD to produce solder balls on Wafers according to the Ultra CSP^™ Technology including a license to use all FCT Patents, trade secrets, know-how, Confidential Information and other documentation specific to the subject, required to enable CMD to practice the Ultra CSP^™ Technology, including but not limited to those items described in Attachment C. Except as provided in Paragraph 10.1 below, this license does not include Improvements, embodied either by patents or trade secrets, that comprise fundamentally different technologies from those in existence as of the effective date of the Agreement. Attachment C items show in red italics are considered fundamentally different technologies as described in Paragraph 10.1.

4.2 The license granted in Paragraph 4.1 above is limited to practice of the Ultra CSP^™ Technology at the Licensed Site, and CMD agrees not to practice the Ultra CSP^™ Technology at any other site not covered by the provisions in Section 4. CMD may change the location of the Licensed Site following written notice to FCT, but may operate only one Licensed Site at a time. CMD may operate more than one Licensed Site with FCT’s prior written consent to add a new site, and a payment of $** per site. Any engineering assistance requested by CMD for additional sites shall be provided by FCT, as available, for $** per man-day, plus travel, living, and other reasonable expenses.

4.3 CMD agrees not to store or maintain any FCT Confidential Information, or copies, at any site other than a Licensed Site, and its Corporate Offices. Upon termination of this Agreement, a copy of all materials, correspondence, Confidential Information, and other documentation may be retained in the files of CMD’s General Counsel.

4.4 The license granted by Paragraph 4.1 above is personal to CMD. CMD’s license does not include the right to sub-license others to use the Confidential Information and/or to grant to others the right to make flip chip integrated circuits according to the Ultra CSP^™ Technology.

4.5 The license granted in Paragraph 4.1 above is subject to and conditioned on the payment of royalties specified in Section 7 below.

5. Equipment/Materials Purchase

5.1 The parties agree that none of the fees payable to FCT under this Agreement are payment for any equipment or materials. CMD agrees to bear the cost for acquiring any equipment and/or materials required to practice the Ultra CSP^™ Technology.

5.2 FCT will disclose to CMD an equipment set preferred by FCT for practicing the Ultra CSP^™ Technology. The parties agree that the license granted is not subject to CMD’s purchase of the equipment set recommended by FCT. CMD agrees that the ability to successfully practice the Ultra CSP^™ Technology may be jeopardized if a different equipment set is used. FCT does not warrant that the process disclosures will function in the same manner for CMD as they do for FCT, if CMD uses a different equipment set.

5.3 The Ultra CSP^™ Process to be disclosed includes the use of proprietary materials specially formulated by FCT. CMD understands that the ability to successfully practice the Ultra CSP^™ Process may be jeopardized if different materials are used. CMD agrees that some materials used by FCT are considered Confidential Information, and CMD agrees not to reverse engineer the materials formulation without the prior written consent of FCT.

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS AGREEMENT.

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6. Fee for License and Technology Transfer

6.1 CMD agrees to pay FCT US $** as a no-recourse, non-recoverable, non- refundable advance against future royalty payments for the license of the Ultra CSP^™ Technology. CMD agrees to pay FCT the no-recourse advance based on the following schedule:

A payment of US $** on license execution.

A payment of US $** four (4) months from the date of execution of this Agreement.

6.2 At CMD’s request, FCT agrees to provide concurrent training regarding the Ultra CSP^™ Technology at FCT’s Phoenix, Arizona facility for up to five CMD engineers and/or technicians, all of whom are to receive training during the same period of time, for up to four weeks. CMD agrees to bear all costs, including transportation and living expenses, for its employees receiving training at FCT. CMD agrees to provide at least three engineers, who are responsible for the technology transfer, for training and consultation at FCT’s Phoenix, Arizona facility.

6.3 At CMD’s request, FCT will provide up to 4 man-weeks of engineering support at the Licensed Site based on a schedule to be mutually determined. CMD agrees to provide necessary resources at the Licensed Site, including equipment, materials, and personnel, to facilitate this phase of the technology transfer. CMD agrees to reimburse FCT for all costs of this phase of the technology transfer, including transportation and living expenses, and other reasonable related expenses, incurred by FCT’s engineers to render technical assistance and support. Should CMD desire FCT engineering support for a longer period, CMD agrees to pay related travel expenses and the sum of $** per day for each engineer on-site. FCT will provide additional engineering resources on an as available basis.

7. Royalties

7.1 In addition to the license fee noted in Section 6 above, CMD agrees to pay to FCT a royalty for use of the Ultra CSP^™ Technology for Wafers bumped, in accordance with the following schedule:

Period		Royalty Rate
1st through 5th years of term		US $ per Wafer, US $ of which has been pre-paid pursuant to Paragraph 6.1 above, for the first Wafers; thereafter US $ per Wafer

6th through 10th years of term		US $** per Wafer

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS AGREEMENT.

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The Royalty schedule and term will commence based on first commercial production Wafer output after the effective date of this Agreement. Wafers that do not utilize FCT’s Ultra CSP^™ Technology are not subject to this royalty, however, improvements to the Ultra CSP^™ Technology developed by CMD will not limit or affect the above royalty rate in any way. The royalty per Wafer is for Wafers of any diameter and does not include Wafers used for setup or process monitoring.

The Royalty payment in years 6 through 10 is based on ** Wafer volume per week. If actual average weekly Wafer volume as measured over a given quarter is greater than ** Wafers per month, the royalty rate will decrease to $** per Wafer. If actual average weekly Wafer volume as measured over a given quarter is less than ** wafers per month, CMD and FCT agree to renegotiate the royalty rate within a range of $** to $** per Wafer, based on actual average Wafer output. If competitive pricing requires a lower royalty rate, CMD may request a reduction in the royalty rates stated above for specific products. CMD and FCT will use their best efforts to adjust royalty rates to allow CMD to be price competitive.

8. Reports/Payments/Records/Right of Audit

8.1 CMD agrees to pay royalties due within thirty (30) days after the close of each calendar quarter during the term of this Agreement.

8.2 Simultaneous with the payment of the royalties required, CMD agrees to provide FCT with a quarterly statement showing the basis for computation of royalties being paid pursuant to Paragraph 8.1 above.

8.3 To demonstrate the basis for computing royalties owed, CMD agrees to include in the quarterly statement, a list of the CMD tracking numbers for each Wafer lot processed during each calendar quarter using the Ultra CSP^™ Technology. CMD agrees to include in the report the number and diameter of the Wafers in each lot, and the date on which each lot was processed.

8.4 CMD agrees to maintain accurate records/documents for solder-bumping Wafers during the term of this Agreement. For each Wafer lot processed using the Ultra CSP^™ Technology, CMD agrees to include the general nature and type of the integrated circuits or electronic devices, document any problems encountered in producing solder bumped devices, and supply test data regarding quality parameters of the solder bump process, to the extent that such data is ordinarily collected by CMD.

8.5 FCT, at its own expense, will have the right to have an accountant/auditor inspect CMD’s records for purposes of audit for up to two (2) years after the calendar quarter to which records pertain, given at least two (2) weeks written notice. If inspection by FCT’s accountant/auditor reveals that royalties reported and paid by CMD for a calendar quarter were understated by more than ** percent (**%), then CMD agrees to reimburse FCT for reasonable costs incurred to perform such audit.

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS AGREEMENT.

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9. Technology Reports/Status Reviews

9.1 During the term of this Agreement, CMD will provide FCT a written report once each calendar quarter which includes measured reliability data recorded for flip chip integrated circuits having solder bumps applied by in accordance with the Ultra CSP^™ Technology, to the extent that such data is ordinarily collected by CMD. FCT will have the right to consolidate such data with data recorded by FCT and/or with data reported by other parties licensed by FCT, and to publish such merged data, provided that the reliability data will not be published in a manner that identifies CMD as the source of any particular data.

9.2 CMD agrees to participate in jointly scheduled meetings with FCT, to review CMD’s use of the licensed Ultra CSP^™ Technology, including the number of Wafers processed, problems experienced in using the Ultra CSP^™ processes, and generally to exchange information and improvements regarding the process. CMD and FCT agree to share information on market conditions, trends, and requirements and review priorities related to product and/or process development and improvements.

10. Improvements

10.1 Periodically and as soon as is practicable during the term of this Agreement, FCT plans to release Improvements to the Ultra CSP^™ Technology in addition to those specified in Attachment C. CMD will be offered the opportunity to license the practice of all such “major” improvements (shown in red italics on Attachment C) and any additional Improvements under the terms and conditions of this Agreement, for a reasonable fee commensurate with the nature of the Improvements. CMD acknowledges that all Improvements disclosed by FCT are Confidential Information. CMD agrees to treat all Improvements in the same manner as the original Ultra CSP^™ Technology disclosed.

10.2 Within a reasonable period after the Improvements are installed at CMD’s licensed site, FCT agrees to audit CMD to certify compliance. To the extent that CMD is certified as compliant with the most recent process, FCT will agree to provide back-up production and/or early qualification of products in parallel with CMD’s production ramp-up. Royalties for any new process version will commence based on first commercial production Wafer output and in accordance with the provisions in Section 7 above.

11. Non-Solicitation

11.1 During the term of this Agreement, and for a three (3) year period thereafter, neither party will solicit for employment or consultation any current employee, without the written consent of the other party.

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS AGREEMENT.

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12. Term and Termination

12.1 Unless terminated in accordance with other provisions of this Section, this Agreement will expire ten (10) years from the effective date. At expiration of the ten (10) year term, CMD will retain a paid-up, perpetual and royalty-free license to practice the Ultra CSP^™ Technology disclosed under this License Agreement.

12.2 In addition to any other right of termination, either party may terminate this Agreement for a material breach of the Agreement by the other party, on thirty (30) days prior written notice, specifying the nature of the material breach. Assuming that a material breach has not been cured within the thirty (30) day notice period, or another mutually agreed schedule is set in writing, this Agreement will terminate on the expiration of the thirty (30) day period.

12.3 By way of example, and without limitation, CMD’s failure to pay license fees when due, failure to pay royalties when due, unauthorized use or disclosure of Confidential Information, and any grant of a sub-license will each be considered a material breach of this Agreement.

12.4 CMD’s obligation to protect Confidential Information under Section 3 of this Agreement will survive the termination of this Agreement for a period of five (5) years.

12.5 Upon early termination of this Agreement by FCT pursuant to Paragraph 12.2 above, CMD agrees to immediately cease any further practice of the Ultra CSP^™ Technology, and the use of Confidential Information. CMD agrees that FCT may seek injunctive relief to enforce this provision, independent of, and in addition to, any monetary or other relief sought for any breach of the License Agreement.

12.6 Upon termination of this Agreement pursuant to Paragraph 12.2 above, CMD will immediately return all drawings, specifications, instructions, and other Confidential Information received from FCT under the Agreement, along with any and all copies or derivations. Upon termination of this agreement, a copy of all materials, correspondence, Confidential Information, and other documentation may be retained in the files of CMD’s General Counsel.

12.7 Any termination of this Agreement will not relieve CMD of its obligations to pay accrued royalties owed, or to provide any reports required by the terms of this Agreement, nor will it relieve FCT of any obligation incurred before termination became effective.

13. Disclaimer of Other Warranties

13.1 This Agreement constitutes the entire agreement between the parties regarding the subject matter, and neither of the parties to this Agreement has relied on any representations or warranties, other than those expressly set forth in this Agreement. Each party disclaims, and waives, any obligation, liability, right, claim, or demand, in contract, warranty, tort, or otherwise, that is not expressly assumed in this Agreement. In no event will either party be liable for any indirect, incidental or consequential damages of any kind, including without limitation, damages for product liability in connection with this Agreement.

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS AGREEMENT.

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13.2 Nothing in this Agreement will be construed as conferring a right for either party to use any trademark or trade name of the other party, in advertising, publicity or otherwise, except as stated or as agreed to in writing by both parties.

14. Indemnification

14.1 FCT agrees to indemnify, and hold CMD harmless, against any damages claimed by any third party for infringement of any patent, intellectual property, and/or other proprietary rights based on CMD’s use of the Ultra CSP^™ Technology to provide flip chip integrated circuits, provided that such claims arise solely from Wafers and/or integrated circuits that were solder bumped at a Licensed Site, in accordance with the instructions provided by FCT for practicing the Ultra CSP^™ Technology. If CMD notifies FCT of an infringement claim, FCT may, at its option: (a) modify the Ultra CSP^™ process so that it becomes non-infringing; (b) procure for CMD a license to use the infringing technology or process or; (c) dispute the infringement claim, at its expense. FCT’s obligation to indemnify CMD for losses resulting from patent infringement and/or infringement of other proprietary rights will not exceed the amount of US $500,000.00.

14.2 CMD agrees to notify FCT in writing of any infringement claim or threatened infringement claim made known to CMD and/or asserted against CMD or its customers related to the use of the Ultra CSP^™ Technology. CMD shall provide written notice within thirty (30) days of the date CMD receives notice of the existence or threat of such claim. CMD’s failure to provide prompt notice will cancel and nullify FCT’s obligation to indemnify CMD.

14.3 CMD agrees to indemnify and hold FCT harmless against any product liability claims asserted against FCT by customers of CMD.

15. Confidentiality of License Terms

15.1 The parties agree that the terms of this Agreement are Confidential and will not be disclosed except as required by law, including the disclosure requirements of the Securities Laws of the United States. Either party may, however, issue a press release and/or advise third parties that FCT has granted CMD a non-exclusive, license to practice the Ultra CSP^™ Technology. Any press releases shall be subject to review and approval by the other party and approval shall not be unreasonably withheld. Either party may disclose the terms of this Agreement in documents filed in conjunction with a court proceeding brought to interpret or enforce the terms of the license or related agreements, or as may be compelled by a court of competent jurisdiction, subject to notice to the other party.

16. Force Majeure

16.1 Neither Party will be liable for nonperformance due to: a labor dispute, strike, act of war, insurrection, riot, accident, fire, flood, acts of God, governmental action, supply of raw material, utility shortage, or a similar cause beyond each party’s reasonable control and through no fault or negligence. The Party affected will use reasonable effort to remedy the situation and neither Party will be liable for losses, damages, or costs caused by an inability to remedy the situation. The Party prevented from meeting obligations under this Agreement will promptly give written notice of the basis for invoking Force Majeure, any obligations which are suspended due to Force Majeure, identify remedial measures being taken and provide an estimate of the duration of the Force Majeure conditions.

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS AGREEMENT.

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17. Miscellaneous

17.1 This Agreement has been made and construed under the laws of the State of Arizona, and the parties agree to submit to the jurisdiction and venue of the courts of the State of Arizona regarding any actions to interpret or enforce the provisions of this Agreement.

17.2 The rights and license granted in this Agreement are personal to CMD and may not be assigned or otherwise transferred without the prior written consent of FCT.

17.3 This Agreement supersedes all prior understandings between the parties and contains the entire Agreement between the parties concerning this subject matter.

17.4 Any notice required will be delivered by registered or certified mail, return receipt requested, postage prepaid, and will be addressed to each party at the address first set forth above, or at any other address that either party may subsequently specify in writing during the term of this Agreement.

17.5 No modification or waiver of any portion of this Agreement will be made without the written consent of both parties unless any portion is in violation of applicable law.

17.6 Each provision of this Agreement will be considered severable, and if, for any reason, any provision or provisions are determined to be invalid or contrary to law, any invalidity will not impair the operation of or affect the remaining provisions of this Agreement.

17.7 All disputes arising directly under the terms of this Agreement shall be resolved based on the following: (a) senior management representatives of both parties shall meet to attempt to resolve any disputes, by meeting at least twice during a thirty (30) day period; (b) if the senior management representatives cannot resolve the dispute, either party may begin litigation proceedings; (c) if legal action is instituted to interpret or enforce any term or provision of this Agreement, then the prevailing party will be entitled to recover reasonable attorneys’ fees and court costs.

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS AGREEMENT.

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To indicate agreement to the terms and conditions of this Agreement, the parties have had their designated representatives sign effective as of the date first set forth above.

	FLIP CHIP TECHNOLOGIES, L.L.C. (FCT)

September 30, 2000	/s/ DON R. MAY, III
Date	By:	Don R. May, III
	Title:	Vice President

	CALIFORNIA MICRO DEVICES CORPORATION (CMD)

September 30, 2000	/s/ JEFFREY C. KALB
Date	By:	Jeffrey C. Kalb
	Title:	President & CEO

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS AGREEMENT.

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ATTACHMENT A

Technology Transfer Package Summary

Facilities

Square footage requirements for various capacity levels

Facility specifications and recommended layout

Utility requirements, consumption rates

Gas and chemical requirements and purity levels

Environmental, health, and safety assurances

Mask Design

Mask design software specification and source

Mask design flowchart

Mask design rules and layout procedures

Mask design manual

Process

Process flow charts

Process specifications

List of all direct and indirect materials

Material consumption algorithms

Material specifications

Process capability studies

Process characterization data

Statistical process control data

Operator workmanship standards

Equipment

Equipment specifications

Equipment suppliers

Equipment lead times

Equipment installation guidelines, procedures, and suggestions

Equipment characterization procedures and guidelines

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS AGREEMENT.

Attachment A

Confidential

CONFIDENTIAL TREATMENT REQUESTED

Quality and Reliability

Quality specifications

Reliability data

Failure analysis policy

Failure analysis specifications

Operator certification training, testing, and practical requirements

Process qualification requirements

FMEAs (Failure Mode Effects Analyses)

Change control policy and procedures

MRB (Material Review Board) policy and procedures

Reliability qualification requirements

Staffing

Direct and indirect headcount for each level of capacity

Selection and training guidelines

Description of roles and responsibilities

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS AGREEMENT.

Attachment A

Confidential

CONFIDENTIAL TREATMENT REQUESTED

ATTACHMENT B

Licensed Sites

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS AGREEMENT.

Attachment B

Confidential

CONFIDENTIAL TREATMENT REQUESTED

ATTACHMENT C

Materials Specifications

MS 2020	Aluminum Target	Sputter
MS 2021	Nickel/Vanadium Target	Sputter
MS 2022	Copper Target	Sputter
MS 2023	Titanium Target	Sputter
MS 2510	** Photoresist	Resist Coat
MS 2511	**	Resist EBR
MS 2531	**, Positive Developer	Resist Develop
MS 3010	**, Copper/Nickel Etchant	Wet Etch
MS 3011	**, Aluminum Etchant	Wet Etch
MS 3012	**	Wet Etch (Spike)
MS 3020	**, Photoresist Stripper	Strip
MS 3522	** Rinse Solvent	BCB EBR
MS 3524	** Adhesion Promoter	BCB Coat
MS 3540	**	BCB Develop

Product Dimensions

Al Thickness

Nickel/Vanadium Thickness

Copper Thickness

BCB Thickness

Design Rules

Design Guide

IMPROVEMENTS

Patents & Patent Applications

Method for Forming Chip Scale Package		Patent Application Filed
Chip Scale Package with Large Ductile Solder Balls		Patent Application Filed
Polymer Collar for Solder Bumps		Patent Application Filed
**		**
**		**

Trade Secrets

Method to Assure BCB Adhesion to Silicon Nitride		Trade Secret
Internal Design Rules for Ultra CSP^™ Bump on Nitride		Trade Secret
Internal Design Rules for Ultra CSP^™ Bump on I/O		Trade Secret
(One BCB Layer)
Internal Design Rules for Ultra CSP^™ for Redistribution		Trade Secret
All Current and Future Process Specifications		Trade Secret
All Current and Future Material Specifications		Trade Secret
All Current and Future Machine Specifications		Trade Secret

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS AGREEMENT.

Attachment C

Confidential

CONFIDENTIAL TREATMENT REQUESTED

Product. Process and Technology Development

Low Cost Tooling for **		New Development
Alternative Dielectrics		New Development
Improved Al/NiV/Cu Etch		New Development
Multi Layer RDL Structure		New Development
Lead Free Solder Paste		New Development

Note: Red italics designates “major” Improvements according to Paragraph 10.1 of the License Agreement.

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS AGREEMENT.

Attachment C

Confidential

CONFIDENTIAL TREATMENT REQUESTED

First Amendment to License Agreement

This First Amendment to License Agreement (this “ First Amendment”) dated as of this 13th day of December, 2002 (the “Amendment Effective Date”) is made by and between the parties listed below and amends the License Agreement (the “Original Agreement”) between such parties made the 30th day of September, 2000:

FLIP CHIP TECHNOLOGIES, L.L.C.	)
a Delaware limited liability company,	)	(referred to as “FCT”)
having a principal place of business at	)
3701 E. University Avenue	)
Phoenix, Arizona 85034, USA	)
	)
and	)
	)
CALIFORNIA MICRO DEVICES CORPORATION	)
a California corporation	)	(referred to as “CMD”)
having a principal place of business at	)
430 North McCarthy Blvd.	)
Milpitas, California 95035	)
	)

Background

FCT and CMD were negotiating an amendment and restatement to the Original Agreement in order to grant CMD a “have made” right and to add an additional Licensed Site as CMD believed it wanted to make Wafers using the Ultra CSP^™ Technology itself in Tempe and for its contract manufacturer to make Wafers using the Ultra CSP^™ Technology in Shanghai and as a result was willing to pay FCT an additional fee of $**. However, CMD subsequently has decided tentatively on an alternative course of action and no longer requires or is willing to pay for this right and an additional Licensed Site. The parties have agreed to finalize the draft amendment and restatement of the Original Agreement granting this right and an additional Licensed Site in exchange for such payment but have agreed not to enter into such amendment and restatement at present or to have any obligation to do so in the future.

In the process of such negotiations, FCT and CMD recognized the need to make certain amendments to the Original Agreement at present in order for CMD to be able to pursue its desired course of action and by this First Amendment desire to amend the Original Agreement accordingly.

Therefore, FCT and CMD hereby agree as follows:

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS AGREEMENT.

Agreement

1. In Section 1.4 of the Original Agreement, the first sentence shall be replaced to read in full as follows:

“Licensed Site” means CMD’s facility located in Tempe Arizona.

2. Section 3.2 of the Original Agreement shall be replaced to read in full as follows:

Except as otherwise stated in this section, CMD agrees to limit disclosure of Confidential Information to those CMD employees or consultants, or those employees or consultants of a third party staffing a facility used by and subject to the direction and control of CMD, having a reasonable need to know such Confidential Information for CMD to practice the Ultra CSP^™ Technology in accordance with the terms of this Agreement.

3. In Section 4.1 of the Original Agreement, a new second sentence shall be inserted, reading as follows:

This license includes the right for CMD to offer a service to third parties to make chip-scale products for them using the Ultra CSP^™ Technology (including producing solder balls on Wafers) provided that the volume of third party Wafers does not exceed 10% of the volume of CMD Wafers in any calendar quarter.

4. In Section 4.2 of the Original Agreement, a new last sentence shall be added, reading as follows:

When changing the location of a Licensed Site, it is understood and agreed that there shall be a reasonable time of overlap, not to exceed six months after production begins at the new Licensed Site, when both the old and new sites are concurrently licensed and operating in order to facilitate an orderly transition without interruption of supply.

5. In Section 7.1 of the Original Agreement, the following shall be added as a new last sentence to the first paragraph:

The above royalties need only be paid on “good Wafers” meaning Wafers that were used to make products that CMD (or CMD’s service customers under Section 4.1) actually puts into its inventory to be sold to its customers or otherwise sells or samples to its customers.

6. In Section 17.2, the following shall be added at the end, just before the period:

; provided that the rights and license granted under this Agreement may be extended to Affiliates of CMD upon notice to FCT accompanied by the agreement of the Affiliate to be bound by the terms and conditions of this Agreement

7. This First Amendment constitutes the entire agreement and understanding of CMD and FCT concerning its subject matter, superseding all prior written and oral agreements and understandings concerning such subject matter. Except as amended as provided in Sections 1-5 above, the Original Agreement remains unchanged and in full force and effect.

Authorized Signatures

To indicate agreement to the terms and conditions of this First Amendment, the parties have had their designated representatives sign effective as of the date first set forth above.

	FLIP CHIP TECHNOLOGIES, L.L.C. (FCT)

December 8, 2002	/s/ SCOTT BARRETT
Date Executed	By:	Scott Barrett
	Title:	Director, Marketing and Business Development

	CALIFORNIA MICRO DEVICES CORPORATION (CMD)

December 13, 2002	/s/ ROBERT V. DICKINSON
Date Executed	By:	Robert V. Dickinson
	Title:	President & CEO

EX-10.15 4 dex1015.htm LOAN DEFAULT WAIVER AGREEMENT SILICON VALLEY BANK Loan Default Waiver Agreement Silicon Valley Bank

Exhibit 10.15

CONFIDENTIAL TREATMENT REQUESTED

LOAN DEFAULT WAIVER AGREEMENT

THIS LOAN DEFAULT WAIVER AGREEMENT is entered into as of October 21, 2002, by and between CALIFORNIA MICRO DEVICES CORPORATION, a California corporation (the “Borrower”) and SILICON VALLEY BANK (“Bank”). Borrower and Bank are parties to a Loan and Security Agreement, dated June 17, 2002, as amended or modified from time to time, (the “Loan Agreement”). Defined terms used but not otherwise defined herein shall have the same meanings as set forth in the Loan Agreement.

RECITALS:

A. Borrower has borrowed monies from Bank under the Loan Agreement; however, as described in Section 3, Borrower’s Tangible Net Worth as of September 30, 2002, was not in compliance with the covenant set forth in Section 6.7(b) of the Loan Agreement.

B. Borrower has, on a confidential basis, told Bank that it has retained Needham & Company, Inc. and Adams, Harkness & Hill as placement agents for a private offering in which Borrower is attempting to raise between $5 million and $10 million during November.

C. Bank is willing to waive the breach of the Tangible Net Worth covenant as of September 30, 2002; however, Borrower will be required to meet such covenant as of December 31, 2002.

AGREEMENT

Based upon the facts and premises contained in the above Recitals, and the mutual covenants below, Bank and Borrower hereby agree as follows:

1. Description of Existing Obligations. Among other Obligations which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other documents, the Loan Agreement. The Loan Agreement provides for, among other things, a Committed Equipment Line in the original principal amount of Three Million Five Hundred Thousand Dollars ($3,500,000) and a Committed Revolving Line in the original principal amount of Three Million Five Hundred Thousand Dollars ($3,500,000), provided that the sum of all advances under the Committed Equipment Line and the Committed Revolving Line shall not exceed $5,000,000 at any time.

Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as the “Obligations.”

2. Description of Collateral. Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement. Additionally, Borrower has agreed with Bank not to mortgage, pledge, hypothecate, or otherwise encumber any of its Intellectual Property pursuant to a Negative Pledge Agreement dated June 17, 2002.

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS AGREEMENT.

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CONFIDENTIAL TREATMENT REQUESTED

Hereinafter, the above described security documents and guaranties, together with all other documents securing repayment of the Obligations shall be referred to as the “Security Documents.” Hereinafter, the Security Documents, together with all other documents evidencing or securing the Obligations shall be referred to as the “Existing Loan Documents.”

3. Default Waiver. Bank hereby waives Borrower’s existing default under the Loan Agreement by virtue of Borrower’s failure to comply with the Tangible Net Worth covenant as of quarter ended September 30, 2002. Bank’s waiver of Borrower’s compliance of this covenant shall apply only to the foregoing quarter. Accordingly, for the quarter ending December 31, 2002, Borrower shall be in compliance with this covenant. Bank’s agreement to waive the above-described default (1) in no way shall be deemed an agreement by the Bank to waive Borrower’s compliance with the above-described covenant as of all other dates and (2) shall not limit or impair the Bank’s right to demand strict performance of this covenant as of all other dates and (3) shall not limit or impair the Bank’s right to demand strict performance of all other covenants as of any date.

4. Modification(s) to Loan Agreement. Subletter (b) under Section 6.7 entitled “Financial Covenants” is hereby deleted in its entirety and replaced with the following:

(b)

Borrower will maintain as of the last day of each quarter: Tangible Net Worth. A Tangible Net Worth of at least $** plus **% of any increase to tangible net worth due to any additional net equity offering proceeds.

5. Consistent Changes. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.

6. No Defenses of Borrower. Borrower (and each guarantor and pledgor signing below) agrees that, as of the date hereof, it has no defenses against paying any of the Obligations.

7. Payment of Loan Fee. Borrower shall pay Bank a fee in the amount of Four Thousand Dollars ($4,000) (“Loan Fee”).

8. Continuing Validity. Borrower (and each guarantor and pledgor signing below) understands and agrees that in modifying the existing indebtedness, Bank is relying upon Borrower’s representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Default Waiver Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Bank’s agreement to modifications to the existing Obligations pursuant to this Loan Default Waiver Agreement in no way shall obligate Bank to make any future modifications to the Obligations. Nothing in this Loan Default Waiver Agreement shall constitute a satisfaction of the Obligations. It is the intention of Bank and Borrower to retain as liable parties all makers and endorsers of Existing Loan Documents, unless the party is expressly released by Bank in writing. Unless expressly released herein, no maker, endorser, or guarantor will be released by virtue of this Loan Default Waiver Agreement. The terms of this paragraph apply not only to this Loan Default Waiver Agreement, but also to any subsequent loan modification agreements.

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS AGREEMENT.

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CONFIDENTIAL TREATMENT REQUESTED

9. Conditions. The effectiveness of this Loan Default Waiver Agreement is conditioned upon payment of the Loan Fee.

This Loan Default Waiver Agreement is executed as of the date first written above.

BORROWER: CALIFORNIA MICRO DEVICES CORPORATION						BANK: SILICON VALLEY BANK

By						By


Name						Name


Title						Title

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS AGREEMENT.

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EX-10.16 5 dex1016.htm STOCK AND WARRANT PURCHASE AGREEMENT NOVEMBER 02 Stock and Warrant Purchase Agreement November 02

Exhibit 10.16

CALIFORNIA MICRO DEVICES CORPORATION

STOCK AND WARRANT PURCHASE AGREEMENT

November 22, 2002

TABLE OF CONTENTS

		Page
1. Purchase and Sale of Stock and Warrants		1
1.1	Sale and Issuance of Common Stock	1
1.2	Sale and Issuance of Warrants	1
1.3	Closing	1

2. Representations and Warranties of the Company		1
2.1	Corporate Existence and Power	2
2.2	Authorization; No Contravention	2
2.3	Governmental Authorization; Third Party Consents	2
2.4	Binding Effect	2
2.5	Litigation	3
2.6	Compliance with Laws	3
2.7	Capitalization	3
2.8	No Default or Breach; Contractual Obligations	4
2.9	Title to Properties	4
2.10	Reports; Financial Statements	5
2.11	Taxes	5
2.12	No Material Adverse Change; Ordinary Course of Business	6
2.13	Private Offering	6
2.14	Labor Relations	6
2.15	Employee Benefit Plans	7
2.16	Liabilities	7
2.17	Intellectual Property	8
2.18	Potential Conflicts of Interest	9
2.19	Trade Relations	9
2.20	Outstanding Borrowing	10
2.21	Broker’s, Finder’s or Similar Fees	10
2.22	Disclosure	10
2.23	Insurance	10
2.24	Form S-3 Eligibility	10

3. Representations and Warranties of the Investors		10
3.1	Authorization	10
3.2	Purchase Entirely for Own Account	10
3.3	Reliance Upon Investor’s Representations	11
3.4	Receipt of Information	11
3.5	Investment Experience	11
3.6	Accredited Investor	11
3.7	Restricted Securities	11
3.8	Legends	11
3.9	Broker’s, Finder’s or Similar Fees	12

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4. Registration of the Shares; Compliance with the Securities Act		12
4.1	Registration Procedures and Expenses	12
4.2	Transfer of Shares After Registration; Suspension	13
4.3	Indemnification	15
4.4	Termination of Conditions and Obligations	17

5. Conditions of each Investor’s Obligations at Closing		17
5.1	Representations and Warranties	17
5.2	Performance	17
5.3	Compliance Certificate	17
5.4	Qualifications	17
5.5	Opinion of Counsel	18
5.6	Minimum Amount Sold	18

6. Conditions of the Company’s Obligations at Closing		18
6.1	Representations and Warranties	18
6.2	Qualifications	18
6.3	Minimum Amount Sold	18

7. Miscellaneous		18
7.1	Entire Agreement	18
7.2	Survival	18
7.3	Successors and Assigns	18
7.4	Governing Law	19
7.5	Counterparts	19
7.6	Titles and Subtitles	19
7.7	Notices	19
7.8	Expenses	19
7.9	Attorneys’ Fees	19
7.10	Amendments and Waivers	19
7.11	Severability	19
7.12	Rights of the Investor	20
7.13	Conflict of Interest Waiver	20
7.14	Press Release/Form 8-K	20

Exhibits

Exhibit A – Form of Warrant

Exhibit B – Certificate of Subsequent Sale

Exhibit C – Form of Opinion of Company’s counsel

Exhibit D – Schedule of Exceptions

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CALIFORNIA MICRO DEVICES CORPORATION

STOCK AND WARRANT PURCHASE AGREEMENT

This Stock and Warrant Purchase Agreement (this “Agreement”) is made as of the 22nd day of November, 2002 (the “Effective Date”), by and among California Micro Devices Corporation, a California corporation (the “Company”), and each of the persons listed on the signature pages hereto (each of whom is herein referred to individually as an “Investor” and collectively as the “Investors”). The parties hereto agree as follows:

1. Purchase and Sale of Stock and Warrants.

1.1 Sale and Issuance of Common Stock. Subject to the terms and conditions of this Agreement, each Investor severally (and not jointly and severally) agrees to purchase at the Closing (as defined below), and the Company agrees to issue and sell to each Investor at the Closing, that number of shares (the “Shares”) of common stock, no par value, of the Company (the “Common Stock”) set forth above such Investor’s name on the signature pages hereto at a price per Share equal to $3.40 (the “Purchase Price”), up to an aggregate of 2,800,000 shares of Common Stock.

1.2 Sale and Issuance of Warrants. Subject to the terms and conditions of this Agreement, each Investor severally (and not jointly and severally) agrees to purchase at the Closing, and the Company agrees to issue and sell to each Investor at the Closing, a warrant to purchase that number of shares of Common Stock (the “Warrant”), equal to twenty-five percent (25%) of the number of Shares purchased by such Investor, substantially in the form attached hereto as Exhibit A.

1.3 Closing. The purchase and sale of the Shares and Warrants (the “Closing”) shall occur no later than November 29, 2002, at a place and time to be specified by the Company and Needham & Company, Inc. and Adams, Harkness & Hill, Inc. (collectively, the “Placement Agents”), and of which the Investors will be notified in not less than one (1) business days in advance by the Placement Agents. At the Closing, after receipt of payment therefor, the Company shall arrange delivery to each Investor of one or more stock certificates representing the number of Shares set forth above such Investor’s name on the signature pages hereto, and one or more Warrants, each to be registered in the name of the Investor. The parties acknowledge that the schedule of Investors attached hereto as Schedule A is a preliminary schedule of investors. As soon as practicable after the Closing, the Company shall deliver to each Investor a completed Schedule A, listing each Investor and the amount of Shares and Warrants purchased by such Investor hereunder.

2. Representations and Warranties of the Company. The Company hereby represents and warrants to each Investor that, except as disclosed in all reports, registration statements and other filings, together with any amendments thereto, filed by the Company with the Securities and Exchange Commission (the “SEC”) since June 25, 2002 (collectively, the “SEC Reports”), the Company’s press release dated October 24, 2002, and the Schedule of Exceptions attached hereto as Exhibit D, specifically identifying the relevant subparagraph, which exceptions shall be deemed to be representations and warranties as if made hereunder:

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2.1 Corporate Existence and Power. The Company, and each of the corporations or other entities of which the Company holds a majority of the voting power of the outstanding voting equity securities or a majority of the economic equity interest of such corporation or entity (collectively, the “Subsidiaries”) (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) has all requisite corporate power and authority to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged; (c) is duly qualified as a foreign corporation, licensed and in good standing under the laws of each jurisdiction in which its ownership, lease or operation of property or the conduct of its business requires such qualification, except where the failure to be so qualified could not reasonably be expected to have a material adverse effect on the Condition of the Company and (d) has the corporate power and authority to execute, deliver and perform its obligations under this Agreement.

2.2 Authorization; No Contravention. The execution, delivery and performance by the Company of this Agreement and the transactions contemplated hereby and thereby (a) have been duly authorized by all necessary corporate action of the Company; (b) do not contravene the terms of the Articles of Incorporation or the By-laws; (c) do not violate, conflict with or result in any breach, default or contravention of (or with due notice or lapse of time or both would result in any breach, default or contravention of), or the creation of any mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien (statutory or otherwise) or preference, priority, right or other security interest or preferential arrangement (a “Lien”) under, any provision of any agreement, undertaking, contract, indenture, mortgage, deed of trust, or other instrument to which the Company is a party or by which its property is bound (a “Contractual Obligation”) of the Company or any law, statute, treaty, rule, regulation, right, privilege, qualification, license or franchise (a “Requirement of Law”) applicable to the Company except such violations or conflicts that would not reasonably be expected to have a material adverse effect on the Condition of the Company; and (d) do not violate any judgment, injunction, writ, award, decree or order of any nature (collectively, “Orders”) of the government of any nation, state, city, locality or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, (a “Governmental Authority”) against, or binding upon, the Company or any of its Subsidiaries.

2.3 Governmental Authorization; Third Party Consents. No approval, consent, compliance, exemption, authorization or other action by, or notice to, or filing with, any Governmental Authority or any other individual, firm, corporation, partnership, trust, association, joint venture, limited liability company, or other entity of any kind (a “Person”), and no lapse of a waiting period under a Requirement of Law, is necessary or required in connection with the execution, delivery or performance (including, without limitation, the sale, issuance and delivery of the Shares and Warrants) by, or enforcement against, the Company of this Agreement and the transactions contemplated hereby and thereby.

2.4 Binding Effect. This Agreement has been duly executed and delivered by the Company, and this Agreement constitutes the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting the enforcement of creditors’ rights

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generally and by general principles of equity relating to enforceability (regardless of whether considered in a proceeding at law or in equity).

2.5 Litigation. There are no actions, suits, proceedings, claims, complaints, disputes, arbitrations or investigations (collectively, “Claims”) pending or, to the Knowledge of the Company’s executive officers (the “Knowledge”) of the Company, threatened, at law, in equity, in arbitration or before any Governmental Authority against the Company or any of its Subsidiaries that seeks damages in an amount which is material to the Company’s operations, other than ordinary routine litigation incidental to the business of the Company nor is the Company aware that there is any basis for any of the foregoing. The foregoing includes, without limitation, Claims pending or, to the Knowledge of the Company, threatened or any basis therefor known by the Company involving the prior employment of any employee of the Company or any of its Subsidiaries, their use in connection with the business of the Company or any of its Subsidiaries of any information or techniques allegedly proprietary to any of their former employers or their obligations under any agreements with prior employers. No Order has been issued by any court or other Governmental Authority against the Company or any of its Subsidiaries purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any of the other Transaction Documents.

2.6 Compliance with Laws. The Company and each of its Subsidiaries is in compliance in all material respects with all Requirements of Law and all Orders issued by any court or Governmental Authority against the Company in all respects. To the Company’s Knowledge, there are no Requirements of Law which could reasonably be expected to prohibit or restrict the Company or any of its Subsidiaries from, or otherwise materially adversely effect the Company or any of its Subsidiaries in, conducting its business in any jurisdiction in which it now conducts its business.

2.7 Capitalization.

(a) The authorized capital stock of the Company consists of 25,000,000 shares of Common Stock, of which 14,249,270 shares (the “Issued Stock”) were issued and outstanding as of September 30, 2002, and 10,000,000 shares of preferred stock, of which 400,000 have been designated as “Series A Participating Preferred Stock”, none of which was issued or outstanding as of September 30, 2002. As of September 30, 2002, 4,115,000 shares of Common Stock were reserved for issuance under the Company’s 1995 Employee Stock Option Plan, as amended, 450,000 shares of Common Stock were reserved for issuance under the Company’s Non-Employee Directors’ Stock Option Plan, as amended, and 1,130,000 shares of Common Stock were reserved for issuance under the Company’s 1995 Employee Stock Purchase Plan. As of September 30, 2002, 1,736,610 shares of Common Stock had been issued and 2,061,541 shares of Common Stock were issuable upon the exercise of stock options granted under the Company’s 1995 Employee Stock Option Plan, 105,255 shares of Common Stock had been issued and 251,064 shares of Common Stock were issuable upon the exercise of stock options granted under the Company’s 1995 Non-Employee Directors’ Stock Option Plan, and 853,175 shares of Common Stock had been issued under the Company’s 1995 Employee Stock Purchase Plan. The Issued Stock represents all of the issued and outstanding shares of capital stock of the Company and all shares of Issued Stock have been duly authorized and validly issued and are fully paid and nonassessable. All of the shares of Issued Stock and other securities of the Company have

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been offered, issued and sold by the Company in compliance in all material respects with the Securities Act of 1933, as amended (“the Securities Act”) and applicable state securities laws. There are no contracts or other agreements relating to the issuance, sale or transfer of Issued Stock or any equity or other securities of the Company other than pursuant to the 1995 Employee Stock Option Plan, as amended; the 1995 Non-Employee Directors’ Stock Option Plan, as amended; the 1995 Employee Stock Purchase Plan, as amended; an unsigned Investment Letter proposed to Jeff Kalb relating to a 10,000 share bonus offered to him and included as Issued Stock; a warrant for 59,750 shares of Common Stock held by Needham & Company, Inc.; the warrants issuable to the Placement Agents in connection with this Agreement; and the Shares and Warrants issuable pursuant to this Agreement.

(b) The Shares and Warrants are duly authorized, and the Shares and shares of Common Stock issuable upon exercise of the Warrants (the “Warrant Shares”)when issued and delivered to the Purchasers after payment therefor, will be validly issued, fully paid and non-assessable, and assuming the accuracy of the representations and warranties of the Purchasers set forth in Section 3 of this Agreement, will be issued in compliance with the registration and qualification requirements of all applicable federal, state and foreign securities laws and will be free and clear of all other Liens. None of the issued and outstanding shares of Common Stock were issued in violation of any preemptive rights.

2.8 No Default or Breach; Contractual Obligations. All of the Contractual Obligations to which the Company or any of its Subsidiaries is a party, whether written or oral, which are required by the Exchange Act to be disclosed in the SEC Reports (collectively, “Material Contractual Obligations”) are valid, subsisting, in full force and effect and binding upon the Company or its Subsidiary, as the case may be, and, to the Knowledge of the Company, the other parties thereto, and the Company or its Subsidiary, as the case may be, has paid in full or accrued all amounts due thereunder and has satisfied in full or provided for all of its liabilities and obligations thereunder, except for such amounts as are being contested by the Company in good faith. Neither the Company nor any of its Subsidiaries has received notice of a default and is not in default under, or with respect to, any Material Contractual Obligation nor, to the Knowledge of the Company, does any condition exist that with notice or lapse of time or both would constitute a default thereunder. To the Knowledge of the Company, no other party to any such Contractual Obligation is in default thereunder, nor does any condition exist that with notice or lapse of time or both would constitute a default by such other party thereunder.

2.9 Title to Properties. The Company and each of its Subsidiaries has good, record and marketable title in fee simple to, or holds interests as lessee under leases in full force and effect in, all real property used in connection with its business or otherwise owned or leased by it, in each case free and clear of all Liens, except for Liens that would required to be described in the notes to the Financial Statements. The Company and each of its Subsidiaries owns and has good, valid and marketable title to all of its properties and assets used in its business or reflected as owned on the Financial Statements, in each case free and clear of all Liens, except for Liens that would required to be described in the notes to the Financial Statements.

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2.10 Reports; Financial Statements.

(a) As of the respective dates of their filing with the Commission, the SEC Reports, complied in all material respects with the applicable requirements of the Securities Act, the Exchange Act, and the rules and regulations of the Commission promulgated thereunder, except as disclosed in the SEC Reports. Except as disclosed in the SEC Reports, the SEC Reports did not at the time they were filed with the Commission, or will not at the time they are filed with the Commission, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. The Company is not aware of any issues raised by the Commission with respect to any of the SEC Reports, other than those disclosed in the SEC Reports.

(b) Except as disclosed in the SEC Reports, the consolidated financial statements (including, in each case, any related schedules or notes thereto) contained in or incorporated by reference in the SEC Reports and any such reports, registration statements and other filings to be filed by the Company with the Commission prior to the Closing Date (the “Financial Statements”) (i) have been or will be prepared in accordance with the published rules and regulations of the Commission and GAAP consistently applied during the periods involved (except as may be indicated in the notes thereto) and (ii) fairly present or will fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates thereof and the consolidated results of operations, statements of stockholders’ equity and cash flows for the periods indicated, except that any unaudited interim financial statements were or will be subject to normal and recurring year-end adjustments and may omit footnote disclosure as permitted by regulations of the Commission.

2.11 Taxes.

(a) The Company and each of its Subsidiaries has paid all federal, state, provincial, county, local, foreign and other taxes (the “Taxes”) which have come due and are required to be paid by it through the date hereof, and all deficiencies or other additions to Tax, interest and penalties owed by it in connection with any such Taxes, other than Taxes being disputed by the Company in good faith for which adequate reserves have been made in accordance with GAAP;

(b) The Company and each of its Subsidiaries has timely filed or caused to be filed all returns for Taxes that it is required to file on and through the date hereof (including all applicable extensions), and all such Tax returns are accurate and complete in all material respects;

(c) With respect to all Tax returns of the Company and each of its Subsidiaries, (i) there is no unassessed Tax deficiency proposed or, to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries and (ii) no audit is in progress with respect to any return for Taxes, no extension of time is in force with respect to any date on which any return for Taxes was or is to be filed and no waiver or agreement is in force for the extension of time for the assessment or payment of any Tax;

(d) All provisions for Tax liabilities of the Company and each of its Subsidiaries have been disclosed in the Financial Statements and made in accordance with GAAP consistently

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applied, and all liabilities for Taxes of the Company and each of its Subsidiaries attributable to periods prior to or ending on the Closing Date have been adequately disclosed in the Financial Statements; and

(e) There are no Liens for Taxes on the assets of the Company or any of its Subsidiaries.

2.12 No Material Adverse Change; Ordinary Course of Business. Since September 30, 2002, except as disclosed in or incorporated by reference in the SEC Reports, (a) there has not been any material adverse change, in the Condition of the Company, (b) neither the Company nor any of its Subsidiaries has participated in any transaction material to the Condition of the Company, including, without limitation, declaring or paying any dividend or declaring or making any distribution to its stockholders except out of the earnings of the Company or its Subsidiary, as the case may be, (c) neither the Company nor any of its subsidiaries has entered into any Material Contractual Obligation, other than in the ordinary course of business, (d) there has not occurred a material change in the accounting principles or practice of the Company or any of its Subsidiaries except as required by reason of a change in GAAP, and (e) there has not been any issuance of Company capital stock, or warrants, options or other rights to purchase Company capital stock, except for (a) options granted and shares issued under the Company stock option and purchase plans, (2) warrants promised to the Placement Agents in connection with the offering of the Shares and Warrants, and (3) the Shares and Warrants.

2.13 Private Offering. Neither the Company nor any authorized Person acting on its behalf has, in connection with the offer, sale, exchange or issuance of the Shares or Warrants, engaged in (i) any form of general solicitation or general advertising (as those terms are used within the meaning of Rule 502(c) under the Securities Act), (ii) any action involving a public offering within the meaning of Section 4(2) of the Securities Act, or (iii) any action that would require the registration under the Securities Act of the offering, sale, exchange or issuance of the Shares or Warrants pursuant to this Agreement or that would violate applicable state securities or “blue sky” laws. The Company has not made and will not prior to the Closing Date make, directly or indirectly, any offer or sale of the Shares, Warrants, or of securities of the same or similar class as the Shares or Warrants, if, as a result, the offer and sale contemplated hereby would fail to be entitled to exemption from the registration requirements of the Securities Act. As used herein, the terms “offer” and “sale” have the meanings specified in Section 2(3) of the Securities Act.

2.14 Labor Relations. Except as could not reasonably be expected to have a material adverse effect on the Condition of the Company: (a) neither the Company nor any of its Subsidiaries is engaged in any unfair labor practice; (b) there is no strike, labor dispute, slowdown or stoppage pending or, to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries ; (c) neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or contract; and (d) no union organizing activities are taking place. To the Knowledge of the Company, each of the officers and key employees of the Company and each of its Subsidiaries spends all, or substantially all, of his business time on the business of the Company or its Subsidiary, as the case may be. To the Knowledge of the Company, none of the employees of the Company or any of its Subsidiaries is resident in the United States in violation of any Requirement of Law.

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2.15 Employee Benefit Plans.

(a) The SEC Reports list or describe each Plan that the Company or any of its Subsidiaries maintains or to which the Company or any of its Subsidiaries contributes (the “Company Plans”). Neither the Company nor any of its Subsidiaries has any liability under any Plans other than the Company Plans. Except as described in or incorporated by reference in the SEC Reports, neither the Company nor any Commonly Controlled Entity maintains or contributes to, or has within the preceding six years maintained or contributed to, or may have any liability with respect to any Plan subject to Title IV of ERISA or Section 412 of the Code or any “multiple employer plan” within the meaning of the Code or ERISA. Each Company Plan (and related trust, insurance contract or fund) has been established and administered in accordance with its terms, and complies in form and in operation with the applicable requirements of ERISA and the Code and other applicable Requirements of Law. All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each Company Plan.

(b) No Claim with respect to the administration or the investment of the assets of any Company Plan (other than routine claims for benefits) is pending.

(c) Except as could not reasonably be expected to have a material adverse effect on the Condition of the Company, each Company Plan that is intended to be qualified under Section 401(a) of the Code is so qualified and has been so qualified during the period since its adoption; each trust created under any such Plan is exempt from tax under Section 501(a) of the Code and has been so exempt since its creation.

(d) No Company Plan is a welfare plan (as defined in Section (3)(l) of ERISA) that provides benefits to current or former employees beyond their retirement or other termination of service (other than coverage mandated by Section 4980A of the Code, commonly referred to as “COBRA”, the cost of which is fully paid by the current or former employee or his or her dependents).

(e) Neither the consummation of the transactions contemplated by this Agreement nor any termination of employment following such transactions will accelerate the time of the payment or vesting of, or increase the amount of, compensation due to any employee or former employee whether or not such payment would constitute an “excess parachute payment” under Section 280G of the Code.

(f) There are no unfunded obligations under any Company Plan which are not fully reflected in the Financial Statements.

(g) Except as could not reasonably be expected to have a material adverse effect on the Condition of the Company, the Company has no liability, whether absolute or contingent, including any obligations under any Company Plan, with respect to any misclassification of any person as an independent contractor rather than as an employee.

2.16 Liabilities. Neither the Company nor any of its Subsidiaries has any direct or indirect obligation or liability (the “Liabilities”) which are not fully reflected or reserved against in the Financial Statements, other than Liabilities not exceeding $250,000 in the aggregate

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incurred since September 30, 2002 in the ordinary course of business. The Company has no Knowledge of any circumstance, condition, event or arrangement that could reasonably be expected to give rise hereafter to any Liabilities of the Company or any of its Subsidiaries that, individually or in the aggregate, could have a material adverse effect on the Condition of the Company.

2.17 Intellectual Property.

(a) (i) The Company and each of its Subsidiaries is the owner of all, or has the license or right to use all, of the copyrights, patents, trade secrets, trademarks, internet assets, software and other proprietary rights (collectively, “Intellectual Property”) that are used in connection with its business as presently conducted, free and clear of all Liens except for a limited security interest of and a negative pledge agreement with Silicon Valley Bank.

(ii) None of the Intellectual Property is subject to any outstanding Order, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand is pending or, to the Knowledge of the Company, threatened, which challenges the validity, enforceability, use or ownership of the item.

(iii) The Company and each of its Subsidiaries has substantially performed all obligations imposed upon it under all Intellectual Property licenses, sublicenses, distributor agreements and other agreements under which the Company or any of its Subsidiaries is either a licensor, licensee or distributor, except such licenses, sublicenses and other agreements relating to off-the-shelf software which is commercially available on a retail basis and used solely on the computers of the Company or its Subsidiaries (collectively, the “IP Agreements”). The Company and each of its Subsidiaries is not, nor to the Knowledge of the Company is any other party thereto, in breach of or default thereunder in any respect, nor is there any event which with notice or lapse of time or both would constitute a default thereunder. All of the IP Agreements are valid, enforceable and in full force and effect, and will continue to be so on identical terms immediately following the Closing except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity relating to enforceability (regardless of whether considered in a proceeding at law or in equity).

(iv) To the Knowledge of the Company, none of the Intellectual Property currently sold or licensed by the Company or any of its Subsidiaries to any Person or used by or licensed to the Company or any of its Subsidiaries by any Person infringes upon or otherwise violates any Intellectual Property rights of others, except as could not reasonably be expected to have a material adverse effect on the Condition of the Company.

(b) No litigation is pending and no Claim has been made against the Company or any of its Subsidiaries or, to the Knowledge of the Company, is threatened, contesting the right of the Company or any of its Subsidiaries to sell or license to any Person or use the Intellectual

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Property presently sold or licensed to such Person or used by the Company or any of its Subsidiaries. To the Knowledge of the Company, no Person is infringing upon or otherwise violating the Intellectual Property rights of the Company or any of its Subsidiaries.

(c) No former employer of any employee of the Company or any of its Subsidiaries has made a claim against the Company or any of its Subsidiaries or, to the Knowledge of the Company, against any other Person, that such employee or such consultant is utilizing Intellectual Property of such former employer.

(d) To the Knowledge of the Company, none of the trade secrets, wherever located, the value of which is contingent upon maintenance of confidentiality thereof, has been disclosed to any Person other than employees, representatives and agents of the Company or any of its Subsidiaries, except as required pursuant to the filing of a patent application by the Company or any of its Subsidiaries.

(e) It is not necessary for the business of the Company or any of its Subsidiaries to use any Intellectual Property owned by any director, officer, employee or consultant of the Company or any of its Subsidiaries (or persons the Company or any of its Subsidiaries presently intends to hire). To the Company’s Knowledge, at no time during the conception or reduction to practice of any of the Intellectual Property of the Company or any of its Subsidiaries was any developer, inventor or other contributor to such Intellectual Property operating under any grants from any Governmental Authority or subject to any employment agreement, invention assignment, nondisclosure agreement or other Contractual Obligation with any Person that could materially adversely affect the rights of the Company or any of its Subsidiaries to its Intellectual Property.

2.18 Potential Conflicts of Interest. To the Knowledge of the Company based upon the officers and directors questionnaires distributed and completed in connection with the Company’s 2002 Proxy Statement, no officer, director or stockholder beneficially owning more than 5% of the outstanding shares of Common Stock of the Company, no spouse of any such officer, director or stockholder, and no affiliate (as defined in Rule 12b-2 of the Exchange Act) of any of the foregoing (a) owns, directly or indirectly, any interest in (excepting less than one percent (1%) stock holdings for investment purposes in securities of publicly held and traded companies), or is an officer, director, employee or consultant of, any Person which is, or is engaged in business as, a competitor, lessor, lessee, supplier, distributor, or customer of, or lender to or borrower from, the Company or any of its Subsidiaries; (b) owns, directly or indirectly, in whole or in part, any tangible or intangible property that the Company or any of its Subsidiaries use, in the conduct of business; or (c) has any cause of action or other claim whatsoever against, or owes or has advanced any amount to, the Company, except for claims in the ordinary course of business such as for accrued vacation pay, accrued benefits under employee benefit plans, and similar matters and agreements existing on the date hereof.

2.19 Trade Relations. There exists no actual or, to the Knowledge of the Company, threatened termination, cancellation or limitation of, or any material adverse modification or change in, the business relationship of the Company or any of its subsidiaries, or the business of the Company or any of its subsidiaries, with any customer or supplier or any group of customers

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or suppliers whose purchases or inventories provided to the business of the Company or any of its subsidiaries are individually or in the aggregate material to the Condition of the Company.

2.20 Outstanding Borrowing. The SEC Reports set forth the amount of all indebtedness of the Company and each of its Subsidiaries as of September 30, 2002, which, except for accounts payable incurred in the ordinary course of business has not changed materially through the Effective Date. No indebtedness is entitled to any voting rights in any matters voted upon by the holders of the Common Stock.

2.21 Broker’s, Finder’s or Similar Fees. Except for fees payable to the Placement Agents, there are no brokerage commissions, finder’s fees or similar fees or commissions payable by the Company or any of its Subsidiaries in connection with the transactions contemplated hereby based on any agreement, arrangement or understanding with the Company or any of its Subsidiaries or any action taken by any such Person.

2.22 Disclosure. This Agreement, the Private Placement Memorandum dated October 14, 2002 (the “PPM”), the SEC Reports, and the documents and certificates furnished to the Purchasers by the Company do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which they were made, not misleading.

2.23 Insurance. The Company maintains insurance of the types, against such losses and in amounts and with such insurers as are customary in the Company’s industry and otherwise reasonably prudent, including, but not limited to, insurance covering all real property owned and leased by the Company against theft, damage, destruction, and other risks customarily insured by similarly situated companies.

2.24 Form S-3 Eligibility. As of the date hereof, the Company meets the requirements for the use of Form S-3 for registration of resale of the Shares and Warrant Shares as contemplated herein.

3. Representations and Warranties of the Investors. Each Investor hereby represents and warrants to the Company that, solely as to such Investor:

3.1 Authorization. The Investor has all requisite corporate power and authority to enter into this Agreement and that this Agreement constitutes a valid and legally binding obligation of the Investor, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the enforcement of creditors’ rights generally, (b) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies, and (c) to the extent the indemnification provisions contained in this Agreement may be limited by applicable federal or state securities laws.

3.2 Purchase Entirely for Own Account. The Shares and Warrants to be purchased by the Investor, and the Warrant Shares which the Investor may purchase upon exercise of the Warrant (collectively the “Securities”), will be acquired for investment for the Investor’s own account, and not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and the Investor has no present intention of selling, granting any participation in, or

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otherwise distributing the same. The Investor is not a party to any contract, undertaking, agreement or arrangement with any person to sell, transfer or otherwise dispose of any of the Securities.

3.3 Reliance Upon Investor’s Representations. The Investor understands that the issuance and sale of the Securities to it will not be registered under the Securities Act on the ground that such issuance and sale will be exempt from registration under the Securities Act pursuant to section 4(2) thereof, and that the Company’s reliance on such exemption is based on each Investor’s representations set forth herein. The Investor realizes that the basis for the exemption may not be present if, notwithstanding such representations, any Investor has in mind merely acquiring the Securities for a fixed or determinable period in the future, or for a market rise, or for sale if the market does not rise. Such Investor has no such present intention.

3.4 Receipt of Information. The Investor has received the PPM and has had an opportunity to ask questions and receive answers from the Company regarding the PPM and the terms and conditions of the issuance and sale of the Shares and Warrant and the business, properties, prospects and financial condition of the Company and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify the accuracy of any information furnished to it or to which it had access. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of the Investor to rely thereon. No person other than the Company has been authorized to give any information other than the PPM or to give any representation not contained in this Agreement in connection with the Offering and, if given or made, such information or representation must not be relied upon as having been authorized by the Company.

3.5 Investment Experience. The Investor is experienced in evaluating and investing in securities of companies and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the investment in the Securities.

3.6 Accredited Investor. The Investor is an “accredited investor” as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act, for the reason indicated on the signature page of this Agreement.

3.7 Restricted Securities. The Investor understands that the Securities may not be sold, transferred or otherwise disposed of without registration under the Securities Act or an exemption therefrom, and that in the absence of an effective registration statement covering the Securities or an available exemption from registration under the Securities Act, the Securities must be held indefinitely. In particular, the Investor is aware that the Securities may not be sold pursuant to Rule 144 promulgated under the Securities Act unless all of the conditions of that Rule are met. Among the conditions for use of Rule 144 is the availability of current information to the public about the Company.

3.8 Legends. To the extent applicable, each certificate or other document evidencing any of the Securities shall be endorsed with the legends set forth below, and the Investor

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covenants that, except to the extent such restrictions are waived by the Company, the Investor shall not transfer the shares represented by any such certificate without complying with the restrictions on transfer described in the legends endorsed on such certificate:

(a) The following legend under the Act:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR ELSE UPON AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO CALIFORNIA MICRO DEVICES CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT OR ANOTHER APPLICABLE EXEMPTION.”

(b) Such other legends as may be required under state securities laws.

3.9 Broker’s, Finder’s or Similar Fees. There are no brokerage commissions, finder’s fees or similar fees or commissions payable by the Investor in connection with the transactions contemplated hereby based on any agreement, arrangement or understanding with the Investor or any action taken by any such Person.

4. Registration of the Shares; Compliance with the Securities Act.

4.1 Registration Procedures and Expenses. The Company hereby agrees that it shall:

(a) subject to receipt of necessary information from the Investors, prepare and file with the SEC on or before the date one month after the Closing Date a registration statement on Form S-3 (the “Registration Statement”) to enable the resale of the Shares and the Warrant Shares by the Investors and use reasonable best efforts to respond to comments from the SEC promptly and cause such Registration Statement to be declared effective as promptly as practicable after filing and to remain continuously effective until the earlier of (i) the second anniversary of the Closing, or (ii) such time as all Shares purchased by the Investors pursuant to this Agreement have been sold thereunder (the “Registration Period”). For each full calendar month after the Closing that the Registration Statement is not be declared effective by the SEC starting with three (3) months after the Closing and ending with twenty-four (24) months after the Closing, each Investor shall be issued two percent of the number of Shares originally issued to the Investor (the “Penalty Shares”) within fifteen days. Thus, for example, if an Investor purchased 100,000 Shares, and the Registration Statement was not declared effective until four months and five days after the Closing, then on or before each of the dates (a) four months and fifteen days after the Closing and (b) five months and fifteen days after the Closing, such Investor would be issued 2,000 Penalty Shares. All such Penalty Shares shall be considered as Shares for purposes of this Agreement, except Section 1.

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(b) prepare and file with the SEC such amendments and supplements to the Registration Statement and the prospectus used in connection therewith as may be necessary to keep the Registration Statement effective until the end of the Registration Period;

(c) notify Investors promptly upon the effectiveness of the Registration Statement and furnish to the Investors with respect to the shares of Common Stock registered under the Registration Statement such reasonable number of copies of the Registration Statement, prospectuses and preliminary prospectuses in conformity with the requirements of the Securities Act and such other documents as the Investor may reasonably request, in order to facilitate the public sale or other disposition of all or any of the Shares or Warrant Shares by the Investor;

(d) file documents required of the Company for normal blue sky clearance in states specified in writing by the Investor, provided, however, that the Company shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented;

(e) use its reasonable best efforts to cause the Shares and Warrant Shares to be listed on Nasdaq in connection with the filing of the Registration Statement under Section 4.1(a);

(f) bear all expenses in connection with the procedures in paragraph (a) through (e) of this Section 4.1 and the registration of the Shares and the Warrant Shares pursuant to the Registration Statement other than fees and expenses, if any, of counsel or other advisers to the Investors or underwriting discounts, brokerage fees and commissions incurred by the Investors, if any.

(g) provide that all Shares and Warrant Shares covered by the Registration Statement will be listed on the Nasdaq National Market or other securities market on which the Company’s Common Stock is then listed or traded.

It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 4.1 that the Investor shall furnish to the Company such information regarding itself, the shares of Common Stock to be sold by the Investor, and the intended method of disposition of such securities as shall be required to effect the registration of the Shares and the Warrant Shares.

4.2 Transfer of Shares After Registration; Suspension.

(a) Subject to Section 4.4, the Investors agree that they will not offer to sell, solicit offers to buy, dispose of, loan, pledge or grant any right (each, a “Disposition”) with respect to the Securities that would constitute a sale within the meaning of the Securities Act except pursuant to the Registration Statement referred to in Section 4.1, and that they will promptly notify the Company of any changes in the information set forth in the Registration Statement after it is prepared regarding the Investor or its plan of distribution.

(b) In addition to any suspension rights under paragraph (c) below, the Company may, upon the happening of any event, that, in the good faith judgment of Company’s board of directors upon the opinion of counsel, renders it advisable to suspend use of the prospectus for

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no more than sixty (60) days in the aggregate in any twelve (12) month period of time due to pending corporate developments, public filings with the SEC or similar events, suspend use of the prospectus on written notice to each Investor, in which case each Investor shall discontinue disposition of Shares or the Warrant Shares covered by the Registration Statement or prospectus until copies of a supplemented or amended prospectus are distributed to the Investors or until the Investors are advised in writing by the Company that the use of the applicable prospectus may be resumed.

(c) Subject to paragraph (d) below, in the event of: (i) any request by the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to a Registration Statement or related prospectus or for additional information, (ii) the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iii) the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Shares or the Warrant Shares for sale in any jurisdiction or the initiation of any proceeding for such purpose, (iv) any event or circumstance which necessitates the making of any changes in the Registration Statement or prospectus, or any document incorporated or deemed to be incorporated therein by reference, so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the prospectus, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, then the Company shall deliver a certificate in writing to the Investors (the “Suspension Notice”) to the effect of the foregoing and, upon receipt of such Suspension Notice, the Investors will refrain from selling any Shares or Warrant Shares pursuant to the Registration Statement (a “Suspension”) until the Investors’ receipt of copies of a supplemented or amended prospectus prepared and filed by the Company, or until it is advised in writing by the Company that the current prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in any such prospectus. In the event of any Suspension, the Company will use its reasonable best efforts to cause the use of the prospectus so suspended to be resumed as soon as possible within twenty (20) business days after delivery of a Suspension Notice to the Investors. In addition to and without limiting any other remedies (including without limitation at law or equity), available to the Investors, the Investors shall be entitled to specific performance in the event the Company fails to comply with the provisions of this Section 4.2(c).

(d) Provided that a Suspension is not then in effect, the Investors may sell Shares or Warrant Shares under the Registration Statement, provided that the selling Investor arranges for delivery of a current prospectus to the transferee of such Shares or Warrant Shares.

(e) In the event of a sale of Shares or Warrant Shares by an Investor, such Investor must also deliver to the Company’s transfer agent, with a copy to the Company, a Certificate of Subsequent Sale substantially in the form attached hereto as Exhibit B, so that ownership of the Shares or Warrant Shares may be properly transferred.

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(f) For so long as the Company will have a class of securities registered under Section 12(b) or Section 12(g) of the Exchange Act, the Company covenants that it will file, on a timely basis, any reports required to be filed by it under the Exchange Act and the rules and regulations adopted by the SEC thereunder and keep all such reports and public information current to the extent required by Rule 144 under the Securities Act for a period of two (2) years after the Closing.

4.3 Indemnification. For the purpose of this Section 4.3 only, (i) the term “Registration Statement” shall include any final prospectus, exhibit, supplement or amendment included in or relating to the Registration Statement referred to in Section 4.1(a); and (ii) the term “untrue statement” shall include any untrue statement or any omission to state in the Registration Statement a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

(a) The Company agrees to indemnify and hold harmless each Investor (and each person, if any, who controls such Investor within the meaning of section 15 of the Securities Act) from and against any losses, claims, damages or liabilities to which such Investor (or such person, if any, who controls such Investor within the meaning of section 15 of the Securities Act) may become subject (under the Securities Act or otherwise) insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, or (ii) any failure by the Company to fulfill any undertaking included in the Registration Statement, and the Company will reimburse such Investor (and each person, if any, who controls such Investor within the meaning of section 15 of the Securities Act) for any reasonable legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim; provided, however, that the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon, an untrue statement made in such Registration Statement in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Investor specifically for use in preparation of the Registration Statement or the failure of such Investor to comply with its covenants and agreements contained in Section 3 or 4.2 hereof or any statement or omission in any prospectus that is corrected in any subsequent prospectus that was delivered to the Investor prior to the pertinent sale or sales by the Investor.

(b) Each Investor agrees to indemnify and hold harmless the Company (and each person, if any, who controls the Company within the meaning of section 15 of the Securities Act, each officer of the Company who signs the Registration Statement and each director of the Company) and each other Investor from and against any losses, claims, damages or liabilities to which the Company (or any such officer, director or controlling person) or other Investor may become subject (under the Securities Act or otherwise), insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon a breach of its covenants and agreements contained in Section 3 or 4.2 hereof or any statement or omission in any prospectus that is corrected in any subsequent prospectus that was delivered to the Investor prior to the pertinent sale or sales by the Investor or any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement if such untrue statement was made in reliance upon and in conformity with information furnished by or on

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behalf of the indemnifying Investor in writing specifically for use in preparation of the Registration Statement, and the indemnifying Investor will reimburse the Company (or such officer, director or controlling person) or other Investor, as the case may be, for any legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim; providing further that, the Investor’s obligations to indemnify under this subsection (b) shall be limited to the amount received by the Investor from the sale of the Investor’s Shares hereunder.

(c) Promptly after receipt by any indemnified person of a notice of a claim or the beginning of any action in respect of which indemnity is to be sought against an indemnifying person pursuant to this Section 4.3, such indemnified person shall notify the indemnifying person in writing of such claim or of the commencement of such action, but the omission to so notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party under this Section 4.3 (except to the extent that such omission materially and adversely affects the indemnifying party’s ability to defend such action) or from any liability otherwise than under this Section 4.3. Subject to the provisions hereinafter stated, in case any such action shall be brought against an indemnified person, the indemnifying person shall be entitled to participate therein, and, to the extent that it shall elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to such indemnified person. After notice from the indemnifying person to such indemnified person of its election to assume the defense thereof, such indemnifying person shall not be liable to such indemnified person for any legal expenses subsequently incurred by such indemnified person in connection with the defense thereof. In no event shall any indemnifying person be liable in respect of any amounts paid in settlement of any action unless the indemnifying person shall have approved the terms of such settlement; provided that such consent shall not be unreasonably withheld. No indemnifying person shall, without the prior written consent of the indemnified person, effect any settlement of any pending or threatened proceeding in respect of which any indemnified person is or could have been a party and indemnification could have been sought hereunder by such indemnified person, unless such settlement includes an unconditional release of such indemnified person from all liability on claims that are the subject matter of such proceeding.

(d) If the indemnification provided for in this Section 4.3 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the Investors on the other in connection with the statements or omissions or other matters which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, in the case of an untrue statement, whether the untrue statement relates to information supplied by the Company on the one hand or an Investor on the other and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement. The Company and the Investors agree that it would not be just and equitable if contribution pursuant to this subsection (d) were determined by pro rata

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allocation (even if the Investors were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) 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 (d), no Investor shall be required to contribute any amount in excess of the amount by which the gross amount received by the Investor from the sale of the Shares to which such loss relates exceeds the amount of any damages which such Investor has otherwise been required to pay by reason of such untrue statement. 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 Investors’ obligations in this subsection to contribute are several in proportion to their sales of Shares to which such loss relates and not joint.

4.4 Termination of Conditions and Obligations. The conditions precedent imposed by Section 4 upon the transferability of the Shares and the shares of Common Stock underlying the Warrants shall cease and terminate as to any particular number of the shares of Common Stock when such shares shall have been effectively registered under the Securities Act and sold or otherwise disposed of in accordance with the intended method of disposition set forth in the Registration Statement covering such shares or at such time as an opinion of counsel or other evidence reasonably satisfactory to the Company shall have been rendered to the effect that such conditions are not necessary in order to comply with the Securities Act.

5. Conditions of each Investor’s Obligations at Closing. The obligations of each Investor under subparagraph 1.1 of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions, the waiver of which shall not be effective against any Investor who does not consent in writing thereto:

5.1 Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true and correct on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing.

5.2 Performance. The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with on or before the Closing.

5.3 Compliance Certificate. The Chief Executive Officer of the Company shall have delivered to the Investor at the Closing a certificate certifying that the conditions specified in Sections 5.1, 5.2 and 5.4 have been fulfilled.

5.4 Qualifications. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be duly obtained and effective as of the Closing. The Company shall have obtained all necessary

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blue sky permits and qualifications, or have the availability of exemptions therefrom, required by any state for the offer and sale of the Shares and the Warrants.

5.5 Opinion of Counsel. Investors shall have received the opinion of Pillsbury Winthrop LLP, counsel to the Company, in substantially the form of Exhibit C, attached hereto.

5.6 Minimum Amount Sold. The Company shall have sold at least such number of Shares hereunder at the Purchase Price to raise three million nine hundred twenty-five thousand dollars ($3,925,000).

6. Conditions of the Company’s Obligations at Closing. The obligations of the Company to each Investor under this Agreement are subject to the fulfillment (or waiver) on or before the Closing of each of the following conditions by the Investor:

6.1 Representations and Warranties. The representations and warranties of such Investor contained in Section 3 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing.

6.2 Qualifications. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be duly obtained and effective as of the Closing.

6.3 Minimum Amount Sold. The Company shall have sold at least such number of Shares hereunder at the Purchase Price to raise three million nine hundred twenty-five thousand dollars ($3,925,000).

7. Miscellaneous.

7.1 Entire Agreement. This Agreement and the documents referred to herein and all Schedules and Exhibits thereto constitute the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein.

7.2 Survival . The parties agree that, regardless of any investigation made by the parties, the warranties, representations and covenants of the Company and the Investors contained in or made pursuant to this Agreement (including, without limitation, the provisions of Section 4) shall survive the execution and delivery of this Agreement and the Closing.

7.3 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including permitted transferees of any Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

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7.4 Governing Law. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California.

7.5 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

7.6 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

7.7 Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed given and effective when delivered personally, by telex or telecopier, or by overnight express at the following addresses or to such other address as such party may designate by written notice to the other party in accordance with the provisions of this Section:


If to the Company:		California Micro Devices Corporation 430 N. McCarthy Blvd Milpitas, CA 95035-5112 Attention: Robert V. Dickinson Fax: (408) 934-2990

With a copy to:		Pillsbury Winthrop LLP 2550 Hanover Street Palo Alto, CA 94304 Attention: Stephen M. Wurzburg Fax: (650) 233-4545

If to an Investor:		See the signature pages hereto

7.8 Expenses. Each party will bear its own expenses related to this Agreement and the transactions contemplated therein.

7.9 Attorneys’ Fees. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and disbursements in addition to any other relief to which such party may be entitled.

7.10 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of more than a majority of the Shares sold hereunder and the shares, if any, sold under similar agreements proximate in time to the Closing, provided that this Agreement and all agreements under which such other shares were sold under shall be amended identically or the observance of an identical term waived identically, as the case may be.

7.11 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and

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the balance of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

7.12 Rights of the Investor. Each Investor shall have the absolute right to exercise or refrain from exercising any right or rights that such holder may have by reason of this Agreement or any Shares or Warrants, including without limitation the right to consent to the waiver of any obligation of the Company under this Agreement and to enter into an agreement with the Company for the purpose of modifying this Agreement or any agreement effecting any such modification, and such Investor shall not incur any liability to any other Investor with respect to exercising or refraining from exercising any such right or rights.

7.13 Conflict of Interest Waiver. Each party to this Agreement acknowledges that Pillsbury Winthrop LLP (“PW”), counsel for the Company, may have in the past and may continue in the future to perform legal services for certain of the Investors in matters unrelated to the transactions described in this Agreement, including the representation of such Investors in formation of other companies, venture capital financings, and other matters. Accordingly, each party to this Agreement hereby (a) acknowledges that they have had an opportunity to ask for information relevant to this disclosure; (b) acknowledges that PW represented the Company in the transaction contemplated by this Agreement and has not represented any individual Investor or any individual stockholder or employee of the Company in connection with such transaction, and (c) gives its informed consent to PW’s representation of certain of the Investors in such unrelated matters and to PW’s representation of the Company in connection with this Agreement and the transactions contemplated hereby and in other matters.

7.14 Press Release/Form 8-K. The Company agrees to issue a press release prior to the opening of the stock market on the first business day after the Closing and to file a Form 8-K with the SEC prior to the closing of the stock market on the first business day after the Closing, each describing the critical features of the sale of the Shares and Warrants under this Agreement.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.


CALIFORNIA MICRO DEVICES CORPORATION

By
		Robert V. Dickinson President and Chief Executive Officer

INVESTOR SIGNATURE PAGES TO FOLLOW

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SIGNATURE PAGE TO

STOCK AND WARRANT PURCHASE AGREEMENT

DATED AS OF NOVEMBER 22, 2002

BY AND AMONG

CALIFORNIA MICRO DEVICES CORPORATION

AND EACH INVESTOR NAMED THEREIN

The undersigned hereby executes and delivers the California Micro Devices Corporation Stock and Warrant Purchase Agreement (the “Agreement”) to which this Signature Page is attached effective as of the date of the Agreement, which Agreement and Signature Page, together with all counterparts of such signature pages of the other Investors named in such Agreement, shall constitute one and the same document in accordance with the terms of such Agreement.

Number of Shares:________________________

_________________________________________________

Print Name of Investor

By ______________________________________________

Signature

Address: _________________________________________

_________________________________________

Taxpayer Identification Number: _______________________

Investor is an “accredited investor” by reason of (check one):


Investor is an entity with gross assets in excess of $5,000,000.		_________

Investor is an individual with a net worth in excess of $1,000,000		_________

Investor is an individual and an Officer or Director of the Company		_________

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SCHEDULE A

INVESTORS

Investor Name	Number of Shares Purchased from Company	Investment In Dollars
T. Rowe Price (Oceanor & Co.)	150,000	$	510,000.00
Columbus Capital Partners, LP	300,000	$	1,020,000.00
Columbus Capital Offshore Fund Ltd	70,000	$	238,000.00
Lagunitas Partners LP	294,117	$	999,997.80
Gruber & McBaine International	73,529	$	249,998.60
Jon D. Gruber & Linda W. Gruber	73,529	$	249,998.60
The Tail Wind Fund Ltd	117,647	$	399,999.80
Proximity Partners, L.P.	30,882	$	104,998.80
Proximity Fund, L.P.	72,058	$	244,997.20
Capital Ventures International (Heights Capital)	73,529	$	249,998.60
Chad W. Keck	10,000	$	34,000.00
Edward C. Ross	5,000	$	17,000.00
Dan McCranie	7,500	$	25,500.00
Don Waite	7,500	$	25,500.00
Wade Meyercord	5,000	$	17,000.00
Stephen Wurzburg	12,000	$	40,800.00
Jeffrey Li	2,000	$	6,800.00
Anne Young and Kevin Low	4,000	$	13,600.00
TOTAL	1,308,291	$	4,448,189.40

Additionally, the following investors have executed an identical Stock and Warrant Purchase Agreement, also dated November 22, 2002, with the only difference that the Closing under such Agreement is anticipated to occur on November 26, 2002:

Investor Name	Number of Shares Purchased from Company	Investment In Dollars
Cranshire Capital, L.P.	100,000	$	340,000.00
Vertical Ventures Investments, LLC	110,294	$	374,999.60
TOTAL	210,294	$	714,999.60
TOTAL UNDER BOTH AGREEMENTS	1,518,585	$	5,163,189.00

SA-1

SCHEDULE A

INVESTORS

Investor Name	Number of Shares Purchased from Company	Investment In Dollars
Cranshire Capital, L.P.	100,000	$	340,000.00
Vertical Ventures Investments, LLC	110,294	$	374,999.60
TOTAL	210,294	$	714,999.60

Investor Name	Number of Shares Purchased from Company	Investment In Dollars
T. Rowe Price (Oceanor & Co.)	150,000	$	510,000.00
Columbus Capital Partners, LP	300,000	$	1,020,000.00
Columbus Capital Offshore Fund Ltd	70,000	$	238,000.00
Lagunitas Partners LP	294,117	$	999,997.80
Gruber & McBaine International	73,529	$	249,998.60
Jon D. Gruber & Linda W. Gruber	73,529	$	249,998.60
The Tail Wind Fund Ltd	117,647	$	399,999.80
Proximity Partners, L.P.	30,882	$	104,998.80
Proximity Fund, L.P.	72,058	$	244,997.20
Capital Ventures International (Heights Capital)	73,529	$	249,998.60
Chad W. Keck	10,000	$	34,000.00
Edward C. Ross	5,000	$	17,000.00
Dan McCranie	7,500	$	25,500.00
Don Waite	7,500	$	25,500.00
Wade Meyercord	5,000	$	17,000.00
Stephen Wurzburg	12,000	$	40,800.00
Jeffrey Li	2,000	$	6,800.00
Anne Young and Kevin Low	4,000	$	13,600.00
TOTAL	1,308,291	$	4,448,189.40
TOTAL UNDER BOTH AGREEMENTS	1,518,585	$	5,163,189.00

SA-1

EXHIBIT A

FORM OF WARRANT

A-1

THIS WARRANT AND THE SHARES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SECURITIES AND RESTRICTING THEIR TRANSFER OR SALE MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD HEREOF TO THE SECRETARY OF THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES.

No. W-___

WARRANT TO PURCHASE COMMON STOCK

CALIFORNIA MICRO DEVICES CORPORATION

This certifies that, for value received as provided under a Stock and Warrant Purchase Agreement dated November 22, 2002 (the “Purchase Agreement”), ______________________ (“Holder”) is entitled, subject to the terms and conditions set forth below, to purchase from California Micro Devices Corporation, a California corporation (the “Company”), in whole or in part, such number of fully paid and nonassessable shares (the “Warrant Shares”) of no par value common stock of the Company (“Common Stock”) equal to twenty-five percent (25%) of the number of shares of Common Stock purchased by Holder pursuant to the Purchase Agreement (the “Warrant Shares”) at the Exercise Price (as defined in Section 2). The number, character and Exercise Price of such shares of Common Stock are subject to adjustment as provided below and all references to “Warrant Shares” and “Exercise Price” herein shall be deemed to include any such adjustment or series of adjustments. The term “Warrant” as used herein shall mean this Warrant, and any warrants delivered in substitution or exchange therefor as provided herein.

1. Term of Warrant. Subject to the terms and conditions set forth herein, this Warrant shall be exercisable, in whole or in part, during the term commencing on the date hereof and ending at 5:00 p.m., Pacific standard time, on the third anniversary of issue, and shall be void thereafter (the “Exercise Period”). This Warrant shall expire prior to the end of Exercise Period if and when it has been exercised in full.

2. Exercise Price. The Exercise Price shall be one hundred fifteen percent (115%) of the closing price of the Company’s common stock on the Nasdaq National Market on the trading day two days prior to the Closing under the Purchase Agreement. As so determined, the Exercise Price is $4.36.

3. Exercise of Warrant. This Warrant may be exercised by the Holder only by the surrender of this Warrant to the Company, with the Notice of Exercise annexed hereto duly completed and executed on behalf of the Holder, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder appearing

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on the books of the Company) during the Exercise Period, and the delivery of payment to the Company, for the account of the Company, by cash, wire transfer of immediately available funds to a bank account specified by the Company, or by certified or bank cashier's check, of the Exercise Price for the number of Warrant Shares specified in the Exercise Notice in lawful money of the United States of America.

Notwithstanding any provisions herein to the contrary, if, Holder desires to exercise this Warrant on or after the date three (3) months following the Closing under the Purchase Agreement, and on such date of desired exercise (1) a registration statement covering the Warrant Shares is not then effective with the SEC and (2) the fair market value of one share of the Common Stock (as determined below) is greater than the Exercise Price, then in lieu of exercising this Warrant for cash, the Holder on such date may elect to receive shares of Common Stock equal to the value (as determined below) of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Notice of Exercise and notice of such election in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula:

X = Y (A-B)

Where X = the number of shares of Common Stock to be issued to the Holder

Y =

the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation)

A =

the fair market value of one share of Common Stock (at the date of such calculation)

B =

the per share Exercise Price (as adjusted to the date of such calculation)

For purposes of the above calculation, fair market value of one share of Common Stock shall be determined by the Company's Board of Directors in good faith; provided, however, that in the event of that the Company’s Common Stock is listed or admitted to trading on a national or regional stock exchange or is included in any quotation service such as the Nasdaq National Market, Nasdaq SmallCap Market or similar quotation service maintained by the National Quotation Bureau or any successor thereto, the fair market value shall be equal to the average of the closing price of the Company’s Common Stock in the principal market where such Common Stock is traded on the five trading days immediately preceding the date on which the Warrant is exercised.

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The Company agrees that such Warrant Shares shall be deemed to be issued to the Holder as the record holder of such Warrant Shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for the Warrant Shares as aforesaid. A stock certificate or certificates for the Warrant Shares specified in the Exercise Form shall be delivered to the Holder as promptly as practicable, and in any event within 10 days, thereafter. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of the stock certificate or certificates, deliver to the Holder a new Warrant evidencing the rights to purchase the remaining Warrant Shares, which new Warrant shall in all other respects be identical with this Warrant. No adjustments shall be made on Warrant Shares issuable on the exercise of this Warrant for any cash dividends paid or payable to holders of record of Common Stock prior to the date as of which the Holder shall be deemed to be the record holder of such Warrant Shares. The Company shall pay all expenses, taxes, and other charges payable in connection with the preparation, execution, and delivery of stock certificates pursuant to this Section 3.

4. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Exercise Price multiplied by such fraction.

5. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor and amount.

6. Rights of Shareholder. Subject to Sections 9 and 11 of this Warrant, the Holder shall not be entitled to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company that may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the Holder, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, or change of stock to no par value, consolidation, merger, conveyance of assets, or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have been exercised as provided herein.

7. Transfer of Warrant.

A. Warrant Register. The Company will maintain a register (the "Warrant Register") containing the names and addresses of the Holder or Holders. Any Holder of this Warrant or any portion thereof may change his address as shown on the Warrant Register by written notice to the

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Company requesting such change. Any notice or written communication required or permitted to be given to the Holder may be delivered or given by mail to such Holder as shown on the Warrant Register and at the address shown on the Warrant Register. Until this Warrant is transferred on the Warrant Register of the Company, the Company may treat the Holder as shown on the Warrant Register as the absolute owner of this Warrant for all purposes, notwithstanding any notice to the contrary.

B. Warrant Agent. The Company may, by written notice to the Holder, appoint an agent for the purpose of maintaining the Warrant Register referred to in Section 7(A) above, issuing the Warrant Shares or other securities then issuable upon the exercise of this Warrant, exchanging this Warrant, replacing this Warrant, or any or all of the foregoing. Thereafter, any such registration, issuance, exchange, or replacement, as the case may be, shall be made at the office of such agent.

C. Transferability and Nonnegotiability of Warrant. This Warrant may be transferred to “affiliates” of the Holder, as defined in Rule 405, as promulgated by the Securities and Exchange Commission (the “SEC”) and, with the prior written consent of the Company, to other persons, provided that such transferee agrees to be bound by the other restrictions on transfer applicable to the Warrant Shares. Notwithstanding the foregoing, this Warrant may not be transferred or assigned in whole or in part without compliance with all applicable federal and state securities laws by the transferor and the transferee (including the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, if such are requested by the Company). However, no investment representation letter or opinion of counsel shall be required for any transfer of this Warrant (or any portion thereof) or any shares of Common Stock issued upon exercise hereof in compliance with Rule 144(k) and no opinion of counsel shall be required for any transfer of this Warrant (or any portion thereof) in compliance with Rule 144A; provided that in each of the foregoing cases the transferee agrees in writing to be subject to the terms of this Section 7(C). Subject to the provisions of this Warrant with respect to compliance with the Securities Act of 1933, as amended (the "Act"), title to this Warrant may be transferred by endorsement (by the Holder executing the Assignment Form annexed hereto) and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery.

D. Exchange of Warrant Upon a Transfer. On surrender of this Warrant for transfer, properly endorsed on the Assignment Form and subject to the provisions of this Warrant with respect to compliance with the Act and with the limitations on assignments and transfers and contained in this Section 7, the Company at its expense shall issue to or on the order of the Holder a new warrant or warrants of like tenor, in the name of the Holder or as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, for the number of shares issuable upon exercise hereof.

E. Compliance with Securities Laws.

i. The Holder of this Warrant, by acceptance hereof, represents that it is an “accredited investor” within the meaning of Rule 501 of Regulation D of the Securities Act of 1933, as amended, as presently in effect.

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ii. The Holder acknowledges that this Warrant is being, and the Warrant Shares would be, acquired solely for the Holder's own account and not as a nominee for any other party, and for investment, and that the Holder will not offer, sell or otherwise dispose of this Warrant or any Warrant Shares except under circumstances that will not result in a violation of the Act or any applicable state securities laws. Upon exercise of this Warrant, the Holder shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the Warrant Shares are being acquired solely for the Holder's own account and not as a nominee for any other party, for investment, and not with a view toward distribution or resale.

iii. This Warrant and Warrant Shares shall be stamped or imprinted with a legend in substantially the following form (in addition to any legend required by state securities laws):

The Company agrees to remove promptly, upon the request of the holder of this Warrant or the Warrant Shares, the legend set forth in Section 7(E)(iii) above from the documents/certificates for such securities upon full compliance with this Agreement and either Rule 144(k) or after a sale in the public market in compliance with Rule 144.

8. Reservation of Stock. The Company covenants that during the term this Warrant is exercisable, the Company will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares and, from time to time, will take all steps necessary to amend its Articles of Incorporation to provide sufficient reserves of shares of Common Stock for the issuance of the Warrant Shares. The Company further covenants that all Warrant Shares, upon exercise of this Warrant and payment of the Exercise Price, all as set forth herein, will be free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously or otherwise specified herein).

9. Notices.

A. In case:

i. the Company shall take a record of the holders of its Common Stock for

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the purpose of entitling them to receive any dividend or other distribution, or any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right;

ii. of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation, or any conveyance of all or substantially all of the assets of the Company to another corporation; or

iii. of any voluntary dissolution, liquidation or winding-up of the Company;

then, and in each such case, the Company will mail or cause to be mailed to the Holder or Holders a notice specifying, as the case may be, (A) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (B) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation, or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such notice shall be mailed no later than the time similar notice is mailed to the holders of Company Common Stock.

B. All such notices, advices and communications as required by the terms of this Warrant shall be made and be deemed to have been received (i) in the case of personal delivery, on the date of such delivery, (ii) in the case of next day courier service such as Federal Express, one business day after it is delivered to the courier service for US addresses and two business days for foreign addresses, and (iii) in the case of mailing by certified mail, on the third business day following the date of such mailing if sent to a U.S. address and on the tenth (10th) business day following the date of such mailing if sent to an address outside the U.S.

10. Amendments. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the Company or the Holder of the Warrant against which enforcement of such change, waiver, discharge or termination is sought. An amendment of rights, preferences, or privileges of the Common Stock, including a change in the par value of the Common Stock; an event described in Section 9A or 11A of this Warrant; or any other like action shall not be treated as an amendment of this Warrant.

11. Adjustments. The Exercise Price and the number of shares purchasable hereunder are subject to adjustment from time to time as follows:

A. Reclassification, etc. If the Company, at any time while this Warrant, or any portion thereof, remains outstanding and unexpired, by reorganization or reclassification of securities or otherwise, shall change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were

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subject to the purchase rights under this Warrant immediately prior to such reorganization or reclassification or other change and the Exercise Price therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 11.

B. Split, Subdivision or Combination of Shares. If the Company at any time while this Warrant, or any portion thereof, remains outstanding and unexpired shall split, subdivide or combine the securities as to which purchase rights under this Warrant exist, into a different number of securities of the same class, then (i) in the case of a split or subdivision, the Exercise Price for such securities shall be proportionately decreased and the securities issuable upon exercise of this Warrant shall be proportionately increased, and (ii) in the case of a combination, the Exercise Price for such securities shall be proportionately increased and the securities issuable upon exercise of this Warrant shall be proportionately decreased.

C. Adjustments for Distributions in Stock or Other Securities or Property. If while this Warrant, or any portion hereof, remains outstanding and unexpired the holders of the securities as to which purchase rights under this Warrant exist at the time shall have received, or, on or after the record date fixed for the determination of eligible Shareholders, shall have become entitled to receive, without payment therefor, other or additional stock or other securities or property (other than cash) of the Company by way of dividend or otherwise, then and in each case, this Warrant shall represent the right to acquire, in addition to the number of shares of the security receivable upon exercise of this Warrant, and without payment of any additional consideration therefor, the amount of such other or additional stock or other securities or property (other than cash) of the Company that such holder would hold on the date of such exercise had it been the holder of record of the security receivable upon exercise of this Warrant on the date hereof and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and/or all other additional stock available by it as aforesaid during such period, giving effect to all adjustments called for during such period by the provisions of this Section 11.

D. Mergers, Consolidation, or Asset Sale. If any merger or consolidation of the Company with or into another corporation, or the sale of substantially all of its assets to another corporation, shall be effected in such a way that holders of shares of Common Stock shall be entitled to receive common stock, other securities, or assets with respect to or in exchange for shares of Common Stock, then, as a condition to such merger, consolidation, or asset sale, adequate provision shall be made whereby the Holder of Warrants shall thereafter have the right to receive such shares of common stock, other securities, or assets upon the exercise of the Warrant as though the Holder had exercised the Warrant in full immediately prior to such merger, consolidation, or asset sale and received Shares which were thereafter effected by the merger, consolidation, or asset sale and the resulting shares of common stock, other securities, or assets were thereafter held and effected by any subsequent events. Notwithstanding the foregoing, if only cash, assets, and/or promissory notes not convertible into equity are issued in such merger, consolidation, or asset sale, then the Company may cause the Warrants to terminate upon the consummation of such merger, consolidation, or asset sale, provided that the Company has provided the Holder with at least fifteen (15) business days notice of such merger, consolidation, or asset sale.

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E. Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 11, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each Holder of this Warrant a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request, at any time, of any such Holder, furnish or cause to be furnished to such Holder a like certificate setting forth: (i) such adjustments and readjustments; (ii) the Exercise Price at the time in effect; and (iii) the number of shares and the amount, if any, of other property that at the time would be received upon the exercise of the Warrant.

F. No Impairment. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder against impairment. An event described above in this subsections A, B, C, and D of this Section 11 for which appropriate adjustment is made or an event described in Section 9A of which the Holder is given timely notice pursuant to Section 9, shall not be deemed under any circumstance to be an impairment of this Warrant.

12. Miscellaneous.

A. This Warrant shall be governed by the internal laws of the State of California as applied to agreements entered into in the State of California by and among residents of the State of California, without reference to the conflicts of laws provisions therein.

B. In the event of a dispute with regard to the interpretation of this Warrant, the prevailing party may collect the cost of attorney's fees, litigation expenses or such other expenses as may be incurred in the enforcement of the prevailing party's rights hereunder.

C. This Warrant shall be exercisable as provided for herein, except that in the event that the expiration date of this Warrant shall fall on a Saturday, Sunday and or United States federally recognized Holiday, the expiration date for this Warrant shall be extended to 5:00 p.m. Pacific standard time on the business day following such Saturday, Sunday or recognized Holiday.

D. This Warrant and any document or agreements executed by the parties pursuant to this Warrant constitute the full and complete understanding of the parties hereto with respect to the subject matter hereof and supersede all previous agreements or understandings, written or oral, between the parties with respect thereto.

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In witness whereof, California Micro Devices Corporation has caused this Warrant to be executed by its officer thereunto duly authorized.

Dated: November __, 2002

Company:
California Micro Devices Corporation

By		Robert V. Dickinson, President

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NOTICE OF EXERCISE

To: California Micro Devices Corporation

The undersigned hereby elects to purchase __________ shares of Common Stock of California Micro Devices Corporation pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price for such shares in full.

In exercising this Warrant, the undersigned hereby confirms and acknowledges that the shares of Common Stock to be issued upon conversion thereof are being acquired solely for the account of the undersigned and not as a nominee for any other party, or for investment, and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any applicable state securities laws.

Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:

___________________________________________

(Name)

___________________________________________

(Name)

Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of the undersigned or in such other name as is specified below:

___________________________________________

(Name)

__________________		________________________________________
(Date)		(Signature)

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ASSIGNMENT FORM

FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:

Name of Assignee

Address

Number of Shares

and does hereby irrevocably constitute and appoint Attorney ______________________ to make such transfer on the books of California Micro Devices Corporation, maintained for the purpose, with full power of substitution in the premises.

If the Assignee is an “affiliate”, as defined in Rule 405, promulgated by the SEC, please explain the basis for such determination: ________________________________________________________________________________________.

The undersigned also represents that, by assignment hereof, the Assignee acknowledges that this Warrant and the shares of stock to be issued upon exercise hereof are being acquired for investment and that the Assignee will not offer, sell or otherwise dispose of this Warrant or any shares of stock to be issued upon exercise hereof except under circumstances which will not result in a violation of the Securities Act of 1933, as amended, or any applicable state securities laws. Further, the Assignee has acknowledged that upon exercise of this Warrant, the Assignee shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the shares of stock so purchased are being acquired for investment and not with a view toward distribution or resale.

Dated: _______________.

_____________________________________

Signature of Holder

-11-

EXHIBIT B

CALIFORNIA MICRO DEVICES CORPORATION

CERTIFICATE OF SUBSEQUENT SALE

RE:

Sale of Shares of Common Stock of California Micro Devices Corporation (the “Company”) pursuant to the Company’s Prospectus dated , 2002 (the “Prospectus”)

Dear Sir/Madam:

The undersigned hereby certifies, in connection with the sale of shares of Common Stock of the Company included in the table of Selling Stockholders in the Prospectus, that the undersigned has sold the Shares pursuant to the Prospectus and in a manner described under the caption “Plan of Distribution” in the Prospectus and that such sale complies with all applicable securities laws, including, without limitation, the Prospectus delivery requirements of the Securities Act of 1933, as amended.

Selling Stockholder (the beneficial owner):

Record Holder (e.g., if held in name of nominee):

Restricted Stock Certificate No.(s):

Number of Shares Sold:

Date of Sale:

In the event that you receive a stock certificate(s) representing more shares of Common Stock than have been sold by the undersigned, then you should return to the undersigned a newly issued certificate for such excess shares in the name of the Record Holder and BEARING A RESTRICTIVE LEGEND. Further, you should place a stop transfer on your records with regard to such certificate.

Very truly yours,

By

Print Name

Title

Dated:_____________________

cc:

Pillsbury Winthrop LLP

2550 Hanover Street

Palo Alto, California 94304

Attn: Stephen M. Wurzburg

B-1

EXHIBIT C

OPINIONS OF COMPANY COUNSEL

C-1

2550 HANOVER STREET PALO ALTO, CA 94304-1115 650.233.4500 F:650.233.4545

November 25, 2002

To the Investors Named

on Schedule A to the

Stock and Warrant Purchase Agreement

Referred to Below:

Re:

California Micro Devices Stock and Warrant Purchase Agreement

Ladies and Gentlemen:

We have acted as counsel for California Micro Devices Corporation, a California corporation (the “Company”), in connection with the Stock and Warrant Purchase Agreement dated as of November 22, 2002 (the “Agreement”), by and between the Company and each of you. This letter is provided to you in satisfaction of the requirements set forth in Section 5.5 of the Agreement. The Agreement provides, among other things, for the sale and purchase of shares (the “Shares”) of the Company’s no par value Common Stock (the “Common Stock”) and warrants (the “Warrants”) to purchase shares of Common Stock (the “Warrant Shares”). Terms not otherwise defined herein have the meanings given them in the Agreement.

In connection with the foregoing, we have examined the Agreement and its exhibits, including the form of Warrant, the Private Placement Memorandum dated October 14, 2002, records of proceedings of the directors and shareholders of the Company, the Amended and Restated Articles of Incorporation, the Bylaws of the Company, certificates of officers of the Company and public officials, and such other documentation as we have deemed necessary or advisable in order to render the opinions expressed herein.

Based upon the foregoing and subject to the assumptions, qualifications, limitations and exceptions set forth below, it is our opinion that:

1. The Company has been duly incorporated and is a validly existing corporation in good standing under the laws of the State of California and has the requisite corporate power to own its property and assets and to conduct its business as it is currently being conducted.

To the Investors Named on Schedule A

of the Stock and Warrant Purchase Agreement

November 25, 2002

Page 2

2. The Company has all requisite corporate power and authority to execute and deliver the Agreement and to perform its obligations under the terms of such Agreement. The Agreement has been duly and validly authorized, executed and delivered by the Company and constitute a valid and binding agreement of the Company, enforceable against the Company in accordance with its respective terms, except insofar as indemnification and contribution provisions contained therein may be limited by applicable law or the application of principles of public policy.

3. The execution and delivery by the Company of the Agreement and the performance by the Company of its obligations thereunder and the issuance of the Shares and Warrants pursuant to the Agreement do not violate the Company’s Amended and Restated Articles of Incorporation or Bylaws, and do not (i) violate or contravene any governmental statute, rule or regulation applicable to the Company that in our experience is generally applicable to transactions of the type contemplated by the Agreement (without our having made any investigation concerning the applicability of any other statue, rule or regulation) or (ii) violate or contravene any order, writ, judgment, injunction, decree, determination or award known to us that has been entered against the Company.

4. We are not aware of any action, suit, proceeding or investigation pending against the Company before any court or administrative agency, or that the Company has received any written threat thereof, that questions the validity of the Agreement.

5. No approval, authorization or other action by any federal or state governmental authority or filing (other than filings solely for information purposes or to obtain action that is not the subject of governmental discretion) with any such authority that has not been obtained or accomplished is required in connection with the execution, delivery and performance by the Company of the Agreement.

6. The Shares and Warrants have been duly authorized and, the Shares and Warrant Shares, upon issuance and delivery against payment therefor in accordance with the terms of the Agreement, will be validly issued, fully paid and nonassessable.

7. Based in part upon your representations in Section 3 of the Agreement, the offer and sale of the Shares and Warrants pursuant to the terms of the Agreement are exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended, and the offer and sale of the Shares, Warrants, and Warrant Shares pursuant to

To the Investors Named on Schedule A

of the Stock and Warrant Purchase Agreement

November 25, 2002

Page 3

the terms of the Agreement are exempt from the qualification requirements of the California Corporate Securities Law of 1968, as amended.

The foregoing opinion is subject to such matters as are set forth in the Agreement and the following assumptions, qualifications, limitations and exceptions:

(a) We have assumed the genuineness of all signatures, the authenticity and completeness of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as photostatic or telecopied originals, the legal capacity of all natural persons, and as to documents executed by entities other than the Company, that each such entity has complied with any applicable requirement to file tax returns and pay taxes under California Franchise Tax law and had the power to enter into and perform its obligations under such documents, and that such documents have been duly authorized, executed and delivered by, and are binding upon and enforceable against such entities. We have also assumed that the representations and warranties made by the Company in the Agreement are true and correct as to matters of fact and that the representations and warranties made by each of you in the Agreement are true and correct.

(b) This opinion is limited in all respects to matters governed by the laws of the State of California and the federal laws of the United States, and we express no opinion concerning the laws or regulations of any other jurisdiction or jurisdictions. We express no opinion as to federal or state antifraud or antitrust laws or regulations or, except as expressly provided in paragraph 7 above, to the securities or blue sky law of any jurisdiction. We express no opinion in clause (i) of Paragraph 3 as to ordinances and regulations of counties and political subdivisions thereof.

(c) We assume that you know of no agreements, understandings or negotiations between the parties not set forth in the Agreement that would modify the terms or rights and obligations of the parties thereunder.

(d) Our opinion in paragraph 2 above is subject to and limited by (i) the effect of applicable bankruptcy, insolvency, reorganization, receivership, conservatorship, arrangement, moratorium or other laws affecting or relating to the rights of creditors generally, (ii) the rules governing the availability of specific performance, injunctive relief or other equitable remedies and general principles

To the Investors Named on Schedule A

of the Stock and Warrant Purchase Agreement

November 25, 2002

Page 4

of equity, whether considered in a proceeding in equity or at law, (iii) the effect of applicable court decisions, invoking statutes or principles of equity, which have held that certain covenants and provisions of agreements are unenforceable where the breach of such covenants or provisions imposes restrictions or burdens upon a party thereto, and it cannot be demonstrated that the enforcement of such restrictions or burdens is reasonably necessary for the protection of the other party, or the enforcement of such covenants or provisions under the circumstances would violate the covenant of good faith and fair dealing implied under applicable law, and (iv) the effect of California Civil Code Section 1698 and of statutes and rules of law that cannot be waived prospectively by an obligor.

(e) Whenever a statement herein is qualified by “to our knowledge,” “known to us,” “we are not aware,” or similar phrase, it indicates that in the course of our representation of the Company no information that would give us current actual knowledge of the inaccuracy of such statement has come to the attention of the attorneys in this firm who have rendered legal services in connection with this transaction. We have not made any independent investigation to determine the accuracy of such statement, except as expressly described herein. No inference as to our knowledge of any matters bearing on the accuracy of such statement should be drawn from the fact of our representation of the Company in other matters in which such attorneys are not involved.

This opinion is rendered solely for your information in connection with the transaction described above and may not be delivered to or relied upon by any other person for any purpose without our prior written consent.

Very truly yours,

EXHIBIT D

SCHEDULE OF EXCEPTIONS

Section 2.15 Employee Benefit Plans

The Company maintains a deferred compensation plan for its officers whereby such officers may defer a portion of their salary and such salary deferrals, plus a matching contribution by the Company, are placed in a Rabbi Trust.

D-1

EX-10.17 6 dex1017.htm PLACEMENT AGENCY AGREEMENT NOVEMBER 2002 Placement Agency Agreement November 2002

Exhibit 10.17

October 23, 2001

CONFIDENTIAL

Mr. Robert V. Dickinson

President and Chief Executive Officer

California Micro Devices Corporation

215 Topaz Street

Milpitas, CA 95035

Dear Bob:

This letter agreement (this “Agreement”) confirms the understanding and agreement between Needham & Company, Inc. (the “Placement Agent”) and California Micro Devices Corporation (the “Company”) as follows:

1. The Company hereby engages the Placement Agent as the Company’s exclusive placement agent in connection with the proposed private placement to accredited investors of securities of the Company (the “Offering”). The Placement Agent hereby accepts such engagement upon the terms and conditions set forth in this Agreement. It is currently contemplated that the Offering will be structured as a private offering with a planned maximum of 2.0 million shares of Common Stock of the Company (the “Securities”). The final terms of the Offering will be determined by negotiation between the Company and interested investors in consultation with the Placement Agent. This Agreement shall not give rise to any commitment or obligation by the Placement Agent to purchase any of the Securities or, except as provided in Section 2 below, to find purchasers for the Securities.

2. The Placement Agent will provide the following services:

(a)

Advise the Company with regard to the size of the Offering and the structure and terms of the Securities that might be realized in the current market environment;

(b)

Work with the Company to prepare a private placement memorandum (the “Memorandum”) and, if deemed desirable, create an investor road show concerning the Company for use with qualified investors. The Memorandum would not be made available to or used in discussions with prospective qualified investors until such Memorandum and such prospective qualified investors have been approved by the Company. The Memorandum that will be initially circulated will incorporate publicly available documents and will not include any non-public material information about the Company;

California Micro Devices Corporation

October 23, 2001

Page 2

Needham & Company, Inc.

(c)

Assist the Company in identifying and evaluating prospective qualified investors;

(d)

Approach prospective qualified investors regarding an investment in the Company; and

(e)

Work with the Company to develop a negotiating strategy and assist in negotiations with potential qualified investors.

The Placement Agent will have no authority under this Agreement to bind the Company in any way to any party. In addition, nothing contained in this Agreement will require the Company to accept the terms of any proposal. The Company agrees to coordinate any discussions regarding any investment in the Company with the Placement Agent and agrees to instruct Company directors and officers that if they receive any inquiry or are otherwise aware of the interest of any third party concerning an investment in the Company during the term of this Agreement, they should notify the Company CEO who, on behalf of the Company, will promptly notify the Placement Agent of the prospective investor and its interest. The prior sentence will not apply to potential strategic investors who have, or are proposing, commercial business relationships with the Company (“Strategic Investors”) if such Strategic Investors express an interest in investing in the Company separate from the Offering being placed by Placement Agent.

3. The Offering will be made by means of the Memorandum, which shall be prepared and approved by the Company and its counsel. The Company will also be responsible for updating and supplementing the Memorandum prior to closing to reflect developments affecting the Company. The Memorandum and any amendment or supplement thereto will be in form reasonably acceptable to the Placement Agent. The Company agrees that the Placement Agent may rely on the information contained in the Memorandum and shall have no responsibility for any information contained therein except for any information concerning the Placement Agent supplied by the Placement Agent in writing to the Company for inclusion therein. All other documents and materials to be used for circulation to investors (collectively “Investor Materials”) in connection with the Offering will be provided by the Company to the Placement Agent in advance, and no such documents or materials will be provided to investors without the Placement Agent’s prior approval. The Memorandum and all Investor Materials shall be the sole responsibility of the Company. The Memorandum will include all information required to be provided to accredited investors pursuant to Regulation D under the Securities Act of 1933, as amended (the “Securities Act”). Neither the Memorandum nor any of the Investor Materials shall contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

California Micro Devices Corporation

October 23, 2001

Page 3

Needham & Company, Inc.

4. Each of the Company and the Placement Agent agrees to conduct the Offering in a manner intended to qualify for the exemption from the registration requirements of the Securities Act provided by Section 4(2) thereof and Regulation D thereunder and in a manner intended to comply with the applicable state “blue sky” laws and applicable securities laws of other jurisdictions. Other than as provided in the prior sentence, the Company will be responsible for compliance with the Securities Act and Regulation D and with applicable state and other securities laws with respect to offers and sales made by the Company and for compliance with the filing requirements and other actions required under such laws.

5. The Company will, at each closing of the Offering, furnish Needham & Company with an opinion of counsel relating to the Company and the Offering in form and substance reasonably satisfactory to Needham & Company and its counsel. Such opinion shall include legal assurances regarding compliance with applicable corporate and securities laws and comfort with respect to the accuracy and completeness of the disclosure in the Memorandum and the Investor Materials as well as those of the matters addressed in the opinion such counsel renders to the purchasers in the Offering as Needham & Company shall request. In addition, at each closing the Company will provide Needham & Company with the same certificates of the officers of the Company, comfort letters and other documents and certificates as are furnished to the purchasers in the Offering.

6. The Company agrees to pay the following fees to the Placement Agent for its services rendered under this Agreement:

(a)

An advisory fee of $50,000 payable in cash upon signing of this Agreement, which advisory fee, to the extent paid and to the extent the Placement Agent’s out of pocket expenses specified in Section 7 total less than $50,000, shall be credited against the fee described in 6(b) below;

(b)

A fee equal to 6.0% of the gross proceeds on all sales of Securities made in the Offering, payable in cash upon the closing to which such fee relates except that the fee shall be equal to (i) 3% of the gross proceeds on such sales to persons who are currently Company shareholders or their affiliates if such persons invest in the Company separate from the Offering being placed by Placement Agent; (ii) 3% of the gross proceeds on such sales to persons who are friends and family of Company management; and (iii) 0% of the gross proceeds on such sales to Strategic Partners if such Strategic Investors invest in the Company separate from the Offering being placed by Placement Agent;

(c)

Warrants (the “Warrants”), issuable at the first and any subsequent closing of the sales of the Securities, to purchase such number of Securities equal to one-half

California Micro Devices Corporation

October 23, 2001

Page 4

Needham & Company, Inc.

of the percentage specified in 6(b) of the Securities sold in the Offering. The Warrants shall be exercisable at an exercise price equal to the price per share of the Securities sold in the Offering and shall contain other customary provisions, including anti-dilution provisions and demand and “piggyback” registration rights similar to those contained in warrants issued to investors in the Offering. The Warrants shall have a term identical to that of warrants issued to investors in the Offering and if, but only if, the investor warrants have a net issuance (cashless exercise) provision, then so shall the Warrants; provided however, that if no warrants are issued to investors in the Offering, then the term of the Warrants shall be five (5) years and the Warrants shall contain a net issuance (cashless exercise) provision; and

(d)

If during the nine-month period following the expiration or termination of this Agreement other than by the Company for cause (cause shall be deemed to exist if Placement Agent has not cured a material breach within five (5) business days notice thereof) or by the Placement Agent for convenience, the Company sells any equity securities to any investor (i) that the Placement Agent identified to the Company prior to such expiration or termination and which the Company approved to receive the Memorandum, (ii) as to which the Placement Agent advised the Company prior to such expiration or termination, or (iii) with which the Company or the Placement Agent had discussions prior to such expiration or termination, the fees payable pursuant to clauses (b) and (c) of this paragraph; provided, however, that if no Securities were sold in the Offering, no fees shall be payable in connection with the sale of equity securities to any investor who was not brought to the initial attention of the Company by the Placement Agent. In these regards, within thirty (30) days of the expiration or termination of this Agreement, the Placement Agent shall notify the Company of those persons (A) the Placement Agent so identified, advised the Company, or had discussions with prior to expiration or termination of this Agreement and (B) if there were no securities sold in the Offering, the Placement Agent brought to the initial attention of the Company.

7. In addition to any fees that may be payable to the Placement Agent under this Agreement, whether or not there is a closing of the Offering, the Company agrees to reimburse the Placement Agent, upon request made from time to time, for all its reasonable out-of-pocket expenses incurred in connection with this engagement that exceed a total of $50,000 and are less than a total of $100,000, including the reasonable fees and disbursements of its legal counsel. The foregoing costs, expenses and charges will be paid by the Company to the Placement Agent promptly upon receipt by the Company of an invoice(s) from the Placement Agent.

California Micro Devices Corporation

October 23, 2001

Page 5

Needham & Company, Inc.

8. (a) The Company will furnish or cause to be furnished to the Placement Agent such information as the Placement Agent believes appropriate to its assignment and to satisfy its due diligence requirements (the “Information”). The Company recognizes and confirms that the Placement Agent (i) will use and rely primarily on the Information and on information available from generally recognized public sources in performing the services contemplated by this Agreement without having independently verified the same, (ii) does not assume responsibility for the accuracy or completeness of the Information and such other information, and (iii) will not make an appraisal of the Company or its business or assets. To the best of the Company’s knowledge, the Information to be furnished by the Company, when delivered, will be true and correct in all material respects and will not contain any material misstatement of fact or omit to state any material fact necessary to make the statements contained therein not misleading. The Company will promptly notify the Placement Agent if it learns of any material inaccuracy or misstatement in, or material omission from, any Information theretofore delivered to the Placement Agent.

(b) All such Information, whether oral or written, will be kept confidential by Needham & Company except for Information (i) that is already or becomes public through no breach of this provision, (ii) that is in the Memorandum or in materials delivered by the Company to prospective investors, or that the Company agrees may be disclosed, (iii) that Needham & Company is required to disclose by applicable law, regulation or legal process, or (iv) that becomes available to Needham & Company on a non-confidential basis from a third party who is not bound by a confidentiality obligation to the Company; and provided, further, that the Information may be disclosed to Needham & Company’s directors, officers, employees, agents, advisors and representatives in connection with its engagement hereunder with a need to know such Information, who shall be informed of the confidential nature of the Information and that such Information is subject to a confidentiality agreement or if, on the advice of counsel, Needham & Company is compelled to disclose such Information.

9. The Company agrees to indemnify the Placement Agent as set forth in the Placement Agent’s standard indemnity provisions attached hereto as Addendum A; provided, however, that if a third party asserts a claim against the Placement Agent related to the Offering, the Company shall not be liable for fees or expenses of counsel or investigators of the Placement Agent which are incurred prior to the Placement Agent giving notice to the Company of such claim.

10. The Placement Agent’s engagement hereunder may be terminated by either the Company or the Placement Agent at any time upon written notice to that effect to the other party, it being understood that the provisions of paragraphs 6, 7, 8(b), 9, 11 and 12 of this Agreement shall survive any such termination. The Company may in its discretion postpone, modify or abandon the Offering prior to closing. The Placement Agent may decline to participate in the Offering if the Placement Agent reasonably determines that the Offering has

California Micro Devices Corporation

October 23, 2001

Page 6

Needham & Company, Inc.

become impractical or undesirable.

11. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect.

12. This Agreement constitutes the entire agreement and understanding of the parties concerning its subject matter, superseding all prior oral or written agreements and understandings concerning its subject matter. This Agreement may not be amended or modified except in writing signed by each of the parties. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York without giving effect to principles of conflicts of law. The Company and the Placement Agent hereby irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the courts of the State of New York and of the United States District Courts located in the City of New York for any lawsuits, claims or other proceedings arising out of or relating to this Agreement and agree not to commence any such lawsuit, claim or other proceeding except in such courts. The Company and the Placement Agent hereby irrevocably and unconditionally waive any objection to the laying of venue of any lawsuit, claim, or other proceeding arising out of or relating to this Agreement in the courts of the State of New York or the United States District Courts located in the City of New York, and hereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such lawsuit, claim or other proceeding brought in any such court has been brought in an inconvenient forum. Any right to trial by jury with respect to any lawsuit, claim or other proceeding arising out of or relating to this Agreement or the services to be rendered by the Placement Agent hereunder is expressly and irrevocably waived.

California Micro Devices Corporation

October 23, 2001

Page 7

Needham & Company, Inc.

Please confirm that the foregoing is in accordance with our understanding by signing and returning to us the enclosed duplicate of this letter.

Sincerely yours, NEEDHAM & COMPANY, INC.

By:
		Chad W. Keck Managing Director

Agreed to and Accepted

as of the date set forth above:

CALIFORNIA MICRO DEVICES CORPORATION


By:
Name:
Title:

Addendum A

This Addendum A is attached to and incorporated by reference into the foregoing letter agreement (the “Agreement”). Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Agreement.

The Company agrees to indemnify and hold harmless Needham & Company and its affiliates, the respective directors, officers, employees and agents of Needham & Company and its affiliates, and each other person, if any, controlling Needham & Company or any of its affiliates within the meaning of the federal securities laws (Needham & Company and each such other person or entity are hereinafter referred to as an “Indemnified Person”) from and against any and all losses, claims, damages, expenses (including fees and disbursements of counsel) and liabilities (or actions or proceedings in respect thereof) (collectively “Losses”) caused by, relating to, based upon or arising out of (i) Needham & Company’s engagement under the Agreement, any transaction contemplated by such engagement or any Indemnified Person’s role in connection therewith (all of the foregoing are collectively hereafter referred to as the “Engagement”) or (ii) any untrue statement or alleged untrue statement of a material fact contained in any offering materials, including but not limited to private placement memoranda used to offer securities of the Company in a transaction subject to Needham & Company’s engagement under the Agreement, as such materials may be amended or supplemented (and including but not limited to any documents deemed to be incorporated therein by reference), or caused by any omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that with respect to clause (i) above, such indemnification obligation shall not apply to any such Loss to the extent it is found in a final judgment by a court of competent jurisdiction (not subject to further appeal) to have resulted primarily and directly from the gross negligence or willful misconduct of the Indemnified Person seeking indemnification. The Company agrees to reimburse each Indemnified Person for all expenses (including fees and disbursements of counsel) as they are incurred by such Indemnified Person in connection with investigating, preparing, defending, paying, settling or compromising any claim, action, suit, proceeding or Loss, whether or not in connection with an action in which any Indemnified Person is a named party. The Company also agrees that an Indemnified Person shall not have any liability (whether direct or indirect, in contract or otherwise) to the Company or its affiliates, directors, officers, employees, agents or shareholders, directly or indirectly for or in connection with the Engagement, except for any Losses that are found in a final judgment by a court of competent jurisdiction (not subject to further appeal) to have resulted primarily and directly from such Indemnified Person’s gross negligence or willful misconduct. In no event, regardless of the legal theory advanced, shall any Indemnified Person be liable for any consequential, indirect, incidental or special damages of any nature.

If any action, suit, proceeding, or investigation is commenced, as to which such Indemnified Person proposes to demand such indemnification, such Indemnified Person shall notify the Company with reasonable promptness; provided, however that any failure by such Indemnified Person to notify the Company shall not relieve the Company from its obligations hereunder, except as and to the extent the failure of such timely notice materially prejudices the Company. If the Company so elects or at the request of an Indemnified Person, the Company will assume the defense of such action, suit, proceeding or investigation, including the employment of counsel reasonably satisfactory to such Indemnified Person and the payment of all fees and expenses of such counsel. In the event, however, that such Indemnified Person reasonably determines in its judgment that representation by common counsel would be inappropriate due to actual or potential differing interests or if the Company fails to assume the defense of the action, suit, proceeding or investigation in a timely manner, then such Indemnified Person may employ separate counsel to represent or defend it in any such action, suit, proceeding or investigation and the Company will pay the fees and disbursements of such counsel; provided, however, that the Company will not be required to pay the fees and disbursements of more than one separate counsel for all Indemnified Persons in any jurisdiction in any single action or proceeding. In any action or proceeding the defense of which the Company assumes, an Indemnified Person will have the right to participate in such litigation and to retain its own counsel at such Indemnified Person’s own expense. The Company shall not be liable for any settlement of any action or proceeding effected without its written consent, but if settled with such consent the Company agrees to indemnify the Indemnified Party from and against any Loss by reason of such settlement. The Company shall not settle any claim, action, suit or proceeding related to the Engagement or the Agreement unless the settlement also includes an unconditional release of all Indemnified Persons from all liabilities arising out of such claim, action, suit or proceeding.

If the indemnification sought by an Indemnified Person hereunder is found in a final judgment by a court of competent jurisdiction (not subject to further appeal) to be unenforceable, even though the express provisions hereof provide for indemnification in such case, then the Company shall contribute to the Losses for which such indemnification is held unavailable in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and Needham & Company, on the other hand, in connection with the Engagement reflected in the Agreement, or if such allocation is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits but the relative fault of the Company on the one hand and Needham & Company on the other hand, in connection with the statements, acts or omissions which resulted in such Losses, as well as any other relevant equitable considerations. The respective relative benefits received by the Company and Needham & Company in connection with any transaction shall be deemed to be in the same proportion as the aggregate fee paid or payable to Needham & Company in connection with the transaction bears to the total value of the transaction. The relative fault of the Company and Needham & Company shall be determined by reference to, among other things, whether the statements, actions or omissions to act were by the Company or Needham & Company and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action or omission to act. Notwithstanding the foregoing, in no event shall the aggregate contribution of all Indemnified Persons for all Losses in connection with any transaction exceed the amount of fees actually received by Needham & Company pursuant to the Agreement.

If multiple claims are brought against an Indemnified Person in an arbitration, with respect to at least one of which indemnification is permitted under applicable law and provided for under the Agreement, the Company agrees that any arbitration award shall be conclusively deemed to be based on claims as to which indemnification is permitted and provided for, except to the extent the arbitration award expressly states that the award, or any portion thereof, is based solely on a claim as to which indemnification is not available.

The obligations of the Company referred to above shall be in addition to any liability which the Company may otherwise have and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of any Indemnified Person and the Company. Neither termination of the Agreement nor completion of the Engagement shall affect these indemnification provisions which shall then continue in full force and effect.

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