-----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, OQpeX/Ctl4cEUuMqDI1cYrCK5ahyEXKbkA7GnbU7065t2lPh4L9hiFmQ7PzV6uHA n4bo9RzUHWGo42i3JRu6Aw== 0000898430-97-002476.txt : 19970611 0000898430-97-002476.hdr.sgml : 19970611 ACCESSION NUMBER: 0000898430-97-002476 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 19970609 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUICKLOGIC CORPORATION CENTRAL INDEX KEY: 0000882508 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 770188504 STATE OF INCORPORATION: CA FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-28833 FILM NUMBER: 97621267 BUSINESS ADDRESS: STREET 1: 1277 ORLEANS DR CITY: SUNNYVALE STATE: CA ZIP: 94089-1138 BUSINESS PHONE: 4089904000 MAIL ADDRESS: STREET 1: 1277 ORLEANS DRIVE CITY: SUNNYVALE STATE: CA ZIP: 94089-1138 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1997 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- QUICKLOGIC CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA (Prior to 3674 77-0188504 reincorporation) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER DELAWARE (After CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER) reincorporation) (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) 1277 ORLEANS DRIVE SUNNYVALE, CALIFORNIA 94089 (408) 990-4000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) --------------- E. THOMAS HART CHIEF EXECUTIVE OFFICER QUICKLOGIC CORPORATION 1277 ORLEANS DRIVE SUNNYVALE, CALIFORNIA 94089 (408) 990-4000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: LARRY W. SONSINI JOSHUA L. GREEN AARON J. ALTER JEFFREY Y. SUTO WILSON SONSINI GOODRICH & ROSATI VENTURE LAW GROUP PROFESSIONAL CORPORATION 2800 SAND HILL ROAD 650 PAGE MILL ROAD MENLO PARK, CALIFORNIA 94025 PALO ALTO, CALIFORNIA 94304 (415) 854-4488 (415) 493-9300 --------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] --------------- CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE - ------------------------------------------------------------------------------------------------ Common Stock, $0.001 par value................ 3,450,000 shares $13.00 $44,850,000 $13,591
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Includes 450,000 shares that the Underwriters have the option to purchase to cover over-allotments, if any. (2) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a). --------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS + +OF ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED JUNE 9, 1997 [LOGO OF QUICKLOGIC] - -------------------------------------------------------------------------------- 3,000,000 SHARES COMMON STOCK - -------------------------------------------------------------------------------- Of the 3,000,000 shares of Common Stock, par value $.001 per share ("Common Stock"), of QuickLogic Corporation ("QuickLogic" or the "Company") offered hereby, 1,800,000 shares are being offered by the Company and 1,200,000 shares are being offered by a stockholder of the Company (the "Selling Stockholder"). The Company will not receive any proceeds from the sale of shares by the Selling Stockholder. See "Principal and Selling Stockholders." Prior to this offering, there has been no public market for the Common Stock. It is currently estimated that the initial public offering price will be between $11.00 and $13.00 per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The Company has applied to have the Common Stock approved for listing on the Nasdaq National Market under the trading symbol "QWIK." FOR INFORMATION CONCERNING CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS" COMMENCING ON PAGE 5. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDER(3) Per Share $ $ $ $ Total $ $ $ $
(1) The Company and the Selling Stockholder have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses of this offering estimated at $750,000, payable by the Company. (3) The Selling Stockholder has granted to the Underwriters a 30-day option to purchase up to an additional 450,000 shares of Common Stock for the purpose of covering over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Selling Stockholder will be $ , $ and $ , respectively. See "Underwriting." The shares of Common Stock are offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by them, and subject to approval of certain legal matters by counsel and certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. Delivery of the shares of Common Stock offered hereby to the Underwriters is expected to be made in New York, New York on or about , 1997. DEUTSCHE MORGAN GRENFELL UBS SECURITIES COWEN & COMPANY The date of this Prospectus is , 1997. COMPANY ARTWORK Title: QuickLogic logo, "The High Performance Programmable Logic Solution" Text underneath title: "QuickLogic's FPGA products are used in complex, high-performance electronics systems such as video, graphics and imaging, telecommunications and data communications, instrumentation and test, high-performance computers and military systems" Graphic: QuickLogic FPGA device in the middle, surrounded by end market application products (digital projector, cell phone with satellite dish and microwave antenna, computer workstation, data networking multiplexer, etc.), with each end market picture accompanied by a title (video, graphics and imaging, telecommunications and data communications, instrumentation and test, high-performance computers and military systems). ViaLink, pASIC, QuickLogic and the QuickLogic logo are registered trademarks of QuickLogic Corporation. QuickTools and QuickWorks are trademarks of QuickLogic Corporation. All other trademarks or service marks appearing in this Prospectus are the property of their respective companies. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE COMPANY, INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING." Unless otherwise indicated, the information in this Prospectus (i) assumes no exercise of the Underwriters' over-allotment option, (ii) reflects the conversion of all outstanding preferred stock into Common Stock and the exercise of all outstanding Common Stock warrants, (iii) reflects a 7-for-1 reverse split of the Company's Common Stock effected through the reincorporation of the Company in Delaware prior to the date of this offering and (iv) reflects the authorization of 10,000,000 shares of undesignated preferred stock upon the closing of this offering. 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the information appearing elsewhere in this Prospectus. THE COMPANY QuickLogic develops, markets and supports advanced field programmable gate array ("FPGA") semiconductors and software design tools. QuickLogic products enable designers of complex electronic systems to achieve rapid time to market by optimizing design speed, design flexibility and cost. The Company's products target complex, high-performance electronics systems in rapidly changing markets including video, graphics and imaging, telecommunications and data communications, instrumentation and test, high-performance computers and military systems. The key components of the QuickLogic solution are the Company's ViaLink proprietary antifuse technology and pASIC architectures, and its software design tools. The Company's fabless manufacturing strategy allows the Company to focus its resources on product design, development and marketing rather than on manufacturing expenditures. The Company has a foundry relationship with Cypress Semiconductor Corporation ("Cypress") for its existing products and has entered into a memorandum of understanding with TSMC, Ltd. ("TSMC") for the production of its anticipated 0.35(mu) CMOS products. QuickLogic sells its products through independent sales representatives, distributors and a direct sales force in North America, Europe and Asia. The Company's customers include Alcatel Alsthom, Compaq, Honeywell, IBM, McDonnell Douglas, NEC, Northern Telecom, Rockwell, Saab, Silicon Graphics, Sony, Texas Instruments, 3Com and Toshiba. THE OFFERING Common Stock offered...... 3,000,000 shares (including 1,800,000 shares by the Company and 1,200,000 shares by the Selling Stockholder)(1) Common Stock to be outstanding after the offering................. 13,817,422 shares (2) Use of proceeds........... For working capital, capital expenditures and other general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market symbol............ QWIK
SUMMARY FINANCIAL DATA (In thousands, except per share data)
YEAR ENDED QUARTER ENDED DECEMBER 31, MARCH 31, ------------------------- ----------------------- 1994 1995 1996 1996 1997 ------- ------- ------- ------- -------------- (UNAUDITED) STATEMENT OF OPERATIONS DATA: Revenue................. $ 6,024 $15,148 $23,758 $ 5,154 $ 6,268 Gross profit............ 1,971 7,409 12,600 2,591 3,455 Contract termination and other expense(3).. -- (2,700) (4,125) -- (23,009) Loss from operations.... (5,609) (4,660) (3,897) (136) (23,200) Net income (loss)....... (5,828) (4,707) (3,597) 21 (23,103) Pro forma net income (loss) per share(4).... $ (0.29) $ -- $ (1.83) Net income (loss) from operations excluding contract termination and other expense(3)... (5,609) (1,960) $ 528 $ 21 $ (947) ======= ======= ======== Pro forma net income (loss) per share excluding contract termination and other expense(3)(4).......... $ 0.04 $ -- $ (0.01) ======= ======= ======== Shares used in pro forma net income (loss) per share.................. 12,612 12,438 12,612 ======= ======= ======== AT MARCH 31, 1997 ----------------------- ACTUAL AS ADJUSTED(5) ------- -------------- SELECTED BALANCE SHEET DATA: Cash............................................ $10,366 $29,788 Total assets.................................... 21,476 40,898 Long-term obligations........................... 1,658 1,658 Stockholders' equity............................ 8,059 27,481
- -------- (1) Assumes no exercise of the Underwriters' over-allotment option to purchase up to an additional 450,000 shares of Common Stock. (2) Based on Common Stock outstanding at May 31, 1997. Excludes 1,604,750 shares of Common Stock issuable upon exercise of outstanding options under the Company's 1989 Stock Option Plan (the "1989 Plan") and 714,478 shares reserved for future grant under the 1989 Plan as of May 31, 1997. See "Management--Employee Benefit Plans" and Note 7 of Notes to Financial Statements. (3) See Notes 8 and 11 of Notes to Financial Statements and "Risk Factors-- Actel Litigation." (4) See Note 1 of Notes to Financial Statements. (5) As adjusted to reflect the sale of 1,800,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $12.00 per share and receipt of the estimated proceeds therefrom (after deducting underwriting discount and offering expenses payable by the Company) of $19,338,000. See "Use of Proceeds" and "Capitalization." 3 THE COMPANY QuickLogic develops, markets and supports advanced FPGA semiconductors and software design tools. QuickLogic products enable designers of complex electronic systems to achieve rapid time to market by optimizing design speed, design flexibility and cost. The Company's products target complex, high- performance electronic systems in rapidly changing markets including video, graphics and imaging, telecommunications and data communications, instrumentation and test, high-performance computers and military systems. The key components of the QuickLogic solution are the Company's proprietary ViaLink antifuse technology and pASIC architectures, and its software design tools. QuickLogic's proprietary ViaLink antifuse technology places logic interconnects between the metal layers of an FPGA device instead of on the silicon substrate, thereby minimizing die size and cost. The ViaLink antifuse technology offers lower resistance and lower capacitance than competing interconnect technologies, thereby optimizing a device's performance. The Company's pASIC architectures facilitate full routability and utilization of a device's logic cells, enabling a high degree of design flexibility. QuickLogic's QuickTools software design tools place and route logic cells on an FPGA device, and the QuickWorks design software suite incorporates QuickTools and industry-leading design tools for hardware description language ("HDL")/schematic entry, synthesis and simulation. In addition, QuickWorks incorporates Institute of Electrical and Electronic Engineers ("IEEE") standard design languages Verilog HDL and VHDL. QuickLogic's fabless manufacturing strategy allows the Company to focus its resources on product design, development and marketing rather than on manufacturing expenditures. The Company has a foundry relationship with Cypress for its existing products and has entered into a memorandum of understanding with TSMC for the production of its anticipated 0.35^ CMOS products. QuickLogic sells its products through independent sales representatives, distributors and a direct sales force in North America, Europe and Asia. The Company's customers include Alcatel Alsthom, Compaq Computer Corporation, Honeywell, Inc., International Business Machines Corporation, McDonnell Douglas Corp., NEC Corporation, Northern Telecom Ltd., Rockwell International Corp., Saab Automobile AB, Silicon Graphics, Inc., Sony Corp., Texas Instruments Incorporated, 3Com Corporation and Toshiba Corporation. In March 1997, the Company became the exclusive supplier of all of its products worldwide, which affords significant advantages in supply, pricing, and quality control. From October 1992 to March 1997, the Company had granted to Cypress certain technology development, manufacturing and marketing rights to the Company's products, making it a second source of such products. In exchange for the termination of this arrangement in March 1997, the Company paid Cypress $4.5 million in cash and agreed to issue 2,603,817 shares of Common Stock to Cypress, increasing the aggregate number of shares of Common Stock of the Company held by Cypress to 3,339,785, prior to the sale of any shares by Cypress in this offering. In addition, the Company granted Cypress certain contractual rights as to the shares of the Company's stock, including the right to sell shares in this offering. The parties also entered into a new foundry agreement and a cross-license agreement. See "Business--Cypress Transaction" and "Principal and Selling Stockholders." The Company was incorporated in California in April 1988 as Peer Semiconductor, Inc., and changed its name in May 1988 to Peer Research, Inc. and in February 1991 to QuickLogic Corporation. The Company intends to reincorporate in Delaware prior to the date of this offering. Unless the context requires otherwise, references in this Prospectus to the "Company" or "QuickLogic" refer to the Delaware corporation and its California predecessor corporation. The address of the Company's corporate headquarters is 1277 Orleans Drive, Sunnyvale, California 94089. The Company's telephone number is (408) 990-4000. The Company's Web site is located at http://www.quicklogic.com. Neither the information contained in the Company's Web site nor Web sites linked to the Company's Web site shall be deemed to be a part of this Prospectus. 4 RISK FACTORS This Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements may be found in this section and under the sections entitled "Prospectus Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business--Industry Background," "--Strategy," "-- Sales, Support and Marketing," "--Research and Development," "--Manufacturing" and "--Actel Litigation." Actual events or results could differ materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, the risk factors set forth below and elsewhere in the Prospectus. The following risk factors should be considered carefully before purchasing the Common Stock offered hereby. LIMITED OPERATING HISTORY; NO ASSURANCE OF FUTURE PROFITABILITY. The Company was incorporated in 1988 and did not begin shipping products in volume until 1992. Accordingly, the Company has a limited operating history upon which investors may evaluate the Company and its prospects. The Company had an accumulated deficit of $50.9 million as of March 31, 1997. Although the Company has experienced revenue growth in each of the past five fiscal years, and first achieved profitability in the fourth quarter of 1995, this growth rate should not be considered to be indicative of future revenue growth, if any, nor is there any assurance that the Company will be profitable in any future period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." FLUCTUATIONS IN OPERATING RESULTS. Fluctuations in the Company's operating results have occurred in the past and may occur in the future due to a variety of factors, any of which may have a material adverse effect on the Company's operating results. In particular, the Company's quarterly results of operations may vary significantly due to general business conditions in the semiconductor industry, fluctuations in manufacturing yields at the Company's wafer suppliers, the availability of foundry capacity, cancellations or delays of deliveries of products to the Company, new product introductions by the Company or its competitors, product obsolescence, price erosion for maturing products, competition, changes in the mix of products sold, seasonal fluctuations in demand, changes in distributor inventory levels, availability of wafer supply, increases in the costs of materials, cancellations or delays of product orders, developments in the Company's litigation with Actel Corporation ("Actel"), the ability to safeguard intellectual property in a rapidly evolving market, changing customer product requirements, changes in demand for customers' products and fluctuations in foreign currency exchange rates. A large portion of the Company's operating expenses is fixed and difficult to reduce or modify. If revenue does not meet the Company's expectations, the adverse effect of any such revenue shortfall will be magnified by the fixed nature of these operating expenses. In addition, the Company's quarterly operating results can vary due to the volume and timing of product orders received and delivered during a quarter, the ability of the Company and its key suppliers to respond to changes made in customer orders, and the timing of new product introductions by the Company and its competitors. All of the above factors are difficult for the Company to forecast, and these and other factors could have a material adverse effect on the Company's business, financial condition and results of operations. As a result, the Company believes that period-to-period comparisons are not necessarily meaningful and should not be relied upon as indicative of future operating results. See "--Actel Litigation" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." ACTEL LITIGATION. On January 20, 1994, Actel, a competitor of the Company, filed a lawsuit against the Company entitled Actel Corporation v. QuickLogic Corporation in the United States District Court for the Northern District of California (the "Court"), Case No. C-94 20050JW (PVT). The lawsuit alleges infringement by the Company of four U.S. patents held by Actel: U.S. Patent 4,873,459 (the "'459 Patent") issued October 10, 1989 and entitled "Programmable Interconnect Architecture;" U.S. 5 Patent 4,758,745 (the "'745 Patent") issued July 19, 1988 and entitled "User Programmable Integrated Circuit Interconnect Architecture and Test Method;" U.S. Patent 5,055,718 (the "'718 Patent") issued October 8, 1991 and entitled "Logic Module With Configurable Combinational and Sequential Blocks;" and U.S. Patent 5,198,705 (the "'705 Patent") issued March 30, 1993 and entitled "Logic Modular and Configurable Combinational and Sequential Blocks." In each of March 1995 and March 1996, Actel added a claim that an additional Actel patent was infringed: U.S. Patent 5,367,208 (the "'208 Patent") issued November 22, 1994 and entitled "Reconfigurable Programmable Interconnect Architecture" and U.S. Patent 5,479,113 the (the "'113 Patent") issued December 26, 1995 and entitled "User Configurable Logic Circuits Comprising Antifuses and Multiplexer-Based Logic Modules." The '459, '745, '208 and '113 Patents all relate to user programmable interconnect architectures and are based upon the same application. Actel's '705 and '718 Patents relate to logic modules for use in FPGAs. As to the '745 and '459 Patents, Actel asserts that QuickLogic's programmable interconnect circuits and architecture found in its pASIC 1 and pASIC 2 product families infringe one or more claims of these patents. As to the '705, '718, and '208 Patents, Actel asserts that QuickLogic's programmable logic module used in its pASIC1 and pASIC2 product families infringes one or more claims of each patent. As to Actel's '113 patent, Actel asserts that QuickLogic's control circuit controlling the program voltage within QuickLogic's user programmable interconnect architecture infringes one or more claims. As to each patent-in-suit, Actel seeks an injunction preventing QuickLogic from further use of the claimed inventions, damages for past infringement of the inventions, Actel's attorneys' fees and increased damages for willful infringement. Sales of the Company's pASIC products have accounted for substantially all of the Company's revenue to date and are expected to account for substantially all of the Company's revenue for the foreseeable future. Fees from licenses of the QuickWorks and QuickTools software design tools have accounted for substantially all of the remainder of the Company's revenue. The Company has filed answers to each of these complaints and counter-claims seeking declarations that the Actel patents at issue are not infringed by the Company, are invalid, and are unenforceable. On April 19, 1994, QuickLogic moved to stay proceedings pending reexamination by the United States Patent and Trademark Office (the "USPTO") of two of the patents involved in the litigation, the '745 Patent and the '459 Patent. The Court granted this stay on July 21, 1994. The USPTO confirmed the patentability of these two patents on November 15, 1994 and January 10, 1995, respectively, which Actel may argue will increase the burden upon QuickLogic to prove the invalidity of the two reexamined patents. The Court lifted the stay on November 8, 1994. On November 15, 1994, Actel filed a motion for summary judgment with respect to the Company's infringement of claim 1 of the '705 Patent. Actel's claims in the '705 Patent relating to its logic module technology include an interconnect structure, programming structures, and logic circuits wherein a multiplicity of logic circuits are arranged in a regular pattern on the semiconductor substrate. The logic circuits or logic modules contain a number of logic blocks which ultimately determine the function that the FPGA could perform. The '705 Patent covers a logic module, and its structure and its connections to the interconnect structure and architecture. Actel has referred to this technology as its "nested three multiplexer" architecture, which involves three dual input, single output multiplexers. The logic module, as claimed in the '705 Patent, includes two multiplexers wherein each output is commonly coupled to one of the pair of inputs of a third multiplexer. The first and second multiplexer have four inputs or "data nodes." The output of the third multiplexer may be connected to a single memory cell or "latch." First and second multiplexers are controlled by a single level logic gate at their select inputs as is the third multiplexer which is similarly controlled by a second single level logic gate. The Court appointed a Special Master to assist it in determining certain issues related to this litigation, and the Special Master recommended on October 4, 1996 that the Court find that the Company's pASIC 1 products infringe claim 1 of the '705 Patent. On April 14, 1997, the Court adopted the recommendation of the Special Master and granted Actel's motion for summary judgment that the Company's pASIC 1 products infringe claim 1 of the '705 Patent. Any appeal of the summary judgment motion on infringement of the '705 Patent cannot be made until after there is a final 6 judgment. If the '705 Patent is finally adjudicated to be valid and enforceable, and the summary judgment motion is upheld on appeal, then Actel would be entitled to significant damages for past infringement and potentially would be entitled to an injunction on future infringement. Such an injunction and/or the payment of damages would have a material adverse effect on the Company's business, financial condition and results of operations, and could potentially render it insolvent. On April 12, 1995, QuickLogic filed a counterclaim alleging that Actel has infringed two U.S. patents held by the Company, U.S. Patent Nos. 5,220,213 (the "'213 Patent") and 5,396,127 (the "'127 Patent"), which involve the Company's logic module having three multiplexers wherein the outputs of two of the multiplexers are commonly coupled to the pair of inputs of the third, all other inputs in the module are connected to logic gates, and the output of the third multiplexer is connected to a flip flop. As to each patent-in-suit in the counterclaim, the Company alleges infringement of one or more claims and seeks an injunction preventing Actel from further infringement of the claimed inventions. The Company seeks damages for past infringement of the inventions and the Company's attorneys' fees based on the alleged infringement. On January 18, 1996, Actel filed a motion for summary judgment declaring the '213 and '127 Patents to be invalid. Actel's motion is based on an "on-sale bar" defense, i.e. that the Actel products which the Company claims infringe these patents were offered for sale more than one year before the filing dates of the '213 and '127 Patents which, if proven under patent law, would invalidate these patents. Discovery is currently in progress to allow QuickLogic to file its opposition to this motion, which the Company believes will be filed in 1997, with the hearing on this motion to be scheduled thereafter. On February 5, 1996, QuickLogic filed a motion for summary judgment of infringement by Actel of claim 1 of the '213 Patent. Actel has opposed this motion, and discovery is currently in progress. Actel also requested a separate trial on the "on-sale bar" defense, which request was denied by the Special Master on June 4, 1997 in a Notice of Intention to Rule. After the issuance of a formal recommendation by the Special Master, the Court must then decide whether to adopt this recommendation. On January 14, 1997, an additional U.S. patent was issued to the Company, U.S. Patent No. 5,594,364 (the "'364 Patent"). On February 28, 1997, the Company filed a motion to add a counterclaim for Actel's infringement of this patent. A hearing on this motion was held on May 19, 1997 before the Special Master, who granted the Company's motion on June 4, 1997 in a Notice of Intention to Rule. After the issuance of a formal recommendation by the Special Master, the Court must then decide whether to adopt this recommendation. On June 4, 1997, the Special Master also notified the parties of his intent to accept the parties' stipulation that Actel be allowed to amend its complaint to add a claim for infringement of an additional patent, U.S. Patent No. 5,610,534 (the "'534 Patent"), issued March 11, 1997 and entitled "Logic Module For A Programmable Logic Device." Actel alleges that the Company has infringed one or more claims of this patent and is likely to seek both monetary and injunctive relief, but has not yet filed or served an amended complaint. After the issuance of a formal recommendation by the Special Master, the Court must then decide whether to adopt this recommendation. In addition to the patent infringement actions, Actel amended its claims against the Company to include a claim against the Company and one of its employees on June 14, 1995 alleging misappropriation of trade secrets, breach of contract, breach of confidential relationship, and unfair competition. Actel has sought assignment of certain issued and future patents of the Company, two of which are part of this lawsuit, in relation to this claim in addition to unspecified money damages, that the damages be doubled, attorneys' fees and other remedies. These claims are based on allegations that this employee, who had once been a consultant to Actel, had misappropriated confidential information from Actel related to logic cells, which the Company then incorporated into its pASIC products. The employee and the Company have filed answers denying each of these claims. Discovery is ongoing at this time and no dispositive motions have been filed or heard. 7 Trial on the patent infringement and trade misappropriation claims is currently scheduled for September 1998. However, there can be no assurance that the trial will occur at such time and may be delayed significantly. As the outcome of any litigation is inherently uncertain, the Company is unable to predict the outcome of this litigation. Therefore, there can be no assurance that the Company will prevail in the trial on the patent infringement claims and counter-claims, the trial on the alleged misappropriation of intellectual property, or hearings on any motions related to such proceedings. The timing of the filing of any motions by Actel, hearings on motions by either Actel or the Company, the issuance of rulings on such motions, the issuance of recommendations by the Special Master and the adoption or rejection of such recommendations by the Court are not within the Company's control and could occur at any time. The announcement of any rulings or recommendations, or the adoption or rejection of recommendations, that are adverse to the Company, will likely have a material adverse effect upon the market price for the Company's stock. The semiconductor industry is characterized by frequent litigation of this type regarding patent and other intellectual property rights, which involve highly technical and subjective analysis. Discovery and litigation of such issues are time-consuming and costly, and Actel possesses more personnel and greater financial resources than the Company and is able to conduct extensive and protracted litigation at less of a relative detriment to its current business. While patent infringement litigation in the semiconductor industry has at times resulted in voluntary settlements by the parties, often involving cross-licensing of the patents involved, there can be no assurance that such a result will be reached in this case. In addition, the terms of any settlement may require the Company to stop selling all or certain of its products, pay damages or royalties or other forms of consideration or grant licenses to all or a portion of its intellectual property portfolio, any or all of which could have a material adverse effect on the Company's business, financial condition and results of operations. Patent infringement litigation in the semiconductor industry has also resulted in court orders to pay significant damages and/or injunctions preventing a party from making, using or offering to sell, selling or importing any products that incorporate technology covered by such patents. As referenced above, sales of the allegedly infringing products by the Company have accounted for substantially all of the Company's past revenue and are expected to account for substantially all of the Company's revenue for the foreseeable future. This litigation could result in the Company being required to cease selling its products and/or could also result in the Company paying significant damages, including treble damages for willful infringement, either of which would have a material adverse effect on the Company's business, financial condition and results of operations and could potentially render it insolvent. There can be no assurance that the Company will prevail in its claims or defenses or that it would be able to obtain a license under any Actel patents that are found to be infringed, or if such a license were obtained, that it would be on terms that would not have an adverse effect on the Company's business, financial condition and results of operations. The current litigation and any future litigation, whether or not determined in the Company's favor or settled by the Company, has been and will continue to be costly and will divert the efforts and attention of the Company's management and technical personnel from normal business operations, which could have a material adverse effect on the Company's business, financial condition and results of operations. It is expected that legal fees and other litigation- related expenses will continue to adversely affect the Company's operating results for the foreseeable future. Any adverse determinations in this litigation or a settlement could result in the loss of the Company's proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from or to grant licenses to third parties or prevent the Company from licensing its technology, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. INDUSTRY PRESSURES. The semiconductor industry in general and the programmable logic device ("PLD") segment of this industry, in particular, are characterized by rapid technological change, 8 intense competitive pressure and fluctuating demand. The semiconductor industry has historically been cyclical and subject to significant downturns at various times, characterized by diminished product demand, accelerated erosion of average selling prices ("ASPs") and production over-capacity. to general semiconductor industry conditions. ASPs typically decrease rapidly over the first three to six months following product introduction and continue to decline thereafter. Therefore, the Company must develop and introduce new products which incorporate features that can be sold at higher ASPs on a timely basis. In addition, the Company's ability to maintain desired gross margins depends upon its ability to achieve manufacturing efficiencies and material cost reductions, such as manufacturing its products in smaller product geometries on larger wafers. Failure to achieve any or all of the foregoing could cause the Company's revenue and gross margins to decline, which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion of Financial Condition and Results of Operations." DEPENDENCE ON INDEPENDENT WAFER MANUFACTURERS. The Company does not manufacture the wafers used to produce its products. In the past, wafer foundry capacity in the semiconductor industry has been very limited and may become limited in the future. To date, wafers have been manufactured for the Company principally by Cypress and in limited quantities by TSMC. In the future, the Company expects its wafers to be manufactured principally by TSMC. The Company depends on these suppliers to produce wafers at acceptable yields and prices and to deliver them to the Company in a timely manner. The process used to manufacture the Company's semiconductors can be performed in only a limited number of foundries, increasing the Company's dependence on Cypress and TSMC. Although the Company has a supply contract with Cypress and is negotiating a new supply contract for its future products with TSMC, either Cypress or TSMC could allocate capacity to the manufacture of other products and reduce deliveries to the Company on short notice. Under its wafer supply arrangements, the Company is obligated to provide rolling forecasts of anticipated purchases and place binding purchase orders months prior to shipment. Forecasts for monthly purchases may not increase or decrease by more than a certain percentage from the previous month's forecast without the supplier's consent. Thus, the Company must make forecasts and place purchase orders for wafers before it receives purchase orders from its own customers. This limits the Company's ability to react to fluctuations in demand for its products, which could cause the Company to have an excess or a shortage of wafers for a particular product. Any delays in obtaining an adequate supply of wafers at acceptable yields and prices would have a material adverse effect on the Company's business, financial condition and results of operations. The Company's long-term growth will depend substantially on the Company's ability to obtain increased wafer fabrication capacity at acceptable prices from Cypress, TSMC and other suppliers. The Company's current supply contract with Cypress expires in 2001. The inability of the Company to obtain increased wafer fabrication capacity at acceptable prices, or any delay or interruption in supply, could reduce the Company's supply of wafers or increase the Company's cost of such wafers and could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Manufacturing." DEPENDENCE ON CUSTOMIZED MANUFACTURING PROCESSES. The Company's products are manufactured using customized steps which are added to the standard manufacturing processes of its wafer suppliers. There is considerably less operating history for the Company's customized process steps than for the foundries' standard manufacturing processes. The Company's dependence on customized processing steps means that, in contrast to competitors using only a standard manufacturing process, the Company has more difficulty establishing relationships with suppliers, takes longer to qualify a new supplier, must pay more for wafers and may not obtain access as early as competitors to state-of- the-art processes. Any of the above could be a material disadvantage for the Company versus a competitor using a standard manufacturing process without customized steps and could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the planned future products that the Company anticipates will be supplied 9 by TSMC will involve production of new products utilizing 0.35^ CMOS technology and on 8-inch wafers, which is a manufacturing process that has not previously been used by the Company. Accordingly, the development of this manufacturing process is subject to the risks and uncertainties inherent in the technology and equipment necessary for such manufacturing. This manufacturing process may not be able to be implemented for any of the Company's products by TSMC, or by any other wafer manufacturer, or may be delayed substantially due to development or implementation difficulties. Even if this manufacturing process is successfully implemented by TSMC for the Company's products, the Company will continue to be subject to unforeseen problems or delays as this new process is developed. See "Business-- Manufacturing." PRODUCTION YIELD FLUCTUATIONS. The manufacture of semiconductor products is a highly complex and precise process. Defects in masks, impurities in the materials used, contamination of the manufacturing environment, equipment failure and other difficulties in the fabrication process can cause a substantial percentage of wafers to be rejected or numerous die on each wafer to be nonfunctional. Yields can decline without warning, resulting in substantially higher product costs and inventory shortages. Yield problems may take substantial time to analyze and correct, particularly for the Company because it utilizes independent facilities for all of its manufacturing. The Company has from time to time experienced lower than anticipated production yields, and there can be no assurance that the Company will not experience production yield problems in the future, or that any such problem will not have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Manufacturing." NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE. The market for the Company's products is characterized by rapidly changing technology. Accordingly, the Company's future performance depends on a number of factors, including its ability to identify emerging technological trends in its target markets, to develop and maintain competitive products, to enhance its products by adding innovative features that differentiate its products from those of competitors, to introduce products to market on a timely basis at competitive prices, to properly identify target markets and to respond effectively to new technological changes or new product announcements by others. The Company recently introduced new products within its pASIC family of FPGAs and currently is in the process of introducing new versions of its software design tool suites. No assurance can be given that the Company's design and introduction schedules for its pASIC families of products or any other new products will be met, that these products will achieve market acceptance, or that these products will be able to be sold at ASPs that are acceptable to the Company. In evaluating new product decisions, the Company must anticipate well in advance both the future demand and the technology that will be available to supply such demand. The Company must also continue to make significant investments in research and development in order to develop new products and achieve market acceptance for such products. The failure of the Company to accomplish any or all of the foregoing could have a material adverse effect on its business, financial condition and results of operations. See "Business-- Products." COMPETITION. The semiconductor industry is intensely competitive and is characterized by constant technological change, rapid rates of product obsolescence and price erosion. The Company's existing competitors include suppliers of conventional gate arrays, complex programmable logic devices ("CPLDs") and FPGAs, particularly Xilinx, Inc. ("Xilinx"), a supplier of static random access memory ("SRAM") based FPGAs, Actel, an anti-fuse FPGA supplier, and Altera Corporation ("Altera"), a supplier of CPLDs. The Company also faces competition from companies that offer standard gate arrays, which can be obtained at a lower cost for high volumes and may have gate densities and performance equal or superior to the Company's products. In addition, the Company expects significant competition in the future from major domestic and international semiconductor suppliers, and the Company's patents may not bar competitors from manufacturing similar products. The Company also may face competition from suppliers of products based on new or emerging technologies. 10 The PLD market is dominated by Xilinx and Altera, which together control over 55% of the market, according to Pace Technologies, a semiconductor market research firm. The Xilinx products dominate the FPGA segment of the market while Altera dominates the CPLD segment of the market. In addition, the Company expects significant competition in the future from major domestic and international suppliers which have entered or are considering entering the PLD market. Such suppliers include Lucent Technologies, Vantis Corporation/Advanced Micro Devices, Inc., Motorola, Inc. and Atmel Corporation. Most of the Company's current and prospective competitors offer broader product lines and have significantly greater financial, technical, manufacturing and marketing resources than the Company. In particular, companies such as Lucent Technologies, Motorola, Inc. and others have proprietary wafer manufacturing ability, preferred vendor status with many of the Company's customers, extensive marketing power and name recognition, greater financial resources than the Company, and other significant advantages over the Company. Certain of the current and prospective competitors of the Company are or may become customers as well. There can be no assurance that such customers will continue to buy the Company's products if they are offering their own competing products, which could have a material adverse effect on the Company's business, financial condition and results of operations. The Company believes that important competitive factors in its market are length of development cycle, price, performance, installed base of development systems, adaptability of products to specific applications, ease of use and functionality of development system software, reliability and technical service and support, wafer fabrication capacity and sources of raw materials, and protection of products by effective utilization of intellectual property laws. Failure of the Company to compete successfully in any of these or other areas could have a material adverse effect on its operating results. In addition, the Company's competitive position is substantially dependent upon industry competition for effective sales and distribution channels. There can be no assurance that the Company's products will be competitive. The failure of the Company to develop and market products that compete successfully with those of other companies in the market would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Competition." DEPENDENCE UPON DESIGN WINS. The Company's success depends upon its ability to convince a customer to incorporate the Company's FPGA into the customer's circuit board during the design phase of a product. Accordingly, the Company devotes substantial resources, which it may not recover through product sales, in support of potential customer design efforts and in persuading potential customers to incorporate the Company's FPGAs into new or updated products. The typical engineer designing a circuit board will make an FPGA decision only three or four times during the year. Accordingly, the Company's sales force has limited windows of opportunity within which to successfully sell the Company's products to design engineers. Sales efforts may be targeted at a particular customer or market segment for several months and may not be successful or, if successful, may not generate revenue for a year or longer after the initial design win until the customer's products using the Company's devices are being produced in volume. In addition, the Company may achieve a design win with a customer, but the designed product may not ever be produced and therefore not generate revenue. The value of any design win depends in large part upon the ultimate success of the customer's product. No assurance can be given that the Company will win sufficient designs or that any design win will result in significant revenue. The failure of the Company to achieve design wins in sufficient number or the failure of a substantial number of such products to be produced would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Sales, Support and Marketing." PROTECTION OF INTELLECTUAL PROPERTY. Since its inception, the Company has devoted significant resources to research and development. The Company relies primarily on a combination of nondisclosure agreements, mask work rights and other contractual provisions and patent, trademark, trade secret, and copyright law to protect its proprietary rights. Failure of the Company to enforce its patents, trademarks, mask work rights or copyrights or to protect its trade secrets could have a 11 material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that such intellectual property rights can be successfully asserted in the future or will not be invalidated, circumvented or challenged. From time to time, third parties, including competitors of the Company, may assert patent, copyright and other intellectual property rights to technologies that are important to the Company. There can be no assurance that third parties will not assert infringement claims against the Company in the future, that assertions by third parties will not result in costly litigation or that the Company would prevail in any such litigation or be able to license any valid and infringed patents from third parties on commercially reasonable terms. Litigation, regardless of the outcome, could result in substantial cost and diversion of resources of the Company. Any infringement claim or other litigation against or by the Company could materially adversely affect the Company's business, financial condition and results of operations. See "--Actel Litigation." In addition, there can be no assurance that competitors of the Company, many of which have substantial resources and have made substantial investments in competing technologies, do not have, or will not seek to apply for and obtain, patents that will prevent, limit or interfere with the Company's ability to make, use or sell its products either in the United States or in international markets. There can be no assurance that the Company will not in the future become subject to patent infringement claims and litigation or interference proceedings declared by the USPTO to determine the priority of inventions. The defense and prosecution of intellectual property suits, USPTO interference proceedings and related legal and administrative proceedings are both costly and time consuming. Any such suit or proceeding involving the Company could have a material adverse effect on the Company's business, financial condition and results of operations. See "--Actel Litigation." ORDER AND SHIPMENT UNCERTAINTIES. The Company's sales are generally made pursuant to individual purchase orders that may be canceled or deferred by customers on short notice without significant penalty. Cancellation or deferral of product orders could result in excess inventory to the Company, which could have a material adverse effect on the Company's profit margins and restrict its ability to fund its operations. The Company sells to domestic distributors under agreements which allow certain rights of return and price adjustments on unsold inventory. The Company recognizes revenue from such sales to domestic distributors upon shipment of products to the end-user. Revenue from all other products is recognized at the time of shipment by the Company. Delays or difficulties in collecting receivable accounts could result in significant charges against income, which could have a material adverse effect on the Company's business, financial condition and results of operations. RISKS OF GROWTH AND EXPANSION. The Company has recently experienced and expects to continue to experience growth in the number of its employees and the scope of its operations, resulting in increased responsibilities for management personnel. To manage recent and potential future growth effectively, the Company will need to continue to hire, train, motivate and manage a growing number of employees. The future success of the Company will also depend on its ability to attract and retain qualified technical, marketing, and management personnel. In particular, the current availability of qualified design, process, and test engineers is limited, and competition among companies for skilled experienced engineering personnel is very intense. The Company has been attempting to hire a number of engineering personnel and has experienced delays in filling such positions. During strong business cycles, the Company expects to experience continued difficulty in filling its needs for qualified engineers and other personnel. No assurance can be given that the Company will be able to achieve or manage effectively any growth, and the failure to do so could delay product development and introductions and otherwise have a material adverse effect on the Company's business, financial condition and results of operations. RELIANCE ON DISTRIBUTORS. Approximately 53.3% and 68.8%, respectively, of the Company's worldwide sales were made through independent distributors in 1996 and the first quarter of 1997, respectively. In these periods, most of the Company's sales outside the United States were made through independent distributors. No assurance can be given that future sales by these or other 12 distributors will continue at current levels or that the Company will be able to retain its current distributors on terms that are acceptable to the Company. The Company's distributors generally offer products of several different companies, including products that are competitive with the Company's products. Accordingly, there is a risk that these distributors may give higher priority to products of other suppliers, thus reducing their efforts to sell the Company's products. In addition, the Company's agreements with its distributors are generally terminable at the distributor's option. The Company recently terminated its distribution relationships with Seymour Electronics and Reptron Electronics Inc. The failure of the Company to successfully transition from the termination of these relationships, a reduction in sales efforts by one or more of the Company's current distributors, or a termination of any other distributor relationship with the Company could have a material adverse effect on the Company's business, financial condition and results of operations. The Company's distributors have on occasion increased inventories in anticipation of substantial growth in sales and, when such growth did not occur as rapidly as anticipated, substantially decreased the amount of products ordered from the Company in subsequent periods. Such a slowdown in sales would adversely affect the Company's future revenue. No assurance can be given that one or more of the Company's distributors will not experience financial difficulties. The failure of one or more of the Company's distributors to pay for products ordered from the Company or to continue operations because of financial difficulties or for other reasons could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Sales, Support and Marketing." RISKS ASSOCIATED WITH INTERNATIONAL BUSINESS ACTIVITIES. Sales to customers located outside the United States accounted for approximately 29.6% and 46.7% of revenue in 1996 and the first quarter of 1997, respectively. The Company expects that revenue derived from international sales will continue to represent a significant portion of its total revenue. International sales are subject to a variety of risks, including those arising from currency exchange fluctuations, taxes, export license requirements, reduced protection for intellectual property rights in some countries, the difficulty in enforcing contractual rights, the impact of general business conditions of economies outside the United States and generally longer periods for receivables collection. Because all of the Company's foreign sales are denominated in U.S. dollars, the Company's products become less price competitive in countries whose currencies are declining in value against the dollar. The Company's business is also subject to the risks associated with the imposition of legislation and regulations relating to the import or export of semiconductor products. In order to expand international sales and service capabilities, the Company must maintain and expand existing foreign operations or establish new foreign operations. Significant management attention and financial resources of the Company will be necessary to hire additional personnel and maintain or expand existing relationships with international distributors and sales representatives. There can be no assurance that the Company will be able to maintain or expand existing foreign operations, establish new foreign operations or preserve and develop its relationships with international distributors or sales representatives. The failure to take any of such measures could have a material adverse effect on the Company's business, financial condition and results of operations. The Company has entered into a memorandum of understanding with TSMC to manufacture its products at TSMC's foundries in the Republic of China (Taiwan), and TSMC is currently producing research and development wafers for the Company. The research and development of the technology that is planned to be used at the TSMC foundry, negotiation of a manufacturing agreement with TSMC, and any production by TSMC, are subject to the risk of political instability in Taiwan, including but not limited to the potential for conflict between Taiwan and the People's Republic of China. In addition, the United States has had disputes with China relating to trade and human rights issues and has also considered trade sanctions against Japan. If trade sanctions were imposed, Japan or China could enact trade sanctions in response. Because the Company plans to manufacture the majority of its products at the TSMC facility in the future, and because a number of the Company's current and prospective customers and suppliers are located in Japan and China, trade sanctions, if imposed, 13 could have a material adverse effect on the Company's business, financial condition and results of operations. Similarly, protectionist trade legislation in either the United States or foreign countries could have a material adverse effect on the Company's ability to manufacture or to sell its products in foreign markets. See "Business--Manufacturing." KEY PERSONNEL; RECENT MANAGEMENT ADDITIONS. The Company's future success depends substantially on the continued service of its key management, engineering, marketing, and sales and support employees, many of whom have worked together for only a short period of time. In particular, two of the Company's executive officers joined the Company in late 1996, and two of the Company's executive officers joined the Company in early 1997. Competition for qualified personnel is intense in the semiconductor industry, and the loss of any of the Company's current key employees, or the inability of the Company to attract and retain other qualified personnel, could have a material adverse effect on the Company's business, financial condition and results of operations. The Company has not entered into any employment agreements with any of its employees, nor does it have "key person" insurance on any of its employees. POSSIBLE VOLATILITY OF STOCK PRICE. The Company believes that factors such as announcements of developments related to the Company's business, including the Actel litigation, announcements by competitors, quarterly fluctuations in the Company's financial results and general conditions in the semiconductor industry or the national and international economies in which the Company conducts business, and release of reports by securities analysts, among other factors, could cause the price of the Company's Common Stock to fluctuate, perhaps substantially. In addition, in recent years the stock market in general, and the market for shares of technology stocks in particular, have experienced extreme price fluctuations, which have often been unrelated to the operating performance of affected companies. Such fluctuations could have a material adverse effect on the price of the Company's Common Stock. DISCRETIONARY USE OF PROCEEDS OF THIS OFFERING. The Company has no current specific plans for the use of the net proceeds of this offering. As a consequence, the Company's management will retain broad discretion in the allocation of the net proceeds of this offering. The Company ultimately expects to use the net proceeds from this offering for general corporate purposes, including working capital and capital expenditures. There can be no assurance that the proceeds will be utilized in a manner that the stockholders deem optimal or that the proceeds can or will be invested to yield a significant return upon the completion of this offering. Substantially all of the net proceeds to the Company from the sale of the 1,800,000 shares of Common Stock offered by the Company hereby which are estimated to be $19,338,000, assuming an initial public offering price of $12.00 per share and after deducting the underwriting discount and estimated offering expenses payable by the Company, will be invested in U.S. short-term or medium-term, investment-grade, interest-bearing securities for an indefinite period. See "Use of Proceeds." FUTURE CAPITAL NEEDS. In order to secure additional foundry capacity, finance ongoing litigation, finance research and development, acquire new technologies or businesses, satisfy personnel needs, or for other general corporate purposes, the Company has considered and will continue to consider various possible transactions, which could include, without limitation, equity investments in, prepayments to, non-refundable deposits with, or loans to, foundries in exchange for guaranteed capacity, "take or pay" contracts that commit the Company to purchase specified quantities of wafers over extended periods, joint ventures or other partnership relationships with foundries, private or public financings or borrowings, or licenses of the Company's technology. There can be no assurance that the Company will be able to make any such arrangement in a timely fashion or at all, that the Company will not require additional issuances of equity or debt in order to raise capital for any such arrangements or that any such financing would be available to the Company on acceptable terms or at all. The failure to obtain additional capital when necessary, could have a material adverse effect on the Company's business, financial condition and results of operations. 14 EFFECT OF ANTITAKEOVER PROVISIONS. Certain provisions of the Company's Restated Certificate of Incorporation and Bylaws and of Delaware law could discourage potential acquisition proposals and could delay or prevent a change in control of the Company. Such provisions could diminish the opportunities for a stockholder to participate in tender offers, including tender offers at a price above the then current market value of the Common Stock. Such provisions may also inhibit fluctuations in the market price of the Common Stock that could result from takeover attempts. In addition, the Restated Certificate of Incorporation authorizes 10,000,000 shares of undesignated preferred stock. The Board of Directors of the Company, without further stockholder approval, may issue this preferred stock with such terms as the Board of Directors may determine, which could have the effect of delaying or preventing a change in control of the Company. The issuance of preferred stock could also adversely affect the voting power of the holders of Common Stock, including the loss of voting control to others. Such preferred stock could be utilized to implement, without stockholder approval, a stockholders' rights plan that could be triggered by certain change in control transactions, which could delay or prevent a change in control of the Company or could impede a merger, consolidation, takeover or other business combination involving the Company, or discourage a potential acquiror from making a tender offer or otherwise attempting to obtain control of the Company. The Company's charter documents also provide that one-third of the directors will be elected each year which could prevent or delay an attempt to change the composition of the Board. See "Description of Capital Stock." RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS. An important element of the Company's strategy is to review acquisition prospects that would complement its existing product offerings, augment its market coverage or enhance its technological capabilities or that may otherwise offer growth opportunities. While the Company has no current agreements or negotiations underway with respect to any such acquisitions, the Company may make acquisitions of businesses, products or technologies in the future. Future acquisitions by the Company could result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and amortization expenses related to goodwill and other intangible assets, any of which could materially adversely affect the Company's operating results and/or the price of the Company's Common Stock. Acquisitions entail numerous risks, including difficulties in the assimilation of acquired operations, technologies and products, diversion of management's attention to other business concerns, risks of entering markets in which the Company has no or limited prior experience and potential loss of key employees of acquired organizations. No assurance can be given as to the ability of the Company to successfully integrate any businesses, products, technologies or personnel that might be acquired in the future, and the failure of the Company to do so could have a material adverse effect on the business, financial condition and results of operations of the Company. See "Use of Proceeds." CONTROL BY PRINCIPAL STOCKHOLDERS. A substantial majority of the Company's capital stock is held by a limited number of stockholders. At the completion of this offering, Cypress and the Company's seven largest stockholders (including Cypress) will own approximately 15.5% and 60.7%, respectively, of the shares of Common Stock outstanding or issuable upon conversion of convertible securities. Accordingly, such stockholders are likely, for the foreseeable future, to continue to be able to control major decisions of corporate policy and determine the outcome of any major transaction or other matter submitted to the Company's stockholders or Board of Directors, including potential mergers or acquisitions involving the Company, amendments to the Company's Certificate of Incorporation or Bylaws, and the like. Stockholders other than such principal stockholders are therefore likely to have little or no influence on decisions regarding such matters. See "Principal and Selling Stockholders." DILUTION. Investors participating in this offering will incur immediate and substantial dilution in the net tangible book value of their shares of Common Stock in the amount of approximately $9.78 per share, at an assumed initial public offering price of $12.00 per share, after deducting the underwriting discount and commissions and estimated offering expenses payable by the Company. Additional dilution will occur upon the exercise of outstanding stock options. See "Dilution." 15 ABSENCE OF DIVIDENDS. The Company has not declared or paid cash dividends on its capital stock to date. The Company presently intends to retain future earnings, if any, for use in the operation and expansion of its business and does not anticipate paying cash dividends with respect to the Common Stock in the foreseeable future. See "Dividend Policy." SHARES ELIGIBLE FOR FUTURE SALE. Sales of the Company's Common Stock in the public market after this offering could adversely affect the market price of the Company's Common Stock. Upon completion of this offering, the Company will have approximately 13,817,422 shares of Common Stock outstanding, of which approximately 3,000,000 shares (approximately 3,450,000 if the Underwriters' over-allotment option is exercised in full) will be freely transferable without restriction or registration under the Securities Act of 1933, as amended (the "Securities Act"), unless such shares are held by "affiliates" of the Company, as that term is defined in Rule 144 under the Securities Act. Upon completion of this offering, Cypress will continue to hold approximately 2,139,783 shares (1,689,783 shares if the Underwriters' over-allotment option is exercised in full), and will be eligible to sell these shares in the public market pursuant to Rule 144, subject to certain contractual restrictions on resale, including lock-up agreements under which the Company, officers and directors of the Company and Cypress have agreed, subject to certain exceptions, not to sell or otherwise dispose of any of their shares for a period of 180 days after the date of this offering (the "Lock Up Period"), provided, however, that in the event that the Lock Up Period would expire in a period where the Company's directors and officers are prevented from trading because of the set "blackout" period between earnings releases provided in the Company's insider trading policy, then, notwithstanding the 180-day limit set forth above, the Lock Up Period shall not expire until the date that trading can commence under the Company's insider trading policy. However, Deutsche Morgan Grenfell may, in its sole discretion, at any time without notice, release all or any portion of the shares subject to lock-up agreements. In addition, Cypress will have certain rights with respect to registration of such shares of Common Stock for sale to the public. Sales of Common Stock by Cypress in the public market, or the availability of such shares for sale, could adversely affect the market price of the Common Stock. In addition, approximately 1,601,750 shares are issuable upon exercise of outstanding options granted under the Company's stock option plans as of May 31, 1997. See "Management--Employee Benefit Plans," "Description of Capital Stock-- Registration Rights" and "Shares Eligible for Future Sale." 16 USE OF PROCEEDS The net proceeds to the Company from the sale of the 1,800,000 shares of Common Stock offered by the Company hereby are estimated to be $19,338,000, assuming an initial public offering price of $12.00 per share and after deducting the underwriting discount and estimated offering expenses payable by the Company. The principal purposes of this offering are to obtain additional capital, to create a public market for the Company's Common Stock, to enhance the Company's ability to use its Common Stock as consideration for acquisitions and as a means of attracting and retaining key employees, to provide increased visibility and credibility in a marketplace where many of the Company's current and potential competitors are or will be publicly held companies, and to facilitate future access by the Company to public equity markets. As of the date of this Prospectus, the Company has no specific plans as to the use of the net proceeds of this offering. However, the Company ultimately expects to use the net proceeds from this offering for general corporate purposes, including working capital and capital expenditures, including at least $2.0 million of capital expenditures in 1997. A portion of the proceeds may also be used to make strategic acquisitions of complementary businesses, technologies or products. Although the Company evaluates such potential acquisitions from time to time, the Company currently has no understanding, commitment or agreement with respect to any such acquisitions. Pending such uses, the Company intends to invest the net proceeds of this offering in U.S. short-term or medium-term, investment grade, interest-bearing securities. The Company will not receive any proceeds from the sale of the shares of Common Stock offered by Cypress hereby. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." DIVIDEND POLICY The Company has not and does not intend to pay any cash dividends on its capital stock. The Company presently intends to retain future earnings, if any, for use in the operation and expansion of its business and does not anticipate paying cash dividends in the foreseeable future. 17 CAPITALIZATION The following table sets forth the long-term obligations and capitalization of the Company at March 31, 1997 (i) on an actual basis and (ii) as adjusted to give effect to the sale of 1,800,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $12.00 per share, after deducting the underwriting discount and estimated offering expenses payable by the Company, the conversion of all outstanding shares of preferred stock into Common Stock, the issuance of 2,603,817 shares of Common Stock to Cypress in connection with the contract termination and the exercise of a warrant to purchase 18,750 shares of Common Stock. This table should be read in conjunction with the Financial Statements and the Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Prospectus.
MARCH 31, 1997 -------------------------- ACTUAL AS ADJUSTED ----------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Long-term obligations............................... $ 1,658 $ 1,658 ----------- ----------- Stockholders' equity: Preferred Stock, $.001 par value; 8,766,836 shares authorized, 8,495,712 shares issued and outstanding, actual; 10,000,000 shares authorized, no shares issued and outstanding, as adjusted...................................... 9 Common stock, $.001 par value; 12,142,857 shares authorized; 860,957 shares issued and outstanding, actual; 100,000,000 shares authorized, 13,779,236 issued and outstanding, as adjusted(1)...................................... 1 14 Additional paid-in capital.......................... 43,528 81,355 Common stock to be issued: 2,603,817 shares actual; and no shares, as adjusted......................... 18,409 -- Stockholder note receivable......................... (119) (119) Deferred compensation............................... (2,897) (2,897) Accumulated deficit................................. (50,872) (50,872) ----------- ----------- Total stockholders' equity........................ 8,059 27,481 ----------- ----------- Total capitalization.......................... $ 9,717 $ 29,139 =========== ===========
- -------- (1) Excludes as of March 31, 1997 1,657,592 shares of Common Stock subject to outstanding options under the Company's 1989 Stock Option Plan and 714,289 shares reserved for future issuance thereunder. See "Management--Employee Benefit Plans" and Note 7 of Notes to Financial Statements. 18 DILUTION The pro forma net tangible book value of the Company as of March 31, 1997, was approximately $8.1 million, or $0.86 per share of Common Stock. Pro forma net tangible book value per share represents the amount of total tangible assets of the Company reduced by the amount of its total liabilities and divided by the total number of shares of Common Stock outstanding after giving effect to the conversion of all outstanding shares of preferred stock into Common Stock. After giving effect to the sale by the Company of 1,800,000 shares of Common Stock offered hereby at an assumed initial public offering price of $12.00 per share, after deducting the underwriting discount and estimated offering expenses payable by the Company, after giving effect to the sale of 2,603,817 shares of Common Stock by Cypress in this offering, and after giving effect to the exercise of a warrant to purchase 18,750 shares of Common Stock, the pro forma net tangible book value of the Company as of March 31, 1997, would have been $27,481,000, or $1.99 per share. This amount represents an immediate increase in such net tangible book value of $1.13 per share to existing stockholders and an immediate dilution of $10.01 per share to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share............. $12.00 Pro forma net tangible book value per share as of March 31, 1997................................................. $ 0.86 Increase per share attributable to new investors.......... $ 1.13 Pro forma net tangible book value per share after the offering................................................... 1.99 ------ Dilution per share to new investors......................... $10.01 ======
The following table summarizes, on a pro forma basis as of March 31, 1997, the differences between the existing stockholders and the new investors with respect to the number of shares of Common Stock purchased from the Company, the total consideration paid to the Company and the average price paid per share, based upon an assumed initial public offering price of $12.00 per share (before deducting the underwriting discount and estimated offering expenses payable by the Company) with respect to the 1,800,000 shares offered by the Company hereby:
AVERAGE SHARES PURCHASED TOTAL CONSIDERATION PRICE ------------------ -------------------- PER NUMBER PERCENT AMOUNT PERCENT SHARE ---------- ------- ------------ ------- ------- Existing stockholders........ 11,979,236 86.9% $ 62,021,000 74.2% $ 5.18 New investors(1)............. 1,800,000 13.1 21,600,000 25.8 12.00 ---------- ----- ------------ ----- Total...................... 13,779,236 100.0% $ 83,611,000 100.0% ========== ===== ============ =====
- -------- (1) The sale of shares of Common Stock by Cypress in the offering will reduce the number of shares held by existing stockholders to 10,779,236 or 78.2% of the total number of shares of Common Stock outstanding after the offering, and will increase the number of shares to be purchased by the new public investors to 3,000,000 or 21.8% of the total number of shares of Common Stock outstanding after the offering. See "Principal and Selling Stockholders." The above computations assume that (i) no part of the Underwriters' over- allotment option is exercised and (ii) no options are exercised after March 31, 1997. As of March 31, 1997, there were outstanding options to purchase an aggregate of 1,657,592 shares of Common Stock at a weighted average exercise price of $1.94 per share. To the extent the above options have been or are exercised, there will be further dilution to new investors. See "Management-- Employee Benefit Plans," "Description of Capital Stock" and Notes 5 and 7 of Notes to Financial Statements. 19 SELECTED FINANCIAL DATA The selected financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements and Notes thereto included elsewhere in this Prospectus. The balance sheet information as of December 31, 1995 and 1996 and the statement of operations data set forth below for 1994, 1995, and 1996 are derived from the audited financial statements included elsewhere in this Prospectus. The balance sheet information as of December 31, 1992, 1993 and 1994 and the statement of operations data for 1992 and 1993 are derived from unaudited financial statements of the Company not included herein. The balance sheet information as of March 31, 1997 and the statement of operations data for the quarters ended March 31, 1996 and 1997 are derived from unaudited financial statements included herein. In the opinion of management, such unaudited financial statements have been prepared on the same basis as the audited financial statements referred to above and include all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the financial position of the Company and the results of operations for the indicated periods. Operating results for the quarter ended March 31, 1997 are not necessarily indicative of the results that may be expected for the full year.
QUARTER QUARTER YEAR ENDED DECEMBER 31, ENDED ENDED ------------------------------------------- MARCH 31, MARCH 31, 1992 1993 1994 1995 1996 1996 1997 ------- ------- ------- ------- ------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenue................. $ 1,325 $ 4,141 $ 6,024 $15,148 $23,758 $5,154 $ 6,268 Cost of revenue......... 1,191 2,889 4,053 7,739 11,158 2,563 2,813 ------- ------- ------- ------- ------- ------ -------- Gross profit............ 134 1,252 1,971 7,409 12,600 2,591 3,455 ------- ------- ------- ------- ------- ------ -------- Operating expenses: Research and development........... 2,389 2,762 3,172 3,599 4,642 1,042 1,333 Sales, general and administrative........ 2,232 2,625 4,408 5,770 7,730 1,685 2,313 Contract termination and other expense(1).. -- -- -- 2,700 4,125 -- 23,009 ------- ------- ------- ------- ------- ------ -------- Total operating expenses.............. 4,621 5,387 7,580 12,069 16,497 2,727 26,655 ------- ------- ------- ------- ------- ------ -------- Loss from operations.... (4,487) (4,135) (5,609) (4,660) (3,897) (136) (23,200) Interest expense........ -- (223) (240) (200) (60) (7) (21) Interest income and other, net............. 30 60 21 153 360 164 118 ------- ------- ------- ------- ------- ------ -------- Net income (loss)(2)... $(4,457) $(4,298) $(5,828) $(4,707) $(3,597) $ 21 $(23,103) ======= ======= ======= ======= ======= ====== ======== Pro forma net income (loss) per share (unaudited)(2)... $ (0.29) $ -- $ (1.83) ======= ====== ======== Shares used in pro forma net income (loss) per share.................. 12,612 12,438 12,612 ======= ====== ========
- -------- (1) Includes a charge of $23.0 million in the year ended December 31, 1996 for termination of the Existing Agreement (as defined herein) and charges of $2.7 million and $4.1 million in the years ended December 31, 1995 and 1996, respectively, for expected costs of litigation. See "Risk Factors-- Actel Litigation" and Notes 8 and 11 of Notes to Financial Statements. (2) Excluding the contract termination expense and charge for legal reserves, net loss and pro forma net loss per share would have been $94,000 and $0.01, respectively, for the quarter ended March 31, 1996 and $528,000 and $0.04, respectively, for the quarter ended March 31, 1997.
DECEMBER 31, -------------------------------------- MARCH 31, 1992 1993 1994 1995 1996 1997 ------ ------ ------- ------- ------- --------- (IN THOUSANDS) BALANCE SHEET DATA: Cash......................... $5,071 $2,836 $ 488 $ 3,856 $10,336 $10,366 Working capital (deficit).... 4,484 553 (4,792) 7,068 10,650 7,172 Total assets................. 7,076 4,696 2,531 12,199 22,577 21,476 Long-term obligations........ 534 383 509 137 602 1,658 Total stockholders' equity (deficit)................... 5,255 956 (4,848) 7,149 11,799 8,059
20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Financial Statements and the Notes thereto included elsewhere in this Prospectus. This Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ significantly from those discussed in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors" and elsewhere in this Prospectus. OVERVIEW From its inception in April 1988 through the third quarter of 1991, QuickLogic was primarily engaged in product development. Accordingly, the majority of the Company's operating expenses during such period were related to research and development activities. The Company recorded revenue from its first product family, pASIC 1, in August 1991. The pASIC 1 product family includes logic devices consisting of 1-, 2-, 4- and 8-thousand usable ASIC gates. The Company first recorded revenue from its pASIC 2 product family in the third quarter of 1996. The pASIC 2 product family includes logic devices consisting of 3-, 5-, 7- and 9-thousand usable ASIC gates. At March 31, 1997, the Company had an accumulated deficit of $50.9 million. Revenue from the Company's pASIC products represented over 90.0% of revenue for each of 1994, 1995 and 1996 and the first quarter of 1997. The Company derives the remainder of revenue from licenses of its QuickWorks and QuickTools design software. One customer accounted for approximately 27.0% and 11.1% of revenue in 1996 and the first quarter of 1997, respectively. No other customer accounted for more than 10% of revenue in 1994, 1995, 1996 or the first quarter of 1997. Sales through distributors represented 65.4%, 60.5% and 53.3% of revenue in 1994, 1995 and 1996, respectively, and 49.8% and 68.8% for the first quarters of 1996 and 1997, respectively. The Company expects that these percentages will increase over time. The Company's general policy is to defer recognition of revenue on shipments to domestic distributors until the product is sold by such distributors to the end-user. Revenue from all other products is recognized at the time of shipment by the Company. International revenue accounted for 30.0%, 29.4% and 29.6% of the Company's revenue for 1994, 1995 and 1996, respectively and 47.1% and 46.7% for the first quarters of 1996 and 1997, respectively. The Company expects that revenue derived from purchases by international customers will continue to represent a significant portion of its total revenue. All of the Company's sales are denominated in U.S. dollars. Average selling prices ("ASPs") for the Company's products typically decline rapidly during the first six to 12 months after introduction, then decline less rapidly as the product matures. To date, the Company has been able to offset price declines by periodically introducing higher-priced, higher- density products, which results in relatively constant overall ASPs. In addition, the Company seeks to maintain acceptable gross margins through manufacturing efficiencies and cost reductions, including manufacturing its products using smaller product geometries on larger wafers. However, the markets in which the Company competes are highly competitive, and there can be no assurance that the Company will continue to successfully introduce higher- density products, that overall ASPs can be maintained or that the Company will continue to achieve manufacturing efficiencies or material cost reductions. Any significant decline in the Company's overall ASPs or gross margins could have a material adverse effect on the Company's business, financial condition or results of operations. See "Risk Factors--Industry Pressures." In March 1997, the Company and Cypress terminated the existing Technical Transfer, Joint Development License and Foundry Supply Agreement between the parties dated October 2, 1992 (the 21 "Existing Agreement") related to the Company's FPGA products, and replaced it with a new arrangement whereby the Company's FPGA products will no longer be second sourced by Cypress. In exchange for the termination of the Existing Agreement and the reversion of the rights to the intellectual property developed thereunder to the Company, the Company paid $4.5 million in cash and agreed to issue 2,603,817 shares of Common Stock to Cypress, resulting in a charge of approximately $23 million in the first quarter of 1997. In addition, the Company granted Cypress certain contractual rights as to the shares of the Company's stock held by Cypress, including the right to sell shares in this offering. The parties also entered into a new foundry agreement and a cross- license agreement. See "Business--Cypress Transaction." Under its wafer supply arrangements, the Company is obligated to provide rolling forecasts of anticipated purchases and place binding purchase orders months prior to shipment. Forecasts for monthly purchases may not increase or decrease by more than a certain percentage from the previous month's forecast without the supplier's consent. Thus, the Company must typically make forecasts and place purchase orders for wafers 60 to 90 days prior to receiving purchase orders from its own customers. This limits the Company's ability to react to fluctuations in demand for its products, which could cause the Company to have an excess or a shortage of wafers for a particular product. See "Risk Factors--Fluctuations in Operating Results" and "-- Dependence on Independent Wafer Manufacturers." In 1995 and 1996, the Company recorded a $2.7 million and $4.1 million, respectively, increase to its legal reserves for the Actel litigation (see Note 11 of Notes to Financial Statements). The Company intends to continue to reassess anticipated litigation costs and will adjust its reserve as necessary. See "Risk Factors--Actel Litigation." RESULTS OF OPERATIONS The following table sets forth the percentage of revenue for certain items in the Company's statements of operations for the periods indicated:
QUARTER ENDED YEAR ENDED DECEMBER 31, MARCH 31, --------------------------- --------------- 1994 1995 1996 1996 1997 ------- ------- ------- ------ ------- Revenue........................ 100.0% 100.0% 100.0% 100.0% 100.0% Cost of revenue................ 67.3 51.1 47.0 49.7 44.9 ------- ------- ------- ------ ------- Gross margin................... 32.7 48.9 53.0 50.3 55.1 ------- ------- ------- ------ ------- Operating expenses: Research and development..... 52.6 23.8 19.5 20.2 21.2 Selling, general and administrative.............. 73.2 38.1 32.5 32.7 36.9 Contract termination and other expense............... -- 17.8 17.4 -- 367.1 ------- ------- ------- ------ ------- Total operating expenses... 125.8 79.7 69.4 52.9 425.2 ------- ------- ------- ------ ------- Operating loss................. (93.1) (30.8) (16.4) (2.6) (370.1) Interest expense............... (3.9) (1.3) (0.2) (0.2) (0.3) Interest income and other, net........................... 0.3 1.0 1.5 3.2 1.9 ------- ------- ------- ------ ------- Net income (loss).............. (96.7)% (31.1)% (15.1)% 0.4% (368.5)% ======= ======= ======= ====== =======
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 Revenue. Revenue for 1994, 1995 and 1996 was $6.0 million, $15.1 million and $23.8 million, respectively, an increase of 151.5% in 1995 and 56.8% in 1996 over the respective prior year periods. The majority of the 1995 increase was due to a substantial growth in sales of the Company's 4-thousand gate ("4K") logic device products, first commercially shipped in the third quarter of 1994, 22 the introduction of its 8-thousand gate ("8K") logic device products, first commercially shipped in the second quarter of 1995, and increased sales to customers in the data communications markets, primarily in North America and Europe. The 1996 revenue growth was primarily attributable to increased acceptance of the Company's 4K and 8K products in North America and Europe, and a substantial increase in volume of sales to Texas Instruments. Increased unit sales in 1995 and 1996 were partially offset by declining ASPs as newly introduced products matured in 1995 and 1996. The Company expects rapid ASP declines for a product during the first six to 12 months after introduction and slowing declines thereafter, and seeks to increase revenue through the introduction of new products and increased unit sales of its existing products. However, no assurance can be given that the Company's efforts in this regard will be successful. Gross Profit. Gross profit was $2.0 million, $7.4 million and $12.6 million in 1994, 1995 and 1996, respectively, which constituted 32.7%, 48.9% and 53.0% of revenue for such periods. The improvement in 1995 gross margin was primarily attributable to increased efficiencies as the Company's manufacturing volume increased. The 1996 improvement resulted primarily from continued volume-related efficiencies, wafer yield improvement and reductions in wafer prices as foundry capacity constraints experienced in 1995 eased. The improvement in margins in 1995 and 1996 was somewhat offset by yield fluctuations as production began on the 8K products. The Company attempts to offset declining ASPs as products mature through achieving manufacturing efficiencies and material cost reductions as well as introducing new products with higher prices. The Company's operating environment and resource requirements necessitate managing a variety of factors such as general business conditions in the semiconductor industry, fluctuations in manufacturing yields at the Company's wafer suppliers, the availability of foundry capacity, cancellations or delays of deliveries of products to the Company, new product introductions by the Company or its competitors, product obsolescence, price erosion for maturing products, competition, changes in the mix of products sold, seasonal fluctuations in demand, changes in distributor inventory levels, availability of wafer supply, increases in the costs of materials, cancellations or delays of product orders, developments in the Company's litigation with Actel, the ability to safeguard intellectual property in a rapidly evolving market, changing customer product requirements, changes in demand for customers' products and fluctuations in foreign currency exchange rates. As a result of changes in these factors, the Company's past results may not be indicative of future operating results. See "Risk Factors-- Fluctuations in Operating Results" and "--Industry Pressures." Research and Development Expense. Research and development ("R&D") expense includes personnel and other costs associated with product design and development, process technology development and software development. R&D expense was $3.2 million, $3.6 million, and $4.6 million in 1994, 1995 and 1996, respectively, which constituted 52.6%, 23.8% and 19.4% of revenue for such periods. The increases in R&D expense in 1995 and 1996 were primarily due to increases in headcount. The decline in R&D expense as a percentage of revenue in 1995 and 1996 was primarily attributable to the increase in revenue during those periods. The Company believes that continued investment in process technology and product development are essential for it to remain competitive in the markets it serves and expects to continue to increase R&D expense in the future. The Company also expects R&D expense to increase as a result of deferred compensation charges in future periods (see "--Deferred Compensation") and costs associated with the migration to a new wafer supplier. Selling, General and Administrative Expense. Selling, general and administrative ("SG&A") expense was $4.4 million, $5.8 million and $7.7 million in 1994, 1995 and 1996, respectively, which constituted 73.2%, 38.1% and 32.5% of revenue for such periods, respectively. The increase in 1995 SG&A expense over the year earlier period was primarily attributable to an increase in personnel and increased sales and marketing efforts in support of existing and new products. The increase in SG&A expense in 1996 was attributable to increased sales commissions, marketing efforts and increased headcount. SG&A expense decreased in 1995 and 1996 as a percentage of revenue primarily as a 23 result of increased revenue. The Company anticipates that SG&A expense will increase as a result of deferred compensation charges in future periods (see "--Deferred Compensation") and as a result of costs associated with the Company becoming a public company. Deferred Compensation. The Company grants incentive stock options to hire, incent and retain employees. With respect to the grant of certain stock options to employees, the Company recorded aggregate deferred compensation of approximately $851,000 and $2.2 million in 1996 and in the first quarter of 1997, respectively. Deferred compensation is presented as a reduction of stockholders' equity and amortized ratably over the vesting period of the applicable options, generally four years. The Company currently expects to record amortization of deferred compensation of approximately $644,000, $755,000, $755,000, $712,000 and $107,000 during the years ended 1997, 1998, 1999, 2000 and 2001, respectively. The amortization of deferred compensation will be recorded as R&D and SG&A expense in such periods. Interest Income and Other, Net. Interest and other income was $21,000, $153,000 and $360,000 in 1994, 1995 and 1996, respectively. Interest and other income increased in 1995 and 1996 as a result of increased interest income on higher average cash and investment balances in 1995 and 1996. See "--Liquidity and Capital Resources." Interest Expense. Interest expense was $240,000, $200,000 and $60,000 in 1994, 1995 and 1996, respectively. Interest expense decreased in 1996 as a result of the conversion to preferred stock of notes payable to stockholders during 1995. Provision for Income Taxes. No provision for income taxes has been recorded in the years ended December 31, 1994, 1995 and 1996, as the Company incurred net operating losses ("NOLs") in those years. At December 31, 1996, the Company had NOL carryforwards for federal and state tax purposes of approximately $16 million and $1 million respectively. These carryforwards, if not utilized to offset future taxable income and income taxes payable, will expire through the year 2010. QUARTERS ENDED MARCH 31, 1996 AND MARCH 31, 1997 Revenue. Revenue was $5.2 million and $6.3 million for the first quarter of 1996 and 1997, respectively. Revenue increased 21.6% for the first quarter of 1997 compared to the year earlier period due to revenue from the sale of the Company's first pASIC 2 product, which began shipping in the second quarter of 1996, as well as an expanded presence in the marketplace through the addition of two significant distributors. Gross Profit. Gross profit was $2.6 million and $3.5 million for the first quarter of 1996 and 1997, respectively. Gross margins improved from 50.3% for the first quarter of 1996 to 55.1% in the first quarter of 1997 due to yield improvements on the 4K and 8K products, increased operating efficiencies due to greater volumes of the Company's higher-ASP, higher-density products. Gross margin improvements were partially offset by declining ASPs of the Company's lower-density products. Research and Development Expense. R&D expense was $1.0 million and $1.3 million for the first quarter of 1996 and 1997, respectively. The increase in R&D expense was primarily due to the hiring of additional research and development personnel, as well as $37,000 attributable to deferred compensation charges in the first quarter of 1997 associated with the grant of incentive stock options to employees. R&D expense increased as a percentage of revenue from 20.2% in the first quarter of 1996 to 21.3% in the first quarter of 1997. Selling, General and Administrative Expense. SG&A expense was $1.7 million and $2.3 million for the first quarter of 1996 and 1997, respectively. SG&A expense increased as a percentage of revenue from 32.7% in the first quarter of 1996 to 36.9% in the first quarter of 1997 due to hiring of additional sales, marketing, finance and human resources personnel. In addition, SG&A expense includes $39,000 attributable to deferred compensation charges in the first quarter of 1997 associated with the grant of incentive stock options to employees. 24 Interest Income and Other, Net. Interest income and other, net for the first quarter of 1996 was $164,000 compared to $118,000 for the first quarter of 1997. The decrease was due to lower average cash and investment balances in the first quarter of 1997 compared to the first quarter of 1996. Interest Expense. Interest expense was $7,000 and $21,000 in the first quarter of 1996 and 1997, respectively. The increase was due to additional financing of capital expenditures for furniture, test equipment and leasehold improvements. QUARTERLY RESULTS OF OPERATIONS The following tables set forth certain unaudited statement of operations data for the four quarters of each of 1995 and 1996 and the first quarter of 1997, as well as such data expressed as a percentage of the Company's revenue for the periods indicated. This data has been derived from unaudited financial statements that, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such information. The Company's quarterly results have been in the past, and in the future may be, subject to fluctuations. See "Risk Factors--Fluctuations in Operating Results." As a result, the Company believes that results of operations for the interim periods are not necessarily indicative of results for any future period.
QUARTER ENDED ------------------------------------------------------------------------------------ MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, 1995 1995 1995 1995 1996 1996 1996 1996 1997 -------- -------- --------- -------- -------- -------- --------- -------- -------- Revenue................. $ 2,644 $2,715 $ 3,951 $5,838 $5,154 $6,286 $6,047 $ 6,271 $ 6,268 Cost of revenue......... 1,372 1,391 2,108 2,868 2,563 2,982 2,828 2,785 2,813 ------- ------ ------- ------ ------ ------ ------ ------- -------- Gross profit............ 1,272 1,324 1,843 2,970 2,591 3,304 3,219 3,486 3,455 ------- ------ ------- ------ ------ ------ ------ ------- -------- Operating expenses Research and development........... 784 942 749 1,124 1,042 1,131 1,127 1,342 1,333 Selling, general and administrative.... 1,455 1,198 1,615 1,502 1,685 2,006 2,058 1,981 2,313 Contract termination and other expense..... -- -- 2,700 -- -- 265 -- 3,860 23,009 ------- ------ ------- ------ ------ ------ ------ ------- -------- Total operating expenses.............. 2,239 2,140 5,064 2,626 2,727 3,402 3,185 7,183 26,655 ------- ------ ------- ------ ------ ------ ------ ------- -------- Operating income (loss)................. (967) (816) (3,221) 344 (136) (98) 34 (3,697) (23,200) Interest expense........ (90) (67) (41) (2) (7) (6) (30) (17) (21) Interest income and other, net............. 2 37 65 49 164 146 57 (7) 118 ------- ------ ------- ------ ------ ------ ------ ------- -------- Net income (loss)....... $(1,055) $ (846) $(3,197) $ 391 $ 21 $ 42 $ 61 $(3,721) $(23,103) ======= ====== ======= ====== ====== ====== ====== ======= ========
AS A PERCENTAGE OF REVENUE QUARTER ENDED ------------------------------------------------------------------------------------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, 1995 1995 1995 1995 1996 1996 1996 1996 1997 -------- -------- --------- -------- -------- -------- --------- -------- -------- Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of revenue......... 51.9 51.2 53.3 49.1 49.7 47.4 46.8 44.4 44.9 ----- ----- ----- ----- ----- ----- ----- ----- ------ Gross profit............ 48.1 48.8 46.7 50.9 50.3 52.6 53.2 55.6 55.1 ----- ----- ----- ----- ----- ----- ----- ----- ------ Operating expenses Research and development........... 29.7 34.7 19.0 19.3 20.2 18.0 18.6 21.4 21.2 Selling, general and administrative.... 55.0 44.1 40.9 25.7 32.7 31.9 34.0 31.6 36.9 Contract termination and other expense..... -- -- 68.3 -- -- 4.2 -- 61.6 367.1 ----- ----- ----- ----- ----- ----- ----- ----- ------ Total operating expenses.............. 84.7 78.8 128.2 45.0 52.9 54.1 52.6 114.6 425.2 ----- ----- ----- ----- ----- ----- ----- ----- ------ Operating income (loss)................. (36.6) (30.0) (81.5) 5.9 (2.6) (1.5) 0.6 (59.0) (370.1) Interest expense........ (3.4) (2.5) (1.0) -- (0.2) (0.1) (0.5) (0.3) (0.3) Interest income and other, net............. 0.1 1.4 1.6 0.8 3.2 2.3 0.9 (0.1) 1.9 ----- ----- ----- ----- ----- ----- ----- ----- ------ Net income (loss)....... (39.9)% (31.1)% (80.9)% 6.7% 0.4% 0.7% 1.0% (59.4)% (368.5)% ===== ===== ===== ===== ===== ===== ===== ===== ======
25 Revenue increased and gross margin improved substantially from the third to the fourth quarters of 1995 due to market acceptance of the Company's 4K products as well as yield improvements and manufacturing efficiencies attributable to greater volume production. Revenue declined in the first quarter of 1996 due to a slowdown in demand affecting the entire semiconductor industry. Revenue and gross margin declined in the first quarter of 1996 compared to the fourth quarter of 1995 due to a general slowdown in the semiconductor industry, which resulted in relatively more rapid declines in ASPs of the Company's pASIC 1 products. Revenue increased and gross margin improved in the second quarter of 1996 due to market acceptance of the Company's new 8K products. Quarter-to-quarter revenue has been relatively constant since the second quarter of 1996 due to general semiconductor industry conditions as well as demand for the Company's products partially shifting to products with lower ASPs. Gross margins in the fourth quarter of 1995 and the first quarter of 1996 were also adversely affected by lower than expected fabrication and test yields. Gross margins continued to increase throughout 1996 due to manufacturing efficiencies and material cost reductions and remained flat in the first quarter of 1997. SG&A increased significantly in the third quarter of 1995 and the second quarter of 1996 primarily as a result of higher commissions. The increase in the first quarter of 1997 was due primarily to the hiring of additional personnel. SG&A is expected to continue to increase due to increasing commissions as revenue increases, additional costs associated with being a public company, and deferred compensation charges related to certain option grants. See "--Deferred Compensation." Total operating expenses increased substantially in the third quarter of 1995 and the fourth quarter of 1996 due to charges for legal reserves. In the first quarter of 1997, the Company incurred a $23.0 million charge in connection with the termination of the Existing Agreement with Cypress. See "Business--Cypress Transaction" and "--Actel Litigation." Interest expense declined in the third quarter of 1995 as the Company converted notes payable to stockholders to preferred stock and increased in the third quarter of 1996 due to financing of capital acquisitions. Interest and other income, net increased in the first quarter of 1996 due to higher yields from investments and decreased in the third quarter of 1996 due to a $4.5 million payment to Cypress. See "Business--Cypress Transaction." The increase in the first quarter of 1997 was due to higher cash balances from the issuance of preferred stock in December 1996. Fluctuations in the Company's operating results have occurred in the past and may occur in the future due to a variety of factors, any of which may have a material adverse effect on the Company's operating results. In particular, the Company's quarterly results of operations may vary significantly due to general business conditions in the semiconductor industry, fluctuations in manufacturing yields at the Company's wafer suppliers, the availability of foundry capacity, cancellations or delays of deliveries of products to the Company, new product introductions by the Company or its competitors, product obsolescence, price erosion for maturing products, competition, changes in the mix of products sold, seasonal fluctuations in demand, changes in distributor inventory levels, availability of wafer supply, increases in the costs of materials, cancellations or delays of product orders, developments in the Company's litigation with Actel, the ability to safeguard intellectual property in a rapidly evolving market, changing customer product requirements, changes in demand for customers' products and fluctuations in foreign currency exchange rates. A large portion of the Company's operating expenses is fixed and difficult to reduce or modify. If revenue does not meet the Company's expectations, the material adverse effect of any such revenue shortfall will be magnified by the fixed nature of these operating expenses. In addition, the Company's quarterly operating results can vary due to the volume and timing of product orders received and delivered during a quarter, the ability of the Company and its key suppliers to respond to changes made in customer orders, and the timing of new product introductions by the Company and its competitors. All of the above factors are difficult for the Company to forecast, and these and other factors could have a material adverse effect on the Company's business, financial condition and results of operations. As a result, the Company believes 26 that period-to-period comparisons are not necessarily meaningful and should not be relied upon as indicative of future operating results. See "Risk Factors--Fluctuations in Operating Results." LIQUIDITY AND CAPITAL RESOURCES The Company has primarily financed its operations and capital requirements through sales of preferred stock, borrowings from stockholders and, in the most recent two quarters, bank debt to finance its capital requirements. At March 31, 1997, the Company had $10.4 million in cash, an increase of $2.0 million from cash and short-term investments held at March 31, 1996. This increase was primarily attributable to the issuance of $8.9 million in preferred stock in December 1996 and January 1997, offset in part by the payment of $4.5 million to Cypress and increased cash used in operating activities. As of March 31, 1997, the Company had an accumulated deficit of $50.9 million. See "Business--Cypress Transaction" and Note 8 of Notes to Financial Statements. The Company currently has a $5.0 million bank facility which will increase to $6.0 million upon the closing of this offering. Under this facility, the Company has a $2.0 million domestic accounts receivable revolving line of credit, a $2.0 million equipment term loan facility, and a $1.0 million foreign accounts receivable and inventory revolving line of credit. The domestic and foreign revolving lines of credit are available for general working capital purposes, bear interest at the bank's prime rate and expire August 7, 1997. The Company expects to renew these lines of credit. At March 31, 1997, the Company had utilized $1.8 million of the equipment term loan facility, and has not drawn down under the other lines as of such time or to date. The equipment term loan facility is available for drawdown through June 30, 1997, bears interest at prime plus 0.25% and is payable in equal monthly installments from July 1997 through June 2000. See Note 4 of Notes to Financial Statements. Through March 31, 1997, the Company has purchased approximately $4.9 million in capital assets, $1.9 million of which were purchased through bank financing during 1996 and the first quarter of 1997. The Company intends to purchase approximately $2.0 million of additional capital assets during the remainder of 1997 but currently has no other significant commitments to acquire capital equipment. Net cash used in operations was $3.5 million, $5.0 million, $4.6 million and $1.4 million in 1994, 1995, 1996 and the first quarter of 1997, respectively. The increase in cash used in 1995 as compared to 1994 was primarily attributable to a $2.6 million increase in accounts receivable, partially offset by a $2.0 million increase in liabilities in 1995 and $122,000 reduction in accounts payable in 1995 compared to a $1.5 million increase in accounts payable in 1994, partially offset by a $1.1 million decrease in net loss in 1995 compared to 1994. The decline in cash used for operations (excluding the increase in the charge for legal reserves) in 1996 as compared to 1995 was due to net income of $528,000 in 1996 compared to a net loss of $2.0 million in 1995, and a substantial increase in accounts payable in 1996, offset in part by the $4.5 million payment to Cypress and a substantial increase in inventory in 1996. Net cash used in operations during the first quarter of 1997 resulted primarily from increases in accounts receivable and inventory. Net cash provided by (used for) investing activities was $(259,000), $(4.1) million, $2.5 million and $(915,000) in 1994, 1995, 1996 and the first quarter of 1997, respectively. In 1995, the Company invested $4.0 million in short- term investments which were sold in 1996. The Company acquired $1.5 million and $915,000 in property and equipment in 1996 and the first quarter of 1997, respectively, primarily furniture, leasehold improvements and computer and networking equipment as a result of its move to its new facility in December of that year. The majority of these acquisitions were financed under the Company's equipment term loan facility. Net cash provided from financing activities was $1.4 million, $12.5 million, $8.6 million and $2.3 million in 1994, 1995, 1996 and the first quarter of 1997, respectively, and resulted primarily from the issuance of $11.8 million of preferred stock in 1995 and $8.1 million of preferred stock in 1996, and 27 $1.5 million and $1.2 million in borrowings from stockholders in 1994 and 1995, respectively. In 1996 and the first quarter of 1997, the Company had bank borrowings of $470,000 and $1.5 million, respectively. The Company requires substantial working capital to fund its business, particularly to finance inventories and accounts receivable. The Company's future capital requirements will depend on many factors, including the rate of sales growth, market acceptance of the Company's existing and new products, the amount and timing of research and development expenditures, the timing of the introduction of new products, expansion of sales and marketing efforts, and the status of ongoing litigation. See "Risk Factors--Actel Litigation." There can be no assurance that additional equity or debt financing, if required, will be available on terms satisfactory to the Company. See "Risk Factors--Future Capital Needs." The Company believes the net proceeds of this offering combined with its existing capital resources and cash generated from operations will be sufficient to meet the Company's needs for the next 12 months, although the Company could seek to raise additional capital during that period. 28 BUSINESS QuickLogic develops, markets and supports advanced FPGA semiconductors and software design tools. QuickLogic products enable designers of complex electronic systems to achieve rapid time to market by optimizing design speed, design flexibility and cost. The Company's products target complex, high- performance electronic systems in rapidly changing markets including video, graphics and imaging, telecommunications and data communications, instrumentation and test, high-performance computers and military systems. The key components of the QuickLogic solution are the Company's proprietary ViaLink antifuse technology and pASIC architectures, and its software design tools. QuickLogic's proprietary ViaLink antifuse technology places logic interconnects between the metal layers of an FPGA device, instead of on the silicon substrate, thereby minimizing die size and cost. The ViaLink antifuse technology offers lower resistance and lower capacitance than competing interconnect technologies, resulting in high speed. The Company's pASIC architectures facilitate full routability and utilization of a device's logic cells, enabling a high degree of design flexibility. QuickLogic's QuickTools software design tools place and route logic cells on an FPGA device, and the QuickWorks design software suite incorporates QuickTools and industry-leading design tools for HDL/schematic entry, synthesis and simulation. In addition, QuickWorks incorporates IEEE standard design languages Verilog and VHDL. INDUSTRY BACKGROUND Competitive pressures are forcing manufacturers of electronic systems to bring increasingly complex products to market rapidly. Electronic systems such as video, graphics and imaging, telecommunications and data communications, instrumentation and test, high-performance computers and military systems require improved functionality, performance and reliability, all at lower cost. These requirements are addressed through combinations of advanced semiconductors such as microprocessors, memory and logic devices, which enable electronic systems to achieve greater competitive differentiation through faster speed, smaller size, lower power consumption and lower cost. These competitive pressures have driven the evolution of logic devices, which are used in virtually every complex electronic system to coordinate the functions of other semiconductor devices such as microprocessors and memory devices. However, the inherent technological limitations of certain logic devices typically force system manufacturers to make trade offs among speed, density, design flexibility and cost. The gate array is one of the most common types of logic devices, made up of a matrix of uncommitted logic elements. The two most commonly used logic solutions are mask-programmed or "standard" gate arrays and customer- programmed PLDs. Standard gate arrays typically offer higher gate densities and faster performance than PLDs. The logic elements of standard gate arrays are configured by the device manufacturer during the manufacturing process for a specific customer application. However, as standard gate arrays are customized during the manufacturing process, these devices generally require significant initial non-recurring engineering costs ("NREs"), and therefore restrict design flexibility, cause longer device delivery times, and generate dedicated custom product inventory that becomes obsolete when product life cycles end. Therefore, standard gate arrays are effective in high-volume applications where design changes are infrequent and time-to-market considerations are less critical. Unlike standard gate arrays which are semi-custom devices, PLDs are standard products purchased by systems manufacturers in a "blank" state, which are then rapidly configured by a system designer into specific logic circuits. This approach shortens design cycles, and therefore enables faster time to market for manufacturers of electronic systems. The PLD market consists of 29 three product categories: low density simple PLDs ("SPLDs"), which are devices with generally less than 1,000 gates; higher-density CPLDs; and FPGAs. CPLDs and FPGAs are devices that integrate up to tens of thousands of gates. CPLDs and FPGAs have different architectural models that allow them to more effectively solve various functional problems on a circuit board. However, as market requirements have become more stringent and competition more intense, many systems manufacturers have found that typical PLDs, including traditional higher-density FPGAs and CPLDs, have inherent architectural and technological constraints. Traditional CPLD and FPGA manufacturers have employed transistor-based interconnect technologies such as SRAM, EPROM and Flash, but these technologies often fail to achieve the optimal combination of high speed, design flexibility and low cost. Device speed is slowed because transistor- based interconnections have a relatively high electrical resistance. In addition, transistor- based interconnects are placed on the silicon substrate, consuming large amounts of silicon area, and therefore limiting the number of programming elements for device routability. Design flexibility is subsequently compromised because of limited device utilization, inability to maintain pin-outs, and device timing uncertainties. These inadequacies often require manual design to supplement the use of automatic software design tools, thereby slowing time to market. End-users are also required to use the proprietary software of the device manufacturer, which compels the customer to use a specific device vendor, even if the vendor does not provide a device that is optimal for a given application. In addition, the cost of the device increases as die sizes increase, and additional design time is required. Some device manufacturers have attempted to address the limitations of transistor-based interconnects with antifuse technologies. Antifuse interconnects are smaller than transistor-based interconnects and offer lower electrical resistance and smaller die size, resulting in higher speed, greater design flexibility and lower cost. However, traditional antifuse technology still requires interconnects to be placed on the silicon substrate and retains relatively high electrical resistance. Therefore, traditional antifuse technology fails to fully address the die size, electrical resistance and design flexibility problems of transistor-based interconnects. THE QUICKLOGIC SOLUTION QuickLogic produces FPGA semiconductors that offer high speed and design flexibility at low cost. QuickLogic products enable designers of complex electronic systems to achieve rapid time to market by optimizing design speed, design flexibility and cost. The key components of the QuickLogic solution are the Company's proprietary ViaLink antifuse technology and pASIC architectures, and its software design tools. ViaLink Antifuse Technology. QuickLogic's ViaLink antifuse technology places logic interconnects between the metal layers of a chip, instead of on the silicon substrate thereby minimizing die size and cost. The ViaLink antifuse technology features lower resistance and capacitance than competing interconnect technologies, thereby optimizing a device's performance. pASIC Architectures. QuickLogic's pASIC architectures facilitate full utilization of a device's logic cells and I/O pins. The architectures use ViaLink antifuse technology to maximize interconnects at every routing wire intersection. The abundance of wiring resources allows more paths between logic cells and I/O pins. As a result, designers can maintain pin-out assignments throughout the design cycle, and can achieve more complex designs utilizing more of a device's circuit elements. QuickWorks and QuickTools Software Design Tools. QuickLogic's QuickWorks software design tools provide high-level design entry, schematic capture, synthesis, simulation, and placement and routing on Windows, while QuickTools place and route software operates on UNIX platforms. QuickWorks incorporates IEEE standard design languages (Verilog and VHDL) and leading 30 third-party software to offer a cost-effective solution for the rapid design of complex logic devices. QuickTools integrates with all leading third-party design environments to support QuickLogic's pASIC products. QuickLogic tools also optimize the design for device utilization and in-system operating speed and also transfer the design to its FPGA devices. THE QUICKLOGIC STRATEGY QuickLogic's objective is to be a leading provider of high-speed, flexible, cost-effective FPGA solutions that allow customers to accelerate design cycles to satisfy demanding time-to-market requirements. To achieve this objective, the Company has adopted the following key strategies: Target High-Performance, Rapidly Changing Markets. QuickLogic focuses its design and marketing efforts on complex electronics systems that require high speed, design flexibility, low cost and rapid time to market. These electronics systems include video, graphics and imaging systems, telecommunications and data communications, instrumentation and test, and high-performance computers. Competition within these high-growth markets is intense, and the Company's proprietary technologies allow customers to deliver faster products and accelerate time to market. Apply Proprietary Technology to High Density Applications. The Company believes that future applications of PLDs will require logic density that will be difficult to achieve using traditional FPGA technology. The placement of the Company's ViaLink antifuse interconnects between metal layers maximizes interconnect resources and minimizes die size. These attributes will become increasingly critical as logic density requirements increase. Optimize Product Offerings. The Company's current product offerings are designed to address the segments of the logic market with the highest levels of design activity. The Company's marketing efforts and product features will continue to be determined by market demand. Based on market requirements for devices that are faster, less costly and consume less power, the Company plans to release its third generation of products utilizing 0.35(mu) CMOS technology on 8-inch wafers during 1998. Exploit Shift in Design Technologies. Historically, designers of electronic systems have been tied to device-specific schematic design software offered by FPGA device companies and have been reluctant to consider alternative vendors because of the costs and difficulties associated with switching to new design software. However, as logic densities increase and designs become more complex, end-users are shifting to Verilog and VHDL, IEEE standard high level design languages, to simplify the management of more complex design processes. The Company offers software design products that are inexpensive and that incorporate both Verilog and VHDL as well as leading third-party software for use on Windows or Unix platforms. The Company believes the combination of its design software and pASIC architectures enables customers using Verilog or VHDL to choose FPGA devices based on speed, design flexibility and cost, while minimizing the impact of switching design software. Leverage Manufacturing Alliances. QuickLogic's manufacturing strategy is to establish close relationships with third-party manufacturers for its wafer requirements. This allows the Company to focus its resources on product design, development and marketing rather than on manufacturing expenditures. The Company has a foundry relationship with Cypress for its existing products and has entered into a memorandum of understanding with TSMC for the production of its anticipated 0.35(mu) CMOS products on 8-inch wafers. 31 TECHNOLOGY QuickLogic believes that its products have distinct advantages over traditional FPGA solutions with regard to speed, design flexibility, cost and time to market. QuickLogic's key technologies are the proprietary ViaLink antifuse technology and pASIC architectures, and the QuickWorks and QuickTools design software packages. The following table sets forth certain specific features and benefits of each of these key technologies. VIALINK ANTIFUSE - ------------------------------------------------------------------------------- Features Benefits .Interconnect resides between metal .More room on the silicon substrate for layers logic cells; protection against reverse engineering of end-user designs .Smaller interconnect element .Smaller, less expensive die with dense interconnect resources .Lower resistance and capacitance .Faster performance - ------------------------------------------------------------------------------- PASIC ARCHITECTURES - ------------------------------------------------------------------------------- Features Benefits .Dense interconnect resources .Design flexibility with pin-out stability .Variable grain logic cell .High utilization of available logic .Pin-out compatibility among product .Ease of migration among different lines density devices - ------------------------------------------------------------------------------- QUICKWORKS AND QUICKTOOLS DESIGN SOFTWARE - ------------------------------------------------------------------------------- Features Benefits .Windows and UNIX platform support .Choice of design platform .Incorporates leading third-party tools .Easy-to-use, fast, low-cost software .IEEE standard languages Verilog and .Choice of optimal silicon device VHDL
ViaLink Antifuse Technology A key distinguishing feature of FPGAs is the programmable element. The technology used to provide programmability determines practical parameters for logic capacity, amount of interconnect resources, architecture and performance. QuickLogic's ViaLink antifuse is based on a patented amorphous silicon antifuse technology. The ViaLink antifuse enables a vertical interconnect architecture by placing programming elements above the substrate, between the layers of metal routing tracks on the die. Removing interconnects from the substrate allows more logic cells to reside in the die and results in a die size reduction for a given number of logic cells. In addition, the location of the ViaLink antifuse between metal layers helps to protect against unauthorized reverse engineering of a PLD circuit design. The ViaLink "metal to metal" connections also have lower resistance and capacitance, the primary inhibitors of circuit performance, thereby optimizing speed and performance. The Company believes that the ViaLink antifuse is scalable down to at least 0.18^. In addition, the ViaLink's programming algorithm produces a link filament that tolerates operating voltage and current overloads, reducing the likelihood of device malfunction. 32 QuickLogic's proprietary ViaLink interconnect technology provides solutions to the primary design problems inherent in using traditional FPGAs and CPLDs. The large programmable elements created using traditional dielectric antifuse and SRAM technologies reside on the die. Therefore, in order to minimize die size, traditional technologies must limit the number of transistor interconnections, thereby constraining flexibility and device utilization. This increases the time and cost needed to design with traditional FPGAs and CPLDs. The high resistance and capacitance of these transistor- based technologies also limit devices to relatively low performance. To illustrate, the resistance of a transistor-based SRAM interconnect is a maximum of 1,000 ohms, whereas a ViaLink interconnect presents a maximum of 50 ohms of resistance. Based upon published industry materials, the following table compares the critical features of the Company's ViaLink antifuse technology with the comparable features of competing dielectric antifuse and SRAM interconnect technologies.
VIALINK DIELECTRIC SRAM PROGRAMMING TECHNOLOGY ANTIFUSE ANTIFUSE INTERCONNECT ---------------------- -------- ---------- ------------ Relative Interconnect Performance (Speed).................................. 1.0x 0.1x 0.05x Relative Interconnect Density (Design Flexibility)............................. 1.0x 0.8x 0.24x Silicon Area Required (Cost).............. 1.0x 2.5x 12.50x
The Company's ViaLink interconnect make it one time programmable. While certain traditional FPGA devices allow reprogrammability, the use of SRAM interconnect technologies in such devices compromises speed, design flexibility and cost. The Company believes that in most customer applications the benefit of reprogrammability is less important than time-to-market pressures, speed, design flexibility and cost effectiveness. QuickLogic's ViaLink antifuse and one time programmability also assure that after a fuse is programmed it remains programmed. By contrast, SRAM-based interconnect technologies require reprogramming each time the device is powered up. Unlike dielectric antifuse technologies that require more complex manufacturing processes, the amorphous silicon used to manufacture ViaLink antifuses can be deposited by any plasma enhanced chemical vapor deposition ("CVD") system without affecting the underlying CMOS process and requires only one additional mask. This allows the Company's devices to be produced at a lower price and with greater yields than other antifuse processes. Because the ViaLink technology creates a flat surface, additional metal layers and interconnects can be stacked one above another yet retain a stable architecture. The Company's next generation of pASIC products, which use a four-layer metal process, are designed to take further advantage of this feature. See "--Manufacturing: Relationship with TSMC." pASIC Architectures The Company's pASIC architectures incorporate more programmable elements and routing wire resources than traditional FPGAs and offer pin-out compatibility across the Company's product offerings. In addition, the pASIC 2 architecture uses a variable grain logic cell that can be utilized for either a large, single function or up to five independent functions. These features provide users with greater design flexibility, a high utilization of available logic, minimal need to change pin-out and the ability to move among product offerings according to changing requirements. The ViaLink antifuse allows the Company's pASIC devices to have a fully populated interconnect scheme in combination with abundant routing tracks to enable full design routability for the user. Typically, pASIC devices have from four to six times the total number of programmable elements per usable gate of logic than SRAM-based FPGAs. Full design routability allows complete utilization of logic cells and I/O pins, reduces timing problems associated with circuitous routing of logic paths, maintains pin-out stability and eliminates the need for manual routing, thereby accelerating the 33 development process to reduce time to market. By contrast, lack of full routability may force more design iterations, require considerable manual overrides of automated design tools and may cause designers to abandon their selected FPGAs late in a design cycle for more expensive devices. In addition, full routability is crucial to Verilog and VHDL users, who lose the productivity offered by an HDL when large amounts of time are required to relate HDL code to specific routing paths in an attempt to meet design requirements through manual routing. The routability and pin-out maintenance of the Company's products allow an engineer to program a chip, designate pin-out and know that the device will be automatically, fully routed while holding the set pin-out. This technology also allows an engineer to alter the design of a chip and remain assured of the designated pin-out that is required for the chip to function in the circuit board. The Company designs its product architectures so that product densities may be scaled up or down to create a family of standard products to meet a wide variety of customer needs. This feature, combined with pin-out compatibility between products, allows a customer to move among density choices in the QuickLogic product lines to meet design requirements. The pASIC 2 variable grain logic cell was engineered to operate as one large cell for high performance or separated into as many as five independent logic fragments for high utilization. A larger logic cell delivers higher performance by consolidating multiple logic fragments to perform a specific function. However, traditional HDL synthesis tools were originally designed for the architecture used in standard gate arrays that chain smaller logic fragments together to perform the same function, resulting in lower performance when applied to the larger logic cells typical of FPGAs. As HDL synthesis tools become more capable of utilizing larger logic cells, these tools can utilize QuickLogic's pASIC 2 variable grain logic cell either as a large cell for higher performance or as independent logic fragments for higher utilization. Software QuickLogic offers software design tools that are inexpensive and incorporate IEEE standard languages Verilog and VHDL and leading third-party software for use on Windows and UNIX platforms. The use of devices with greater densities to implement more complex designs, while reducing costs and meeting time-to- market pressures, have led to increased reliance on HDLs. Verilog and VHDL as well as sophisticated third-party software design tools have emerged as FPGA industry standards because they make front-end design more efficient resulting in accelerated design cycles. The Company's inclusion of these languages in its software design tools helps customers migrate to QuickLogic easily and inexpensively. In addition, the Company believes that its software tools facilitate the use of these languages more effectively than the software tools offered by the Company's competitors. The Company's proprietary ViaLink technology and pASIC architectures provide QuickLogic products with the abundance of interconnect resources necessary for logic synthesis design tools to efficiently synthesize designs. Accordingly, QuickLogic's products require less silicon to implement the Verilog and VHDL code. The Company intends to exploit the market shift to Verilog and VHDL and the competitive advantage that the Company's products afford in implementing these languages. The Company has developed software that maximizes the usability of VHDL and Verilog, includes tutorials in these languages, optimizes the HDL output, simulates and transfers the design to the lowest cost device. The compatibility of the Company's QuickWorks and QuickTools software tools with Verilog and VHDL fully supports engineers experienced in these design languages and, when combined with the pASIC products, affords 100% placement and routing, stable timing, and the ability to hold pin-out through all design iterations. Engineers who are unfamiliar with these HDLs are able to train themselves and program at their desktops simultaneously by utilizing the bundled tutorial programs for Verilog and VHDL in the Company's software tools. Software support for the pASIC 34 families is available through two basic environments: QuickWorks and QuickTools. A wide assortment of design environments is supported on both Windows and UNIX platforms by combining QuickLogic's software packages with design libraries from vendors such as Cadence, Mentor, Synario, Synopsys, Veribest and Viewlogic. Interoperability is also provided for other third- party vendors by supporting industry standard interfaces such as EDIF, OVI, SDF and VITAL. PRODUCTS The Company has developed its pASIC products to address the primary requirements of the FPGA market, including speed, design flexibility, cost and time to market. The Company's current product line consists of two families of FPGAs, and the QuickWorks and QuickTools design software. The Company's product offerings are designed to address the segments of the logic market with the highest levels of design activity. The Company's marketing efforts and product parameters will continue to be determined by market demand. Based on market requirements for devices that are faster, less costly and consume less power, the Company plans to release its third generation of products during 1998. The Company has entered into a memorandum of understanding with TSMC to manufacture this third generation product family utilizing a 0.35(mu) CMOS technology on 8-inch wafers. However, the projections regarding the timing, and the type of, the releases of the Company's third generation family of products are forward-looking statements that involve risks and uncertainties. The completion and release of any new product family depends upon the development of necessary technology, the Company's relationship with its manufacturers, in particular TSMC, market conditions and other factors. Accordingly, new products may not be released within the time frame stated or at all. See "Risk Factors--New Product Development and Technological Change," "--Dependence on Independent Wafer Manufacturers" and "Dependence on Customized Manufacturing Processes." The following table describes the available usable gate densities of the Company's two families of FPGAs, their product release dates and applicable process technologies.
PRODUCT FAMILY USABLE GATE DENSITIES - -------------- -------------------------------------------- PASIC 1 1K 2K 4K 8K Product Release/Process 1991/1.0(mu)* 1992/1.0(mu)* 1994/0.65(mu) 1995/0.65(mu) Technology 1994/0.65(mu) 1994/0.65(mu) PASIC 2 3K 5K 7K 9K Product Release/Process 1997+/0.65(mu) 1997/0.65(mu) 1996/0.65(mu) 1997/0.65(mu) Technology
- -------- * No Longer Offered + Anticipated Release Date The Company offers devices in a range of speeds to address differing customer performance and cost requirements. The Company also offers most of its devices in commercial, industrial and military temperature ranges. A variety of package types are available to satisfy varying customer demand for I/O pin count and space constraints. Package styles include PLCC (plastic leaded chip carrier), PQFP (plastic quad flat pack), TQFP (thin plastic quad flat pack) and PBGA (plastic ball grid array). Military package styles include CPGA (ceramic pin grid array) and CQFP (ceramic quad flat pack). The Company plans to introduce additional package styles as customer demand warrants. QuickWorks. The QuickWorks suite provides a complete FPGA software solution, including design entry, logic synthesis, place and route, and simulation. QuickWorks' fully integrated design solution consists of internally developed and licensed third-party software operating on Microsoft Windows. QuickWorks includes VHDL, Verilog, schematic, boolean and mixed mode entry for fast and efficient logic design. 35 QuickTools. The QuickTools package provides a solution for designers who use Cadence, Mentor, Synario, Synopsys, Veribest, Viewlogic or other third-party software tools for design entry, synthesis or simulation. QuickTools provides optimization, place and route, timing analysis and back-annotation support for all QuickLogic devices. QuickTools runs on Windows and UNIX platforms. MARKETS AND APPLICATIONS QuickLogic's FPGA solutions are well suited for applications that have demanding requirements for high performance, design flexibility, low cost and time to market. During the year ended December 31, 1996 and the quarter ended March 31, 1997, Texas Instruments ("TI") accounted for 27.0% and 11.1% of revenue, respectively. The examples below describe some typical applications and the reasons for the selection of QuickLogic FPGAs. Video, Graphics and Imaging The video, graphics and imaging industries are characterized by the rapid emergence of new, more complex and faster-performing technologies and by short product life cycles. Applications for QuickLogic FPGAs include LCD display panel controls, high speed image cameras, image editing and display hardware, and audio processing/mixing systems. Manufacturers of these systems usually require components that can meet extremely high performance standards as they must quickly process large amounts of data. They also demand a fast design cycle to help get their products to market as quickly as possible. QuickLogic's FPGA products address these particularly demanding speed and time-to-market requirements. For example, in 1993, TI required an extremely high performance PLD for its new Digital Light Processing video projector component. After evaluating a number of alternatives, TI determined that the QuickLogic FPGA products were the only solution that met the performance and design flexibility demands of the Digital Light Processing system and, in particular, TI's requirement that the device maintain pin-out assignments as TI refined its design. During the following one-year period, TI determined that the QuickLogic products also demonstrated superior ease-of-use, and QuickLogic FGPAs were subsequently designed into every PLD socket in the TI Digital Light Processing system. Telecommunications and Data Communications Telecommunications and data communications equipment manufacturers are forced to make product and design changes quickly to keep pace with new and rapidly evolving industry standards and technologies. Applications include satellite-based and Internet telephones, cable television equipment, wireless Internet communications systems and networking equipment. New products in the telecommunications and data communications industries often require high performance components to handle the ever-increasing data rates and latest digital communications standards. QuickLogic's products facilitate this market's accelerating time-to-market goals and meet the high performance demands of communications equipment manufacturers. An example of the demanding time-to-market requirements in the data communications industry is 3Com's large-bandwidth ISDN "superchannel" board, the "143." After using competing devices, 3Com found that only QuickLogic's FPGAs allowed simultaneous design of both the circuit board layout and the circuitry within the FPGA. 3Com has stated that it found no other solution that enabled full device utilization with rigidly fixed pin-out assignments. Instrumentation and Test Test equipment and industrial electronics manufacturers require components that afford a high degree of reliability. Applications include aircraft controls, semiconductor test and instrumentation circuit boards. The Company's proprietary ViaLink antifuse technology creates stable, permanent 36 circuit connections unlike traditional reprogrammable FPGA solutions. In addition, QuickLogic's range of device packages and operating temperatures allow pASIC products to be designed into a variety of applications. For example, Honeywell selected QuickLogic for its flight navigation and control systems for business jets. QuickLogic products demonstrated significant performance advantages when implementing Honeywell's industrial temperature PCI-bus design. In addition, Honeywell determined that QuickLogic designs could be fully implemented with VHDL without compromising system performance. Honeywell subsequently designed QuickLogic products into five additional circuit boards, including Honeywell's redundant CPU boards. High-Performance Computers The ability to bring new computer models to market as quickly as possible is the hallmark of the computer industry. QuickLogic's FPGAs accelerate time to market by allowing computer companies to manufacture hardware products immediately upon the completion of the design, without waiting for production quantities of a standard gate array. IBM, for example, uses QuickLogic's FPGAs for the prototype and initial production of its display controllers for ThinkPad laptop computers. Military Military systems manufacturers must meet demanding reliability and performance requirements in system designs. Applications include weapons control systems and navigational equipment. QuickLogic's permanently programmed products are well-suited components for such systems. The Company's proprietary ViaLink antifuse technology creates interconnects which are more stable and reliable than traditional reprogrammable FPGA solutions. The range of ceramic package options, which include both surface-mount and through-hole packages, are also attractive to military systems designers. Hughes Aircraft, for example, uses QuickLogic devices in a wide range of applications from missile tail-fin controllers to helicopter instrumentation. The following chart illustrates ways that certain of the Company's customers use QuickLogic products.
INDUSTRY CUSTOMER APPLICATION -------- -------- ----------- Video, Graphics Digidesign (AVID) PC-based audio editing and Imaging (used to edit "Lion King" and other movies) Dome Imaging Medical imaging products Fujitsu Stadium display controls Hitachi DVD, MPEG image compression Miro Computer Image editing PC hardware Silicon Graphics Flat panel display controller Texas Instruments Video display projectors TV/Com Satellite TV signal encryption & compression Telecommunications AG Communications Telephone networking equipment Alcatel Alsthom Microwave communication systems NEC PBX electronics Northern Telecom Satellite-based telephone systems Uniden Internet telephone
37
INDUSTRY CUSTOMER APPLICATION -------- -------- ----------- Data Bay Networks/Xylogics ISDN networking and PC cards Communications Compaq/Networth Networking equipment Daewoo ATM switch, fiber optic equipment EMC/McData Mainframe I/O communications 3Com Data-com boards Instrumentation Analog Devices Integrated circuit testers and Test Honeywell Aircraft navigation and flight controls National Instruments PC-based instrumentation boards Teradyne Semiconductor test equipment Toshiba Mail sorting equipment Unisys Test boards for VME applications High-Performance Asea Brown Boveri Industrial control for power distribution systems Computers Colorbus/Concept Color copier add-ons for photographic quality IBM Pre-production ThinkPad display controller Mitsubishi Mobile PC Pen-input display controller Sony MiniDisk editing equipment Synopsys Hardware simulation accelerator Military Systems Hughes Aircraft Helicopter and missile motor controls, radars McDonnell Douglas C-17 flight controller Rockwell Submarine navigational equipment Saab Automobile AB Simulation systems for military training
SALES, SUPPORT & MARKETING QuickLogic sells its products through a network of Company sales managers, independent sales representatives and electronics distributors in North America, Europe and Asia. In addition to its corporate headquarters in Sunnyvale, the Company has regional sales operations in Los Angeles, San Jose, Dallas, Boston, Raleigh, Chicago and London. The Company's direct sales organization consists of 18 sales managers, field application engineers and administrative personnel. In North America, the Company's six sales managers direct the activities of 19 independent manufacturers' representative firms operating out of more than 40 offices totaling approximately 182 sales representatives, as well as the activities of five distributor organizations with more than 220 locations. Internationally, four sales managers direct the activities of 11 distributors in Europe and nine distributors in Asia. All of the foregoing numbers are as of May 31, 1997. QuickLogic's major North American distributors include Anthem Electronics, Bell Industries, Bell Microproducts, Future Electronics and Sterling Electronics. The Company added Anthem Electronics as a distributor in March 1997. Future Electronics also distributes the Company's products in Europe and Asia. During 1996 and the first quarter of 1997, 53.3% and 68.8%, respectively, of the Company's revenue from the United States was realized through distributors, while most of the Company's revenue from outside of North America was realized through third-party distributors. As of May 31, 1997, the Company's applications support organization included four direct field application engineers and 140 application engineers employed by the Company's distributors. These application engineers provide pre-sales and on-site technical support to customers. Application support is also provided by five factory-based customer engineers, who offer the majority of post-sale support through a dedicated customer support hotline. 38 Under its arrangement with Cypress, the Company provides support for former Cypress FPGA customers. With the elimination of Cypress as an alternate source of the Company's products, the Company no longer faces competition with respect to its proprietary products. The Company's and Cypress' sales organizations have transitioned most customer accounts to QuickLogic. See "-- Cypress Transaction." As of May 31, 1997, the Company's marketing organization consisted of nine employees that promote the performance and flexibility offered by the Company's products. The Company believes that the opportunity for design wins with individual design engineers arises several times throughout the year, and uses various forms of advertising, seminars, shows and conferences to maintain visibility with these engineers. RESEARCH AND DEVELOPMENT The Company's R&D efforts are focused on three areas: device architecture, development tools, and foundry process development. As of May 31, 1997, the research and development staff consisted of 47 employees. The device design engineers endeavor to design products with the optimal combination of speed, flexibility, HDL compatibility, testability and low cost. Devices are designed so that their capacities can be quickly scaled up or down to create a family of standard products that meet a diverse range of user needs. The Company's software engineering group develops place and route tools (which fit the design into specific logic cell elements within a device, then devise the necessary interconnections), and delay modeling tools (which estimate the timing of all the circuit paths for accurate simulation). The software group also incorporates third-party software tools into the QuickWorks tool suite, and develops the design libraries needed for the QuickTools product to integrate with third-party design environments. The Company's process engineering group maintains the Company's proprietary antifuse processes, oversees product manufacturing and process development in its third-party foundries, and is involved in ongoing process improvements to increase yields and optimize device characteristics. The Company's R&D expense for 1994, 1995 and 1996 and for the first quarter of 1997 was $3.2 million, $3.6 million, $4.6 million and $1.3 million, respectively. The Company anticipates that it will continue to commit substantial resources to research and development in the future. MANUFACTURING The Company's manufacturing strategy is to establish close relationships with third-party manufacturers for its wafer fabrication and package assembly requirements. This allows the Company to focus its resources on product design, development and marketing rather than on manufacturing expenditures. Assembly of the Company's devices is primarily performed by Anam/Amkor in Korea. Final testing is primarily performed by the Company internally, and the Company is exploring additional outsourcing of its testing. The Company's relationships with wafer foundries are intended to provide the Company with stability in the supply of its products, while seeking to maintain its position as a technology leader. The current pASIC 1 and pASIC 2 product wafers are fabricated by Cypress. The Company expects that its future products, utilizing smaller product geometries and larger wafer sizes, will be fabricated by TSMC, which is one of the world's largest dedicated semiconductor foundries. See "Risk Factors--Dependence on Independent Wafer Manufacturers" and "--Dependence on Customized Manufacturing Process." Relationship with Cypress In connection with the Company's new relationship with Cypress, the companies entered into a new foundry agreement effective through the year 2001. This agreement guarantees weekly wafer 39 starts at established prices and yields for the Company's pASIC 1 and pASIC 2 product families, which are fabricated using a 0.65(mu) three-layer metal CMOS process on 6-inch wafers. These products will continue to be manufactured at Cypress' Round Rock, Texas facility, and will continue to utilize the Company's proprietary ViaLink amorphous silicon antifuse technology. Relationship with TSMC In October 1996, the Company entered into a memorandum of understanding with TSMC to co-develop a 0.35(mu) four-layer metal CMOS process for 8-inch wafers using the Company's ViaLink antifuse technology. The memorandum of understanding contemplates that the parties will enter into a "take or pay" contract substantially similar to that offered to TSMC's current customers, which would be effective for three years following the date of the contract with successive automatic one-year renewal terms. TSMC's foundries are located in Hsin Chu, Taiwan. TSMC is now processing R&D wafers for the Company's FPGA products. QuickLogic intends that its 9-thousand usable gate pASIC 2 device will be the first Company product manufactured at TSMC. The high density members of QuickLogic's third generation pASIC FPGA family are intended to be in production at TSMC during 1998. The Company anticipates migrating selected other pASIC 2 devices (which are also currently in production on a 0.65(mu) process) to the 0.35(mu) CMOS process at TSMC during 1998. The projections regarding the timing and type of releases of the Company's third generation family of products are forward-looking statements that involve risks and uncertainties. The completion and release of any new product family depend upon the development of necessary technologies, the Company's relationship with its manufacturers, in particular TSMC, market conditions and other factors. Accordingly, new products may not be released within the time frame stated or at all. See "Risk Factors--Dependence on Independent Wafer Manufacturers," "--Dependence on Customized Manufacturing Processes" and "-- Risks Associated with International Business Activities." CYPRESS TRANSACTION In March 1997, the Existing Agreement related to the Company's FPGA products was terminated and replaced with a new arrangement whereby the Company's FPGA products will no longer be second sourced by Cypress. In addition, Cypress agreed to not compete with the Company with respect to antifuse FPGAs or products that are pin-compatible with the Company's existing pASIC 1 and pASIC 2 products. QuickLogic has commenced support for Cypress's FPGA customers, and Cypress assisted the Company in the transition of these customers to the Company. In exchange for the termination of the Existing Agreement and the reversion of the rights to the intellectual property developed thereunder to the Company, the Company paid $4.5 million in cash and agreed to issue 2,603,817 shares of Common Stock to Cypress, increasing the aggregate number of shares of Common Stock of the Company held by Cypress to 3,339,785, prior to the sale of any shares by Cypress in this offering. In addition, the Company granted Cypress, including the right to sell shares of Common Stock in this offering, certain contractual rights as to the shares of the Company's stock held by Cypress. The parties also entered into a new foundry agreement and a cross-license agreement. The terms of the new foundry agreement are discussed under "--Manufacturing: Relationship with Cypress." Under the terms of the cross-license agreement, Cypress granted to the Company a royalty-free, non-exclusive, non-sublicensable license to make, have made, use, offer for sale, sell and distribute programmable logic products under patents that are currently issued to Cypress or are issued prior to March 2007. In the event of an acquisition of the Company, the license continues only as to those products that were commercially available as of the acquisition or the design of which is in the layout stage and subsequently become commercially available within one year after the acquisition. The 40 Company granted a reciprocal right to Cypress under its patent portfolio, except that the license does not extend to antifuse FPGAs or products that are pin-compatible with the Company's existing pASIC 1 and pASIC 2 products. The parties also licensed to each other the intellectual property rights developed under the Existing Agreement, within the scope of the patent licenses set forth above. The shares issued to Cypress in connection with the termination of the Existing Agreement were provided with the same contractual rights as the other shares of the Company's stock held by Cypress and the other holders of the Company Common Stock issuable upon conversion of the Preferred Stock. In addition, the Company granted registration rights to Cypress that are in addition to those held by other stockholders of the Company. See "Description of Capital Stock--Registration Rights." First, Cypress may sell a minimum of one-third of the shares in this offering, and any subsequent public offerings of the Company's stock. Second, the Company is obligated to file a registration statement with respect to all of the shares of Common Stock held by Cypress and not sold in this offering, with such registration statement being effective upon the expiration of the lockup period imposed by the Underwriters in connection with this offering. The Company must keep this registration statement effective until the earlier of (i) the date all of such shares held by Cypress are sold; (ii) three years from the closing of this offering; or (iii) the date all such shares are able to be sold in a three- month period pursuant to Rule 144. Notwithstanding the foregoing, the Company has the right to suspend Cypress's ability to sell under such registration statement under certain circumstances. Finally, Cypress has the individual right to require registration of its shares that is separate from a similar right held by the other holders of registration rights. The other stockholders of the Company do not have the right to require inclusion of their shares in these separate Cypress registrations. COMPETITION The semiconductor industry is intensely competitive and is characterized by constant technological change, rapid rates of product obsolescence and price erosion. The Company's existing competitors include suppliers of conventional gate arrays, CPLDs and FPGAs, particularly Xilinx, a supplier of SRAM-based FPGAs, Actel, an anti-fuse FPGA supplier, and Altera, a supplier of CPLDs. The Company also faces competition from companies that offer standard gate arrays, which can be obtained at a lower cost for high volumes and may have gate densities and performance equal or superior to the Company's products. In addition, the Company expects significant competition in the future from major domestic and international semiconductor suppliers, and the Company's patents may not bar competitors to which it has not granted a license from manufacturing similar products. The Company also may face competition from suppliers of products based on new or emerging technologies. The PLD market is dominated by Xilinx and Altera, which together control over 55% of the market, according to Pace Technologies, a semiconductor market research firm. The Xilinx products dominate the FPGA segment of the market while Altera dominates the CPLD segment of the market. In addition, the Company expects significant competition in the future from major domestic and international suppliers which have entered or are considering entering the PLD market. Such suppliers include Lucent Technologies, Vantis Corporation/Advanced Micro Devices, Inc., Motorola, Inc. and Atmel Corporation. Most of the Company's current and prospective competitors offer broader product lines and have significantly greater financial, technical, manufacturing and marketing resources than the Company. In particular, companies such as Lucent Technologies, Motorola, Inc. and others have proprietary wafer manufacturing ability, preferred vendor status with many of the Company's customers, extensive marketing power and name recognition, greater financial resources than the Company, and other significant advantages over the Company. Certain of the current and prospective competitors of the Company are or may become customers as well. There can be no assurance that such customers will continue to buy the Company's products if they are offering their own competing products, which could have a material adverse effect on the Company's business, financial condition and results of operations. The Company believes that important competitive factors in its market are 41 length of development cycle, price, performance, installed base of development systems, adaptability of products to specific applications, ease of use and functionality of development system software, reliability and technical service and support, wafer fabrication capacity and sources of raw materials, and protection of products by effective utilization of intellectual property laws. Failure of the Company to compete successfully in any of these or other areas could have a material adverse effect on its operating results. In addition, the Company's competitive position is substantially dependent upon industry competition for effective sales and distribution channels. There can be no assurance that the Company's products will be competitive. The failure of the Company to develop and market products that compete successfully with those of other companies in the market would have a material adverse effect on the Company's business, financial condition and results of operations. INTELLECTUAL PROPERTY The Company holds 30 U.S. patents and has filed 19 applications for additional U.S. patents containing claims covering various aspects of programmable integrated circuits, programmable interconnect structures, programmable antifuse devices, as well as methods and apparatus for programming antifuse devices. In addition, the Company has two patent applications pending in Japan. The Company's patents expire between June 2009 and March 2015. The Company has also registered four of its trademarks in the United States with applications to register an additional two trademarks now pending. See "Risk Factors--Protection of Intellectual Property." ACTEL LITIGATION On January 20, 1994, Actel, a competitor of the Company, filed a lawsuit against the Company entitled Actel Corporation v. QuickLogic Corporation in the United States District Court for the Northern District of California (the "Court"), Case No. C-94 20050JW (PVT). The lawsuit alleges infringement by the Company of four U.S. patents held by Actel: U.S. Patent 4,873,459 (the "'459 Patent") issued October 10, 1989 and entitled "Programmable Interconnect Architecture;" U.S. Patent 4,758,745 (the "'745 Patent") issued July 19, 1988 and entitled "User Programmable Integrated Circuit Interconnect Architecture and Test Method;" U.S. Patent 5,055,718 (the "'718 Patent") issued October 8, 1991 and entitled "Logic Module With Configurable Combinational and Sequential Blocks;" and U.S. Patent 5,198,705 (the "'705 Patent") issued March 30, 1993 and entitled "Logic Modular and Configurable Combinational and Sequential Blocks." In each of March 1995 and March 1996, Actel added a claim that an additional Actel patent was infringed: U.S. Patent 5,367,208 (the "'208 Patent") issued November 22, 1994 and entitled "Reconfigurable Programmable Interconnect Architecture" and U.S. Patent 5,479,113 the (the "'113 Patent") issued December 26, 1995 and entitled "User Configurable Logic Circuits Comprising Antifuses and Multiplexer-Based Logic Modules." The '459, '745, '208 and '113 Patents all relate to user programmable interconnect architectures and are based upon the same application. Actel's '705 and '718 Patents relate to logic modules for use in FPGAs. As to the '745 and '459 Patents, Actel asserts that QuickLogic's programmable interconnect circuits and architecture found in its pASIC 1 and pASIC 2 product families infringe one or more claims of these patents. As to the '705, '718, and '208 Patents, Actel asserts that QuickLogic's programmable logic module used in its pASIC1 and pASIC2 product families infringes one or more claims of each patent. As to Actel's '113 patent, Actel asserts that QuickLogic's control circuit controlling the program voltage within QuickLogic's user programmable interconnect architecture infringes one or more claims. As to each patent-in-suit, Actel seeks an injunction preventing QuickLogic from further use of the claimed inventions, damages for past infringement of the inventions, Actel's attorneys' fees and increased damages for willful infringement. Sales of the Company's pASIC products have accounted for substantially all of the Company's revenue to date and are expected to account for substantially all of the Company's revenue for the foreseeable future. Fees from licenses of the QuickWorks and QuickTools software design tools have accounted for substantially all of the remainder of the Company's revenue. The Company has filed answers to each 42 of these complaints and counter-claims seeking declarations that the Actel patents at issue are not infringed by the Company, are invalid, and are unenforceable. On April 19, 1994, QuickLogic moved to stay proceedings pending reexamination by the United States Patent and Trademark Office (the "USPTO") of two of the patents involved in the litigation, the '745 Patent and the '459 Patent. The Court granted this stay on July 21, 1994. The USPTO confirmed the patentability of these two patents on November 15, 1994 and January 10, 1995, respectively, which Actel may argue will increase the burden upon QuickLogic to prove the invalidity of the two reexamined patents. The Court lifted the stay on November 8, 1994. On November 15, 1994, Actel filed a motion for summary judgment with respect to the Company's infringement of claim 1 of the '705 Patent. Actel's claims in the '705 Patent relating to its logic module technology include an interconnect structure, programming structures, and logic circuits wherein a multiplicity of logic circuits are arranged in a regular pattern on the semiconductor substrate. The logic circuits or logic modules contain a number of logic blocks which ultimately determine the function that the FPGA could perform. The '705 Patent covers a logic module, and its structure and its connections to the interconnect structure and architecture. Actel has referred to this technology as its "nested three multiplexer" architecture, which involves three dual input, single output multiplexers. The logic module, as claimed in the '705 Patent, includes two multiplexers wherein each output is commonly coupled to one of the pair of inputs of a third multiplexer. The first and second multiplexer have four inputs or "data nodes." The output of the third multiplexer may be connected to a single memory cell or "latch." First and second multiplexers are controlled by a single level logic gate at their select inputs as is the third multiplexer which is similarly controlled by a second single level logic gate. The Court appointed a Special Master to assist it in determining certain issues related to this litigation, and the Special Master recommended on October 4, 1996 that the Court find that the Company's pASIC 1 products infringe claim 1 of the '705 Patent. On April 14, 1997, the Court adopted the recommendation of the Special Master and granted Actel's motion for summary judgment that the Company's pASIC 1 products infringe claim 1 of the '705 Patent. Any appeal of the summary judgment motion on infringement of the '705 Patent cannot be made until after there is a final judgment. If the '705 Patent is finally adjudicated to be valid and enforceable, and the summary judgment motion is upheld on appeal, then Actel would be entitled to significant damages for past infringement and potentially would be entitled to an injunction on future infringement. Such an injunction and/or the payment of damages would have a material adverse effect on the Company's business, financial condition and results of operations, and could potentially render it insolvent. On April 12, 1995, QuickLogic filed a counterclaim alleging that Actel has infringed two U.S. patents held by the Company, U.S. Patent Nos. 5,220,213 (the "'213 Patent") and 5,396,127 (the "'127 Patent"), which involve the Company's logic module having three multiplexers wherein the outputs of two of the multiplexers are commonly coupled to the pair of inputs of the third, all other inputs in the module are connected to logic gates, and the output of the third multiplexer is connected to a flip flop. As to each patent-in-suit in the counterclaim, the Company alleges infringement of one or more claims and seeks an injunction preventing Actel from further infringement of the claimed inventions. The Company seeks damages for past infringement of the inventions and the Company's attorneys' fees based on the alleged infringement. On January 18, 1996, Actel filed a motion for summary judgment declaring the '213 and '127 Patents to be invalid. Actel's motion is based on an "on-sale bar" defense, i.e. that the Actel products which the Company claims infringe these patents were offered for sale more than one year before the filing dates of the '213 and '127 Patents which, if proven under patent law, would invalidate these patents. Discovery is currently in progress to allow QuickLogic to file its opposition to this motion, which the Company believes will be filed in 1997, with the hearing on this motion to be scheduled thereafter. On February 5, 1996, QuickLogic filed a motion for summary judgment of infringement by Actel of claim 1 of the '213 Patent. Actel has opposed this motion, and discovery is currently in progress. Actel also requested a separate trial on the "on-sale bar" defense, which request was denied by the Special Master on June 4, 1997 in a Notice of 43 Intention to Rule. After the issuance of a formal recommendation by the Special Master, the Court must then decide whether to adopt this recommendation. On January 14, 1997, an additional U.S. patent was issued to the Company, U.S. Patent No. 5,594,364 (the "'364 Patent"). On February 28, 1997, the Company filed a motion to add a counterclaim for Actel's infringement of this patent. A hearing on this motion was held on May 19, 1997 before the Special Master, who granted the Company's motion on June 4, 1997 in a Notice of Intention to Rule. After the issuance of a formal recommendation by the Special Master, the Court must then decide whether to adopt this recommendation. On June 4, 1997, the Special Master also notified the parties of his intent to accept the parties' stipulation that Actel be allowed to amend its complaint to add a claim for infringement of an additional patent, U.S. Patent No. 5,610,534 (the "'534 Patent"), issued March 11, 1997 and entitled "Logic Module For A Programmable Logic Device." Actel alleges that the Company has infringed one or more claims of this patent and is likely to seek both monetary and injunctive relief, but has not yet filed or served an amended complaint. After the issuance of a formal recommendation by the Special Master, the Court must then decide whether to adopt this recommendation. In addition to the patent infringement actions, Actel amended its claims against the Company to include a claim against the Company and one of its employees on June 14, 1995 alleging misappropriation of trade secrets, breach of contract, breach of confidential relationship, and unfair competition. Actel has sought assignment of certain issued and future patents of the Company, two of which are part of this lawsuit, in relation to this claim in addition to unspecified money damages, that the damages be doubled, attorneys' fees and other remedies. These claims are based on allegations that this employee, who had once been a consultant to Actel, had misappropriated confidential information from Actel related to logic cells, which the Company then incorporated into its pASIC products. The employee and the Company have filed answers denying each of these claims. Discovery is ongoing at this time and no dispositive motions have been filed or heard. Trial on the patent infringement and trade misappropriation claims is currently scheduled for September 1998. However, there can be no assurance that the trial will occur at such time and may be delayed significantly. As the outcome of any litigation is inherently uncertain, the Company is unable to predict the outcome of this litigation. Therefore, there can be no assurance that the Company will prevail in the trial on the patent infringement claims and counter-claims, the trial on the alleged misappropriation of intellectual property, or hearings on any motions related to such proceedings. The timing of the filing of any motions by Actel, hearings on motions by either Actel or the Company, the issuance of rulings on such motions, the issuance of recommendations by the Special Master and the adoption or rejection of such recommendations by the Court are not within the Company's control and could occur at any time. The announcement of any rulings or recommendations, or the adoption or rejection of recommendations, that are adverse to the Company, will likely have a material adverse effect upon the market price for the Company's stock. The semiconductor industry is characterized by frequent litigation of this type regarding patent and other intellectual property rights, which involve highly technical and subjective analysis. Discovery and litigation of such issues are time-consuming and costly, and Actel possesses more personnel and greater financial resources than the Company and is able to conduct extensive and protracted litigation at less of a relative detriment to its current business. While patent infringement litigation in the semiconductor industry has at times resulted in voluntary settlements by the parties, often involving cross-licensing of the patents involved, there can be no assurance that such a result will be reached in this case. In addition, the terms of any settlement may require the Company to stop selling all or certain of its products, pay damages or royalties or other forms of consideration or grant licenses to all or a portion of its intellectual property portfolio, any or all of which could have a material adverse effect on the Company's business, financial condition and results of operations. Patent infringement 44 litigation in the semiconductor industry has also resulted in court orders to pay significant damages and/or injunctions preventing a party from making, using or offering to sell, selling or importing any products that incorporate technology covered by such patents. As referenced above, sales of the allegedly infringing products by the Company have accounted for substantially all of the Company's past revenue and are expected to account for substantially all of the Company's revenue for the foreseeable future. This litigation could result in the Company being required to cease selling its products and/or could also result in the Company paying significant damages, including treble damages for willful infringement, either of which would have a material adverse effect on the Company's business, financial condition and results of operations and could potentially render it insolvent. There can be no assurance that the Company will prevail in its claims or defenses or that it would be able to obtain a license under any Actel patents that are found to be infringed, or if such a license were obtained, that it would be on terms that would not have an adverse effect on the Company's business, financial condition and results of operations. The current litigation and any future litigation, whether or not determined in the Company's favor or settled by the Company, has been and will continue to be costly and will divert the efforts and attention of the Company's management and technical personnel from normal business operations, which could have a material adverse effect on the Company's business, financial condition and results of operations. It is expected that legal fees and other litigation- related expenses will continue to adversely affect the Company's operating results for the foreseeable future. Any adverse determinations in this litigation or a settlement could result in the loss of the Company's proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from or to grant licenses to third parties or prevent the Company from licensing its technology, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Risk Factors--Actel Litigation." EMPLOYEES As of May 31, 1997, the Company had a total of 144 employees worldwide, with 45 people in operations, 47 people in research and development, 18 people in sales, 14 people in marketing, 18 people in general and administrative and two people in management information systems. The Company believes that its future success will depend in part on its continued ability to attract, hire and retain qualified personnel. Competition for such personnel is intense, and there can be no assurance that the Company will be able to identify, attract and retain such personnel in the future. None of the Company's employees is represented by a labor union, and management believes its employee relations are good. FACILITIES The Company's principal administrative, sales, marketing, research and development and final testing facility is located in a building of approximately 42,624 square feet in Sunnyvale, California. This facility is leased through the 2003 with an option to renew through 2006. In addition, the Company leases sales offices in London, England. The London offices are leased through December 1997. The Company believes that its existing facilities are adequate for its current needs. 45 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth certain information regarding the executive officers and directors of the Company as of May 31, 1997:
NAME AGE POSITION ---- --- -------- E. Thomas Hart.................. 55 President, Chief Executive Officer and Director John M. Birkner................. 53 Vice President, Computer-Aided Engineering Andrew K. Chan.................. 46 Vice President, Product Development Donald F. Faria................. 37 Vice President, Marketing Richard C. Johnson.............. 45 Vice President, Worldwide Sales Vincent A. McCord............... 50 Vice President, Finance, Chief Financial Officer and Secretary Philip J. Ong................... 46 Vice President, Operations Scott D. Ward................... 43 Vice President, Engineering Ronald D. Zimmerman............. 49 Vice President, Human Resources Irwin B. Federman (1)(2)........ 61 Chairman and Director Hua-Thye Chua(1)(2)............. 62 Director
- -------- (1) Member of the Compensation Committee (2) Member of the Audit Committee E. THOMAS HART has served as President and Chief Executive Officer and a director of the Company since June 1994. Prior to joining the Company, Mr. Hart was Vice President and General Manager of the Advanced Networks Division at National Semiconductor Corp., a semiconductor manufacturing company, where he worked from September 1992 to June 1994. Prior to joining National Semiconductor Corporation, Mr. Hart was a private consultant from February 1986 to September 1992 with Hart Weston International, a technology-based management consulting firm. Mr. Hart earned a B.S.E.E. degree from the University of Washington. JOHN M. BIRKNER, a co-founder of the Company, has served with the Company since April 1988, most recently as Vice President of Computer-Aided Engineering. As a fellow at Monolithic Memory Inc. ("MMI"), a semiconductor manufacturing company, from September 1975 to June 1986, he co-invented the PAL device and helped to lead its development and marketing efforts. Mr. Birkner holds a B.S.E.E. degree from the University of California at Berkeley and an M.S.E.E. degree from the University of Akron. ANDREW K. CHAN, a co-founder of the Company, has served with the Company since April 1988, most recently as Vice President of Product Development. Prior to joining the Company, Mr. Chan was a design engineering manager at MMI. Mr. Chan earned a B.S.E.E. degree from Washington State University and an M.S.E.E. degree from the University of New York at Stony Brook. DONALD F. FARIA joined the Company in April 1997 as Vice President of Marketing. Prior to joining QuickLogic, Mr. Faria was Director of FPGA Solutions at Synopsys, Inc., a computer automated design technology company, from September 1995 to March 1997. From January 1995 to August 1995, he was director of Product Marketing at Chip Express Corporation, a laser programmable gate array company. Mr. Faria was employed by Altera Corporation, a CPLD company, from July 1984 until December 1994. While at Altera, Mr. Faria held several positions including Director of Marketing for Development Tools and Special Projects, Director of Applications and Product Planning, Product Planning Manager and Application Manager. Mr. Faria received a B.S.E.E. degree from the University of Massachusetts. 46 RICHARD C. JOHNSON has served as Vice President of Worldwide Sales for the Company since August 1995. From June 1992 to July 1995, Mr. Johnson was Vice President of Sales and Corporate Marketing at Integrated Information Technology, a semiconductor manufacturing company. He received a B.S. degree in Marketing and an M.B.A. degree from the University of Southern California. VINCENT A. MCCORD joined the Company in November 1996 as Vice President, Finance, Chief Financial Officer and Secretary. From July 1996 to October 1996, Mr. McCord was a business and financial consultant. From April 1996 to June 1996, Mr. McCord was Chief Financial Officer at Exergy, Inc., an energy company. Prior to joining Exergy, Inc., Mr. McCord was Vice President and Corporate Controller at LSI Logic, Inc., a semiconductor manufacturing company, from September 1991 to April 1996. Mr. McCord received a B.S. degree in Applied Mathematics from the Georgia Institute of Technology and an M.B.A. degree from Harvard University. PHILIP J. ONG joined the Company in December 1994 as Vice President of Operations. Prior to joining the Company, he held a series of director positions at Advanced Micro Devices, Inc. ("AMD"), a semiconductor manufacturing company, from November 1989 to December 1994. From June 1992 to December 1994, Mr. Ong was Director of Operations for AMD's Submicron Development Center and prior to that was Director of Fab Operations at one of AMD's facilities. Prior to joining AMD, Mr. Ong worked at a variety of companies including MMI. Mr. Ong received a B.S. degree in Chemical Engineering from the University of California at Berkeley. SCOTT D. WARD joined the Company in April 1997 as Vice President of Engineering. From June 1980 to March 1997, Mr. Ward was employed by National Semiconductor Corporation. While at National Semiconductor Corporation, Mr. Ward held several positions, including Product Line Director--New Venture Start-Up, Product Line Director--Automotive Systems Group, Product Line Director--Amplifier Products Group, Product Line Manager for SLIC, Senior Product Engineering Manager and Section Head--MOS 1, where he was responsible for product engineering. Mr. Ward obtained a B.S.E.T. degree from California Polytechnic University at San Luis Obispo. RONALD D. ZIMMERMAN joined the Company in October 1996 as Vice President of Human Resources with more than 15 years experience in the human resources industry. From August 1988 to October 1996, Mr. Zimmerman was the group human resources director of the Analog Products Group at National Semiconductor Corporation. Also during his eight years at National Semiconductor Corporation, he was group human resources director of the corporate technology and quality/reliability organizations and the human resources director of corporate administration. Mr. Zimmerman received a B.A. degree in Sociology and Psychology and an M.A. in Psychology from San Jose State University. IRWIN B. FEDERMAN has served as a director of the Company since September 1989. Mr. Federman has been a general partner of U.S. Venture Partners, a venture capital company, since 1990. From 1988 to 1990 he was a Managing Director of Dillon Read & Co., an investment banking firm, and a general partner in its venture capital affiliate, Concord Partners. Mr. Federman serves on the Boards of Directors of TelCom Semiconductor, Inc., a semiconductor company, SanDisk Corporation, a semiconductor company, Western Digital Corporation, a disk drive manufacturer, Komag Incorporated, a thin film media manufacturer, NeoMagic Corporation, a developer of multimedia accelerators, and Check Point Software Technologies, Ltd, a network security software company. He is on the Dean's Advisory Board of Santa Clara University's Leavy School of Business. He received a B.S. degree in Accounting from Brooklyn College, is a Certified Public Accountant, and was awarded an honorary Doctorate of Engineering Science from Santa Clara University. HUA-THYE CHUA, a co-founder of the Company, served as Vice President of Technology Development from April 1989 to December 1996. He has been a director since the Company's inception in April 1988. During the prior 25 years, Mr. Chua worked at semiconductor companies Fairchild Semiconductor Corporation, Intel Corporation and MMI where he was involved in the design 47 of bipolar and CMOS integrated circuits. While at MMI, Mr. Chua co-invented the PAL device. Mr. Chua holds a B.S.E.E. degree from Ohio University and an M.S.E.E. degree from the University of California at Berkeley. There are no family relationships among any of the Company's directors or executive officers. AUDIT COMMITTEE The Audit Committee was first formed in June 1995 and currently consists of Messrs. Federman and Chua. The Audit Committee makes recommendations to the Board regarding the selection of independent accountants, reviews the results and scope of the audit and other services provided by the Company's independent accountants and reviews and evaluates the Company's internal audit and control functions. COMPENSATION COMMITTEE; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee was first formed in June 1995 and currently consists of Messrs. Federman and Chua. The Compensation Committee administers the Company's stock option plans and makes recommendations to the Board concerning salaries and incentive compensation for employees, directors and consultants of the Company. No member of the Compensation Committee or executive officer of the Company has a relationship that would constitute an interlocking relationship with executive officers or directors of another entity. In addition to serving as a director of the Company, Mr. Chua was an employee of the Company until December 1996. DIRECTOR COMPENSATION The Company's non-employee directors currently do not receive any cash compensation for attending board meetings, including the meetings of any committees on which they sit. Board members will be reimbursed for their out- of-pocket expenses incurred in attending Board of Directors and committee meetings. The directors will be eligible to receive stock option grants under the Company's 1997 Director Option Plan. 48 EXECUTIVE COMPENSATION The following table sets forth, for the fiscal year ended December 31, 1996, all compensation earned for services rendered to the Company by the Company's Chief Executive Officer and each of the other four most highly compensated executive officers of the Company and a former executive officer of the Company each of whose total salary and bonus compensation for 1996 exceeded $100,000 (the "Named Executive Officers"): SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM COMPENSATION COMPENSATION IN 1996 AWARDS ------------------ ---------------- ALL OTHER NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTION GRANTS(#) COMPENSATION($) - --------------------------- --------- -------- ---------------- --------------- E. Thomas Hart............. 171,635 33,731 -- $8,515(1) Chief Executive Officer and President Richard C. Johnson......... 140,865 39,585 -- 6,581(2) Vice President, Sales Philip J. Ong.............. 116,255 26,244 28,571 -- Vice President, Operations Nim Cho Lam(3)............. 62,234 59,932 -- 4,133(4) Vice President, Engineering Andrew K. Chan............. 107,885 -- -- -- Vice President, Product Development John M. Birkner............ 102,981 -- -- -- Vice President, Computer- Aided Engineering
- -------- (1) Represents reimbursement of automobile lease payments. (2) Represents automobile allowance. (3) Mr. Lam was employed at the Company until July 1996. (4) Represents compensation for vacation time not taken. Vincent A. McCord, the Company's Vice President, Finance, Chief Financial Officer and Secretary was employed by the Company beginning in November 1996 and received $18,846 in salary in 1996. On an annualized basis, his salary for 1996 would have been $140,000. Ronald D. Zimmerman, the Company's Vice- President, Human Resources, was employed by the Company beginning in October 1996 and received $20,000 in salary in 1996. On an annualized basis, his salary for 1996 would have been $140,000. 49 OPTION GRANTS IN FISCAL YEAR 1996 The following table sets forth certain information with respect to stock options granted to each of the Company's Named Executive Officers during the fiscal year ended December 31, 1996. OPTION GRANTS IN FISCAL YEAR 1996
INDIVIDUAL GRANTS(1) ------------------------------------------ POTENTIAL REALIZABLE VALUE AT ASSUMED % OF TOTAL ANNUAL RATES OF NUMBER OF OPTIONS STOCK PRICE SECURITIES GRANTED TO APPRECIATION FOR UNDERLYING EMPLOYEES EXERCISE OPTION TERM(2) OPTIONS IN FISCAL PRICE PER EXPIRATION --------------------- NAME GRANTED 1996 SHARE(3) DATE 5% 10% ---- ---------- ---------- --------- ---------- ---------- ---------- E. Thomas Hart.......... -- -- -- -- -- -- Richard C. Johnson...... -- -- -- -- -- -- Philip J. Ong........... 28,571 9.0% $1.05 10/14/2006 $ 17,968 $ 45,535 Nim Cho Lam(4).......... -- -- -- -- -- -- Andrew K. Chan.......... -- -- -- -- -- -- John M. Birkner......... -- -- -- -- -- --
- -------- (1) All options are fully exercisable, subject to the Company's right to repurchase any unvested shares at the original exercise price in the event of the optionee's termination. Shares generally vest at the rate of 12.5% after six months of service from the date of grant and 6.25% of the total number of shares each three month period of service thereafter. (2) Amounts represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. The assumed 5% and 10% rates of stock price appreciation are mandated by rules of the Securities and Exchange Commission and do not represent the Company's estimate or projection of the future Common Stock price. Actual gains, if any, on stock option exercises are dependent on the future finalized performance of the Company, overall conditions and the option holder's continued employment through the vesting period and option term. This table does not take into account any appreciation in the fair market value of the Common Stock from the date of grant to the date of this offering, other than the columns reflecting assumed rates of appreciation of 5% and 10%. (3) The exercise price per share of options granted represented the fair market value of the underlying shares of Common Stock on the dates the respective options were granted as determined by the Company's Board of Directors. (4) Mr. Lam was employed at the Company until July 1996. Mr. McCord was employed by the Company beginning in November 1996. If he were a Named Executive Officer, the information set forth opposite his name in the above table would have been 92,857; 29.3%; $1.05; 11/14/2006; $65,960; and $147,990. Mr. Zimmerman was employed by the Company beginning in October 1996. If he were a Named Executive Officer, the information set forth opposite his name in the above table would have been 57,143; 9.0%; $1.05; 10/14/2006; $35,937; and $91,071. 50 OPTION EXERCISES AND HOLDINGS The following table sets forth for each of the Named Executive Officers certain information concerning the number of shares subject to both exercisable and nonexercisable stock options at December 31, 1996. Also reported are values for "in-the-money" options that represent the positive spread between the respective exercise prices of outstanding stock options and the fair value of the Company's Common Stock as of December 31, 1996, as determined by the Board of Directors. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
VALUE OF UNEXERCISED SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS ACQUIRED VALUE OPTIONS AT FISCAL YEAR END: AT FISCAL YEAR END (1): ON REALIZED ---------------------------- ---------------------------- NAME EXERCISE ($) EXERCISABLE(2) UNEXERCISABLE EXERCISABLE(2) UNEXERCISABLE ---- -------- -------- -------------- ------------- -------------- ------------- E. Thomas Hart.......... -- -- 342,857 -- $1,704,000 -- Richard C. Johnson...... -- -- 178,571 -- 887,500 -- Philip J. Ong........... -- -- 78,571 -- 380,500 -- Nim Cho Lam(3).......... 19,197 $40,314(4) 19,197 -- 6,719 -- Andrew K. Chan.......... -- -- -- -- 67,452 -- John M. Birkner......... -- -- 12,679 -- 67,452 --
- -------- (1) Calculated by determining the difference between the fair value of the securities underlying the option at December 31, 1996 as determined by the Company's Board of Directors ($5.67 per share) and the weighted average exercise price of the Named Executive Officer's option. (2) Options granted under the 1989 Stock Plan may be exercised immediately upon grant and prior to full vesting subject to the optionee's entering a Restricted Stock Purchase Agreement with the Company with respect to unvested shares. Any exercises of unvested shares are subject to repurchase by the Company at the original exercise price until fully vested. Shares generally vest at the rate of 12.5% after six months of service from the date of grant and 6.25% of the total number of shares each three-month period of service thereafter. (3) Mr. Lam was employed at the Company until July 1996. (4) Calculated by determining the differences between the fair value of the securities underlying the option at the time of exercise and the exercise price. Mr. McCord was employed by the Company beginning in November 1996. He had 92,857 shares subject to unexercised options at fiscal year end having value at fiscal year end of $429,000. Mr. Zimmerman was employed by the Company beginning in October 1996. He had 57,143 shares subject to unexercised options at fiscal year end having value at fiscal year end of $264,000. EMPLOYEE BENEFIT PLANS 1989 Stock Option Plan The Company's 1989 Stock Option Plan (the "Option Plan") was adopted by the Board of Directors and approved by its stockholders in October 1989. In February 1996, the Board of Directors amended the Option Plan to increase the number of shares of Common Stock reserved for issuance thereunder from 1,385,714 shares to 2,100,000 shares, which increase was approved by the Company's stockholders in March 1996. In July 1996, the Board of Directors amended the Option Plan to allow employees to exercise unvested stock options (prior to vesting), and to have those exercised unvested shares deposited with an escrow agent until the shares are fully vested and the Company's repurchase option lapses. In March 1997, the Board of Directors amended the Option Plan to increase the number of shares of Common Stock reserved for issuance thereunder to a total of 2,814,286 shares. The amendment will be submitted to the stockholders for approval in June 1997. As of May 31, 1997, options to purchase a total of 1,604,750 shares at a weighted average exercise price of $2.00 per share were outstanding, and 714,478 shares remained available for future option grants. 51 The Option Plan provides for the grant to employees (including officers and employee-directors) of "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and for the grant to employees, consultants and directors of nonstatutory stock options. The Option Plan may be administered by the Board of Directors or a committee of the Board (as applicable, the "Administrator") and is currently administered by the Compensation Committee. The Administrator determines the terms of options granted under the Option Plan, including the number of shares subject to option, the exercise price and the exercisability of the option. The exercise price of all incentive stock options granted under the Option Plan must be at least equal to the fair market value of the Common Stock of the Company on the date of grant. The exercise price of all nonstatutory stock options must equal at least 85% of the fair market value of the Common Stock on the date of grant. The exercise price of any incentive stock option granted to an optionee who owns stock representing more than 10% of the voting power of the Company's outstanding capital stock must equal at least 110% of the fair market value of the Common Stock on the date of grant. Payment of the exercise price may be made in cash, check, certain other shares of the Company's stock, promissory notes or other consideration determined by the Administrator. The Administrator determines the term of options. The term of an incentive stock option may not exceed ten years; provided, however, that the term of an incentive stock option granted to an optionee who, at the time of grant, owns stock representing more than 10% of the voting power of the Company's outstanding capital stock may not exceed five years. No options may be transferred by the optionee other than by will or the laws of descent or distribution. Each option may be exercised during the lifetime of the optionee only by such optionee. Options granted to each employee under the Option Plan generally become exercisable cumulatively as to 12.5% of the shares subject to the option six months after the vesting start date, and as to 6.25% of the shares subject to the option at the end of each succeeding three-month period. As of July 16, 1996, options granted to employees under the Option Plan became immediately exercisable, subject to the provisions of the Exercise Notice and Restricted Stock Agreement for Unvested Shares signed by optionees at the time of exercise pursuant to which any unvested shares are subject to repurchase by the Company at the original exercise price. In the event the Company merges with or into another corporation, all outstanding options shall be assumed or an equivalent option substituted by the successor corporation. In the event that such successor corporation does not agree to assume such options or to substitute an equivalent option, options granted prior to February 1996 may be exercised in full, including shares as to which would not otherwise be exercisable. Options granted subsequent to February 1996 may be exercised for a period of 15 days to the extent vested upon the expiration of such period, after which any such options not exercised will terminate immediately. The Administrator has the authority to amend or terminate the Option Plan as long as such action does not adversely affect any outstanding option, and provided that stockholder approval shall be required for an amendment to increase the number of shares subject to the Option Plan, to change the designation of the class of persons eligible to be granted options, or to materially increase benefits accruing to participants under the Option Plan if the Company is registered under Section 12 of the Exchange Act. Unless terminated earlier, the Option Plan will terminate in October 1999. 1997 Stock Plan The Company's 1997 Stock Plan (the "1997 Plan") was approved by the Board of Directors in May 1997 and will be submitted to the stockholders for approval in June 1997. The 1997 Plan is intended to be a successor to the Option Plan. Upon stockholder approval of the 1997 Plan, the remaining shares reserved for issuance pursuant to the Option Plan will roll over and be reserved for issuance pursuant to the 1997 Plan. The 1997 Plan provides for the grant of incentive 52 stock options to employees (including officers and employee directors) and for the grant of nonstatutory stock options and stock purchase rights ("SPRs") to employees, directors and consultants. A total of 1,000,000 shares of Common Stock, including the remaining shares reserved under the Option Plan, are currently reserved for issuance pursuant to the 1997 Plan, plus annual increases equal to the lesser of (i) 800,000 shares, (ii) 5% of the outstanding shares, or (iii) a lesser amount determined by the Board of Directors. Unless terminated sooner, the 1997 Plan will terminate automatically in May 2007. The 1997 Plan may be administered by the Board of Directors or a committee of the Board (as applicable, the "Administrator"). It is currently contemplated that the 1997 Plan will be administered by the Compensation Committee of the Board of Directors. The Administrator has the power to determine the terms of the options or SPRs granted, including the exercise price of the option or SPR, the number of shares subject to each option or SPR, the exercisability thereof, and the form of consideration payable upon such exercise. In addition, the Administrator has the authority to amend, suspend or terminate the 1997 Plan, provided that no such action may affect any share of Common Stock previously issued and sold or any option previously granted under the 1997 Plan. Options and SPRs granted under the 1997 Plan are not generally transferable by the optionee, and each option and SPR is exercisable during the lifetime of the optionee only by such optionee. Options granted under the 1997 Plan must generally be exercised within 90 days after the end of optionee's status as an employee, director or consultant of the Company, or within 12 months after such optionee's termination by death or disability, but in no event later than the expiration of the option's ten year term. In the case of SPRs, unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's employment with the Company for any reason (including death or disability). The purchase price for shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at a rate determined by the Administrator. The exercise price of all incentive stock options granted under the 1997 Plan must be at least equal to the fair market value of the Common Stock on the date of grant. The exercise price of nonstatutory stock options and SPRs granted under the 1997 Plan is determined by the Administrator, but with respect to nonstatutory stock options intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, the exercise price must at least be equal to the fair market value of the Common Stock on the date of grant. With respect to any participant who owns stock possessing more than 10% of the voting power of all classes of the Company's outstanding capital stock, the exercise price of any incentive stock option granted must equal at least 110% of the fair market value on the grant date and the term of such incentive stock option must not exceed five years. The term of all other options granted under the 1997 Plan may not exceed ten years. The 1997 Plan provides that in the event of a merger of the Company with or into another corporation, or a sale of substantially all of the Company's assets, each option shall be assumed or an equivalent option substituted for by the successor corporation. If the outstanding options are not assumed or substituted for by the successor corporation, the Administrator shall provide for the optionee to have the right to exercise the option or SPR as to all of the optioned stock, including shares which would not otherwise be exercisable. If the Administrator makes an option or SPR exercisable in full in the event of a merger or sale of assets, the Administrator shall notify the optionee that the option or SPR shall be fully exercisable for a period of 15 days from the date of such notice, and the option or SPR will terminate upon the expiration of such period. 53 1997 Director Option Plan The 1997 Director Option Plan (the "Director Plan") was adopted by the Board of Directors in May 1997 and will be submitted to the stockholders for approval in June 1997. The Director Plan provides for the grant of nonstatutory stock options to non-employee directors. The Director Plan has a term of ten years, unless terminated sooner by the Board. A total of 500,000 shares of Common Stock have been reserved for issuance under the Director Plan, plus annual increases equal to (i) 25,000 shares or (ii) a lesser amount determined by the Board. The Director Plan provides for the automatic grant of 30,000 shares of Common Stock (the "First Option") to each non-employee director on the later of (i) the effective date of the Director Plan, or (ii) the date on which the non-employee director was appointed to the Board, unless immediately prior to becoming a non-employee director, such person was an employee director of the Company. In addition to the First Option, each non-employee director shall automatically be granted an option to purchase 6,000 shares (a "Subsequent Option") on the first day of May of each year, if on such date he or she shall have served on the Board for at least six months. Each First Option and each Subsequent Option shall have a term of ten years. The shares subject to the First Option and to the Subsequent Option shall vest as to 25% of the optioned stock one year from the date of grant, and 1/48 of the optioned stock shall vest each month thereafter, provided the person continues to serve as a Director on such dates. The exercise price of each First Option and each Subsequent Option shall be 100% of the fair market value per share of the Common Stock, generally determined with reference to the closing price of the Common Stock as reported on the Nasdaq National Market, on the last trading day prior to date of grant. In the event of a merger of the Company or the sale of substantially all of the assets of the Company, each option granted under the Director Plan may be assumed or an equivalent option substituted for by the successor corporation. If an option is assumed or substituted for by the successor corporation, it shall continue to vest as provided in the Director Plan. However, if a non- employee director's status as a director of the Company or the successor corporation, as applicable, is terminated other than upon a voluntary resignation by the non-employee director, each option granted to such non- employee director shall become fully vested and exercisable. If the successor corporation does not agree to assume or substitute for the option, each option shall become fully vested and exercisable for a period of 15 days from the date the Board notifies the optionee of the option's full exercisability, after which period the option shall terminate. Options granted under the Director Plan must be exercised within three months of the end of the optionee's tenure as a director of the Company, or within 12 months after such director's termination by death or disability, but in no event later than the expiration of the option's ten-year term. No option granted under the Director Plan is transferable by the optionee other than by will or the laws of descent and distribution, and each option is exercisable, during the lifetime of the optionee, only by such optionee. 1997 Employee Stock Purchase Plan The Company's 1997 Employee Stock Purchase Plan (the "1997 Purchase Plan") was adopted by the Board of Directors in May 1997 and will be submitted to the stockholders in June 1997. A total of 750,000 shares of Common Stock has been reserved for issuance under the 1997 Purchase Plan, plus annual increases equal to the lesser of (i) 500,000 shares, (ii) 3% of the outstanding shares on such date or (iii) a lesser amount determined by the Board. The 1997 Purchase Plan, which is intended to qualify under Section 423 of the Internal Revenue Code of 1986, as amended, contains consecutive, overlapping, 24-month offering periods. Each offering period includes four six-month purchase periods. The offering periods generally start on the first trading day on or after the first of October and the first of April of each year, except for the first such offering period which commences on the first trading day on or after the date of this offering and ends on the last trading day on or before April 1, 1999. 54 Employees are eligible to participate if they are customarily employed by the Company or any participating subsidiary for at least 20 hours per week and more than five months in any calendar year. However, any employee who (i) immediately after grant owns stock possessing 5% or more of the total combined voting power or value of all classes of the capital stock of the Company, or (ii) whose rights to purchase stock under all employee stock purchase plans of the Company accrues at a rate which exceeds $25,000 worth of stock for each calendar year may be not be granted an option to purchase stock under the 1997 Purchase Plan. The 1997 Purchase Plan permits participants to purchase Common Stock through payroll deductions of up to 20% of the participant's "compensation." Compensation is defined as the participant's base straight time gross earnings and commissions but excludes payments for overtime, shift premium, incentive compensation, incentive payments, bonuses and other compensation. The maximum number of shares a participant may purchase during a single purchase period is 2,500 shares. Amounts deducted and accumulated by the participant are used to purchase shares of Common Stock at the end of each purchase period. The price of stock purchased under the 1997 Purchase Plan is 85% of the lower of the fair market value of the Common Stock at the beginning of the offering period or at the end of the purchase period. In the event the fair market value at the end of a purchase period is less than the fair market value at the beginning of the offering period, the participants will be withdrawn from the current offering period following exercise and automatically re-enrolled in a new offering period. The new offering period will use the lower fair market value as of the first date of the new offering period to determine the purchase price for future purchase periods. Participants may end their participation at any time during an offering period, and they will be paid their payroll deductions to date. Participation ends automatically upon termination of employment with the Company. Rights granted under the 1997 Purchase Plan are not transferable by a participant other than by will, the laws of descent and distribution, or as otherwise provided under the 1997 Purchase Plan. The 1997 Purchase Plan provides that, in the event of a merger of the Company with or into another corporation or a sale of substantially all of the Company's assets, each outstanding option may be assumed or substituted for by the successor corporation. If the successor corporation refuses to assume or substitute for the outstanding options, the offering period then in progress will be shortened and a new exercise date will be set prior to the date of any such Merger. The 1997 Purchase Plan will terminate in April 2007. The Board of Directors has the authority to amend or terminate the 1997 Purchase Plan, except that no such action may adversely affect any outstanding rights to purchase stock under the 1997 Purchase Plan. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Company's Certificate of Incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for (i) any breach of their duty of loyalty to the corporation or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) unlawful payments of dividends or unlawful stock repurchase or redemptions or (iv) any transaction from which the director derived an improper personal benefit. The Company's Bylaws provide that the Company shall indemnify its directors and executive officers and may indemnify its other officers and employees and other agents to the fullest extent permitted by law. The Company believes that indemnification under its Bylaws covers at least negligence and gross negligence on the part of indemnified parties. The Company's Bylaws also permit it to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether the Bylaws would permit indemnification. 55 The Company intends to enter into agreements to indemnify its directors and executive officers, in addition to indemnification provided for in the Company's Bylaws. These agreements, among other things, will indemnify the Company's directors and executive offices for certain expenses (including attorneys' fees), judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by or in the right of the Company, arising out of such person's services as a director or executive officer of the Company, any subsidiary of the Company or any other company or enterprise to which the person provides services at the request of the Company. The Company believes that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers. 56 CERTAIN TRANSACTIONS SERIES E PREFERRED FINANCING; ISSUANCE AND CONVERSION OF PROMISSORY NOTES From December 1993 through February 1995, the Company issued promissory notes at varying interest rates to certain investors in exchange for an aggregate principal amount of $4,639,693. In June 1995 the Company issued and sold shares of its Series E Preferred Stock ("Series E Preferred") convertible into an aggregate of 3,410,481 shares of Common Stock at a price per common equivalent share of $4.90. The Company sold the shares pursuant to a preferred stock purchase agreement and a registration rights agreement under which, among other things, it made standard representations, warranties and covenants, and provided the purchasers with registration rights and information rights. As part of the Series E Preferred financing, the holders of the outstanding promissory notes issued by the Company converted the notes, including accrued but unpaid interest, into shares of Series E Preferred Stock convertible into an aggregate of 989,786 shares of Common Stock. See "Shares Eligible for Future Sale--Registration Rights." The purchasers of the Series E Preferred included, among others, the following principal stockholders, directors and affiliated entities:
COMMON EQUIVALENT AGGREGATE STOCKHOLDERS, DIRECTORS AND AFFILIATED ENTITIES(1) SHARES PURCHASE PRICE -------------------------------------------------- ---------- -------------- Cypress Semiconductor Corporation..................... 289,537 $1,418,740 Morgenthaler Venture Partners III..................... 290,289 $1,422,420 New Enterprise Associates and affiliated funds........ 653,061 $3,200,000 Sequoia Capital and affiliated funds.................. 312,427 $1,530,897 Technology Venture Investors and affiliated funds..... 562,121 $2,754,396 U.S. Venture Partners and affiliated funds............ 588,785 $2,885,050 Vertex Investments and affiliated funds............... 282,161 $1,382,590
- -------- (1) See "Principal and Selling Stockholders." SERIES F PREFERRED FINANCING In November 1996 and January 1997, the Company sold shares of its Series F Preferred Stock ("Series F Preferred") convertible into an aggregate of 1,102,303 shares of Common Stock at a price per common equivalent share of $8.12. The Company sold the shares pursuant to a preferred stock purchase agreement and a registration rights agreement under which, among other things, it made standard representations, warranties and covenants, and provided the purchasers with registration rights and information rights. See "Shares Eligible for Future Sale--Registration Rights." The purchasers of the Series F Preferred included, among others, the following principal stockholders, directors and affiliated entities:
COMMON EQUIVALENT AGGREGATE STOCKHOLDERS, DIRECTORS AND AFFILIATED ENTITIES(1) SHARES PURCHASE PRICE -------------------------------------------------- ---------- -------------- Hua-Thye Chua(2)...................................... 14,284 $ 116,000 Morgenthaler Venture Partners III..................... 78,869 $ 640,416 New Enterprise Associates and affiliated funds........ 113,183 $ 919,050 Sequoia Capital and affiliated funds.................. 30,788 $ 250,000 Technology Venture Investors and affiliated funds..... 123,152 $1,000,000 U.S. Venture Partners and affiliated funds............ 73,891 $ 600,000 Vertex Investments and affiliated funds............... 184,729 $1,500,000
- -------- (1) See "Principal and Selling Stockholders." (2) Includes 3,571 shares beneficially owned by Mr. Chua for Bryan Shyang-Ming Chua; 3,571 shares beneficially owned by Mr. Chua for Caroline Siok-Yau Chua; 3,571 shares beneficially owned by Mr. Chua for Cathleen Siok-Syuan Chua; and 3,571 shares beneficially owned by Mr. Chua for Christine Siok- Pee Chua. 57 CYPRESS TRANSACTION In March 1997, the Company and Cypress terminated the Existing Agreement related to the Company's FPGA products and replaced it with a new arrangement whereby the Company's FPGA products will no longer be second sourced by Cypress. In addition, Cypress agreed to not compete with the Company with respect to antifuse FPGAs or products that are pin-compatible with the Company's existing pASIC 1 and pASIC 2 products. QuickLogic has commenced support for Cypress's FPGA customers, and Cypress assisted the Company in the transition of these customers to the Company. In exchange for the termination of the Existing Agreement and the reversion of the rights to the intellectual property developed thereunder to the Company, the Company paid $4.5 million in cash and agreed to issue 2,603,817 shares of Common Stock to Cypress, increasing the aggregate number of shares of Common Stock of the Company held by Cypress to 3,339,785, prior to the sale of any shares by Cypress in this offering. In addition, the Company granted Cypress, including the right to sell shares of Common Stock in this offering, certain contractual rights as to the shares of the Company's stock held by Cypress. The parties also entered into a new foundry agreement and a cross-license agreement. Under the terms of the cross-license agreement, Cypress granted to the Company a royalty-free, non-exclusive, non-sublicensable license to make, have made, use, offer for sale, sell and distribute programmable logic products under patents that are currently issued to Cypress or are issued prior to March 2007. In the event of an acquisition of the Company, the license continues only as to those products that were commercially available as of the acquisition or the design of which is in the layout stage and subsequently become commercially available within one year after the acquisition. The Company granted a reciprocal right to Cypress under its patent portfolio, except that the license does not extend to antifuse FPGAs or products that are pin-compatible with the Company's existing pASIC 1 and pASIC 2 products. The parties also licensed to each other the intellectual property rights developed under the Existing Agreement, within the scope of the patent licenses set forth above. The shares issued to Cypress in connection with the termination of the Existing Agreement were provided with the same contractual rights as the other shares of the Company's stock held by Cypress and the other holders of the Company Common Stock issued upon conversion of the Preferred Stock. In addition, the Company granted registration rights to Cypress that are in addition to those held by other stockholders of the Company. See "Description of Capital Stock--Registration Rights." First, Cypress may sell a minimum of one-third of the shares of Common Stock offered hereby, and in any subsequent public offerings of the Company's stock. Second, the Company is obligated to file a registration statement with respect to all of the shares of Common Stock held by Cypress and not sold in this offering, with such registration statement being effective upon the expiration of the lockup period imposed by the underwriters in connection with this offering. The Company must keep this registration statement effective until the earlier of (i) the date all of such shares held by Cypress are sold; (ii) three years from the closing of this offering; or (iii) the date all such shares are able to be sold in a three- month period pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended. Notwithstanding the foregoing, the Company has the right to suspend Cypress's ability to sell under such registration statement under certain circumstances. Finally, Cypress has the right to require registration of its shares that is separate from a similar right held by the other holders of registration rights. The other stockholders of the Company do not have the right to require inclusion of their shares in these separate Cypress registrations. Payments to Cypress under the Existing Agreement were $554,143, $5,850,944, $12,101,598 and $2,335,914 for 1994, 1995, 1996 and the first quarter of 1997, respectively. LOANS TO JOHN BIRKNER From time to time, the Company has made loans to John Birkner, an officer of the Company. Mr. Birkner's current loan obligation to the Company totals $125,300 plus interest at annual rates ranging from 6.7% to 8.5%, and is evidenced by demand promissory notes from Mr. Birkner to the Company secured by a pledge of Mr. Birkner's shares of the Company's stock. The largest amount outstanding under these loans since December 1, 1994 is $125,300, the current amount. These loans were approved by the Company's Board of Directors. The Company and Mr. Birkner are co-parties in litigation with Actel. The Company's legal counsel in connection with the litigation is also representing Mr. Birkner. The Company has borne and expects to continue to bear all fees and expenses related to the litigation. See "Risk Factors--Actel Litigation." 58 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Company's outstanding Common Stock as of May 31, 1997, and as adjusted to reflect the sale of the securities offered by the Company and the Selling Stockholder in the offering made hereby, (i) by each person (or group of affiliated persons) who is known by the Company to own beneficially more than 5% of the Company's Common Stock or Common Stock equivalents, (ii) each of the Company's directors and executive officers and (iii) all directors and executive officers as a group. Except as indicated in the footnotes to this table and subject to applicable community property laws, the persons named in the table, based on information provided by such persons, have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them.
PERCENTAGE OF SHARES NUMBER OF NUMBER OF BENEFICIALLY OWNED(1) SHARES SHARES ------------------------- NAMES AND ADDRESS, IF REQUIRED, BENEFICIALLY BEING BEFORE THE AFTER THE OF BENEFICIAL OWNER OWNED(1) OFFERED OFFERING OFFERING - ------------------------------- ------------ --------- ----------- ---------- 5% STOCKHOLDERS Technology Venture 1,441,748 -- 12.0% 10.4% Investors(2).............. 3000 Sand Hill Road Bldg. 4, Suite 280 Menlo Park, CA 94025 U.S. Venture Partners(3)... 1,205,669 -- 10.0% 8.7% 2180 Sand Hill Road Suite 300 Menlo Park, CA 94025 Vertex Investments(4)...... 1,166,458 -- 9.7% 8.4% 3 Lagoon Drive, Ste. 220 Redwood City, CA 94065 Sequoia Capital(5)......... 962,093 -- 8.0% 7.0% 3000 Sand Hill Road Bldg. 4, Suite 280 Menlo Park, CA 94025 New Enterprise 766,244 -- 6.4% 5.5% Associates(6)............. 1119 St. Paul Street Baltimore, MD 21202 Morgenthaler Venture 703,980 -- 5.9% 5.1% Partners III.............. 2730 Sand Hill Road Suite 280 Menlo Park, CA 94025 Cypress Semiconductor 3,339,783 1,200,000 27.8% 15.5% Corporation............... 3901 N. First Street San Jose, CA 95134 EXECUTIVE OFFICERS AND DIRECTORS E. Thomas Hart(7).......... 428,571 -- 3.4% 3.0% Vincent A. McCord(8)....... 107,142 -- * * Richard C. Johnson(9)...... 185,713 -- 1.5% 1.3% Philip J. Ong(10).......... 102,033 -- * * Andrew K. Chan(11)......... 171,424 -- 1.4% 1.2% John M. Birkner(12)........ 157,141 -- 1.3% 1.1% Hua-Thye Chua(13).......... 171,426 -- 1.4% 1.2% Ronald D. Zimmerman(14).... 62,856 -- * * Donald F. Faria(15)........ 100,000 -- * * Scott D. Ward(16).......... 100,000 -- * * Irwin B. Federman(17)...... 1,205,669 -- 10.0% 8.7% All executive officers and directors as a group (11 persons).............. 3,339,783 -- 21.3% 18.7%
59 - -------- * Under 1% (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of Common Stock subject to options or warrants held by that person that are currently exercisable or will become exercisable within 60 days after May 31, 1997 are deemed outstanding, while such shares are not deemed outstanding for purposes of computing percentage ownership of any other person. (2) Includes 1,368,252 shares held by Technology Investors-IV; 72,112 shares held by Technology Venture Investors-3, L.P.; and 1,384 shares held by TVI Management-3, L.P. (3) Includes 802,676 shares held by U.S. Venture Partners III; 308,463 shares held by U.S.V. Entrepreneur Partners; 38,803 shares held by Second Ventures II, L.P.; 25,083 shares held by Second Ventures Limited Partnership; 19,558 shares held by U.S. Venture Partners IV, L.P.; and 11,086 shares held by U.S.V.P. Entrepreneur Partners II, L.P. (4) Includes 879,688 shares held by Vertex Investment Pte. Ltd.; 184,134 shares held by Vertex Investment (II) Limited; 82,094 shares held by Vertex Asia Limited; and 20,542 shares held by HWH Investment Pte. Ltd. (5) Includes 874,188 shares held by Sequoia Capital V; 47,828 shares held by Sequoia Technology Partners V; 15,419 shares hold by Sequoia XXI; 10,923 shares held by Sequoia XXIV; 6,643 shares held by Sequoia Capital XXI; 4,285 shares held by Sequoia XX; and 2,807 shares held by Sequoia XXIII. (6) Includes 735,456 shares held by New Enterprise Associates VI, Limited Partnership and 30,788 shares held by New Venture Partners III L.P. (7) Includes 428,571 shares issuable pursuant to stock options exercisable within 60 days of May 31, 1997. (8) Includes 107,142 shares issuable pursuant to stock options exercisable within 60 days of May 31, 1997. (9) Includes 185,713 shares issuable pursuant to stock options exercisable within 60 days of May 31, 1997. (10) Includes 57,141 shares issuable pursuant to stock options exercisable within 60 days of May 31, 1997. (11) Includes 125,714 shares beneficially owned by Mr. Chan as trustee for Andrew Ka-Lab Chan and Amy Shuk-Chun Chan, Trustees or successor(s), U/a of trust dated January 30, 1991; 4,285 shares beneficially owned by Mr. Chan for Michael P. Gamboa, Trustee under Erica H. Chan trust agreement dated May 14, 1992; 4,285 shares beneficially owned by Mr. Chan for Michael P. Gamboa, Trustee under Rebecca H. Chan trust agreement dated May 14, 1992; 4,285 shares beneficially owned by Mr. Chan for Michael P. Gamboa, Trustee under Vicki H. Chan trust agreement dated May 14, 1992; 2,142 shares beneficially owned by Mr. Chan for Clement Chan and Susie S.J. Chan, Trustees under Nicholas Chan trust agreement dated July 3, 1996; 2,142 shares beneficially owned by Mr. Chan for Clement Chan and Susie S.J. Chan, Trustees under Phillip Chan trust agreement dated July 3, 1996; and 28,571 shares issuable pursuant to stock options and exercisable within 60 days of May 31, 1997. (12) Includes 26,963 shares issuable pursuant to stock options exercisable within 60 days of May 31, 1997. (13) Includes 30,179 shares beneficially owned by Mr. Chua, as trustee for H.T. Chua & Jessie Chua TTEES for the H.T. Chua Trust Agreement dated December 20, 1974; 17,857 shares beneficially owned by Mr. Chua, as custodian for Bryan Shyang-Ming Chua; 17,857 shares beneficially owned by Mr. Chua, as custodian for Caroline Siok-Yau Chua; 17,857 shares beneficially owned by Mr. Chua, as custodian for Cathleen Siok-Syuan Chua; 17,857 shares beneficially owned by Mr. Chua, as custodian for Christine Siok-Pee Chua; and 14,285 shares issuable pursuant to stock options exercisable within 60 days of May 31, 1997. (14) Includes 62,856 shares issuable pursuant to stock options exercisable within 60 days of May 31, 1997. (15) Includes 100,000 shares issuable pursuant to stock options exercisable within 60 days of May 31, 1997. (16) Includes 100,000 shares issuable pursuant to stock options exercisable within 60 days of May 31, 1997. (17) Includes 1,205,669 shares held by U.S. Venture Partners Entities. Mr. Federman is a general partner of U.S. Venture Partners. See Footnote 3 above. Mr. Federman disclaims beneficial ownership of all shares held by U.S. Venture Partners Entities except to the extent of his pecuniary interest therein. 60 DESCRIPTION OF CAPITAL STOCK GENERAL Upon the completion of this offering, the Company will be authorized to issue 100,000,000 shares of Common Stock, $0.001 par value, and 10,000,000 shares of undesignated Preferred Stock, $0.001 par value. Immediately after the completion of this offering, the Company estimates there will be an aggregate of 13,817,422 shares of Common Stock outstanding, 1,604,750 shares of Common Stock will be issuable upon exercise of outstanding options, no shares of Common Stock will be issuable upon exercise of outstanding warrants, and no shares of Preferred Stock will be issued and outstanding. As of May 31, 1997, there were 228 stockholders of the Company. The following description of the Company's capital stock does not purport to be complete and is subject to and qualified in its entirety by the Company's Amended and Restated Certificate of Incorporation and Bylaws and by the provisions of applicable Delaware law. The Amended and Restated Certificate of Incorporation and Bylaws contain certain provisions that are intended to enhance the likelihood of continuity and stability in the composition of the Board of Directors and which may have the effect of delaying, deferring, or preventing a future takeover or change in control of the Company unless such takeover or change in control is approved by the Board of Directors. See "Risk Factors--Effect of Antitakeover Provisions." COMMON STOCK Holders of Common Stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Holders of Common Stock do not have cumulative voting rights under the Company's Bylaws or Certificate of Incorporation, and, therefore, holders of a majority of the shares voting for the election of directors can elect all of the directors. In such event, the holders of the remaining shares will not be able to elect any directors. Holders of the Common Stock are entitled to receive such dividends as may be declared from time to time by the Board of Directors out of funds legally available therefor, subject to the rights of preferred stockholders and the terms of any existing or future agreements between the Company and its debtholders. The Company has never declared or paid cash dividends on its capital stock, expects to retain future earnings, if any, for use in the operation and expansion of its business, and does not anticipate paying any cash dividends in the foreseeable future. In the event of the liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets legally available for distribution after payment of all debts and other liabilities and subject to the prior rights of any holders of Preferred Stock then outstanding. PREFERRED STOCK Effective prior to the closing of this offering, the Company will be authorized to issue 10,000,000 shares of undesignated Preferred Stock. The Board of Directors has the authority to issue the Preferred Stock in one or more series and to fix the price, rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting a series or the designation of such series, without any further vote or action by the Company's stockholders. The issuance of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of delaying, deferring or preventing a change in control of the Company without further action by the stockholders and may adversely affect the market price of, and the voting and other rights of, the holders of Common Stock. The issuance of Preferred Stock with voting and conversion rights may adversely affect the voting power of the holders of Common Stock, including the loss of voting control to others. The Company has no current plans to issue any shares of Preferred Stock. 61 WARRANTS As of May 31, 1997, the Company had one outstanding warrant to purchase 18,750 shares of its Common Stock with an exercise price of $4.48 per share. The warrant to purchase the shares expires on the earlier to occur of this offering or January 1999. TRANSFER AGENT AND REGISTRAR The Company's transfer agent and registrar is Boston EquiServe, L.P. LISTING The Company has applied to designate its Common Stock for quotation on the Nasdaq National Market System under the trading symbol "QWIK." The Company has not applied to list its Common Stock on any other exchange or quotation system. REGISTRATION RIGHTS Following the closing of this offering, the holders of approximately 9,899,413 shares of Common Stock (the "Registrable Securities") will be entitled to certain rights with respect to the registration of such shares under the Securities Act. In the event that the Company proposes to register any of its securities under the Securities Act, either for its own account or for the account of other security holders, the holders of Registrable Securities are entitled to notice of such registration and are entitled to include their Registrable Securities in such registration, subject to certain marketing and other limitations. Beginning six months after the closing of this offering, the holders of at least thirty percent (30%) of the Registrable Securities have the right to require the Company, on not more than two occasions, to file a registration statement under the Securities Act in order to register all or any part of their Registrable Securities. The Company may in certain circumstances defer such registrations and the underwriters have the right, subject to certain limitations, to limit the number of shares included in such registrations. Further, holders of Registrable Securities may require the Company to register all or a portion of their shares on Form S-3, when such form becomes available to the Company, subject to certain conditions and limitations. In connection with the Company's transaction with Cypress, Cypress was granted registration rights in addition to those held by other stockholders of the Company. First, Cypress may sell a minimum of one-third of the shares of Common Stock offered hereby, and in any subsequent public offerings of the Company's stock. Second, the Company is obligated to file a registration statement with respect to all shares of Common Stock held by Cypress and not sold in this offering, with such registration statement being effective upon the expiration of the lockup period imposed by the underwriters in connection with this offering. The Company must keep this registration statement effective until the earlier of (i) the date all of such shares held by Cypress are sold; (ii) three years from the closing of this offering; or (iii) the date all such shares are able to be sold in a three-month period pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended. Notwithstanding the foregoing, the Company has the right to suspend Cypress's ability to sell under such registration statement under certain circumstances. Finally, Cypress has the right to require registration of its shares that is separate from a similar right held by the other holders of registration rights. The other stockholders of the Company do not have the right to require inclusion of their shares in these separate Cypress registrations. DELAWARE ANTITAKEOVER LAW AND CERTAIN CHARTER PROVISIONS Certain provisions of the Company's Certificate of Incorporation and Bylaws could discourage potential acquisition proposals and could delay or prevent a change in control of the Company. Such provisions could diminish the opportunities for a stockholder to participate in tender offers, including tender offer at a price above the then current market value of the Common Stock. Such provisions may also inhibit fluctuations in the market price of the Common Stock that could result from takeover 62 attempts. The Company is also afforded the protections of Section 203 of the Delaware General Corporation Law, which could delay or prevent a change in control of the Company or could impede a merger, consolidation, takeover or other business combination involving the Company or discourage a potential acquiror from making a tender offer or otherwise attempting to obtain control of the Company. In addition, the Board of Directors has authority to issue up to 10,000,000 shares of Preferred Stock and to fix the rights, preferences, privileges and restrictions, including voting rights, of these shares without any further vote or action by the stockholders. The rights of the holders of the Company's Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third-party to acquire a majority of the outstanding voting stock of the Company, thereby delaying, deferring or preventing a change in control of the Company. Furthermore, such Preferred Stock may have other rights, including economic rights, senior to the Common Stock, and as a result, the issuance of such Preferred Stock could have a material adverse effect on the market value of the Common Stock. The Company has no present plan to issue shares of Preferred Stock. The Company's Certificate of Incorporation provides that, so long as the Board of Directors consists of more than two directors, the Board of Directors will be divided into three classes of directors serving staggered three-year terms. As a result, only one of the three classes of the Company's Board of Directors will be elected each year, which could have the effect of delaying a change in the composition of the Board of Directors. See "Risk Factors--Effect of Antitakeover Provisions." 63 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no market for the Common Stock of the Company. Therefore, future sales of substantial amounts of Common Stock in the public market could adversely affect the prevailing market price from time to time. Furthermore, because only a limited number of shares will be available for sale shortly after this offering because of certain contractual and legal restrictions on resale (as described below), sales of substantial amounts of Common Stock of the Company in the public market after the restrictions lapse could adversely affect the prevailing market price and the ability of the Company to raise equity capital in the future. Upon completion of this offering, the Company will have outstanding an aggregate of approximately 13,817,422 shares of Common Stock, assuming no exercise of outstanding options under the Option Plan. Of these outstanding shares of Common Stock, the 3,000,000 shares sold in this offering will be freely tradeable without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"), unless purchased by "affiliates" of the Company as that term is defined in Rule 144 under the Securities Act. The remaining 10,817,422 shares of Common Stock outstanding upon completion of this offering and held by existing stockholders will be "restricted securities" as that term is defined in Rule 144 under the Securities Act ("Restricted Shares"). The holders of 8,190,572 Restricted Shares, including all officers and directors of the Company, are subject to "lock up" agreements with the Representatives of the Underwriters and/or the Company providing that they will not offer, sell, contract to sell or grant any option to purchase or otherwise dispose of the shares of Common Stock owned by them or that could be purchased by them through the exercise of options to purchase Common Stock of the Company for a period of at least 180 days after the effective date of this offering (the "Lock Up Period") without the prior written consent of Deutsche Morgan Grenfell, UBS Securities LLC, Cowen & Company and/or the Company, as applicable. The lock up agreements provide that the Lock Up Period will be extended in the event that the Lock Up Period would expire in a period where the Company's directors and officers are prevented from trading because of the set "blackout" period between earnings releases provided in the Company's insider trading policy, until the date that trading will commence under the Company's insider trading policy. The Company has agreed with Representatives of the Underwriters not to release any holders from such agreements without the prior written consent of Deutsche Morgan Grenfell. Such lock up agreements may be released at any time as to all or any portion of the shares subject to such agreements at the sole discretion of Deutsche Morgan Grenfell. Of the 10,813,138 Restricted Shares that first become eligible for sale in the public market 180 days after the date of this Prospectus (depending upon the duration of the lock-up), 2,235,509 shares will be immediately eligible for sale without restriction under Rule 144(k) or Rule 701, and 6,969,860 shares will be immediately eligible for sale subject to certain volume and other restrictions pursuant to Rule 144. All 10,817,422 shares will be eligible for sale pursuant to Rule 144 upon the expiration of one-year holding periods, all of which will expire on or before March 31, 1998, subject in some cases to Rule 144's volume and other restrictions. In general, under Rule 144, beginning 90 days after the date of this Prospectus, a person (or persons whose shares are aggregated) who has beneficially owned Restricted Shares for at least one year, including persons who may be deemed to be "affiliates" of the Company, would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: (i) one percent of the number of shares of Common Stock then outstanding (which will equal approximately 138,174 shares immediately after this offering); or (ii) the average weekly trading volume of the Common Stock as reported through the Nasdaq National Market during the four calendar weeks preceding the filing of a Form 144 with respect to such sale. Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about the Company. Under Rule 144(k), a person who is not deemed to have been an 64 affiliate of the Company at any time during the 90 days preceding a sale, and who has beneficially owned for at least two years the Restricted Shares proposed to be sold (including the holding period of any prior owner except an affiliate), is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Subject to certain limitations on the aggregate offering price of a transaction and certain other conditions, Rule 701 permits resales of shares issued prior to the date the issuer becomes subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), pursuant to certain compensatory benefit plans and contracts commencing 90 days after the issuer becomes subject to the reporting requirements of the Exchange Act, in reliance upon Rule 144 but without compliance with certain restrictions, including the holding period requirements, contained in Rule 144. In addition, the Securities and Exchange Commission has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Exchange Act, along with the shares acquired upon exercise of such options (including exercises after the date of this offering). Securities issued in reliance on Rule 701 are restricted securities and, subject to the contractual restrictions described above, beginning 90 days after the date of this Prospectus, may be sold by persons other than affiliates subject only to the manner of sale provisions of Rule 144 and by affiliates under Rule 144 without compliance with its two-year minimum holding period requirements. Except with respect to (a) the shares of Common Stock to be sold hereunder and (b) any shares of such Common Stock sold by the Company pursuant to the Company's Employee Stock Purchase Plan or upon the exercise of an option or warrant, or the conversion of a security outstanding on the date hereof, the Company hereby agrees that, without the prior written consent of Deutsche Morgan Grenfell Inc., it will not, during the Lock Up Period (and any extension thereof), (x) offer, pledge, sell, contract to sell, sell any option, or contract to purchase, purchase any option or contract to sell, grant any option, right, or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for such Common Stock or (y) enter into any swap or similar agreement that transfers, in whole or in part, the economic risk of ownership of the Common Stock, whether any such transaction described in (x) or (y) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing prohibitions shall not prevent the Company from granting options and other rights under its existing equity compensation plans. The Company intends to file a registration statement under the Securities Act covering approximately 1,000,000 shares of Common Stock subject to outstanding options or reserved for issuance under the 1997 Plan and 750,000 shares of Common Stock reserved for issuance under the Purchase Plan. See "Management--Employee Benefit Plans." Such registration statement is expected to be filed simultaneously with the effectiveness of the registration statement covering the shares of Common Stock offered in this offering and will automatically become effective upon filing. Accordingly, shares registered under such registration statement will, subject to Rule 144 volume limitations applicable to affiliates and the lapsing of the Company's repurchase options, be available for sale in the open market, except to the extent that such shares are subject to vesting restrictions with the Company or the contractual restrictions described above. In addition, the Company granted registration rights to Cypress that are in addition to those held by other stockholders of the Company. See "Description of Capital Stock--Registration Rights." First, Cypress may sell a minimum of one-third of the shares of Common Stock offered hereby, and any subsequent public offerings of the Company's stock. Second, the Company is obligated to file a registration statement with respect to all of the shares of Common Stock held by Cypress and not sold in this offering, with such registration statement being effective upon the expiration of the lockup period imposed by the underwriters in connection with this offering. The Company must keep this 65 registration statement effective until the earlier of (i) the date all of such shares held by Cypress are sold; (ii) three years from the closing of this offering; or (iii) the date all such shares are able to be sold in a three- month period pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended. Notwithstanding the foregoing, the Company has the right to suspend Cypress's ability to sell under such registration statement under certain circumstances. Finally, Cypress has the individual right to require registration of its shares that is separate from a similar right held by the other holders of registration rights. The other stockholders of the Company do not have the right to require inclusion of their shares in these separate Cypress registrations. 66 UNDERWRITING The Underwriters named below (the "Underwriters"), for whom Deutsche Morgan Grenfell Inc., UBS Securities LLC and Cowen & Company are acting as representatives (the "Representatives"), have severally agreed, subject to the terms and conditions contained in the underwriting agreement (the form of which is filed as an exhibit to the Company's Registration Statement, of which this Prospectus is a part, (the "Underwriting Agreement"), purchase from the Company and the Selling Stockholder the number of shares of Common Stock set forth below opposite their respective names:
NUMBER OF UNDERWRITERS SHARES ------------ --------- Deutsche Morgan Grenfell Inc.................................... UBS Securities LLC.............................................. Cowen & Company................................................. --- Total......................................................... ===
The Underwriting Agreement provides that the obligations of the Underwriters thereunder are subject to approval of certain legal matters by counsel and to various other conditions. The Representatives have advised the Company and the Selling Stockholder that the Underwriters propose initially to offer the Common Stock to the public on the terms set forth on the cover page of this offering. The Underwriters may allow to selected dealers (who may include the Underwriters) a concession of not more than $ per share. The selected dealers may reallow a concession of not more than $ per share to certain other dealers. After the initial public offering, the price and concessions and re-allowances to dealers and other selling terms may be changed by the Representatives. The Common Stock is offered subject to receipt and acceptance by the Underwriters, and to certain other conditions, including the right to reject orders in whole or in part. The Underwriters do not intend to sell any of the shares of Common Stock offered hereby to accounts for which they exercise discretionary authority. The Selling Stockholder has granted an option to the Underwriters to purchase up to a maximum of 450,000 additional shares of Common Stock to cover over-allotments, if any, at the public offering price, less the underwriting discount set forth on the cover page of this Prospectus. Such option may be exercised at any time until 30 days after the date of the Underwriting Agreement. To the extent the Underwriters exercise this option, each of the Underwriters will be committed, subject to certain conditions, to purchase such additional shares in approximately the same proportion as set forth in the above table. The Underwriters may purchase such shares only to cover over- allotments made in connection with the offering. In connection with the offering, the Company and the directors, executive officers and certain stockholders of the Company have agreed not to offer or sell any Common Stock until the expiration of 180 days following the closing of this offering without the prior written consent of Deutsche Morgan Grenfell Inc. The Underwriting Agreement provides that the Company and the Selling Stockholder will indemnify the several Underwriters against certain liabilities, including civil liabilities under the Securities Act, as amended, or will contribute to payments the Underwriters may be required to make in respect thereof. Prior to this offering, there has been no public market for the Common Stock. The initial public offering price will be determined by negotiation between the Company and the Representatives. The principal factors to be considered in determining the public offering price include the information set forth in this offering and otherwise available to the Representatives; the history and the prospects for 67 the industry in which the Company will compete; the ability of the Company's management; the prospects for future earnings of the Company; the present state of the Company's development and its current financial condition; the general condition of the securities markets at the time of this offering; and the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies. Each of the Representatives has informed the Company that it currently intends to make a market in the shares subsequent to the effectiveness of this offering, but there can be no assurance that the Representatives will take any action to make a market in any securities of the Company. Certain persons participating in this offering may over-allot or effect transactions which stabilize, maintain or otherwise affect the market price of the Common Stock at levels above those which might otherwise prevail in the open market, including by entering stabilizing bids, effecting syndicate covering transactions or imposing penalty bids. A stabilizing bid means the placing of any bid or effecting of any purchase for the purpose of pegging, fixing or maintaining the price of the Common Stock. A syndicate covering transaction means the placing of any bid on behalf of the underwriting syndicate or the effecting of any purchase to reduce a short position created in connection with this offering. A penalty bid means an arrangement that permits the Underwriters to reclaim a selling concession from a syndicate member in connection with this offering when shares of Common Stock sold by the syndicate member are purchased in syndicate covering transactions. Such transactions may be effected on the Nasdaq Stock Market, in the over-the- counter market, or otherwise. Such stabilizing, if commenced, may be discontinued at any time. The Underwriters have reserved for sale, at the initial public offering price, up to 5% of the Common Stock offered hereby for employees and directors of the Company and certain other individuals who have expressed an interest in purchasing such shares of Common Stock in the offering. The number of shares available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the Underwriters to the general public on the same basis as other shares offered hereby. LEGAL MATTERS Certain legal matters relating to the legality of the Common Stock offered hereby will be passed upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. Certain legal matters in connection with the offering will be passed upon for the Underwriters by Venture Law Group, A Professional Corporation, Menlo Park, California. As of the date of this Prospectus, three investment partnerships composed of certain members of and persons associated with Wilson Sonsini Goodrich & Rosati beneficially owned an aggregate of 16,152 shares of Common Stock of the Company and a member of Wilson Sonsini Goodrich & Rosati owned 644 shares of Common Stock of the Company. EXPERTS The financial statements of the Company as of December 31, 1996 and 1995 and for each of the three years in the period ended December 31, 1996 included in this Prospectus have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 68 CHANGE IN INDEPENDENT ACCOUNTANTS Effective January 23, 1996, Price Waterhouse LLP was engaged as the Company's principal independent accountants. Prior to January 1996, Deloitte and Touche LLP ("Deloitte & Touche") had been the Company's independent accountants. The decision to change independent accountants was approved by the Company's Board of Directors. In the period from January 1994 through January 1996, there were no disagreements with Deloitte & Touche on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures which disagreements if not resolved to the satisfaction of Deloitte & Touche would have caused them to make reference thereto in their report on the financial statements. The report of Deloitte & Touche on the financial statements of the Company as of and for the year ended December 31, 1994, contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principle. Prior to January 23, 1996, the Company had not consulted with Price Waterhouse LLP on either the application of accounting principles to a specified transaction, either complete or proposed, or on the type of opinion that might be rendered on the Company's financial statements. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission a Registration Statement on Form S-1, including amendments thereto, under the Securities Act with respect to the Common Stock offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits and schedules filed therewith. For further information with respect to the Company and the Common Stock offered hereby, reference is hereby made to such Registration Statement and to the exhibits and schedules filed therewith. Statements contained in this Prospectus regarding the contents of any contract or other document referred to are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. The Registration Statement, including the exhibits and schedules thereto, may be inspected without charge at the principal office of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part thereof may be obtained from such office upon the payment of the prescribed fees. Such materials may also be obtained from the Commission's web site at http://www.sec.gov. Information concerning the Company is also available for inspection at the offices of the Nasdaq National Market, Reports Section, 1735 K Street, N.W., Washington, D.C. 20006. The Company intends to furnish its stockholders with annual reports containing consolidated financial statements audited by its independent auditors and quarterly reports containing unaudited consolidated financial information. 69 QUICKLOGIC CORPORATION INDEX TO FINANCIAL STATEMENTS
PAGE ---- Report of Independent Accountants........................................ F-2 Balance Sheet as of December 31, 1995, December 31, 1996 and March 31,1997 (unaudited)..................................................... F-3 Statement of Operations for the Years Ended December 31, 1994, 1995 and 1996 and for the Three Months Ended March 31, 1996 (unaudited) and 1997 (unaudited)............................................................. F-4 Statement of Stockholders' Equity (Deficit) for the Years Ended December 31, 1994, 1995 and 1996 and for the Three Months Ended March 31, 1997 (unaudited)............................................................. F-5 Statement of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996 and for the Three Months Ended March 31, 1996 (unaudited) and 1997 (unaudited)............................................................. F-6 Notes to Financial Statements............................................ F-7
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of QuickLogic Corporation The reincorporation described in Note 12 to the financial statements has not been consummated at June 9, 1997. When it has been consummated, we will be in a position to furnish the following report: "In our opinion, the accompanying balance sheet and the related statements of operations, stockholders' equity (deficit) and cash flows present fairly, in all material respects, the financial position of QuickLogic Corporation at December 31, 1995 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above." Price Waterhouse LLP San Jose, California June 9, 1997 F-2 QUICKLOGIC CORPORATION BALANCE SHEET (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA STOCKHOLDERS' DECEMBER 31, EQUITY ------------------ MARCH 31, MARCH 31, 1995 1996 1997 1997 -------- -------- --------- ------------- (UNAUDITED) ASSETS Current assets: Cash............................. $ 3,856 $ 10,336 $ 10,366 Short term investments........... 4,000 -- -- Accounts receivable, less allowance for doubtful accounts and sales returns and allowances of $982, $2,084, and $2,284..... 2,680 2,609 3,653 Inventory........................ 1,324 3,248 4,667 Other current assets............. 121 4,633 245 -------- -------- -------- Total current assets........... 11,981 20,826 18,931 Property and equipment, net........ 218 1,708 2,502 Other assets....................... -- 43 43 -------- -------- -------- $ 12,199 $ 22,577 $ 21,476 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................. $ 1,610 $ 3,044 $ 3,159 Accrued and other liabilities.... 3,228 6,929 7,995 Current portion of long-term obligations..................... 75 203 605 -------- -------- -------- Total current liabilities...... 4,913 10,176 11,759 Long-term obligations.............. 137 602 1,658 -------- -------- -------- 5,050 10,778 13,417 -------- -------- -------- Commitments and contingencies (Notes 10 and 11) Stockholders' equity: Preferred stock, $0.001 par value; 8,093, 8,767, and 8,767 shares authorized, 10,000 shares authorized pro forma; 7,390, 8,394, and 8,496 shares issued and outstanding, no shares issued and outstanding pro forma........................... 7 8 9 $ -- Common stock, $0.001 par value; 10,714, 12,143, and 12,143 shares authorized; 100,000 shares authorized pro forma; 551, 722, and 861 shares issued and outstanding; 9,357 shares issued and outstanding pro forma........................... 1 1 1 10 Additional paid-in capital....... 31,432 40,486 43,528 43,528 Common stock to be issued: 2,604 shares.................... -- -- 18,409 18,409 Stockholder note receivable...... (119) (119) (119) (119) Deferred compensation............ -- (808) (2,897) (2,897) Accumulated deficit.............. (24,172) (27,769) (50,872) (50,872) -------- -------- -------- -------- Total stockholders' equity..... 7,149 11,799 8,059 $ 8,059 -------- -------- -------- ======== $ 12,199 $ 22,577 $ 21,476 ======== ======== ========
See notes to financial statements. F-3 QUICKLOGIC CORPORATION STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED YEAR ENDED DECEMBER 31, MARCH 31, -------------------------- ----------------- 1994 1995 1996 1996 1997 ------- ------- -------- ------- -------- (UNAUDITED) Revenue......................... $ 6,024 $15,148 $23,758 $ 5,154 $ 6,268 Cost of revenue................. 4,053 7,739 11,158 2,563 2,813 ------- ------- -------- ------- -------- Gross profit.................... 1,971 7,409 12,600 2,591 3,455 ------- ------- -------- ------- -------- Operating expenses: Research and development...... 3,172 3,599 4,642 1,042 1,333 Selling, general and administrative............... 4,408 5,770 7,730 1,685 2,313 Contract termination and other expense...................... -- 2,700 4,125 -- 23,009 ------- ------- -------- ------- -------- Loss from operations............ (5,609) (4,660) (3,897) (136) (23,200) Interest expense................ (240) (200) (60) (7) (21) Interest and other income, net.. 21 153 360 164 118 ------- ------- -------- ------- -------- Net income (loss)............... $(5,828) $(4,707) $(3,597) $ 21 $(23,103) ======= ======= ======== ======= ======== Pro forma net income (loss) per share (unaudited).............. $ (.29) $ -- $ (1.83) ======== ======= ======== Shares used in pro forma net income (loss) per share calculation (unaudited)........ 12,612 12,438 12,612 ======== ======= ========
See notes to financial statements. F-4 QUICKLOGIC CORPORATION STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS)
COMMON STOCK TOTAL PREFERRED STOCK COMMON STOCK TO BE ISSUED ADDITIONAL STOCKHOLDER STOCKHOLDERS' ---------------- ------------- -------------- PAID-IN NOTE DEFERRED ACCUMULATED EQUITY SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE COMPENSATION DEFICIT (DEFICIT) ------- ------- ------ ------ ------ ------- ---------- ----------- ------------ ----------- ------------- Balance at December 31, 1993............. 3,983 $ 4 417 $ 1 -- $ -- $14,726 $(119) $ -- $(13,637) $ 975 Common stock issued under stock option plan............ -- -- 100 -- -- -- 31 -- -- -- 31 Net loss........ -- -- -- -- -- -- -- -- -- (5,828) (5,828) ------- ------- --- ---- ----- ------- ------- ----- ------- -------- -------- Balance at December 31, 1994............ 3,983 4 517 1 -- -- 14,757 (119) -- (19,465) (4,822) Common stock issued under stock option plan............ -- -- 34 -- -- -- 17 -- -- -- 17 Issuance of Series E preferred stock for cash and conversion of notes payable to stockholders, net of issuance cost............ 3,407 3 -- -- -- -- 16,658 -- -- -- 16,661 Net loss........ -- -- -- -- -- -- -- -- -- (4,707) (4,707) ------- ------- --- ---- ----- ------- ------- ----- ------- -------- -------- Balance at December 31, 1995............. 7,390 7 551 1 -- -- 31,432 (119) -- (24,172) 7,149 Common stock issued under stock option plan, net of repurchases..... -- -- 171 -- -- -- 99 -- -- -- 99 Issuance of Series E preferred stock in exchange for services........ 4 -- -- -- -- -- 15 -- -- -- 15 Issuance of Series F preferred stock for cash, net of issuance cost... 1,000 1 -- -- -- -- 8,089 -- -- -- 8,090 Deferred compensation.... -- -- -- -- -- -- 851 -- (851) -- -- Amortization of deferred compensation.... -- -- -- -- -- -- -- -- 43 -- 43 Net income loss............ -- -- -- -- -- -- -- -- -- (3,597) (3,597) ------- ------- --- ---- ----- ------- ------- ----- ------- -------- -------- Balance at December 31, 1996............. 8,394 8 722 1 -- -- 40,486 (119) (808) (27,769) 11,799 Common stock issued under stock option plan, net of repurchases (unaudited)..... -- -- 139 -- -- -- 110 -- -- -- 110 Issuance of Series F preferred stock for cash, net of issuance cost (unaudited)..... 102 1 -- -- -- -- 767 -- -- -- 768 Common stock to be issued in exchange for contract termination (unaudited)..... -- -- -- -- 2,604 18,409 -- -- -- -- 18,409 Deferred compensation (unaudited)..... -- -- -- -- -- -- 2,165 -- (2,165) -- -- Amortization of deferred compensation (unaudited)..... -- -- -- -- -- -- -- -- 76 -- 76 Net loss (unaudited)..... -- -- -- -- -- -- -- -- -- (23,103) (23,103) ------- ------- --- ---- ----- ------- ------- ----- ------- -------- -------- Balance at March 31, 1997 (unaudited)...... 8,496 $ 9 861 $ 1 2,604 $18,409 $43,528 $(119) $(2,897) $(50,872) $ 8,059 ======= ======= === ==== ===== ======= ======= ===== ======= ======== ========
See notes to financial statements. F-5 QUICKLOGIC CORPORATION STATEMENT OF CASH FLOWS (IN THOUSANDS)
QUARTER ENDED YEAR ENDED DECEMBER 31, MARCH 31, -------------------------- ---------------- 1994 1995 1996 1996 1997 ------- ------- -------- ------ -------- (UNAUDITED) Cash flows from operating activities: Net income (loss)............... $(5,828) $(4,707) $ (3,597) $ 21 $(23,103) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation................... 562 320 220 60 121 Provision for doubtful accounts...................... 34 912 1,102 372 200 Amortization of deferred compensation.................. -- -- 43 -- 76 Contract termination and other expense....................... -- 2,700 4,125 -- 23,009 Changes in assets and liabilities: Accounts receivable........... (602) (2,567) (1,031) (1) (1,244) Inventory..................... 185 (880) (1,924) 145 (1,419) Other assets.................. 5 -- (4,555) (214) (212) Accounts payable.............. 1,472 (122) 1,434 469 115 Accrued and other liabilities.................. 674 (673) (409) (378) 1,075 ------- ------- -------- ------ -------- Net cash provided by (used in) operating activities.... (3,498) (5,017) (4,592) 474 (1,382) ------- ------- -------- ------ -------- Cash flows from investing activities: Capital expenditures for property and equipment......... (259) (85) (1,478) (192) (915) Proceeds on sale of investments.................... -- -- 4,000 -- -- Investments in short-term instruments.................... -- (4,000) -- -- -- ------- ------- -------- ------ -------- Net cash provided by (used in) investing activities.... (259) (4,085) 2,522 (192) (915) ------- ------- -------- ------ -------- Cash flows from financing activities: Repayment of debt and capital leases......................... (148) (755) (124) (21) (47) Proceeds from issuance of common stock, net..................... 31 28 99 -- 110 Proceeds from issuance of preferred stock, net........... -- 11,785 8,105 -- 768 Borrowings on notes payable to stockholders................... 1,526 1,198 -- -- -- Borrowings from bank............ -- 214 470 100 1,496 ------- ------- -------- ------ -------- Net cash provided by financing activities........ 1,409 12,470 8,550 79 2,327 ------- ------- -------- ------ -------- Net increase (decrease) in cash.. (2,348) 3,368 6,480 361 30 Cash at beginning of the period.. 2,836 488 3,856 3,856 10,336 ------- ------- -------- ------ -------- Cash at end of period............ $ 488 $ 3,856 $10,336 $4,217 $ 10,366 ======= ======= ======== ====== ======== Supplemental information: Conversion of notes payable to stockholder into Series E preferred stock................. $ -- $ 4,850 $ -- $ -- $ -- ======= ======= ======== ====== ========
See notes to financial statements. F-6 QUICKLOGIC CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 1. THE COMPANY AND BASIS OF PRESENTATION: QuickLogic Corporation ("QuickLogic" or the "Company") was incorporated in California in April 1988. The Company develops, markets, and supports field programmable gate arrays (FPGAs) and software design tools. The FPGA business is highly cyclical and has been subject to significant downturns at various times that have been characterized by diminished product demand, production overcapacity and accelerated erosion of average selling prices. The selling price that the Company is able to command for its products is highly dependent on industry-wide production capacity and demand. Both of these factors could result in rapid changes in product pricing and could adversely affect the Company's operating results. The Company's fiscal year ends on the Sunday closest to December 31. For presentation purposes the financial statements and notes refer to December 31 as year end and March 31 as quarter end. Certain reclassifications have been made to the 1995 financial statements to conform to the 1996 presentation. Such reclassifications had no effect on the results of operations or the accumulated deficit. Use of Estimates The preparation of these financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from those estimates, particularly in relation to sales returns and allowances, product obsolescence and litigation. (See Note 11--Contingencies) Interim Results (unaudited) The accompanying balance sheet as of March 31, 1997, the statements of operations and of cash flows for the three months ended March 31, 1996 and 1997 and the statement of stockholders' equity (deficit) for the three months ended March 31, 1997 are unaudited. In the opinion of management, these statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the results of the interim periods. The data disclosed in these financial statements, including notes to the financial statements, at such date and for such periods are unaudited. Operating results for the quarter ended March 31, 1997 are not necessarily indicative of the results that may be expected for the full year. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES: Short Term Investments All short term investments are classified as available for sale and are accounted for at fair value with unrealized gains and losses, if any, reported as a separate component of stockholders' equity. Management determines the appropriate classification of investments at the time of purchase and reassesses the classification at each reporting date. Short-term investments represent high grade marketable corporate debt securities and one government agency security at December 31, 1995. F-7 QUICKLOGIC CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Fair Value of Financial Instruments The estimated fair values of financial instruments are determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret and analyze the available data and to develop estimates. Accordingly, estimates could differ significantly from the amounts the Company would realize in a current market exchange. The estimated fair values of all financial instruments at December 31, 1996 and 1995, approximate the amounts presented in the balance sheet. Inventory Inventory is stated at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over the assets estimated useful life of three to seven years. Amortization of leasehold improvements is computed on a straight-line basis over the shorter of the facility lease term or the estimated useful lives of the improvements. Revenue Recognition The Company sells to certain domestic distributors under agreements which allow certain rights of return and price adjustments on unsold inventory. Such sales are not recognized until the inventory is sold by the distributor. Amounts billed to such distributors for shipments are included as accounts receivable, inventory is relieved and the related gross profit is deferred and recorded as a current liability until the inventory is resold by the distributor. Revenue from all other products is recognized upon shipment. Software revenue is recognized upon shipment by the Company, provided that no significant Company obligations remain and collection of the resulting receivables is probable. Stock-Based Compensation In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which establishes a fair value method of accounting for stock-based compensation plans and requires additional disclosures for those companies who elect not to adopt the new method of accounting. The Company has elected to continue to measure compensation costs using the intrinsic value method prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees" and to comply with the pro forma disclosure requirements of SFAS 123. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash, short-term investments and accounts receivable. Cash and short-term investments are maintained with high quality institutions. The Company's accounts receivable are derived primarily from sales to customers located in North America, Europe, Japan and Korea. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. F-8 QUICKLOGIC CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) At December 31, 1996, accounts receivable from four customers represented 24%, 12%, 11% and 10%, respectively, of the Company's accounts receivable. At December 31, 1995, accounts receivables from three customers represented 12%, 10% and 10%, respectively, of the Company's accounts receivable. Software Development Costs Software development costs incurred prior to the establishment of technological feasibility are included in research and development and are expensed as incurred. Development costs incurred subsequent to the establishment of technological feasibility through the period of general market availability are capitalized, if material. To date, all software development costs have been expensed as incurred due to their immateriality. Pro Forma Stockholders' Equity (Unaudited) If the offering contemplated by this Prospectus is consummated, unaudited pro forma stockholders' equity would be adjusted for the conversion of 8,496,000 shares of preferred stock outstanding into 8,496,000 shares of common stock. The pro forma effect of this transaction has been reflected in the accompanying unaudited pro forma stockholders' equity as of March 31, 1997. Pro Forma Net Income (Loss) Per Share (Unaudited) Pro forma net income (loss) per share is computed using the weighted average number of common and common equivalent shares outstanding during the periods. Common equivalent shares consist of preferred stock (using the "as if converted" method) and stock options and warrants (using the "treasury stock" method). Common equivalent shares are excluded from the computation if their effect is antidilutive. Pursuant to a Securities and Exchange Commission Staff Accounting Bulletin, preferred stock (using the "as if converted" method) and common and common equivalent shares (using the "treasury stock" method and the assumed initial public offering price) issued subsequent to May 1996 have been included in the computation as if they were outstanding for all periods presented. Prior period loss per share data have not been presented since such amounts are not deemed to be meaningful, as such calculations would have excluded preferred stock. F-9 QUICKLOGIC CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Recent Accounting Pronouncements (Unaudited) In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share." This statement is effective for the Company's fiscal year ending December 31, 1997. The Statement defines the calculation of earnings per share under generally accepted accounting principles. Under the new standard, primary earnings per share is replaced by basic earnings per share and fully diluted earnings per share is replaced by diluted earnings per share. If the Company had adopted this Statement for the year ended December 31, 1996 and for the three month periods ended March 31, 1996 and 1997, the Company's pro forma earnings (loss) per share would have been as follows:
QUARTER ENDED YEAR ENDED MARCH 31, DECEMBER 31, -------------- 1996 1996 1997 ------------ ------ ------- Pro forma basic earnings (loss) per share...... $ (.44) $ -- $(2.49) Pro forma diluted earnings (loss) per share.... $ (.29) $ -- $(1.83)
NOTE 3. BALANCE SHEET COMPONENTS:
DECEMBER 31, (IN THOUSANDS) ---------------- MARCH 31, 1995 1996 1997 ------- ------- ----------- (UNAUDITED) Inventory: Raw materials................................... $ 533 $ 1,693 $ 2,013 Work-in-process................................. 512 1,268 2,225 Finished goods.................................. 279 287 429 ------- ------- ------- $ 1,324 $ 3,248 $ 4,667 ======= ======= ======= Property and equipment: Equipment....................................... $ 1,755 $ 2,323 $ 3,033 Software........................................ 492 601 642 Furniture and fixtures.......................... 23 555 693 Leasehold improvements.......................... 18 519 545 ------- ------- ------- 2,288 3,998 4,913 Accumulated depreciation........................ (2,070) (2,290) (2,411) ------- ------- ------- $ 218 $ 1,708 $ 2,502 ======= ======= ======= Accrued and other liabilities: Accrued employee compensation................... $ 320 $ 731 $ 1,070 Accrued legal costs............................. 2,200 4,860 4,600 Deferred income................................. 318 662 1,629 Other liabilities............................... 390 676 696 ------- ------- ------- $ 3,228 $ 6,929 $ 7,995 ======= ======= =======
F-10 QUICKLOGIC CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 4. DEBT FACILITIES:
DECEMBER 31, (IN THOUSANDS) ------------- MARCH 31, 1995 1996 1997 ------ ------ ----------- (UNAUDITED) Installment notes payable to bank..................... $212 $580 $2,038 ====== ====== ======
At December 31, 1996, the Company had outstanding installment notes totaling $210,000. The notes bear interest at prime plus 0.25% (8.5% as of December 31, 1996), and are secured by the specific equipment financed. Principal payments are due in equal monthly installments over the term of the notes which mature between 1998 and 1999. At December 31, 1996, the Company had a $5.0 million bank facility which includes a $2.0 million equipment term loan, a $1.0 million export/import revolving line of credit and a $2.0 million revolving line of credit. At December 31, 1996, $370,000 had been drawn down under the equipment line and no borrowings were outstanding against the revolving lines of credit. Borrowings under the equipment term loan bear interest at prime plus 0.25% (8.5% as of December 31, 1996) and are secured by the specific equipment financed. Principal payments are due in equal monthly installments over the term of the note which matures in the year 2000. The revolving line of credit bears interest at prime (8.25% as of December 31, 1996). During the three month period ended March 31, 1997, the Company drew down an additional $1.5 million under the equipment term loan. In conjunction with the bank facility, the Company must comply with certain financial covenants related to profitability, tangible net worth, working capital, debt leverage and liquidity. The Company was in breach of certain financial covenants as of March 31, 1997, for which it has obtained a waiver from the bank. The Company paid $126,000, $103,000, $56,000 and $24,000 in interest during 1994, 1995, 1996, and the three months ended March 31, 1997, respectively. F-11 QUICKLOGIC CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 5. STOCKHOLDERS' EQUITY: Preferred Stock Preferred stock consists of the following at December 31, 1995 and 1996 and March 31, 1997 (in thousands, except per share data):
DECEMBER 31, ------------- MARCH 31, 1995 1996 1997 ------ ------ ----------- (UNAUDITED) Series A, par value $0.001 per share; 358 shares designated, issued and outstanding................. $ -- $ -- $ -- Series B, par value $0.001 per share; 1,468 shares designated, issued and outstanding................. 1 1 1 Series C, par value $0.001 per share; 1,729 shares designated, 1,711 shares issued and outstanding.... 2 2 2 Series D, par value $0.001 per share; 446 shares designated, issued and outstanding................. 1 1 1 Series E, par value $0.001 per share; 3,411 shares designated, 3,407, 3,411 and 3,411 shares issued and outstanding.................................... 3 3 4 Series F, par value $0.001 per share; 1,355 shares designated, 1,000 and 1,102 shares issued and outstanding........................................ -- 1 1 ------ ------ ----- $ 7 $ 8 $ 9 ====== ====== =====
The holders of the outstanding Series A, Series B, Series C, Series D, Series E and Series F preferred stock shall be entitled to an annual dividend of $.0233, $.0289, $0.448, $0.448, $0.49 and $0.812 per share, respectively, when and if declared by the Board of Directors. Such dividends are payable prior to any payment of dividends on the shares of common stock. No dividends have been declared or paid as of December 31, 1996. In the event of liquidation, dissolution or winding up of the Company, the holders of Series F preferred stock shall be entitled to receive $8.12 per share plus declared but unpaid dividends thereon, prior to any distribution to holders of Series A, Series B, Series C, Series D and Series E preferred stock and holders of common stock. The holders of Series A, Series B, Series C, Series D and Series E preferred stock shall be entitled to receive $2.331, $2.891, $4.48, $4.48 and $4.90 per share, respectively, plus declared but unpaid dividends thereon, prior to any distribution to holders of common stock. As of December 31, 1996, the aggregate liquidation preference of Series A, Series B, Series C, Series D, Series E and Series F preferred stock is approximately $39.6 million. Each share of preferred stock is convertible at the option of the holder into one share of common stock, subject to adjustment for dilutive events, as defined. Each share of preferred stock will be automatically converted into common stock upon the earlier of (i) closing of an underwritten public offering of the Company's common stock, the aggregate gross proceeds of which exceed $15,000,000, at a per share issuance price of at least $8.75 or (ii) upon the vote or written consent of holders of at least two-thirds of the total number of shares of Series A, Series B, Series C, Series D, Series E and Series F preferred stock then outstanding. The holders of the preferred shares have voting rights equivalent to the number of common shares into which the preferred shares are convertible. The Company must obtain the approval of the holders of at least two-thirds of such outstanding preferred shares, voting together as a single class, F-12 QUICKLOGIC CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) to alter the preferences, rights or privileges of the preferred stock; create a new class of stock having preference over the Series A, Series B, Series C, Series D, Series E and Series F preferred stock, or increase the authorized number of shares of Series A, Series B, Series C, Series D, Series E or Series F preferred stock. In December 1991, in conjunction with the issue of Series C preferred stock, the Company issued warrants to purchase 18,750 shares of Series C preferred stock at $4.48 per share. The warrants expire seven years from date of issuance or upon the closing of the Company's initial public offering, whichever is sooner. In January 1997, the Company issued 101,593 shares of Series F preferred stock at $8.12 per share for cash of $0.8 million. Common Stock In November 1996, in conjunction with the issuance of Series F preferred stock, the Company authorized an additional 1,428,571 shares of common stock. NOTE 6. INCOME TAXES: No provision for federal or state income taxes has been recorded for the years ended December 31, 1994, 1995, and 1996 as the Company incurred net operating losses. Deferred tax balances comprise the following (in thousands):
DECEMBER 31, ---------------- 1995 1996 ------- ------- Deferred tax assets: Net operating loss carryforward.......................... $ 6,149 $ 5,742 Accruals and reserves.................................... 2,431 2,355 Credit carryforward...................................... 772 1,159 Capitalized research and development..................... 554 692 ------- ------- 9,906 9,948 Valuation allowances..................................... (9,906) (9,948) ------- ------- Deferred tax asset....................................... $ -- $ -- ======= =======
Management believes that, based on a number of factors, the available objective evidence creates sufficient uncertainty regarding the realizability of the deferred tax assets such that a full valuation allowance has been recorded. These factors include the Company's history of losses, recent increases in expense levels, the fact that the market in which the Company competes is intensely competitive and characterized by rapidly changing technology, the lack of carryback capacity to realize deferred tax assets, and uncertainty regarding market acceptance of the Company's products. The Company will continue to assess the realizability of the deferred tax assets in future periods. At December 31, 1996, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $16 million and $1 million, respectively. These carryforwards, if not utilized to offset future taxable income and income taxes payable, will expire through the year 2010. F-13 QUICKLOGIC CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Under the Tax Reform Act of 1986, the amount of and the benefit from net operating losses that can be carried forward may be impaired in certain circumstances. Events which may cause changes in the Company's tax carryovers include, but are not limited to, a cumulative ownership change of more than 50% over a three year period. The issuance of Series A and Series C preferred stock resulted in an annual limitation of the Company's ability to utilize net operating losses incurred prior to that date. The limitation is insignificant. Net operating losses incurred between the time of the Series C preferred stock issuance and March 31, 1997, had not been subject to any annual limitations as of March 31, 1997. NOTE 7. EMPLOYEE BENEFIT PLANS: Stock Option Plan As of December 31, 1996, under the Company's 1989 Stock Option Plan, as amended in 1996, (the "Plan"), incentive and nonqualified stock options to purchase up to 2,100,000 shares of common stock may be granted to key employees, directors and consultants of the Company. Options are granted at an exercise price equal to the fair market value of the Company's common stock (as determined by the Board of Directors) at the date of grant and generally vest over four years, and expire up to ten years from the date of grant. In July 1996, the 1989 Stock Option Plan was amended to allow options to be exercised prior to vesting. Unvested shares must be deposited with an escrow agent and the Company has a right to repurchase such shares at their initial issuance price if the optionee is terminated from service prior to vesting. The following table summarizes the Company's stock option activity and related weighted average exercise price for each of the years ended December 31, 1996, 1995 and 1994 and the three months ended March 31, 1997 (in thousands, except per share data):
OPTIONS EXERCISE OUTSTANDING PRICE ----------- -------- Balance at December 31, 1993............................ 366 $0.39 Granted............................................... 470 $0.70 Canceled.............................................. (139) $0.41 Exercised............................................. (100) $0.36 ----- Balance at December 31, 1994............................ 597 $0.64 Granted............................................... 635 $0.70 Canceled.............................................. (24) $0.64 Exercised............................................. (34) $0.51 ----- Balance at December 31, 1995............................ 1,174 $0.67 Granted............................................... 317 $0.98 Canceled.............................................. (200) $0.70 Exercised............................................. (193) $0.62 ----- Balance at December 31, 1996............................ 1,098 $0.77 Granted (unaudited)................................... 706 $3.52 Canceled (unaudited).................................. (5) $0.71 Exercised (unaudited)................................. (142) $0.78 ----- Balance at March 31, 1997 (unaudited)................... 1,657 $1.94 =====
F-14 QUICKLOGIC CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) As of December 31, 1996, 674,000 options were vested, 697,660 shares were available for grant and 14,317 unvested shares had been exercised and remain subject to the Company's buyback rights. In March 1997, an additional 714,286 shares were authorized for issuance under the 1989 Stock Option Plan. At March 31, 1997, 735,671 options were vested and 714,289 shares were available for grant. Related weighted average exercise price and contractual life information at December 31, 1996 are as follows (share amounts in thousands):
OPTIONS WITH OUTSTANDING EXERCISABLE REMAINING EXERCISE PRICES OF: SHARES SHARES LIFE (YEARS) ------------------- ----------- ----------- ------------ $0.35.............................. 43 43 3.3 $0.70.............................. 802 802 8.0 $1.05.............................. 253 253 9.8
The weighted average estimated grant date fair value, as defined by SFAS 123, for options granted during 1995 and 1996 was $ 0.70 and $ 3.71 per option, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes model, as well as other currently accepted option valuation models, was developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. The following weighted average assumptions are included in the estimated grant date fair value calculations for grants in 1995 and 1996:
DECEMBER 31, -------------- 1995 1996 ------ ------ Expected life (years)........................................ 4.5 5 Risk-free interest rate...................................... 5.99% 6.05% Volatility................................................... -- -- Dividend yield............................................... -- --
Had the Company recorded compensation cost based on the estimated grant date fair value, as defined by SFAS 123, for awards granted under its stock option plan, the Company's net income (loss) and earnings (loss) per share would have been as follows for the years ended December 31, 1996 and 1995 (in thousands except per share data):
YEAR ENDED DECEMBER 31, ---------------- 1995 1996 ------- ------- Pro forma net income (loss)................................ $(4,715) $(3,676) Pro forma net income (loss) per share...................... (.34) (.29)
The pro forma effect on net income (loss) for 1995 and 1996 is not representative of the pro forma effect on net income (loss) in future years because it does not take into consideration pro forma compensation expense related to grants made prior to 1995 and because the determination of the fair value of all options granted after the Company becomes a public entity will include an expected volatility factor. F-15 QUICKLOGIC CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Deferred Compensation During the year ended December 31, 1996 and the three months ended March 31, 1997, the Company granted options for value. Accordingly, the Company has recorded deferred compensation of $851,000 and $2,165,000 for the year ended December 31, 1996 and for three months ended March 31, 1997, respectively. Such deferred compensation will be amortized ratably over the vesting period of the options. NOTE 8. RELATED PARTY TRANSACTIONS: Technology Development and Foundry Supply Agreement In October 1992, in conjunction with the issuance of Series D preferred stock, the Company entered into a Technical Transfer, Joint Development License and Foundry Supply Agreement (the Existing Agreement) with Cypress Semiconductor Corporation ("Cypress"). Cypress owns 100% of the Company's Series D preferred stock. The agreement provides that the Company and the investor share processing technologies and licenses to market developed FPGA products and that the investor guarantees the Company a certain wafer start capacity. The Company purchased all of its wafer requirements under this agreement during 1995 and 1996. In March 1997, the Company and Cypress terminated the Existing Agreement related to the Company's FPGA products, and replaced it with a new arrangement whereby the Company's FPGA products will no longer be second sourced by Cypress. In exchange for the termination of the Existing Agreement and the reversion of the rights to the intellectual property developed thereunder to the Company, the Company paid $4.5 million in cash and agreed to issue 2,603,817 shares of Common Stock to Cypress, resulting in a charge of approximately $23 million in the first quarter of 1997. In addition, the Company granted Cypress certain contractual rights as to the shares of the Company's stock held by Cypress, including the right to sell shares in this offering. The parties also entered into a new foundry agreement and a cross- license agreement. Notes Receivable From Stockholder As of December 31, 1996, the Company has $119,000 of demand promissory notes from a stockholder. The notes bear interest at rates ranging from 6.7% to 8.02% per annum, and are secured by shares of the Company's common stock held by the stockholder. NOTE 9. GEOGRAPHIC REPORTING AND CUSTOMER CONCENTRATION:
NORTH AMERICA EUROPE ASIA TOTAL ------- ------ ------ ------- Net revenue (in thousands): Year ended December 31, 1994................ $ 4,217 $ 865 $ 942 $ 6,024 Year ended December 31, 1995................ $10,694 $2,779 $1,675 $15,148 Year ended December 31, 1996................ $16,726 $4,124 $2,908 $23,758
During the year ended December 31, 1996, one customer accounted for approximately 27% of revenue. All sales are made from the United States and are denominated in U.S. dollars. F-16 QUICKLOGIC CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 10. COMMITMENTS: The Company leases its primary facility under a noncancelable operating lease which expires in 2003, and includes an option to renew through 2006. The lease is secured by a $300,000 standby letter of credit which expires in June 1997. Rent expense for the years ended December 31, 1994, 1995 and 1996 was approximately $314,000, $358,000 and $358,000, respectively. The Company also leases certain equipment and leasehold improvements under capital leases which expire in 1997 and 2003. At December 31, 1996, $232,000 of assets acquired under capital leases were included in plant and equipment. Future minimum lease commitments, excluding property taxes and insurance, are as follows (in thousands):
OPERATING CAPITAL YEAR ENDING DECEMBER 31, LEASES LEASES ------------------------ --------- ------- 1997..................................................... $ 523 $ 57 1998..................................................... 523 45 1999..................................................... 546 45 2000..................................................... 563 45 2001 and thereafter...................................... 1,694 136 ------ ----- $3,849 328 ====== Less amount representing interest........................ (103) ----- Present value of capital lease obligations............... 225 Less current portion..................................... (33) ----- Long term portion of capital lease obligations........... $ 192 =====
In October 1996, the Company executed a memorandum of understanding with TSMC Ltd., which contemplates that third the parties will enter into a three year "take or pay" wafer manufacturing agreement. NOTE 11. CONTINGENCIES: During 1994, Actel Corporation ("Actel"), a competitor of the Company, filed a lawsuit seeking unspecified damages and alleging that the Company's products infringe upon its patents. During 1995 and 1996, the suit was amended to include a trade secret claim and additional patents. The Company has filed answers to each of these complaints seeking that the Actel patents are invalid, void, not enforceable and are not infringed. Additionally, the Company has filed counterclaims against Actel claiming that Actel has infringed upon the Company's patents. In April 1997, the court adopted the recommendation of the Special Master and granted Actel's motion for summary judgment that the Company's products infringe on one claim of one of the patents. If the patent is finally found to be valid and enforceable, and the summary judgment motion is upheld on appeal, then Actel would be entitled to significant damages and an injunction preventing the sale of products incorporating the infringing patent. Such an injunction and/or the payment of damages could have a material adverse effect on the Company's business, financial condition and results of operations and could potentially render it insolvent. In addition to the patent infringement actions, Actel amended its claims against the Company to include a claim against the Company and one of its employees on June 14, 1995 alleging F-17 QUICKLOGIC CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) misappropriation of trade secrets, breach of contract, breach of confidential relationship, and unfair competition. Actel has sought assignment of certain issued and future patents of the Company, two of which are part of this lawsuit, in relation to this claim in addition to unspecified money damages, that the damages be doubled, attorneys' fees and other remedies. These claims are based on allegations that this employee, who had once been a consultant to Actel, had misappropriated confidential information from Actel related to logic cells, which the Company then incorporated into its pASIC products. The employee and the Company have filed answers denying each of these claims. Discovery is ongoing at this time and no dispositive motions have been filed or heard. Trial on the patent infringement and trade misappropriation claims is currently scheduled for September 1998. However, there can be no assurance that the trial will occur at such time and may be delayed significantly. As the outcome of any litigation is inherently uncertain, the Company is unable to predict the outcome of this litigation. Therefore, there can be no assurance that the Company will prevail in the trial on the patent infringement claims and counter-claims, the trial on the alleged misappropriation of intellectual property, or hearings on any motions related to such proceedings. The timing of the filing of any motions by Actel, hearings on motions by either Actel or the Company, the issuance of rulings on such motions, the issuance of recommendations by the Special Master and the adoption or rejection of such recommendations by the Court are not within the Company's control and could occur at any time. The announcement of any rulings or recommendations, or the adoption or rejection of recommendations, that are adverse to the Company, will likely have a material adverse effect upon the market price for the Company's stock. Due to the inherent uncertainty of litigation, management cannot estimate the possible loss, if any, that may ultimately be incurred in connection with the allegations. Any adverse determinations in this litigation or a settlement could result in the loss of the Company's proprietary rights, subject the Company to significant liabilities, require the Company to seek or to grant licenses with third parties, require the Company to cease selling its products or prevent the Company from licensing its technology, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. Management intends to vigorously defend itself against the allegations that the Company's products infringe upon Actel's patents as well as pursue its claims that Actel's products infringe upon the Company's patents. Accordingly, the Company recorded charges of $2.7 million and $4.1 million in the years ended December 31, 1995 and 1996, respectively, in conjunction with the Actel litigation. As of March 31, 1997, the Company has accrued $4.6 million for this litigation. NOTE 12. SUBSEQUENT EVENTS: In May 1997, the Board of Directors authorized the reincorporation of the Company in Delaware and, in conjunction with such reincorporation a 7-for-1 reverse stock split (the "Stock Split") of the Company's preferred stock and common stock. All references to the number of shares of preferred stock, common stock and per share amounts have been retroactively restated in the accompanying financial statements to reflect the effect of the Stock Split. The Board of Directors also approved a recapitalization that would increase the total of authorized shares of common stock to one hundred million and authorized ten million shares of undesignated stock. In addition the Board of Directors approved the adoption of the 1997 Employee Stock Purchase Plan, the 1997 Stock Plan and the 1997 Director Option Plan. Adoption of these plans is subject to stockholder approval. All of the above items will be effected prior to the date of the offering. F-18 Title: The QuickLogic Solution Graphic: Three rows, with text on the left column and a corresponding graphic on the right column accompanied by a short description of the graphic.
Left Column Text Graphic Description of graphic (presented as a caption) - --------------------------------------------------------------------------------------------------------------------------- "ViaLink Antifuse Cross section of a ViaLink "Cross Section of a metal-layer ViaLink QuickLogic's interconnect as photographed by connection as photographed by a scanning interconnect a scanning electron microscope electron microscope (SEM)" technology enables high speed connections" - --------------------------------------------------------------------------------------------------------------------------- "pASIC Architecture Two graphics for this row Programmable Diagram of the silicon substrate "Wiring resources and ViaLink interconnects are interconnects are with the logic gates, and the metal located above the silicon substrate, allowing placed between the layers floating above more logic cells to reside on the die" metal layers above the silicone substrate, maximizing wiring "ViaLink interconnects are placed at every resources and possible intersection of routing wires" minimizing die size Zoom in of picture above, showing and cost" a small cross section of the chip, with the silicon substrate on the bottom and three layers of metal routing wires above it - --------------------------------------------------------------------------------------------------------------------------- "QuickWorks and Picture of a PC [none] QuickTools Design A box of software with QuickLogic Software logo on the cover as well as the A comprehensive titles "QuickWorks" and software design tool "QuickTools" solution that supports CD-ROM disk with the QuickLogic schematic entry and logo IEEE standard design languages Verilog and VHDL, and operates on Windows and UNIX platforms" - ---------------------------------------------------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, THE COM- MON STOCK IN ANY JURISDICTION WHERE, TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IM- PLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. TABLE OF CONTENTS
PAGE ---- Prospectus Summary..................................................... 3 The Company............................................................ 4 Risk Factors........................................................... 5 Use of Proceeds........................................................ 17 Dividend Policy........................................................ 17 Capitalization......................................................... 18 Dilution............................................................... 19 Selected Financial Data................................................ 20 Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................... 21 Business............................................................... 30 Management............................................................. 46 Certain Transactions................................................... 57 Principal and Selling Stockholders..................................... 59 Description of Capital Stock........................................... 61 Shares Eligible for Future Sale........................................ 64 Underwriting........................................................... 67 Legal Matters.......................................................... 68 Experts................................................................ 68 Change in Independent Accountants...................................... 69 Additional Information................................................. 69 Index to Financial Statements.......................................... F-1
UNTIL , 1997 (25 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL DEALERS EF- FECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICI- PATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------------------------------- [LOGO OF QUICKLOGIC] 3,000,000 SHARES COMMON STOCK DEUTSCHE MORGAN GRENFELL UBS SECURITIES COWEN & COMPANY PROSPECTUS , 1997 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the estimated costs and expenses payable by the Registrant in connection with the sale of the Common Stock being registered hereby, other than underwriting commissions and discounts which are not applicable under this offering.
ITEM AMOUNT ---- -------- SEC Registration Fee............................................... $ 13,591 NASD Filing Fee.................................................... 4,985 Nasdaq National Market Listing Fee................................. 50,000 Blue Sky Fees and Expenses......................................... 5,000 Printing and Engraving Expenses.................................... 150,000 Legal Fees and Expenses............................................ 250,000 Accounting Fees and Expenses....................................... 225,000 Transfer Agent and Registrar Fees.................................. 3,000 Miscellaneous...................................................... 48,424 -------- Total............................................................ $750,000 ========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. As permitted by Section 145 of the Delaware General Corporation Law (the "DGCL"), the Registrant's Certificate of Incorporation provides that each person who is or was or who had agreed to become a director or officer of the Registrant or who had agreed at the request of the Registrant's Board of Directors or an officer of the Registrant to serve as an employee or agent of the Registrant or as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified by the Registrant to the full extent permitted by the DGCL or any other applicable laws. Such Certificate of Incorporation also provides that the Registrant may enter into one or more agreements with any person which provides for indemnification greater of different than that provided in such Certificate, and that no amendment or repeal of such Certificate shall apply to or have any effect on the right to indemnification permitted or authorized thereunder for or with respect to claims asserted before or after such amendment or repeal arising from acts or omissions occurring in whole or in part before the effective date of such amendment or repeal. The Registrant's Bylaws provide that the Registrant shall indemnify to the full extent authorized by law any person made or threatened to be made a party to an action or a proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate was or is a director, officer or employee of the Registrant or any predecessor of the Registrant or serves or served any other enterprise as a director, officer or employee at the request of the Registrant or any predecessor of the Registrant. The Registrant intends to enter into indemnification agreements with its directors and certain of its officers. The Registrant intends to purchase and maintain insurance on behalf of any person who is or was a director or officer against any loss arising from any claim asserted against him and incurred by him in any such capacity, subject to certain exclusions. See also the undertakings set out in response to Item 17 herein. II-1 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Since June 1, 1994, the Registrant has issued and sold the following securities: 1. From June 1, 1994 through May 31, 1997, the Registrant issued and sold 432,927 shares of Common Stock to employees of the Registrant at prices ranging from $0.35 to $2.10 per share upon exercise of stock options pursuant to Registrant's 1989 Stock Option Plan, as amended. 2. On June 1, 1995 and June 9, 1995, the Registrant issued and sold to certain private investors 3,410,481 shares of Series E Preferred Stock convertible into an aggregate of 3,410,481 shares of Common Stock at a purchase price per share of $4.90. 3. On November 27, 1996 and January 24, 1997, the Registrant issued and sold to certain private investors an aggregate of 1,102,279 shares of Series F Preferred Stock convertible into an aggregate of 1,102,279 shares of Common Stock at a purchase price per share of $8.12. 4. On March 29, 1997, the Registrant agreed to issue an aggregate of 2,603,816 shares of Common Stock to Cypress as partial consideration for the termination of the Existing Agreement and the reversion to the Company of certain intellectual property rights developed thereunder. The above share and dollar amounts reflect the 7-for-1 reverse stock split to be effected upon the reincorporation of the Company in Delaware. The sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act, or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving a public offering or transactions pursuant to compensatory benefit plans and contracts relating to compensation as provided under such Rule 701. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and warrants issued in such transactions. All recipients had adequate access, through their relationships with the Company, to information about the Registrant. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. A. EXHIBITS. 1.1* Form of Underwriting Agreement. 3.1 Articles of Incorporation of the Registrant (California). 3.2* Certificate of Incorporation of the Registrant (Delaware) to be effective prior to the closing of the offering. 3.3* Amended and Restated Certificate of Incorporation of the Registrant to be effective upon closing of the offering. 3.4 Bylaws of the Registrant (California). 3.5* Bylaws of the Registrant (Delaware) to be effective prior to the closing of the offering. 4.1* Specimen Common Stock certificate of the Registrant. 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation. 10.1* Form of Indemnification Agreement for directors and executive officers. 10.2 1989 Stock Option Plan. 10.3 1991 Sales Representative Stock Purchase Plan. 10.4 1997 Stock Plan. 10.5 1997 Employee Stock Purchase Plan. 10.6 1997 Director Option Plan. 10.7 Series E Preferred Stock Purchase Agreement dated June 1, 1995 and June 9, 1995 by and among the Registrant and the Purchasers named therein. 10.8 Series F Preferred Stock Purchase Agreement dated November 27, 1996 and January 24, 1997 by and among the Registrant and the Purchasers named therein. 10.9+* Termination Agreement dated March 29, 1997 between the Registrant and Cypress Semiconductor Corporation ("Cypress"). 10.10+* Cross License Agreement dated March 29, 1997 between the Registrant and Cypress. 10.11+* Wafer Fabrication Agreement March 29, 1997 between the Registrant and Cypress.
II-2 10.12 Sixth Amended and Restated Shareholders Rights Agreement dated March 29, 1997 by and among the Registrant, Cypress and certain stockholders. 10.13 Sixth Amended and Restated Registration Rights Agreement dated March 29, 1997 by and among the Registrant, Cypress and certain stockholders. 10.14* Technical Transfer, Joint Development License and Foundry Supply Agreement, dated October 2, 1992, between the Registrant and Cypress. 10.15 Lease dated June 17, 1995, as amended, between Kairos, LLC and Moffet Orchard Investors as Landlord and the Registrant for the Registrant's facility located in Sunnyvale, California. 10.16 Business Loan Agreement dated August 9, 1995 between the Registrant and Silicon Valley Bank, as amended. 10.17 Loan and Security Agreement dated August 8, 1996 between the Registrant and Silicon Valley Bank, as amended. 10.18 Export-Import Bank Loan and Security Agreement dated August 8, 1996 between the Registrant and Silicon Valley Bank. 11.1 Statement regarding calculation of earnings per share. 23.1 Consent of Price Waterhouse LLP, independent accountants (see page II- 5). 23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (See Exhibit 5.1). 24.1 Power of Attorney (see page II-4). 27.1* Financial Data Schedule (EDGAR filed version only).
- -------- * Documents to be filed by amendment. + Certain information in these exhibits has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and 230.46. B. FINANCIAL STATEMENT SCHEDULES. All schedules are omitted because they are inapplicable or the requested information is shown in the financial statements of the Registrant or notes thereto. ITEM 17. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 14, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective; and (2) for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. II-3 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SUNNYVALE, STATE OF CALIFORNIA, ON THE 9TH DAY OF JUNE, 1997. QuickLogic Corporation /s/ E. Thomas Hart By: _________________________________ E. THOMAS HART, PRESIDENT AND CHIEF EXECUTIVE OFFICER POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints E. Thomas Hart and Vincent A. McCord, and each of them acting individually, as his true and lawful attorneys-in-fact and agents, with full power of each to act alone, with full powers of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments or any abbreviated registration statement and any amendments thereto filed pursuant to Rule 462(b) increasing the number of securities for which registration is sought), and file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, with full power of each to act alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys- in-fact and agents, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED: SIGNATURE TITLE DATE /s/ E. Thomas Hart President, Chief June 9, 1997 - ------------------------------------- Executive Officer E. THOMAS HART and Director (Principal Executive Officer) /s/ Vincent A. McCord Vice President, June 9, 1997 - ------------------------------------- Finance, Chief VINCENT A. MCCORD Financial Officer and Secretary (Principal Financial and Accounting Officer) Director June , 1997 - ------------------------------------- IRWIN B. FEDERMAN /s/ Hua-Thye Chua Director June 9, 1997 - ------------------------------------- HUA-THYE CHUA II-4 CONSENT OF PRICE WATERHOUSE LLP, INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our report dated June 9, 1997, relating to the financial statements of Quicklogic Corporation, which appears in such Prospectus. We also consent to the references to use under the headings "Experts" in such Prospectus. Price Waterhouse LLP San Jose, California June 9, 1997 II-5 EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NUMBERED NO. DESCRIPTION PAGE ------- ----------- ------------ 1.1* Form of Underwriting Agreement. 3.1 Articles of Incorporation of the Registrant (California). 3.2* Certificate of Incorporation of the Registrant (Delaware) to be effective prior to the closing of the offering. 3.3* Amended and Restated Certificate of Incorporation of the Registrant to be effective upon closing of the offering. 3.4 Bylaws of the Registrant (California). 3.5* Bylaws of the Registrant (Delaware) to be effective prior to the closing of the offering. 4.1* Specimen Common Stock certificate of the Registrant. 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation. 10.1* Form of Indemnification Agreement for directors and executive officers. 10.2 1989 Stock Option Plan. 10.3 1991 Sales Representative Stock Purchase Plan. 10.4 1997 Stock Plan. 10.5 1997 Employee Stock Purchase Plan. 10.6 1997 Director Option Plan. 10.7 Series E Preferred Stock Purchase Agreement dated June 1, 1995 and June 9, 1995 by and among the Registrant and the Purchasers named therein. 10.8 Series F Preferred Stock Purchase Agreement dated November 27, 1996 and January 24, 1997 by and among the Registrant and the Purchasers named therein. 10.9+* Termination Agreement dated March 29, 1997 between the Registrant and Cypress Semiconductor Corporation ("Cypress"). 10.10+* Cross License Agreement dated March 29, 1997 between the Registrant and Cypress. 10.11+* Wafer Fabrication Agreement March 29, 1997 between the Registrant and Cypress. 10.12 Sixth Amended and Restated Shareholders Rights Agreement dated March 29, 1997 by and among the Registrant, Cypress and certain stockholders. 10.13 Sixth Amended and Restated Registration Rights Agreement dated March 29, 1997 by and among the Registrant, Cypress and certain stockholders. 10.14* Technical Transfer, Joint Development License and Foundry Supply Agreement, dated October 2, 1992, between the Registrant and Cypress. 10.15 Lease dated June 17, 1995, as amended, between Kairos, LLC and Moffet Orchard Investors as Landlord and the Registrant for the Registrant's facility located in Sunnyvale, California. 10.16 Business Loan Agreement dated August 9, 1995 between the Registrant and Silicon Valley Bank, as amended. 10.17 Loan and Security Agreement dated August 8, 1996 between the Registrant and Silicon Valley Bank, as amended. 10.18 Export-Import Bank Loan and Security Agreement dated August 8, 1996 between the Registrant and Silicon Valley Bank. 11.1 Statement regarding calculation of earnings per share. 23.1 Consent of Price Waterhouse LLP, independent accountants (see page II-5). 23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (See Exhibit 5.1). 24.1 Power of Attorney (see page II-4). 27.1* Financial Data Schedule (EDGAR filed version only).
- -------- * Documents to be filed by amendment. + Certain information in these exhibits has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and 230.46. EX-3.1 2 ARTICLES OF INCORPORATION OF THE REGISTRANT EXHIBIT 3.1 QUICKLOGIC CORPORATION AMENDED AND RESTATED ARTICLES OF INCORPORATION E. Thomas Hart and Vincent A. McCord certify that: 1. They are the President and Secretary, respectively of QuickLogic Corporation, a California corporation. 2. That the Articles of Incorporation of this Corporation are amended and restated to read in full as follows: I The name of this Corporation is QuickLogic Corporation. II The purpose of this Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California, other than the banking business, the trust company business, or the practice of a profession permitted to be incorporated by the California Corporations Code. III A. Classes of Stock. This Corporation is authorized to issue two classes ---------------- of shares to be designated respectively Common Stock ("Common Stock") and Preferred Stock ("Preferred Stock"). The total number of shares of Common Stock this Corporation shall have authority to issue is 105,000,000 and the total number of shares of Preferred Stock this Corporation shall have authority to issue is 61,567,874. B. Authorization Of Preferred Stock. There shall be six series of -------------------------------- Preferred Stock designated and known as Series A Preferred Stock (hereinafter referred to as the "Series A Preferred"), Series B Preferred Stock (hereinafter referred to as the "Series B Preferred"), Series C Preferred Stock (hereinafter referred to as "Series C Preferred"), Series D Preferred Stock (hereinafter referred to as "Series D Preferred"), Series E Preferred Stock (hereinafter referred to as "Series E Preferred") and Series F Preferred Stock (hereinafter referred to as "Series F -1- Preferred"). The Series A Preferred shall consist of 2,505,000 shares having the rights, preferences and privileges as set forth in this Article III, the Series B Preferred shall consist of 10,274,637 shares having the rights, preferences and privileges as set forth in this Article III and the Series C Preferred shall consist of 12,106,811 shares having the rights, preferences and privileges as set forth in this Article III, the Series D Preferred shall consist of 3,125,000 shares having the rights, preferences and privileges as set forth in this Article III, the Series E Preferred shall consist of 23,873,667 shares having the rights, preferences and privileges as set forth in this Article III and the Series F Preferred shall consist of 9,482,759 shares having the rights, preferences and privileges as set forth in this Article III. C. Rights, Preferences and Privileges of Capital Stock. The rights, --------------------------------------------------- preferences, privileges and restrictions granted to or imposed on the respective classes of the shares of capital stock or the holders thereof are as follows: 1. Dividends. The holders of the outstanding Series A Preferred, --------- Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series F Preferred shall be entitled to receive in any fiscal year, when and as declared by the Board of Directors, out of any assets legally available therefor, dividends at the rate of $0.033 per share of Series A Preferred per annum, $0.041 per share of Series B Preferred per annum, $0.064 per share of Series C Preferred per annum., and $0.064 per share of Series D Preferred per annum, $0.07 per share of Series E Preferred per annum, and $0.116 per share of Series F Preferred per annum, before any dividend is paid on Common Stock. Such dividends may be payable quarterly or otherwise as the Board of Directors may from time to time determine. No dividend shall be paid on or declared and set apart for the shares of any series of Preferred Stock for any dividend period unless at the same time a like propor tionate dividend for the same dividend period, ratably in proportion to the respective annual dividend rates fixed therefor, shall be paid on or declared and set apart for the shares of all other such series of Preferred Stock. No dividends or other distributions (other than those payable solely in Common Stock) shall be declared or paid upon Common Stock in any fiscal year of the Corporation unless dividends shall have been paid to or declared and set apart upon all shares of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series F Preferred at such annual rate for such fiscal year of the Corporation. To the extent that dividends or other distributions are paid on the Common Stock (other than those payable solely in Common Stock), the holders of shares of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series F Preferred shall be entitled to dividends at least as large per share (based on the number of shares of Common Stock into which such shares of Preferred Stock are convertible) as those declared or paid with respect to the Common Stock. Such dividends shall not be cumulative and no right to such dividends shall accrue to holders of Preferred Stock unless declared by the Board of Directors. 2. Liquidation Preference. In the event of any liquidation, ---------------------- dissolution, or winding up of the Corporation, either voluntary or involuntary, distributions to the shareholders of the Corporation shall be made in the following manner: -2- (a) The holders of the Series F Preferred shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred, the Series E Preferred and the Common Stock, the sum of $1.16 (adjusted for any subdivisions, combinations, consolidations or stock distributions or dividends with respect to such shares effected after the date these Amended and Restated Articles were filed with the Secretary of State), plus declared and unpaid dividends for each such share of Series F Preferred then held by them. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series F Preferred shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Series F Preferred, based on the number of shares of Series F Preferred then held by them. (b) After payment has been made to the holders of Series F Preferred of the full amounts to which they shall be entitled under Section 2(a), the holders of the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series E Preferred shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock by reason of their ownership of such stock, the sum of $0.333, $0.413, $0.64, $0.64 and $0.70, respectively (adjusted for any subdivisions, combinations, consolidations or stock distributions or dividends with respect to such shares effected after the date these Amended and Restated Articles were filed with the Secretary of State), plus declared and unpaid dividends for each such share of each such series of Preferred Stock then held by them. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series E Preferred shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, after payment has been made to the holders of Series F Preferred of the full amounts to which they shall be entitled under Section 2(a), the entire assets and funds of the Corporation legally available for distribution shall be distributed among the holders of the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series E Preferred in proportion to the full aforesaid preferential amounts to which each such holder is entitled under this Section 2(b). (c) After payment has been made to the holders of the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series F Preferred of the full amounts to which they shall be entitled as aforesaid in Sections 2(a) and 21(b), the holders of the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series F Preferred and the Common Stock shall be entitled to share ratably in the remaining assets of the Corporation, based on the number of shares of Common Stock then held by them (treating the shares of the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series F Preferred as if they had been converted into Common Stock at the then applicable Conversion Prices). -3- (d) For purposes of this Section 2, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, and to include (i) any transaction or series of related transactions (including, without limitation, a merger, reorganization or consolidation of the Corporation with or into any other corporation or corporations) which will result in the holders of the outstanding voting equity securities of the Corporation immediately prior to such transaction or series of related transactions holding securities representing less than 50% of the voting power of the surviving entity immediately following such transaction or series of related transactions or (ii) the Corporation's sale, lease or conveyance of all or substantially all of its assets. 3. Voting Rights. Except as otherwise required by law or by Section ------------- 5 hereof, the holder of each share of Common Stock issued and outstanding shall have one vote and the holder of each share of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which the Preferred Stock could be converted at the record date for determination of the shareholders entitled to vote on such matters, or, if no such record date is established, at the date such vote is taken or any written consent of shareholders is solicited, such votes to be counted together with all other shares of stock of the Company having general voting power and not separately as a class. Holders of Common Stock and Preferred Stock shall be entitled to notice of any shareholders' meeting in accordance with the Bylaws of the Corporation. Fractional votes by the holder of Preferred Stock (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). 4. Conversion. The holders of the Preferred Stock have conversion ---------- rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of the Series A Preferred, ---------------- Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series F Preferred shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series F Preferred. Each share of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series F Preferred shall be convertible into the number of fully paid and nonassessable shares of Common Stock as is determined by dividing $0.333, $0.413, $0.64, $0.64, $0.70 and $1.16, respectively, by the "Conversion Price" per share in effect for such share at the time of the conversion. The initial Conversion Prices per share of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series F Preferred shall be $0.333, $0.413, $0.64, $0.64, $0.70 and $1.16, respectively. Each such initial Conversion Price shall be subject to adjustment as hereinafter provided. (b) Automatic Conversion. Each share of Preferred Stock shall -------------------- automatically be converted into shares of Common Stock at the then effective Conversion Price applicable to such Preferred Stock upon the earlier of (i) the closing of a firm commitment -4- underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Corporation to the public at a price per share (prior to underwriter commissions and offering expenses) of not less than $3.33) per share (appropriately adjusted for any subdivisions, combinations, consolidations or stock distributions or dividends with respect to such shares effected after the date these Amended and Restated Articles were filed with the Secretary of State) and an aggregate offering price greater than $15,000,000 (before deduction of any underwritten commissions and/or expenses) or (ii) the affir mative vote or written consent of holders of at least two-thirds of the then outstanding Preferred Stock (voting together as a class on an as-converted basis) to convert such Preferred Stock. In the event of the automatic conversion of the Preferred Stock upon a public offering as aforesaid, the person(s) entitled to receive the Common Stock issuable upon such conversion of Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such public offering. (c) Mechanics of Conversion. No fractional shares of Common ----------------------- Stock shall be issued upon conversion of Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of such converted shares. Before any holder of Preferred Stock shall be entitled to convert the same into full shares of Common Stock and to receive certificates therefor, he shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Preferred Stock, and shall give written notice to the Corporation at such office that he elects to convert the same (except that no such written notice of election to convert shall be necessary in the event of an automatic conversion pursuant to Section 4(b)). The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which he shall be entitled as aforesaid and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock plus any declared but unpaid dividends on the converted Preferred Stock to which the holder may be entitled. Such conver sion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, or in the case of automatic conversion, upon such automatic conversion, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (d) Adjustments to Conversion Price for Diluting Issues. --------------------------------------------------- (i) Special Definitions. For purposes of this Section ------------------- 4(d), the following definitions shall apply: (1) "Options" shall mean rights, options or warrants ------- to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. -5- (2) "Original Issue Date" shall mean the date on which ------------------- the first share of Series A Preferred was issued. (3) "Convertible Securities" shall mean any ---------------------- evidences of indebtedness, shares (other than the shares of Common Stock, Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series F Preferred) or other securities convertible into or exchangeable for Common Stock. (4) "Additional Shares of Common Stock" shall mean --------------------------------- all shares of Common Stock issued (or, pursuant to Section 4(d)(iii), deemed to be issued) by the Corporation after the Original Issue Date, other than shares of Common Stock issued or issuable at any time: (A) upon conversion of the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series F Preferred authorized herein; (B) shares to officers, directors, or employees of or consultants to, the Corporation pursuant to a stock grant, option plan, purchase plan or other employee stock incentive program approved by the Board of Directors; (C) up to an aggregate of 100,000 shares issued to entities pursuant to the Company's 1991 Sales Representative Stock Purchase Plan; (D) as a dividend or distribution on Preferred Stock; (E) shares of Common Stock issued or deliverable to Cypress Semiconductor Corporation ("Cypress") pursuant to that certain Termination Agreement and Common Stock Purchase Agreement between the Corporation and Cypress; (F) pursuant to the acquisition of another corporation by the Corporation by merger, purchase of substantially all of its assets or other reorganization; (G) shares issued to banks, savings and loan associations, equipment lessors or other similar institutions or entities in connection with such entities providing debt financing to the Corporation which has been unanimously approved by the Board of Directors ; -6- (H) by way of dividend or other distribution on shares of Common Stock excluded from the definition of Additional Shares of Common Stock by the foregoing clauses (A) through (G) or this clause (H). (ii) No Adjustment of Conversion Price. No adjustment in --------------------------------- the Conversion Price of a particular share of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred or Series F Preferred shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the Conversion Price in effect on the date of, and immediately prior to such issue, for such share of the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred or Series F Preferred. (iii) Deemed Issue of Additional Shares of Common Stock. In ------------------------------------------------- the event the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 4(d)(v) hereof) of such Additional Shares of Common Stock would be less than the Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued: (1) no further adjustment in the Conversion Prices shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (2) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Corporation, or increase or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Prices computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; -7- (3) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Prices computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if: (A) in the case of Convertible Securities or Options for Common Stock., the only Additional Shares of Common Stock issued were shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange, and (B) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (4) no readjustment pursuant to clause (A) or (B) above shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (i) the Conversion Price on the original adjustment date, or (ii) the Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date; and (5) in the case of any Options which expire by their terms not more than thirty (30) days after the date of issue thereof, no adjustment of the Conversion Price shall be made until the expiration or exercise of all such Options. (iv) Adjustment of Conversion Prices Upon Issuance of Additional ----------------------------------------------------------- Shares of Common Stock. In the event this Corporation shall issue Additional - ---------------------- Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 4(d)(iii)) without considera tion or for a consideration per share less than the Conversion Price or Series A Preferred, the Conversion Price for the Series B Preferred, the Conversion Price for Series C Preferred, the Conversion Price for the Series D Preferred, the Conversion Price for the Series E Preferred or the Conversion Price for the Series F Preferred in effect immediately prior to such event, then and in such event, such Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest tenth of a cent) -8- determined by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such plus the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Conversion Price; and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued; and provided further that, for the purposes of this Section (iv), all shares of Common Stock issuable upon conversion of outstanding Convertible Securities and the Preferred Stock (giving effect to any then applicable anti-dilution adjustment to each series of Preferred Stock) and issuable upon the exercise of any dilutive Options shall be deemed to be outstanding, and immediately after any Additional Shares of Common Stock are deemed issued pursuant to Section 4(d)(iii), such Additional Shares of Common Stock shall be deemed to be outstanding. For the purpose of this Section 4(d)(iv), a dilutive Option shall be deemed to be any then outstanding Option which provides for an exercise price per share of Common Stock (or per share of Common Stock following conversion of any Convertible Securities subject thereto) equal to or less than eighty percent (80%) of the price per share of the Additional Shares of Common Stock issued (or deemed issued pursuant to Section 4(d)(iii) hereof) for which the adjustment to the applicable Conversion Price pursuant to this Section 4(d)(iv) is then being made. (v) Determination of Consideration. For purposes of this ------------------------------ Section 4(d), the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (1) Cash and Property. Such consideration shall: ----------------- (A) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends; (B) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (C) in the event Additional Shares of Common Stock are issued, together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and B) above, as determined in good faith by the Board of Directors. (2) Options and Convertible Securities. The consideration per ---------------------------------- share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 4(d)(iii)(1), relating to Options and Convertible Securities, shall be determined by dividing -9- (x) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by (y) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (vi) Adjustments for Subdivisions, Combinations, Stock Dividends ----------------------------------------------------------- or Consolidation of Common Stock. In the event that, at any time after the - -------------------------------- filing of these Amended and Restated Articles with the Secretary of State, the outstanding shares of Common Stock shall be subdivided (by stock split, or otherwise) into a greater number of shares of Common Stock, or a distribution or dividend payable in Common Stock shall be declared or paid on the Common Stock, the Conversion Prices for the Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred, the Series E Preferred and Series F Preferred Stock then in effect shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event that, at any time after the filing of these Amended and Restated Articles with the Secretary of State, the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Prices for the Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred, the Series E Preferred and the Series F Preferred Stock then in effect shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. (vii) Adjustments for Other Distributions. In the event the ----------------------------------- Corporation at any time or from time to time makes, or fixes a record date for the determination of holders of Common Stock entitled to receive any distribution payable in securities of the Corporation other than shares of Common Stock and other than as otherwise adjusted in this Section 4, then and in each such event provision shall be made so that the holders of Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Corporation which they would have received had their Preferred Stock been converted into Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the date of conversion, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 4 with respect to the rights of the holders of the Preferred Stock. -10- (viii) Adjustments for Reclassification, Exchange and ---------------------------------------------- Substitution. If the Common Stock issuable upon conversion of the Preferred - ------------ Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassi fication or otherwise (other than a subdivision or combination of shares provided for above), the Conversion Prices for the Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred, the Series E Preferred and Series F Preferred Stock then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted such that the Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders upon conversion of the Preferred Stock immediately before that change. (e) No Impairment. The Corporation will not, by amendment of its ------------- Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or perfor mance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Preferred Stock against impairment. (f) Certificate as to Adjustments. Upon the occurrence of each ----------------------------- adjustment or readjustment of the Conversion Price any series of the Preferred Stock pursuant to this Section 4, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of such series of Preferred Stock, a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Prices for the shares of Preferred Stock held by such holder at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the shares of Preferred Stock held by such holder. (g) Notices of Record Date. In the event that this Corporation shall ---------------------- propose at any time: (i) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock or other securities, whether or not are regular cash dividend and whether or not out of earnings or earned surplus; -11- (ii) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (iii) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or (iv) to merge or consolidate with or into any other corporation, or sell, lease or convey all or substantially all its property or business, or to liquidate, dissolve or wind up; then, in connection with each such event, this Corporation shall send to the holders of the Preferred Stock: (1) at least twenty (20) days' prior written notice of the date: on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in (iii) and (iv) above; and (2) in the case of the matters referred to in (iii) and (iv) above, at least twenty (20) days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event). Each such written notice shall be delivered personally or given by first class mail, postage prepaid, addressed to the holders of the Preferred Stock at the address for each such holder as shown on the books of this Corporation. (h) Issue Taxes. The Corporation shall pay any and all issue and ----------- other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of Preferred Stock; provided, however, that the Corporation shall not be liable for property taxes or income taxes attributable to the holders of Preferred Stock upon conversion thereof. (i) Reservation of Stock Issuable Upon Conversion. The Corporation --------------------------------------------- shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of the Preferred Stock such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. -12- 5. Repurchase of Common Stock. Each holder of an outstanding share -------------------------- of Preferred Stock shall be deemed to have consented, for purposes of Sections 502, 503 and 506 of the California General Corporation Law to distributions made by the Corporation in connection with the repurchase, at cost, of shares of Common Stock issued to or held by employees, directors or consultants upon termination of their employment, directorship or consultancy pursuant to agreement providing for the right of such repurchase between the Corporation and such persons. 6. Covenants. --------- (a) General. In addition to any other rights provided by law, ------- so long as at least 1,300,000 shares of Preferred Stock shall be outstanding, this Corporation shall not, without first obtaining the affirmative vote or written consent of the holders of two-thirds of the outstanding shares of Preferred Stock, voting together as a single class on an as-converted basis: (i) amend or repeal any provision of, or add any provision to, this Corporation's Articles of Incorporation if such action would alter or change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Preferred Stock; (ii) authorize any additional shares of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred or Series F Preferred; (iii) designate or issue shares of any class of stock, or reclassify any shares of Common Stock or other shares of this Corporation into shares, having any preference or priority as to dividends, conversion rights, voting rights or liquidation superior to or on a parity with any such preference or priority of any series of Preferred Stock then outstanding; (iv) sell, convey or otherwise dispose of or encumber all or substantially all of its property or business, or merge into or consolidate with any other corporation (other than a wholly owned subsidiary corporation), or effect any transaction or series of related transactions pursuant to which shares of the Corporation representing more than fifty percent (50%) of the voting power of the Corporation are disposed of; or (v) amend any provision of this Section 6. (b) Series F Liquidation Preference. In addition to any other ------------------------------- rights by law, so long as at least 2,750,000 shares of Series F Preferred shall be outstanding, this Corporation shall not without first obtaining the affirmative vote or written consent of the holders of at least 75% of the outstanding shares of Series F Preferred, amend or repeal any provision of, or add any provision to, this Corporation's Articles of Incorporation if such action would alter or change the liquidation preference in favor of the holders of shares of Series F Preferred set forth in Section 2(a) of these Articles of Incorporation. -13- IV A. Limitation of Directors' Liability. The liability of the directors of ---------------------------------- this corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. B. Indemnification of Directors and Officers. This corporation is ----------------------------------------- authorized to indemnify the directors and officers of the corporation to the fullest extent permissible under California law. C. Repeal or Modification. Any repeal or modification of the foregoing ---------------------- provisions of this Article IV shall not adversely affect any right of indemnification or limitation of liability of a director or officer of this corporation relating to acts or omissions occurring prior to such repeal or modification. 3. The foregoing Amendment and Restatement of the Articles of Incorporation has been duly approved by the Board of Directors. 4. The foregoing Amendment and Restatement of the Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 903 of the Corporation Code. The total number of outstanding shares of the corporation at the time of such approval was 5,239,020 shares of Common Stock, 2,505,000 shares of Series A Preferred Stock, 10,274,637 of Series B Preferred Stock, 11,975,561 shares of Series C Preferred Stock, 3,125,000 shares of Series D Preferred Stock, 23,873,667 shares of Series E Preferred Stock, and 7,716,119 shares of Series F Preferred Stock. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than fifty percent (50%) of the outstanding Common Stock voting as a separate class and more than two-thirds of the outstanding Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred, voting together as a single class. -14- We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of our own knowledge. Dated: March __, 1997 /s/ E. Thomas Hart -------------------------------------- E. Thomas Hart, President /s/ Vincent A. McCord -------------------------------------- Vincent A. McCord, Secretary -15- EX-3.4 3 BYLAWS OF THE REGISTRANT BYLAWS OF PEER RESEARCH, INC. BYLAWS OF PEER RESEARCH, INC. TABLE OF CONTENTS
Page ---- ARTICLE I - CORPORATE OFFICES.............................................. 1 1.1 PRINCIPAL OFFICE................................................ 1 1.2 OTHER OFFICES................................................... 1 ARTICLE II - MEETINGS OF SHAREHOLDERS...................................... 1 2.1 PLACE OF MEETINGS............................................... 1 2.2 ANNUAL MEETING.................................................. 1 2.3 SPECIAL MEETING................................................. 2 2.4 NOTICE OF SHAREHOLDERS' MEETINGS................................ 2 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.................... 2 2.6 QUORUM.......................................................... 3 2.7 ADJOURNED MEETING; NOTICE....................................... 3 2.8 VOTING.......................................................... 4 2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT............... 4 2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING......... 5 2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS..... 6 2.12 PROXIES.......................................................... 6 2.13 INSPECTORS OF ELECTION.......................................... 7 ARTICLE III - DIRECTORS.................................................... 8 3.1 POWERS.......................................................... 8 3.2 NUMBER OF DIRECTORS............................................. 8 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS........................ 8 3.4 RESIGNATION AND VACANCIES....................................... 8 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE........................ 9 3.6 REGULAR MEETINGS................................................ 9 3.7 SPECIAL MEETINGS; NOTICE........................................ 9 3.8 QUORUM.......................................................... 10 3.9 WAIVER OF NOTICE................................................ 10 3.10 ADJOURNMENT..................................................... 10
-i- 3.11 NOTICE OF ADJOURNMENT........................................... 10 3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING............... 10 3.13 FEES AND COMPENSATION OF DIRECTORS.............................. 11 3.14 APPROVAL OF LOANS TO OFFICERS................................... 11 ARTICLE IV - COMMITTEES.................................................... 11 4.1 COMMITTEES OF DIRECTORS......................................... 11 4.2 MEETINGS AND ACTION OF COMMITTEES............................... 12 ARTICLE V - OFFICERS....................................................... 12 5.1 OFFICERS........................................................ 12 5.2 ELECTION OF OFFICERS............................................ 13 5.3 SUBORDINATE OFFICERS............................................ 13 5.4 REMOVAL AND RESIGNATION OF OFFICERS............................. 13 5.5 VACANCIES IN OFFICES............................................ 13 5.6 CHAIRMAN OF THE BOARD........................................... 13 5.7 PRESIDENT....................................................... 13 5.8 VICE PRESIDENTS................................................. 14 5.9 SECRETARY....................................................... 14 5.10 CHIEF FINANCIAL OFFICER......................................... 14 ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS................................................. 15 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS....................... 15 6.2 INDEMNIFICATION OF OTHERS....................................... 15 ARTICLE VII - RECORDS AND REPORTS.......................................... 16 7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER.................... 16 7.2 MAINTENANCE AND INSPECTION OF BYLAWS............................ 16 7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS 17 7.4 INSPECTION BY DIRECTORS......................................... 17 7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER........................... 17 7.6 FINANCIAL STATEMENTS............................................ 17 7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.................. 18 ARTICLE VIII - GENERAL MATTERS............................................. 18 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING........... 18
-ii- 8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS....................... 19 8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED.............. 19 8.4 CERTIFICATES FOR SHARES......................................... 19 8.5 LOST CERTIFICATES............................................... 19 8.6 CONSTRUCTION; DEFINITIONS....................................... 20 ARTICLE IX - AMENDMENTS.................................................... 20 9.1 AMENDMENT BY SHAREHOLDERS....................................... 20 9.2 AMENDMENT BY DIRECTORS.......................................... 20
-iii- EXHIBIT 3.4 BYLAWS ------ OF -- PEER RESEARCH, INC. ------------------- ARTICLE I CORPORATE OFFICES ----------------- I.1 PRINCIPAL OFFICE ---------------- The board of directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside such state and the corporation has one or more business offices in such state, then the board of directors shall fix and designate a principal business office in the State of California. I.2 OTHER OFFICES ------------- The board of directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF SHAREHOLDERS ------------------------ II.1 PLACE OF MEETINGS ----------------- Meetings of shareholders shall be held at any place within or outside the State of California designated by the board of directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation. II.2 ANNUAL MEETING -------------- The annual meeting of shareholders shall be held each year on a date and at a time designated by the board of directors. In the absence of such designation, the annual meeting of shareholders shall be held on the 2nd Tuesday of April in each year at 10:00 a.m. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. At the meeting, directors shall be elected, and any other proper business may be transacted. II.3 SPECIAL MEETING --------------- A special meeting of the shareholders may be called at any time by the board of directors, or by the chairman of the board, or by the president, or by one or more shareholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at that meeting. If a special meeting is called by any person or persons other than the board of directors or the president or the chairman of the board, then the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president or the secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the shareholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting, so long as that time is not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, then the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the board of directors may be held. II.4 NOTICE OF SHAREHOLDERS' MEETINGS -------------------------------- All notices of meetings of shareholders shall be sent or otherwise given in accordance with Section 2.5 of these bylaws not less than ten (10) (or, if sent by third-class mail pursuant to Section 2.5 of these bylaws, thirty (30)) nor more than sixty (60) days before the date of the meeting. The notice shall specify the place, date, and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted (no business other than that specified in the notice may be transacted) or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the shareholders (but subject to the provisions of the next paragraph of this Section 2.4 any proper matter may be presented at the meeting for such action). The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees who, at the time of the notice, the board intends to present for election. If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Corporations Code of California (the "Code"), (ii) an amendment of the articles of incorporation, pursuant to Section 902 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of the Code, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, then the notice shall also state the general nature of that proposal. II.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE -------------------------------------------- -2- Written notice of any meeting of shareholders shall be given either (i) personally or (ii) by first-class mail or (iii) by third-class mail but only if the corporation has outstanding shares held of record by five hundred (500) or more persons (determined as provided in Section 605 of the Code) on the record date for the shareholders' meeting, or (iv) by telegraphic or other written communication. Notices not personally delivered shall be sent charges prepaid and shall be addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, then all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the shareholder on written demand of the shareholder at the principal executive office of the corporation for a period of one (1) year from the date of the giving of the notice. An affidavit of the mailing or other means of giving any notice of any shareholders' meeting, executed by the secretary, assistant secretary or any transfer agent of the corporation giving the notice, shall be prima facie evidence of the giving of such notice. II.6 QUORUM ------ The presence in person or by proxy of the holders of a majority of the shares entitled to vote thereat constitutes a quorum for the transaction of business at all meetings of shareholders. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. II.7 ADJOURNED MEETING; NOTICE ------------------------- Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy. In the absence of a quorum, no other business may be transacted at that meeting except as provided in Section 2.6 of these bylaws. When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the -3- meeting at which the adjournment is taken. However, if a new record date for the adjourned meeting is fixed or if the adjournment is for more than forty-five (45) days from the date set for the original meeting, then notice of the adjourned meeting shall be given. Notice of any such adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 2.4 and 2.5 of these bylaws. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. II.8 VOTING ------ The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to the provisions of Sections 702 through 704 of the Code (relating to voting shares held by a fiduciary, in the name of a corporation or in joint ownership). The shareholders' vote may be by voice vote or by ballot; provided, however, that any election for directors must be by ballot if demanded by any shareholder at the meeting and before the voting has begun. Except as provided in the last paragraph of this Section 2.8, or as may be otherwise provided in the articles of incorporation, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of the shareholders. Any shareholder entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or, except when the matter is the election of directors, may vote them against the proposal; but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares which the shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented and voting at a duly held meeting (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number or a vote by classes is required by the Code or by the articles of incorporation. At a shareholders' meeting at which directors are to be elected, a shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which such shareholder normally is entitled to cast) if the candidates' names have been placed in nomination prior to commencement of the voting and the shareholder has given notice prior to commencement of the voting of the shareholder's intention to cumulate votes. If any shareholder has given such a notice, then every shareholder entitled to vote may cumulate votes for candidates in nomination either (i) by giving one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder's shares are normally entitled or (ii) by distributing the shareholder's votes on the same principle among any or all of the candidates, as the shareholder thinks fit. The candidates receiving the highest number of affirmative votes, up to the number of directors to be elected, shall be elected; votes against any candidate and -4- votes withheld shall have no legal effect. II.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT ------------------------------------------------- The transactions of any meeting of shareholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though they had been taken at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. The waiver of notice or consent or approval need not specify either the business to be transacted or the purpose of any annual or special meeting of shareholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 2.4 of these bylaws, the waiver of notice or consent or approval shall state the general nature of the proposal. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance by a person at a meeting shall also constitute a waiver of notice of and presence at that meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the Code to be included in the notice of the meeting but not so included, if that objection is expressly made at the meeting. II.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING ------------------------------------------------------- Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted. In the case of election of directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors. However, a director may be elected at any time to fill any vacancy on the board of directors, provided that it was not created by removal of a director and that it has not been filled by the directors, by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. All such consents shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholder's proxy holders, or a transferee of the shares, or a personal representative of the shareholder, or their respective proxy holders, may revoke the consent by a writing received by the secretary of the corporation before written consents of the number of shares required to authorize the proposed action have been filed with the secretary. If the consents of all shareholders entitled to vote have not been solicited in writing and if the -5- unanimous written consent of all such shareholders has not been received, then the secretary shall give prompt notice of the corporate action approved by the shareholders without a meeting. Such notice shall be given to those shareholders entitled to vote who have not consented in writing and shall be given in the manner specified in Section 2.5 of these bylaws. In the case of approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Code, (ii) indemnification of a corporate "agent," pursuant to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, and (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval. II.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS ----------------------------------------------------------- For purposes of determining the shareholders entitled to notice of any meeting or to vote thereat or entitled to give consent to corporate action without a meeting, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting nor more than sixty (60) days before any such action without a meeting, and in such event only shareholders of record on the date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Code. If the board of directors does not so fix a record date: (a) the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; and (b) the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action by the board has been taken, shall be at the close of business on the day on which the board adopts the resolution relating to that action, or the sixtieth (60th) day before the date of such other action, whichever is later. The record date for any other purpose shall be as provided in Article VIII of these bylaws. II.12 PROXIES ------- Every person entitled to vote for directors, or on any other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and -6- filed with the secretary of the corporation. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the shareholder or the shareholder's attorney-in-fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) the person who executed the proxy revokes it prior to the time of voting by delivering a writing to the corporation stating that the proxy is revoked or by executing a subsequent proxy and presenting it to the meeting or by voting in person at the meeting, or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy, unless otherwise provided in the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the Code. II.13 INSPECTORS OF ELECTION ---------------------- Before any meeting of shareholders, the board of directors may appoint an inspector or inspectors of election to act at the meeting or its adjournment. If no inspector of election is so appointed, then the chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint an inspector or inspectors of election to act at the meeting. The number of inspectors shall be either one (l) or three (3). If inspectors are appointed at a meeting pursuant to the request of one (l) or more shareholders or proxies, then the holders of a majority of shares or their proxies present at the meeting shall determine whether one (l) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, then the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. Such inspectors shall: (a) determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) receive votes, ballots or consents; (c) hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) count and tabulate all votes or consents; (e) determine when the polls shall close; (f) determine the result; and -7- (g) do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE III DIRECTORS --------- III.1 POWERS ------ Subject to the provisions of the Code and any limitations in the articles of incorporation and these bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. III.2 NUMBER OF DIRECTORS ------------------- See attached amendment. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. III.3 ELECTION AND TERM OF OFFICE OF DIRECTORS ---------------------------------------- Directors shall be elected at each annual meeting of shareholders to hold office until the next annual meeting. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. III.4 RESIGNATION AND VACANCIES ------------------------- Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary or the board of directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective. Vacancies in the board of directors may be filled by a majority of the remaining directors, even if less than a quorum, or by a sole remaining director; however, a vacancy created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the required quorum), or by the unanimous written consent of all shares entitled to vote thereon. Each director so elected shall hold office until the next annual meeting of the shareholders and until a -8- successor has been elected and qualified. A vacancy or vacancies in the board of directors shall be deemed to exist (i) in the event of the death, resignation or removal of any director, (ii) if the board of directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony, (iii) if the authorized number of directors is increased, or (iv) if the shareholders fail, at any meeting of shareholders at which any director or directors are elected, to elect the number of directors to be elected at that meeting. The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election other than to fill a vacancy created by removal, if by written consent, shall require the consent of the holders of a majority of the outstanding shares entitled to vote thereon. III.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE ---------------------------------------- Regular meetings of the board of directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the board. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board may be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another; and all such directors shall be deemed to be present in person at the meeting. III.6 REGULAR MEETINGS ---------------- Regular meetings of the board of directors may be held without notice if the times of such meetings are fixed by the board of directors. III.7 SPECIAL MEETINGS; NOTICE ------------------------ Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time -9- of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. III.8 QUORUM ------ A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 3.10 of these bylaws. Every act or decision done or made by a majority of the directors present at a duly held meeting at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of Section 310 of the Code (as to approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of the Code (as to appointment of committees), Section 317(e) of the Code (as to indemnification of directors), the articles of incorporation, and other applicable law. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. III.9 WAIVER OF NOTICE ---------------- Notice of a meeting need not be given to any director (i) who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or (ii) who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such directors. All such waivers, consents, and approvals shall be filed with the corporate records or made part of the minutes of the meeting. A waiver of notice need not specify the purpose of any regular or special meeting of the board of directors. III.10 ADJOURNMENT ----------- A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place. III.11 NOTICE OF ADJOURNMENT --------------------- Notice of the time and place of holding an adjourned meeting need not be given unless the meeting is adjourned for more than twenty-four (24) hours. If the meeting is adjourned for more than twenty-four (24) hours, then notice of the time and place of the adjourned meeting shall be given before the adjourned meeting takes place, in the manner specified in Section 3.7 of these bylaws, to the directors who were not present at the time of the adjournment. -10- III.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING ------------------------------------------------- Any action required or permitted to be taken by the board of directors may be taken without a meeting, provided that all members of the board individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. Such written consent and any counterparts thereof shall be filed with the minutes of the proceedings of the board. III.13 FEES AND COMPENSATION OF DIRECTORS ---------------------------------- Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the board of directors. This Section 3.13 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services. III.14 APPROVAL OF LOANS TO OFFICERS ----------------------------- The corporation may, upon the approval of the board of directors alone, make loans of money or property to, or guarantee the obligations of, any officer of the corporation or its parent or subsidiary, whether or not a director, or adopt an employee benefit plan or plans authorizing such loans or guaranties provided that (i) the board of directors determines that such a loan or guaranty or plan may reasonably be expected to benefit the corporation, (ii) the corporation has outstanding shares held of record by 100 or more persons (determined as provided in Section 605 of the Code) on the date of approval by the board of directors, and (iii) the approval of the board of directors is by a vote sufficient without counting the vote of any interested director or directors. ARTICLE IV COMMITTEES ---------- IV.1 COMMITTEES OF DIRECTORS ----------------------- The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one (l) or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may designate one (l) or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the _________________ * This section is effective only if it has been approved by the shareholders in accordance with Sectiond 315(b) and 152 of the Code. -11- authorized number of directors. Any committee, to the extent provided in the resolution of the board, shall have all the authority of the board, expect with respect to: (a) the approval of any action which, under the Code, also requires shareholders' approval or approval of the outstanding shares; (b) the filling of vacancies on the board of directors or in any committee; (c) the fixing of compensation of the directors for serving on the board or any committee; (d) the amendment or repeal of these bylaws or the adoption of new bylaws; (e) the amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable; (f) a distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the board of directors; or (g) the appointment of any other committees of the board of directors or the members of such committees. IV.2 MEETINGS AND ACTION OF COMMITTEES --------------------------------- Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section 3.12 (action without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the board of directors, and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the com-mittee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. ARTICLE V OFFICERS -------- V.1 OFFICERS -------- -12- The officers of the corporation shall be a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person. V.2 ELECTION OF OFFICERS -------------------- The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws, shall be chosen by the board, subject to the rights, if any, of an officer under any contract of employment. V.3 SUBORDINATE OFFICERS -------------------- The board of directors may appoint, or may empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine. V.4 REMOVAL AND RESIGNATION OF OFFICERS ----------------------------------- Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors at any regular or special meeting of the board or, except in case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. V.5 VACANCIES IN OFFICES -------------------- A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to that office. V.6 CHAIRMAN OF THE BOARD --------------------- The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these bylaws. If there is -13- no president, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 of these bylaws. V.7 PRESIDENT --------- Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and the officers of the corporation. He shall preside at all meetings of the shareholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. V.8 VICE PRESIDENTS --------------- In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws, the president or the chairman of the board. V.9 SECRETARY --------- The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors and shareholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors required to be given by law or by these bylaws. He shall keep the seal of the cor poration, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws. -14- V.10 CHIEF FINANCIAL OFFICER ----------------------- The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his transactions as chief financial officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, -------------------------------------------------- AND OTHER AGENTS ---------------- VI.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS ----------------------------------------- The corporation shall, to the maximum extent and in the manner permitted by the Code, indemnify each of its directors and officers against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. VI.2 INDEMNIFICATION OF OTHERS ------------------------- The corporation shall have the power, to the extent and in the manner permitted by the Code, to indemnify each of its employees and agents (other than directors and officers) against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) -15- includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corpo ration of the corporation or of another enterprise at the request of such predecessor corporation. ARTICLE VII RECORDS AND REPORTS ------------------- VII.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER -------------------------------------------- The corporation shall keep either at its principal executive office or at the office of its transfer agent or registrar (if either be appointed), as determined by resolution of the board of directors, a record of its shareholders listing the names and addresses of all shareholders and the number and class of shares held by each shareholder. A shareholder or shareholders of the corporation who holds at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation or who holds at least one percent (l%) of such voting shares and has filed a Schedule 14B with the Securities and Exchange Commission relating to the election of directors, may (i) inspect and copy the records of shareholders' names, addresses, and shareholdings during usual business hours on five (5) days' prior written demand on the corporation, (ii) obtain from the transfer agent of the corporation, on written demand and on the tender of such transfer agent's usual charges for such list, a list of the names and addresses of the shareholders who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which that list has been compiled or as of a date specified by the shareholder after the date of demand. Such list shall be made available to any such shareholder by the transfer agent on or before the later of five (5) days after the demand is received or five (5) days after the date specified in the demand as the date as of which the list is to be compiled. The record of shareholders shall also be open to inspection on the written demand of any shareholder or holder of a voting trust certificate, at any time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. Any inspection and copying under this Section 7.1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand. VII.2 MAINTENANCE AND INSPECTION OF BYLAWS ------------------------------------ The corporation shall keep at its principal executive office or, if its principal executive office is not in the State of California, at its principal business office in California the original or a copy of -16- these bylaws as amended to date, which bylaws shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business office in such state, then the secretary shall, upon the written request of any shareholder, furnish to that shareholder a copy of these bylaws as amended to date. VII.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS ----------------------------------------------------- The accounting books and records and the minutes of proceedings of the shareholders, of the board of directors, and of any committee or committees of the board of directors shall be kept at such place or places as are designated by the board of directors or, in absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form, and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any reasonable time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney and shall include the right to copy and make extracts. Such rights of inspection shall extend to the records of each subsidiary corporation of the corporation. VII.4 INSPECTION BY DIRECTORS ----------------------- Every director shall have the absolute right at any reasonable time to inspect all books, records, and documents of every kind as well as the physical properties of the corporation and each of its subsidiary corporations. Such inspection by a director may be made in person or by an agent or attorney. The right of inspection includes the right to copy and make extracts of documents. VII.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER ------------------------------------- The board of directors shall cause an annual report to be sent to the shareholders not later than one hundred twenty (120) days after the close of the fiscal year adopted by the corporation. Such report shall be sent at least fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days) before the annual meeting of shareholders to be held during the next fiscal year and in the manner specified in Section 2.5 of these bylaws for giving notice to shareholders of the corporation. The annual report shall contain (i) a balance sheet as of the end of the fiscal year, (ii) an income statement, (iii) a statement of changes in financial position for the fiscal year, and (iv) any report of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the corporation. -17- The foregoing requirement of an annual report shall be waived so long as the shares of the corporation are held by fewer than one hundred (100) holders of record. VII.6 FINANCIAL STATEMENTS -------------------- If no annual report for the fiscal year has been sent to shareholders, then the corporation shall, upon the written request of any shareholder made more than one hundred twenty (120) days after the close of such fiscal year, deliver or mail to the person making the request, within thirty (30) days thereafter, a copy of a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year. If a shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of stock of the corporation makes a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the then current fiscal year ended more than thirty (30) days before the date of the request, and for a balance sheet of the corporation as of the end of that period, then the chief financial officer shall cause that statement to be prepared, if not already prepared, and shall deliver personally or mail that statement or statements to the person making the request within thirty (30) days after the receipt of the request. If the corporation has not sent to the shareholders its annual report for the last fiscal year, the statements referred to in the first paragraph of this Section 7.6 shall likewise be delivered or mailed to the shareholder or shareholders within thirty (30) days after the request. The quarterly income statements and balance sheets referred to in this section shall be accompanied by the report, if any, of any independent accountants engaged by the corporation or by the certificate of an authorized officer of the corporation that the financial statements were prepared without audit from the books and records of the corporation. VII.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS ---------------------------------------------- The chairman of the board, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority herein granted may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. ARTICLE VII GENERAL MATTERS --------------- VIII.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING ----------------------------------------------------- -18- For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the shareholders entitled to exercise any rights in respect of any other lawful action (other than action by shareholders by written consent without a meeting), the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days before any such action. In that case, only shareholders of record at the close of business on the date so fixed are entitled to receive the dividend, distribution or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the Code. If the board of directors does not so fix a record date, then the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the board adopts the applicable resolution or the sixtieth (60th) day before the date of that action, whichever is later. VIII.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS ----------------------------------------- From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. VIII.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED -------------------------------------------------- The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. VIII.4 CERTIFICATES FOR SHARES ----------------------- A certificate or certificates for shares of the corporation shall be issued to each shareholder when any of such shares are fully paid. The board of directors may authorize the issuance of certificates for shares partly paid provided that these certificates shall state the total amount of the consideration to be paid for them and the amount actually paid. All certificates shall be signed in the name of the corporation by the chairman of the board or the vice chairman of the board or the president or a vice president and by the chief financial officer or an assistant treasurer or the secretary or an assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. -19- In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on a certificate ceases to be that officer, transfer agent or registrar before that certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent or registrar at the date of issue. VIII.5 LOST CERTIFICATES ----------------- Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of replacement certificates on such terms and conditions as the board may require; the board may require indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate. VIII.6 CONSTRUCTION; DEFINITIONS ------------------------- Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Code shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. ARTICLE IX AMENDMENTS ---------- IX.1 AMENDMENT BY SHAREHOLDERS ------------------------- New bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the articles of incorporation of the corporation set forth the number of authorized directors of the corporation, then the authorized number of directors may be changed only by an amendment of the articles of incorporation. IX.2 AMENDMENT BY DIRECTORS ---------------------- Subject to the rights of the shareholders as provided in Section 9.1 of these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing the authorized number of directors (except to fix the authorized number of directors pursuant to a bylaw providing for a variable number of directors), may be adopted, amended or repealed by the board of directors. -20- CERTIFICATE OF ADOPTION OF BYLAWS OF PEER RESEARCH, INC. Certificate by Assistant Secretary of Adoption ---------------------------------------------- by Shareholders' Vote --------------------- The undersigned hereby certifies that he is the duly elected, qualified, and acting Assistant Secretary of Peer Research, Inc. and that the foregoing Bylaws, comprising twenty-four (24) pages, were adopted by the unanimous written consent of the shareholders of the corporation on June __, 1988. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed the corporate seal this ____ day of ____________ 19__. _________________________________________ Robert T. Clarkson, Assistant Secretary -25- PEER RESEARCH, INC. CERTIFICATE OF AMENDMENT OF BYLAWS The undersigned hereby certifies that Article III, Section 3.2 of the Bylaws of Peer Research, Inc. was amended by written consent of the Board of Directors dated August 23, 1989 to fix the exact number of directors at five (5). John M. Birkner, Secretary CERTIFICATE OF AMENDMENT OF BYLAWS OF QUICKLOGIC CORPORATION The undersigned hereby certifies that he is the duly elected, qualified, and acting Assistant Secretary of Quicklogic Corporation and that Section 3.2 of the Bylaws of this Corporation was amended on November 22, 1991 to read as follows: "3.2 NUMBER OF DIRECTORS ------------------- The number of directors of the corporation shall be not less than four (4) nor more than seven (7). The exact number of directors shall be six (6) until changed, within the limits specified above, by a bylaw amending this Section 3.2, duly adopted by the board of directors or by the shareholders. The indefinite number of directors may be changed, or a definite number may be fixed without provision for an indefinite number, by a duly adopted amendment to the articles of incorporation or by an amendment to this bylaw duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that an amendment reducing the fixed number or the minimum number of directors to a number less than six (6) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of an action by written consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to vote thereon. No amendment may change the stated maximum number of authorized directors to a number greater than two (2) times the stated minimum number of directors minus one (1). No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires." IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed the corporate seal this 22nd day of November, 1991. /s/ Robert T. Clarkson --------------------------------------- Robert T. Clarkson, Assistant Secretary CERTIFICATE OF AMENDMENT OF BYLWS OF QUICKLOGIC CORPORATION The undersigned, being theAssistant Secretary of QuickLogic Corporation hereby certified that Section 3.2 of Article III of the Bylaws of this corporation was amended effective October 20, 1992 by the Board of Directors to provide in its entirety as follows: 3.2 NUMBER OF DIRECTORS ------------------- The number of directors of the corporation shall be not less than five (5) nor more than seven (7). The exact number of direcctors shall be five (5) until changed, within the limits specified above, by a bylaw amending this Section 3.2, duly adopted by the board fo director may be changed,or definite number may be fixed without provision for an indefinite number, by a duly adopted amendment to the articles of incorporation or by an amendment to this bylaw duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however,that an amendment reducing the fixed number or the minimum number of directors to a number less than five (5) cannot be adopted if the votes cast against iuts soption at a meeting, or the shares not consenting in the cse of an action by written consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entited to vote thereon. No amendment may change the stated maximum number of authorized directors to a number greater than two (2) times the stated minimum number of directors minus one (1). No reduction of the authorized number of directors shall have the effect of removing ny director before that director's term of office expires. Dated: October 20, 1992 /s/ Robert T. Clarkson ----------------------------------------- Robert T. Clarkson, Assistant Secretary CERTIFICATE OF AMENDMENT OF BYLAWS OF QUICKLOGIC CORPORATION The undersigned, being the Assistant Secretary of QuickLogic Corporation hereby certifies that Section 3.2 of Article III of the Bylaws of this corporation was amended effective June 10, 1994 by the Board of Directors to proved in its entirety as follows: 3.2 NUMBER OF DIRECTORS ------------------- The number of directors of the corporation shall be not less than four (4) nor more than seven (7). The exact number of directors shall be six (6) until changed, within the limits specified above, by a bylaw amending this Section 3.2, duly adopted by the board of directors or by the shareholders. The indefinite number of directors may be changed, or a definite number may be fixed without provision for an indefinite number, by a duly adopted amendment to the articles of incorporation or by an amendment to this bylaw duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that an amendment reducing the fixed number or the minimum number of directors to a number less than six (6) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of an action by written consent, are equal to more than sixteen and two thirds percent (16-2/3%) of the outstanding shares entitled to vote thereon. No amendment may change the stated maximum number of authorized directors to a number greater than two (2) times the stated minimum number of directors minus one (1). No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. Dated: June 10, 1994 /s/ Robert T. Clarkson ----------------------------------------- Robert T. Clarkson, Assistant Secretary EX-5.1 4 OPINION OF WILSON SONSINI GOODRICH & ROSATI Exhibit 5.1 QuickLogic Corporation 1227 Orleans Drive Sunnyvale, California 94089-1138 Ladies and Gentlemen: You have requested our opinion with respect to certain matters in connection with the filing by QuickLogic Corporation (the "Company") of a Registration Statement on Form S-1 (the "Registration Statement") with the Securities and Exchange Commission (the "Commission"), covering an underwritten public offering of up to 3,000,000 shares of Common Stock (the "Common Stock"). In connection with this opinion, we have (i) examined and relied upon the Registration Statement and related Prospectus, the Company's Amended and Restated Certificate of Incorporation, as amended, and Bylaws, and the originals or copies certified to our satisfaction of such records, documents, certificates, memoranda and other instruments as in our judgment are necessary or appropriate to enable us to render the opinion expressed below, (ii) assumed that the Amended and Restated Certificate of Incorporation, as amended, as set forth in Exhibit 3.4 to the Registration Statement, will have been duly approved and filed with the office of the Delaware Secretary of State and (iii) assumed that the shares of Common Stock will be sold by the Underwriters at a price established by the Pricing Committee of the Board of Directors of the Company. On the basis of the foregoing, and in reliance thereon, we are of the opinion that the Common Stock, when sold and issued in accordance with the Registration Statement and related Prospectus, will be duly and validly issued, fully paid and nonassessable. We consent to the reference to our firm under the caption "Legal Matters" in the Prospectus included in the Registration Statement and any amendment thereto and to the filing of this opinion as an exhibit to the Registration Statement and any amendment thereto. Very truly yours, WILSON, SONSINI, GOODRICH & ROSATI Professional Corporation /s/ Wilson, Sonsini, Goodrich & Rosati EX-10.2 5 1989 STOCK OPTION PLAN EXHIBIT 10.2 QUICKLOGIC CORPORATION 1989 STOCK OPTION PLAN (as amended February 21,1996) 1. Purposes of the Plan. The purposes of this Stock Option Plan are to -------------------- attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to the Employees and Consultants of the Company and to promote the success of the Company's business. Options granted hereunder may be either Incentive Stock Options or Nonstatutory Stock Options, at the discretion of the Board and as reflected in the terms of the written option agreement. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Board" shall mean the Committee, if one has been appointed, or ----- the Board of Directors of the Company, if no Committee is appointed. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended. ---- (c) "Committee" shall mean the Committee appointed by the Board of --------- Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is appointed. (d) "Common Stock" shall mean the Common Stock of the Company. ------------ (e) "Company" shall mean QuickLogic Corporation, a California ------- corporation. (f) "Consultant" means any person who is engaged by the Company or ---------- any Parent or Subsidiary to render consulting services or advisory services and is compensated for such services, and any director of the Company whether compensated for such services or not. If and in the event the Company registers any class of any equity security pursuant to the Exchange Act, the term paid only a director's fee by the Company. (g) "Continuous Status as an Employee, Consultant or Director" shall -------------------------------------------------------- mean the absence of any interruption or termination of service as an Employee, Consultant or Director. Continuous Status as an Employee, Consultant or Director shall not be considered interrupted in the case of sick leave, military leave, or any other leave of absence approved by the Board; provided that such leave is for a period of not more than 90 days or reemployment upon the expiration of such leave is guaranteed by contract or statute. (h) "Director" shall mean a member of the Board of Directors of the -------- Company. (i) "Employee" shall mean any person, including officers and -------- directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company. (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, ------------ as amended. (k) "Incentive Stock Option" shall mean an Option intended to ---------------------- qualify as an incentive stock option within the meaning of Section 422A of the Code. (l) "Nonstatutory Stock Option" shall mean an Option not intended to ------------------------- qualify as an Incentive Stock Option. (m) "Option" shall mean a stock option granted pursuant to the Plan. ------ (n) "Optioned Stock" shall mean the Common Stock subject to an -------------- Option. (o) "Optionee" shall mean an Employee or Consultant who receives an -------- Option. (p) "Parent" shall mean a "parent corporation", whether now or ------ hereafter existing, as defined in Section 425(e) of the Code. (q) "Plan" shall mean this 1989 Stock Option Plan. ---- (r) "Share" shall mean a share of the Common Stock, as adjusted in ----- accordance with Section 11 of the Plan. (s) "Subsidiary" shall mean a "subsidiary corporation," whether now ---------- or hereafter existing, as defined in Section 425(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 11 of ------------------------- the Plan, the maximum aggregate number of shares which may be optioned and sold under the Plan is 14,700,000 shares of Common Stock. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. Notwithstanding any other provision of the Plan, shares issued under the Plan and later repurchased by the Company shall not become available for future grant or sale under the Plan. 4. Administration of the Plan. -------------------------- (a) Procedure. The Plan shall be administered by the Board of --------- Directors of the Company, or by a committee appointed by the Board of Directors consisting of two (2) or more Directors, in accordance with the following provisions: (i) Members of the Board who are either eligible for Options or have been granted Options may vote on any matters affecting administration of the Plan or the grant of Options pursuant to the Plan; provided, however, no member of the Board shall act upon the granting of an Option to himself or herself, but any such member may be counted in determining the existence of a quorum at any meeting of the Board during which action is taken with respect to the granting of options to him or her. (ii) The Committee shall administer the Plan on behalf of the Board of Directors, subject to such terms and conditions as the Board of Directors may prescribe. Once appointed, a Committee shall continue to serve until otherwise directed by the Board of Directors. Subject to the foregoing, from time to time the Board of Directors may increase the size of the Committee and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the Committee and there after directly administer the Plan. -2- (b) Powers of the Board. Subject to the provisions of the Plan, the ------------------- Board shall have the authority, in its discretion: (i) to grant Incentive Stock Options or Nonstatutory Stock Options; (ii) to determine, upon review of relevant information and in accordance with Section 8(b) of the Plan, the fair market value of the Common Stock; (iii) to determine the exercise price per share of Options to be granted, which exercise price shall be determined in accordance with Section 8(a) of the Plan; (iv) to determine the Employees, Consultants and Directors to whom, and the time or times at which, Options shall be granted and the number of shares to the represented by each Option; (v) to interpret the Plan; (vi) to prescribe, amend and rescind rules and regulations relating to the Plan; (vii) to determine the terms and provisions of each Option granted (which need not be identical) and, with the consent of the holder thereof, modify or amend each Option (including the exercise price thereof); (viii) to defer (with the consent of the Optionee) the exercise date of any Option, consistent with the provisions of Section 5 of the Plan; (ix) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an option previously granted by the Board; and (x) to make all other determinations deemed necessary or advisable for the administration of the Plan. (c) Effect of Board's Decision. All decisions, determinations and -------------------------- interpretations of the Board shall be final and binding on all Optionees and any other holders of any Options granted under the Plan. 5. Eligibility. ----------- (a) Nonstatutory Stock Options may be granted to Employees, Consultants and Directors. Incentive Stock Options may be granted only to Employees. An Employee, Consultant or Director who has been granted an Option may, if he is otherwise eligible, be granted an additional Option or Options. (b) No Incentive Stock Option may be granted to an Employee which, when aggregated with all other incentive stock options granted to such Employee by the Company or any Parent or Subsidiary, would result in Shares having an aggregate fair market value (determined for each Share as of the date of grant of the incentive stock option covering such Share) in excess of $100,000 becoming first available for purchase upon exercise of one or more incentive stock options during any calendar year. (c) Section 5(b) of the Plan shall apply only to an Incentive Stock Option evidenced by an "Incentive Stock Option Agreement" which sets forth the intention of the Company and the Optionee that such Option shall qualify as an Incentive Stock Option. Section 5(b) of the Plan shall not apply to any Option evidenced by a "Nonstatutory Stock Option Agreement" which sets forth the intention of the Company and the Optionee that such Option shall be a Nonstatutory Stock Option. (d) The Plan shall not confer upon any Optionee any right with respect to continuation of employment with, consulting relationship with, or membership on the Board of Directors of, the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate such employment, consulting relationship or membership on the Board of Directors at any time. 6. Term of Plan. The Plan shall become effective upon the earlier to ------------ occur of its adoption by the Board of Directors or its approval by the shareholders of the Company as described in Section 17 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Plan. 7. Term of Option. The term of each Option shall be ten (10) years from -------------- the date of grant thereof or such shorter term as may be provided in the Stock Option Agreement. However, in the case of an Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting -3- power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Stock Option Agreement. 8. Exercise Price and Consideration. -------------------------------- (a) The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Board, but shall be subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the fair market value per Share on the date of grant or, if the Incentive Stock Option is amended to reduce the per Share exercise price, less than 110% of the fair market value per Share on the date the Board approves such amendment. (B) granted to any Employee, the per Share exercise price shall be no less than 100% of the fair market value per Share on the date of grant or, if the Incentive Stock Option is amended to reduce the per Share exercise price, 100% of the fair market value per Share on the date the Board approves such amendment. (ii) In the case of a Nonstatutory Stock Option (A) granted to a person who, at the time of the grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the fair market value per Share on the date of the grant or, if the Nonstatutory Stock Option is amended to reduce the per Share exercise price, 110% of the fair market value per Share on the date the Board approves the amendment. (B) granted to any person, the per Share exercise price shall be no less than 85% of the fair market value per Share on the date of grant or, if the Nonstatutory Stock Option is amended to reduce the per Share exercise price, 85% of the fair market value per Share on the date the Board approves the amendment. (b) The fair market value per Share shall be determined by the Board in its discretion; provided, however, that where there is a public market for the Common Stock, the fair market value per Share shall be the mean of the bid and asked prices (or the closing price per share if the Common Stock is listed on the National Association of Securities Dealers Automated Quotation ("NASDAQ") National Market System) of the Common Stock for the date of grant (or date of approval of an amendment to reduce the exercise price per Share, as the case may be), as reported in the Wall Street Journal (or, if not so reported, as otherwise reported by the NASDAQ System) or, in the event the Common Stock is listed on a stock exchange, the fair market value per Share shall be the closing price on such exchange on such date, as reported in the Wall Street Journal. (c) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Board and may consist entirely of (i) cash, (ii) check, (iii) other Shares having a fair market value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (iv) promissory note, (v) any combination of such methods of payment -4- or (vi) such other consideration and method of payment for the issuance of Shares to the extent permitted under Sections 408 and 409 of the California General Corporation Law. 9. Exercise of Option. ------------------ (a) (i) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable at such times and under such conditions as may determined by the Board, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan. (ii) An Option may not be exercised for a fraction of a Share. (iii) An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Board, consist of any consideration and method of payment allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan. (iv) Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Status as an Employee or Consultant. In the event -------------------------------------------------- of termination of an Optionee's Continuous Status as an Employee, Consultant or Director (as the case may be), such Optionee may exercise his or her Option to the extent that he or she was entitled to exercise it at the date of such termination (or to such greater extent as the Board may determine). Any such exercise must occur within the period set forth in the written option agreement which, in the case of an Incentive Stock Option, shall be no more than three (3) months after the date of termination. The Option shall terminate on the date of such termination of Continuous Status as an Employee, Consultant or Director to the extent of the number of shares of Optioned Stock as to which the Option was not exercisable on the date of such termination, as set forth in the written option agreement or as the Board may otherwise determine. To the extent the Optionee fails, within the time period specified in the written option agreement, to exercise the Option for those shares of Optioned Stock as to which he or she is entitled to exercise, the Option shall terminate upon the expiration of such time period. (c) Disability of Optionee. Notwithstanding the provisions of Section ---------------------- 9(b) above, in the event of termination of an Optionee's consulting relationship or Continuous Status as an Employee as a result of his or her disability, Optionee may, but only within six (6) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination; provide, however, that if such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the day three months and one day following such termination. To the extent that Optionee was not entitled to exercise the Option at the date of -5- termination, or if Optionee does not exercise such option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. In the event of the death of an Optionee: ----------------- (i) during the term of the Option who is at the time of his death an Employee, Consultant or Director of the Company and who shall have been in Continuous Status as an Employee, Consultant or Director since the date of grant of the Option, the Option may be exercised by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent, and within the time period, set forth in the Option Agreement (or such greater extent or time period as the Board may determine) subject to the limitation set forth in Section 5(b). (ii) within three (3) months after the termination of Continuous Status as an Employee or Consultant, the Option may be exercised by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent, and within the time period, set forth in the Option Agreement (or such greater extent or time period as the Board may determine). 10. Non-Transferability of Options. The Option may not be sold, pledged, ------------------------------ assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. Adjustments Upon Changes in Capitalization or Merger. Subject to any ---------------------------------------------------- required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. In the event of the proposed dissolution or liquidation of the Company, the Board shall notify the Optionee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, the Option will terminate immediately prior to the consummation of such proposed action. In the event of a merger of the Company with or into another corporation, the Option shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation. With respect to any Option granted prior to the issuance of the amending order by the California Department of Corporations (the "Department") increasing the number of shares qualified for issuance under the Plan to 14,700,000, in the event that such successor corporation does not agree to assume such Option or to substitute an equivalent option, the Board shall, in lieu of such assumption or substitution, provide for the Optionee to have the right to exercise such Option as to all of the Optioned Stock, including Shares as to which such Option would not otherwise be exercisable. If the Board makes an Option fully exercisable in lieu of assumption or substitution in the event of a merger, the Board shall notify the Optionee that the Option shall be fully exercisable for a period of thirty (30) days from the date of such notice, and the Option -6- will terminate upon the expiration of such period. With respect to any option granted after the issuance of the amending order by the Department increasing the number of shares qualified for issuance under the Plan to 14,700,000, in the event that such successor corporation does not agree to assume such Option or to substitute an equivalent option, the Board shall notify the Optionee that the Option shall be exercisable for a period of fifteen (15) days from the date of such notice to the extent that Optionee was entitled to exercise it upon the expiration of such period, and, to the extent that Optionee was not entitled to exercise such Option upon the expiration of such period, or if Optionee does not exercise such Option to the extent so entitled within such period, the Option shall terminate. 12. Time of Granting Options. The date of grant of an Option shall, for ------------------------ all purposes, be the date on which the Board makes the determination granting such Option. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. 13. Amendment and Termination of the Plan. ------------------------------------- (a) Amendment and Termination. The Board may amend or terminate ------------------------- the Plan from time to time in such respects as the Board may deem advisable; provided that, the following revisions or amendments shall require approval of the shareholders of the Company in the manner described in Section 17 of the Plan: (i) any increase in the number of Shares subject to the Plan, other than in connection with an adjustment under Section 11 of the Plan; or (ii) any change in the designation of the class of persons eligible to be granted Options. (iii) if the Company has a class of equity security registered under Section 12 of the Exchange Act at the time of such revision or amendment, any material increase in the benefits accruing to participants under the Plan. (b) Shareholder Approval. If any amendment requiring shareholder -------------------- approval under Section 13(a) of the Plan is made subsequent to the first registration of any class of equity security by the Company under Section 12 of the Exchange Act, such shareholder approval shall be solicited as described in Section 17(a) of the Plan. (c) Effect of Amendment or Termination. Any such amendment or ---------------------------------- termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company. 14. Conditions Upon Issuance of Shares. Shares shall not be issued ---------------------------------- pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for -7- investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 15. Reservation of Shares. The Company, during the term of this Plan, --------------------- will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 16. Option Agreement. Options shall be evidenced by written option ---------------- agreements in such form as the Board shall approve. 17. Shareholder Approval. Continuance of the Plan shall be subject to -------------------- approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted. If such shareholder approval is obtained at a duly held shareholders' meeting, it must be obtained by the affirmative vote of the holders of a majority of the outstanding shares of the Company present or represented and entitled to vote thereon. If and in the event that the Company has registered any class of any equity security pursuant to Section 12 of the Exchange Act, the approval of such shareholders of the Company shall be: (a) (1) solicited substantially in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder, or (2) solicited after the Company has furnished in writing to the holders entitled to vote substantially the same information concerning the Plan as that which would be required by the rules and regulations in effect under Section 14(a) of the Exchange Act at the time such information is furnished; and (b) obtained at or prior to the first annual meeting of shareholders held subsequent to the first registration of any class of equity securities of the Company under Section 12 of the Exchange Act. If such shareholder approval is obtained by written consent, it must be obtained by the unanimous written consent of all shareholders of the Company. 18. Information to Optionee. The Company shall provide to each Optionee, ----------------------- during the period for which such Optionee has one or more Options outstanding, a balance sheet and an income statement at least annually. The Company shall not be required to provide such information to key employees whose duties in connection with the Company assure their access to equivalent information. -8- QUICKLOGIC CORPORATION ______________________ ______________________ Date:_______________ ______________________ RE: QUICKLOGIC CORPORATION OPTION AGREEMENT ------------------------------------------- Dear Optionee: The Option Agreement(s) dated __________________________________ (the "Option Agreement") by and between you and QuickLogic Corporation (the "Company") is/are hereby AMENDED TO ALLOW FOR AN EARLY EXERCISE AND TO PROVIDE A REPURCHASE OPTION BY THE COMPANY. The vesting schedule listed in Section 3(i) of the Option Agreement to which you are a party, shall be amended and restated in its entirety to read as follows: "3. Exercise of Option. This option shall be exercisable during its term ------------------ in accordance with the provisions of Section 9 of the Plan as follows: (i) Right to Exercise ----------------- (a) Subject to subsections 3(i)(b), (c), (d) and (e) below, this Option shall be exercisable in full at any time prior to expiration or earlier termination. 1/8 of the Shares subject to the Option shall vest six months after the Vesting Commencement Date, and an additional 6.25% of the Shares subject to the Option shall vest every three (3) months thereafter. If the Option is exercised for unvested shares, it shall be subject to the Exercise Notice and Restricted Stock Agreement attached hereto as Exhibit A, whether or not you sign --------- such Agreement at the time of exercise." If and when you decide to exercise your option to purchase shares of the Company, please execute the attached documentation. including attachments. Please note that the Company only permits you to pay the exercise price of your stock option by tendering a personal check for such amount payable to the Company. All of the other terms and conditions set forth in the Option Agreement remain in fall force and effect. Sincerely, AGREED TO AND ACCEPTED BY: ___________________________ Vincent A. McCord Chief Financial Officer/Corporate Secretary Name:______________________ Enclosures: Exhibits A/B/C EXHIBIT A EXERCISE NOTICE AND RESTRICTED STOCK AGREEMENT FOR UNVESTED SHARES ------------------------------------------------------------------ QuickLogic Corporation, a California corporation having its principal place of business at 1277 Orleans Drive, Sunnyvale, CA 94089 (the "COMPANY"), has granted to the person whose name is written on the last page hereof (the "OPTIONEE"), an option to purchase certain number of shares of Common Stock (the "SHARES") as evidenced in certain Stock Option Agreements(s), at the price determined as provided therein, and in all respects subject to the terms, definitions and provisions of the 1989 Stock Option Plan (the "PLAN") adopted by the Company which is incorporated herein by reference. The terms defined in the Plan shall have the same defined meanings herein. 1. Exercise of Option. Effective as of today, __________, 19__, the ------------------ undersigned Optionee hereby elects to exercise Optionee's option to purchase __________ Shares of the Company under and pursuant to the Plan and the [ ] Incentive [ ] Nonstatutory Stock Option Agreements dated ____________________ (the "OPTION AGREEMENT"). The aforesaid Shares that Optionee has elected to purchase have not yet vested under the Plan (the "UNVESTED SHARES"). 2. Representations of Optionee. Optionee acknowledges that Optionee has --------------------------- received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 3. Rights as Shareholder. --------------------- (a) Until the stock certificate evidencing such Unvested Shares is issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan. (b) Optionee shall enjoy rights as a shareholder until such time as Optionee disposes of the Unvested Shares or the Company, and/or its assignee(s) exercises the Repurchase Option or Right of First Refusal hereunder. Upon such exercise, Optionee shall have no further rights as a holder of the Unvested Shares so purchased except the right to receive payment for the Unvested Shares so purchased in accordance with the provisions of this Agreement, and Optionee shall forthwith cause the certificate(s) evidencing the Unvested Shares so purchased to be surrendered to the Company for transfer or cancellation. 4. Company's Repurchase Option. In the event that the Option is --------------------------- exercised as to Unvested Shares, the Company, or its assignee(s) shall have the option to repurchase all or any portion of the Unvested Shares on the terms and conditions set forth in this Section 4 (the "REPURCHASE OPTION") if the Optionee should cease to be employed by or cease to be a consultant of the Company for any reason or no reason, including, but without limitation to death, disability, voluntary resignation or termination by the Company, with or without cause. (a) Restrictions on Transfer. For so long as Unvested Shares remain ------------------------ as unvested, Optionee may not transfer, sell, hypothecate or otherwise dispose of, or grant any interest in, such Unvested Shares. (b) Escrow of Unvested Shares. The stock certificate representing the ------------------------- Unvested Shares, together with two (2) executed blank stock assignments in the form attached hereto as ATTACHMENT 1 (for use in transferring all or a portion ------------ of the Unvested Shares if, as and when required by this Agreement) shall be deposited with the Escrow Agent pursuant to the Escrow Agreement attached hereto as ATTACHMENT 2 . ------------ (c) Right of Termination Unaffected. Nothing in this Agreement shall ------------------------------- be construed to limit or otherwise affect in any manner whatsoever the right or power of the Company to terminate Optionee's employment at any time for any reason or no reason, with or without cause. Optionee shall be considered to be employed by the Company, if Optionee is an officer, director or full-time employee of the Company, or any Parent or Subsidiary of the Company (as defined in the Plan) or if the Board of Directors determines that Optionee is rendering substantial services as a part-time employee, consultant or independent contractor to the Company or any Parent or Subsidiary of the Company. Notwithstanding any provisions to the contrary included in the Option Agreement(s), the employment relationship ceases on the date when the Optionee discontinues services to the Company as an employee or as a consultant (the "TERMINATION DATE"). In case of any dispute, the Board of Directors of the Company shall have discretion to determine (i) whether Optionee has ceased to be employed by the Company and (ii) the Termination Date. (d) Exercise of Repurchase Option. At any time within ninety (90) ----------------------------- days after Optionee's Termination Date, the Company or its assignee(s) may elect to repurchase any or all of the Unvested Shares by giving Optionee (or Optionee's personal representative as the case may be) written notice of exercise of the Repurchase Option. (e) Repurchase Price. The per share price for Unvested Shares ---------------- repurchased pursuant to the Repurchase Option shall be equal to the Exercise Price (as defined in the Stock Option Agreement), as such price may be adjusted from time to time to reflect any subsequent stock dividend, stock split, reverse stock split or recapitalization of the Company (the "REPURCHASE PRICE"). -2- (f) Payment of Repurchase Price. The Repurchase Price shall be --------------------------- payable, at the option of the Company or its assignee(s), by check or by cancellation of all or a portion of any outstanding indebtedness of Optionee to the Company (or in the case of repurchase by an assignee, to the assignee) or any combination thereof. The Repurchase Price shall be paid without interest within ninety (90) days after the Termination Date. (g) Lapse of Repurchase Option. All Unvested Shares held by the -------------------------- Optionee shall be released from the Company's Repurchase Option and cease to be Unvested Shares according to the Vesting Schedule set out in the Notice of Grant. 5. Company's Right of First Refusal. Before any Vested Shares (the -------------------------------- "VESTED SHARES") held by Optionee or any transferee (either being sometimes referred to herein as the "HOLDER") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Vested Shares on the terms and conditions set forth in this Section (the "RIGHT OF FIRST REFUSAL"). (a) Notice of Proposed Transfer. The Holder of the Vested Shares --------------------------- shall deliver to the Company a written notice (the "NOTICE") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Vested Shares, (ii) the name of each proposed purchaser or other transferee ("PROPOSED TRANSFEREE"), (iii) the number of Vested Shares to be transferred to each Proposed Transferee, and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Vested Shares (the "OFFERED PRICE"), and the Holder shall offer the Vested Shares at the Offered Price to the Company or its assignee(s). (b) Exercise of Right of First Refusal. At any time within sixty (60) ---------------------------------- days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Vested Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection(c) below. (c) Purchase Price. The purchase price ("PURCHASE PRICE") for the -------------- Vested Shares purchased by the Company or its assignee(s) under this Section shall be the Offered Price. If the Offered Price in consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (d) Payment. Payment of the Purchase Price shall be made, at the ------- option of the Company or its assignee(s), in cash (by check) or by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee) or by any combination thereof, within ninety (90) days after receipt of the Notice or in the manner and at the times set forth in the Notice. -3- (e) Holder's Right to Transfer. If all of the Vested Shares proposed -------------------------- in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Vested Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within one hundred twenty (120) days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Vested Shares in the hands of such Proposed Transferee. If the Vested Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Vested Shares held by the Holder may be sold or otherwise transferred. (f) Exception for Certain Family Transfers. Anything to the contrary -------------------------------------- contained in this Section notwithstanding, the transfer of any or all of the Vested Shares during the Optionee's lifetime or on the Optionee's death by will or intestacy to the Optionee's immediate family or a trust for the benefit of the Optionee's immediate family shall be exempt from the provisions of this Section. "IMMEDIATE FAMILY" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Vested Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Vested Shares except in accordance with the terms of this Section. (g) Termination of Right of First Refusal. The Right of First Refusal ------------------------------------- shall terminate as to any Vested Shares ninety (90) days after the first sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the 1933 Act. 6. Tax Consultation. Optionee understands and acknowledges that Optionee ---------------- may suffer adverse tax consequences as a result of Optionee's purchase or disposition of the Unvested Shares. Optionee represents that Optionee has consulted with any tax consultant(s) Optionee deems advisable in connection with the purchase or disposition of the Unvested Shares and that Optionee is not relying on the Company for any tax advice. 7. Section 83(b) Elections. ----------------------- (a) Election for Unvested Shares Purchased Pursuant to Nonqualified --------------------------------------------------------------- Stock Options. Optionee hereby acknowledges that he or she has been informed - ------------- that, with respect to the exercise of a nonqualified stock option for Unvested Shares, that unless an election is filed by the Optionee with the Internal Revenue Service and, if necessary, the proper state taxing authorities, within ------ thirty (30) days of the purchase of the Unvested Shares, electing pursuant to - ---------------- Section 83(b) of the Code (and similar state tax provisions if applicable) to be taxed currently on any difference between the purchase price of the Unvested Shares and their Fair Market Value on the date of purchase, there will be a recognition of taxable income to the Optionee, measured by the excess, if -4- any, of the fair market value of the shares, at the time the Company's Repurchase Option lapses over the purchase price for the Unvested Shares. Optionee represents that Optionee has consulted any tax consultant(s) Optionee deems advisable in connection with the purchase of the Unvested Shares or the filing of the Election under Section 83(b) and similar tax provisions. (b) Election for Unvested Shares Purchased Pursuant to Incentive ------------------------------------------------------------ Stock Options. Optionee hereby acknowledges that he or she has been informed - ------------- that, with respect to the exercise of an incentive stock option for Unvested Shares. that unless an election is filed by the Optionee with the Internal Revenue Service and, if necessary, the proper state taxing authorities, within ------ thirty (30) days of the purchase of the Unvested Shares, electing pursuant to - ----------- ---- Section 83(b) of the Code (and similar state tax provisions if applicable) to be taxed currently, on any difference between the purchase price of the Unvested Shares and their Fair Market Value on the date of purchase, there will be a recognition of income to the Optionee, for alternative minimum tax purposes, measured by the excess, if any, of the fair market value of the Unvested Shares, at the time the Company's Repurchase Option lapses over the purchase price for the Unvested Shares. Optionee represents that Optionee has consulted any tax consultant(s) Optionee deems advisable in connection with the purchase of the Unvested Shares or the filing of the Election under Section 83(b) and similar tax provisions. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(B). 8. Restrictive Legends and Stop-Transfer Orders. -------------------------------------------- (a) Legends. Optionee understands and agrees that the Company shall ------- cause the legends set forth below or legends substantially equivalent thereto. to be placed upon any certificate(s) evidencing ownership of the Unvested Shares to ether with any other legends that may be required by state or federal securities laws: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES. SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND RIGHT OF REPURCHASE AND RIGHT OF FIRST REFUSAL OPTIONS HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE -5- NOTICE AND RESTRICTED STOCK AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES. A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS. RIGHT OF REPURCHASE AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES. Optionee understands that transfer of the Shares may be restricted by Section 260.141.11 of the Rules of the California Corporations Commissioner, a copy of which is attached to EXHIBIT B, THE INVESTMENT REPRESENTATION STATEMENT. --------- (b) Stop-Transfer Notices. Optionee agrees that, in order to ensure --------------------- compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. (c) Refusal to Transfer. The Company shall not be required (i) to ------------------- transfer on its books any Vested Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Vested Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Vested Shares shall have been so transferred. 9. Successors and Assigns. The Company may assign any of its rights ---------------------- under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth. this Agreement shall be binding upon Optionee and his or her heirs, executors, administrators, successors and assigns. 10. Interpretation. Any dispute regarding the interpretation of this -------------- Agreement shall be submitted by Optionee or by the Company forthwith to the Company's Board of Directors (the "BOARD") or the committee thereof (the "COMMITTEE") that administers the Plan, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Board or Committee shall be final and binding on the Company and on Optionee. 11. Governing Law; Severability. This Agreement shall be governed by and --------------------------- construed in accordance with the laws of the State of California, excluding that body of law pertaining to conflicts of law. Should any provision of this Agreement be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable. 12. Notices. Any notice required or permitted hereunder shall be given in ------- writing and shall be deemed effectively given upon personal deliver, or upon deposit in the United States mail by certified mail, with postage and fees prepaid, addressed to the Company, attention: the Corporate -6- Secretary; and to the Optionee at the respective address as shown below beneath its signature, or to such other address as such party may designate in writing from time to time to the other party. 13. Further Instruments. The parties agree to execute such further ------------------- instruments and to take such further action as may be reasonably necessary to carry out the purposes and intent of this Agreement. 14. Delivery of Payments. Optionee herewith delivers to the Company the -------------------- full Exercise Price for the Unvested Shares. 15. Entire Agreement. The Plan and Notice of Grant/Option Agreement are ---------------- incorporated herein by reference. This Agreement, the Plan, the Option Agreements and the Investment Representation Statement constitute the entire Agreement of the parties and supersede in their entirety all prior understandings and agreements of the Company and Optionee with respect to the subject matter hereof, and is governed by California law except for that body of law pertaining to conflict of laws. SUBMITTED BY: ACCEPTED BY: - ------------- ------------ OPTIONEE: QUICKLOGIC CORPORATION ____________________________ By:____________________________ Name:_______________________ Title:_________________________ Social Security #:__________ ADDRESS ADDRESS - ------- ------- ____________________________ 1277 Orleans Drive Sunnyvale, CA 94089 ____________________________ ____________________________ -7- EXHIBIT B INVESTMENT REPRESENTATION STATEMENT ----------------------------------- OPTIONEE : ______________________ COMPANY : QUICKLOGIC CORPORATION SECURITY : __________________ SHARES OF COMMON STOCK AMOUNT : $_________________ DATE : __________________, 19__ In connection with the purchase of the above-listed Securities, the undersigned Optionee represents to the Company the following: (a) Optionee is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the securities. Optionee is acquiring these securities for investment for Optionee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). (b) Optionee acknowledges and understands that the securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Optionee's investment intent as expressed herein. In this connection, Optionee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Optionee's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one (1) year or any other fixed period in the future. Optionee further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Optionee further acknowledges and understands that the Company is under no obligation to register the securities. Optionee understands that the certificate evidencing the securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company, a legend prohibiting their transfer without the, consent of the Commissioner of Corporations of the State of California and any other legend required under applicable state securities laws. (c) Optionee is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a nonpublic offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Option to the Optionee, the exercise will be exempt from registration under the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off Agreement may require) the securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable. In the event that the Company does not qualify under Rule 701 at the time of grant of the Option, then the securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than two years after the party has purchased, and made full payment for, within the meaning of Rule 144, the securities to be sold; and, in the case of an affiliate, or of a non-affiliate who has held the securities less than three years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above. (d) Optionee hereby agrees that if so requested by the Company or any representative of the underwriters in connection with any registration of the offering of any securities of the Company under the 1933 Act, Optionee shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period following the effective date of a registration statement of the Company filed under the 1933 Act; provided, however, that such restriction shall only apply to the first registration statement of the Company to become effective under the 1933 Act which include securities to be sold on behalf of the Company to the public in an underwritten public offering under the 1933 Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such 180-day period. (e) Optionee further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Optionee understands that no assurances can be given that any such other registration exemption will be available in such event. -2- (f) Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities without the consent of the Commissioner of Corporations of California. Optionee has read the applicable Commissioner's Rules with respect to such restriction, a copy of which is attached. SIGNATURE OF OPTIONEE: _________________________ Signature _________________________ Please Print Name _________________________ Social Security Number _________________________ Address -3- EXHIBIT C NOTICE OF EXERCISE OF STOCK OPTION ---------------------------------- QuickLogic Corporation 1277 Orleans Drive Sunnyvale, CA 94089 Attention: Corporate Secretary Ladies and Gentlemen: The undersigned hereby elects to exercise the Option indicated below with respect to the number of Shares of Common Stock of QuickLogic Corporation (the "Company") set forth: Option Grant Date: _________________________ Type of Option: [_] Incentive Stock Option [_] Nonstatutory Option Number of Shares Being Exercised: __________ Exercise Price Per Shares: $_________ Total Exercise Price: $_________ Method of Payment: [_] Cash [_] Check Enclosed herewith is payment in full of the total exercise price. My exact name, address and social security number for purposes of the stock certificates to be issued and the shareholder list of the Company are: Name: ______________________________ Address: ______________________________ ______________________________ Social Security Number: _______________ Sincerely, ________________________ Dated:______________ Optionee's Signature ATTACHMENT 1 STOCK POWER AND ASSIGNMENT -------------------------- SEPARATCE FROM CERTIFICATE ------------------------- FOR VALUE RECEIVED and pursuant to that certain Exercise Notice and Restricted Stock Agreement dated as of __________, 19__, the undersigned hereby sells, assigns and transfers unto ________________________________________________________________________________ shares of the Common Stock of QUICKLOGIC CORPORATION, a California corporation, standing in the undersigned's name on the books of said corporation represented by Certificate No. __________ delivered herewith and does hereby irrevocably constitute ____________________________________________________________________ _____________ as attorney-in-fact, with full power of substitution, to transfer said stock on the books of said corporation. Dated: __________, 19__ OPTIONEE: ____________________________________ Signature ____________________________________ Please Print Name ____________________________________ Spouse's Signature (if applicable) ____________________________________ Please Print Spouse's Name ATTACHMENT 2 ESCROW AGREEMENT ---------------- This Escrow Agreement is entered into as of __________, 19__ by and between QUICKLOGIC CORPORATION, a California corporation (the "Company"),______________ an individual purchasing shares of Common Stock from the Company ("Purchaser") and the Corporate Secretary of the Company as Escrow Agent hereunder (the "Escrow Agent"). RECITALS - -------- WHEREAS, the Purchaser has exercised an Option to purchase shares of the Company's Common Stock (the "Shares") pursuant to an Exercise Notice and Restricted Stock Agreement (the "Stock Agreement"); and WHEREAS, pursuant to the Stock Agreement, Purchaser is required to deposit certain shares, together with executed blank Stock Assignments in this Escrow to assure that Unvested Shares will be available for delivery to the Company if and when the Company exercises its Repurchase Option; NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Definitions. Unless otherwise indicated, all defined terms used herein ----------- shall have the meaning set forth in the Stock Agreements. 2. Shares Subject to Escrow. This Escrow Agreement shall apply to the shares ------------------------ ______ of the Company's Common Stock represented by Certificate(s) No._______. In addition: (a) In the event that during the term of the escrow any stock dividend, reclassification or other changes are declared or made in the capital structure of the Company, all new, substituted or additional shares issued in connection with the Shares by reason of any such change shall be delivered to and held by the Escrow Agent under the terms of this Agreement in the same manner as the Shares originally escrowed hereunder. (b) In the event of substitution of such securities, Purchaser, the Company and Escrow Agent shall cooperate and execute such documents as are reasonable so as to provide for the substitution of such Collateral and, upon such substitution, references to "Shares" in this Agreement and the Escrow Agreement shall include the substituted shares of capital stock of Optionee as a result thereof. (c) In the event that, during the term of this escrow, subscription Options or other rights or options shall be issued in connection with the escrowed Shares, such rights, Options and options shall be the property of Optionee and, if exercised by Purchaser, all new stock or other securities so acquired by Optionee as it relates to the escrowed Shares then held by Escrow Agent shall be immediately delivered to Escrow Agent, to be held under the terms of this Agreement in the same manner as the Shares escrowed. 3. Instruction re: Shares. Company and the Purchaser hereby authorize and ---------------------- direct the Escrow Agent to hold the documents delivered herewith in accordance with the following instructions: (a) In the event the Company and/or any assignee of the Company (referred to collectively for convenience herein as the "Company") exercises the Repurchase Option set forth in the Stock Agreement, the Company shall give to Purchaser and Escrow Agent a written notice specifying the number of Shares to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct Escrow Agent to close the transaction contemplated by such notice in accordance with the terms of said notice. At the closing, Escrow Agent is directed (i) to date the stock assignments necessary for the transfer in question, (ii) to fill in the number of shares being transferred, and (iii) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company against the simultaneous delivery to Escrow Agent of the purchase price (by check or by cancellation of any debt owed by Purchaser to the Company) for the number of Shares being purchased pursuant to the exercise of the Repurchase Option. (b) Shares shall be delivered to Purchaser in accordance with the provisions of this Section 3. All shares held by the Escrow Agent hereunder will remain in this Escrow until the date on which the Repurchase Option has lapsed as to such Shares. Notwithstanding the foregoing, upon written request from the Purchaser not more frequently than once in any three-month period, and subject to any applicable contrary rules under Regulation G, the Escrow Agent will deliver to Purchaser so many shares of stock as are no longer subject to the Repurchase Option. Ninety (90) days after cessation of Purchaser's service as an employee, consultant and/or director of the Company, Escrow Agent will deliver to Purchaser a certificate or certificates representing the aggregate number of shares sold and issued pursuant to the Stock Agreement and not purchased by the Company or its assignees pursuant to exercise of the Repurchase Option. (c) If at the time of termination of this Escrow Agreement, Escrow Agent should have in his/her possession any documents, securities, or other property belonging to Purchaser, Escrow Agent shall deliver all of same to Purchaser and shall be discharged of all further obligations hereunder. 4. Power of Attorney. Purchaser irrevocably authorizes the Company to deposit ----------------- with Escrow Agent any certificates evidencing shares of stock to be held by Escrow Agent hereunder and any additions and substitutions to said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint Escrow Agent as his attorney-in-fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with the Department of Corporations of the State of California of an Application for Consent to Transfer Securities Subject to Legend or Escrow Condition Pursuant to Section 25151 -2- of the California Corporate Securities Law of 1968. Subject to the provisions of this paragraph, Purchaser shall exercise all rights and privileges of a stockholder of the Company while the stock is held by Escrow Agent. 5. Amendment. This Escrow Agreement and Escrow Agent's duties hereunder may --------- be altered, amended, modified or revoked only by a writing signed by all of the parties hereto. 6. Escrow Agents Liability Limited. ------------------------------- (a) Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by Escrow Agent to be genuine and to have been signed or presented by the proper party or parties. Escrow Agent shall not be personally liable for any act Escrow Agent may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith and in the exercise of Escrow Agent's own good judgment, and any act done or omitted by Escrow Agent pursuant to the advice of Escrow Agent's own attorneys shall be conclusive evidence of such good faith. (b) Escrow Agent shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder. (c) Escrow Agent shall not be liable for the outlawing of any rights under the Statute of Limitations with respect to this Escrow Agreement or any documents deposited with Escrow Agent. 7. Compliance with Court Orders. Escrow Agent is hereby expressly authorized ---------------------------- to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law, and is hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case Escrow Agent shall obey or comply with any such order, judgment or decree, Escrow Agent shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. 8. Reliance on Counsel. Escrow Agent shall be entitled to employ such legal ------------------- counsel and other experts as Escrow Agent may deem necessary properly to advise Escrow Agent in connection with Escrow Agent's obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. 9. Termination of Escrow Agents Status. Escrow Agent's responsibilities as ----------------------------------- Escrow Agent hereunder shall terminate if Escrow Agent shall cease to be Secretary of the Company or if Escrow Agent shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent. -3- 10. Further Instruments. If Escrow Agent reasonably requires other or further ------------------- instruments in connection with this Escrow Agreement or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. 11. Retention of Securities. It is understood and agreed that should any ----------------------- dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by Escrow Agent hereunder, Escrow Agent is authorized and directed to retain in Escrow Agent's possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written Agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but Escrow Agent shall be under no duty whatsoever to institute or defend any such proceedings. 12. Notices. Any notice required or permitted hereunder shall be given in ------- writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the following addresses, or at such other addresses as a party may designate by ten (10) days' advance notice to each of the other parties hereto. COMPANY: QUICKLOGIC CORPORATION 1277 Orleans Drive Sunnyvale, CA 94089 PURCHASER: ____________________________ ____________________________ ____________________________ ESCROW AGENT: The Corporate Secretary QuickLogic Corporation 1277 Orleans Drive Sunnyvale, CA 94089 13. Escrow Agent Status. By signing this Escrow Agreement, Escrow Agent ------------------- becomes a party hereto only for the purpose of this Escrow Agreement; Escrow Agent does not become a party to the Stock Agreement. -4- 14. Successors and Assigns. This instrument shall be binding upon and inure to ---------------------- the benefit of the parties hereto, and their respective successors and permitted assigns. QUICKLOGIC CORPORATION A California Corporation By:________________________________________ Title:_____________________________________ PURCHASER: ___________________________________________ ___________________________________________ (Please Print Name) ESCROW AGENT: ___________________________________________ Corporate Secretary, QUICKLOGIC CORPORATION Name:______________________________________ -5- EX-10.3 6 1991 SALES REPRESENTATIVE STOCK PURCHASE PLAN EXHIBIT 10.3 QUICKLOGIC CORPORATION 1991 SALES REPRESENTATIVE STOCK PURCHASE PLAN 1. Purpose of the Plan. The purpose of the Plan is to provide the Board ------------------- of Directors of QuickLogic Corporation (the "Company") with the authority and flexibility to authorize the sale of Common Stock to Consultants and Sales Representatives on favorable terms in order to attract and retain the best available key personnel for positions as consultants and sales representatives and to promote the sale of the Company's products and success of the Company's business. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Board" shall mean the Committee (as defined below) or the ----- Board of Directors of the Company if no Committee is then designated. (b) "Committee" shall have the meaning as specified in Section 4(a) --------- of the Plan. (c) "Common Stock" shall mean the common stock of the Company. ------------ (d) "Company" shall mean QuickLogic Corporation, a California ------- corporation. (e) "Consultant" shall mean any person who is engaged by the Company ---------- or any Subsidiary to render consulting services. (f) "Plan" shall mean this 1991 Stock Purchase Plan. ---- (g) "Restricted Stock Purchase Agreement" shall mean an agreement ----------------------------------- providing for Stock Purchase Rights between the Company and the Consultant or Sales Representative which may, in the discretion of the Board of Directors, provide to the Company a right of repurchase and/or a right of first refusal with respect to the Shares. (h) "Sales Representative" shall mean any firm designated by the -------------------- Company, in its sole discretion, as an authorized manufacturer's representative or distributor or any employee of such firm engaged in services which relate to the sale of the Company's products. (i) "Share" shall mean a share of Common Stock. ----- (j) "Stock Bonus Agreement" shall mean an agreement between the --------------------- Company and the Consultant or Sales Representative which grants a Stock Bonus in consideration for services rendered by the Consultant or Sales Representative. (k) "Subsidiary" shall mean a corporation of which not less than ---------- 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. 3. Stock Subject to the Plan. Subject to the provisions of Section 8 of ------------------------- the Plan, the maximum aggregate number of Shares which may be sold under the Plan is 100,000 shares of Common Stock which may be authorized, but unissued, or reacquired Common Stock. If Shares are repurchased by the Company pursuant to a Restricted Stock Purchase Agreement, such Shares, unless the Plan shall have been terminated, shall become available for reissuance under the Plan. 4. Administration of the Plan. -------------------------- (a) Procedure. The Plan shall be administered by the Board of --------- Directors of the Company. The Board of Directors may appoint a Committee consisting of not less than two members of the Board of Directors to administer the Plan on behalf of the Board of Directors, subject to such terms and conditions as the Board of Directors may prescribe. Once appointed, the Committee shall continue to serve until otherwise directed by the Board of Directors. From time to time the Board of Directors may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the Committee and thereafter directly administer the Plan. Members of the Board who are either eligible to receive a Stock Bonus or purchase Shares pursuant to a Restricted Stock Purchase Agreement under the Plan or who have received a Stock Bonus or purchased Shares pursuant to a Restricted Stock Purchase Agreement under the Plan may vote on any matters affecting the administration of the Plan, except that no such member shall act upon the authorization of the sale or bonus of Shares under the Plan to himself, but any such member may be counted in determining the existence of a quorum at any meeting of the Board during which action is taken with respect to the authorization of the sale or bonus of Shares under the Plan to such member. (b) Powers of the Board. Subject to the provisions of the Plan, ------------------- the Board shall have the authority, in its discretion: (i) to determine the Consultants or Sales Representatives to whom, and the time or times at which, Shares shall be sold or bonused; (ii) to interpret the Plan; (iii) to prescribe, amend and rescind rules and regulations relating to the Plan; (iv) to determine the terms and provisions of rights to acquire Shares under the Plan and of each Restricted Stock Purchase Agreement (which need not be identical); (v) with the consent of the holder thereof, to modify or amend each Restricted Stock Purchase Agreement; (vi) to authorize any person to execute on behalf of the Company any instrument required to effectuate the Plan; and (vii) to make all other determinations deemed necessary or advisable for the administration of the Plan. -2- (c) Effect of Board's Decision. All decisions, deter minations and -------------------------- interpretations of the Board shall be final and binding on Consultants and Sales Representatives who have acquired Shares under the Plan, or as to whom sales or bonuses of Shares under the Plan have been authorized. 5. Eligibility. Shares may be issued only to Consultants or Sales ----------- Representatives. Neither the Plan, any Restricted Stock Purchase Agreement or any Stock Bonus Agreement shall confer any rights with respect to continuation of any particular consulting or product marketing arrangement. 6. Term of Plan. The Plan shall become effective upon adoption by the ------------ Board. The Plan shall continue in effect for a term of ten (10) years from such date of Board adoption unless sooner terminated under Section 10 of the Plan. 7. Consideration and Terms of Payment for Restricted Stock Purchase ---------------------------------------------------------------- Agreements. - ---------- (a) The price of Shares to be purchased, the terms of payment and the consideration to be paid for the Shares shall be determined by the Board in accordance with the California Corporations Code, provided that such price in the case of a Consultant or Sales Representative owning less than 10% of the voting power of all classes of stock of the Company or any Parent or Subsidiary shall not be less than the fair market value of such Shares at such time, and in the case of a Consultant or Sales Representative owning 10% or more of the voting power of all classes of stock of the Company or any Parent or Subsidiary shall not be less than 110% of the fair market value of such Shares at such time. (b) Payment for the Shares shall be made in cash or other legal consideration as may be determined by the Board. 8. Consideration for Stock Bonus Agreements. A Stock Bonus may be ---------------------------------------- granted by the Board in consideration for services rendered to the Company. In the case of a Sales Representative or Consultant owning less than 10% of the voting power of all classes of stock of the Company or Parent or Subsidiary, such consideration shall have a value of not less than 100% of the fair market value of such shares at the time of the grant of the Stock Bonus, and in the case of a Consultant or Sales Representative owning 10% or more of the voting power of all classes of stock of the Company or Parent or Subsidiary, such consideration shall have a value of not less than 110% of the fair market value of such shares at the time of the grant of the Stock Bonus. The value of such consideration shall be determined in good faith by the Board of Directors. 9. Adjustments upon Changes in Capitalization. Subject to any required ------------------------------------------ action by shareholders of the Company, the number of shares of Common Stock in the Plan shall be proportionately adjusted if any recapitalization, reclassification, stock dividend, stock split or combination of shares of Common Stock is effected. 10. Amendment and Termination of the Plan. ------------------------------------- -3- (a) Amendment and Termination. The Board may amend, suspend or ------------------------- terminate the Plan from time to time in such respects as the Board may deem advisable. (b) Effect of Amendment or Termination. Any such amendment or ---------------------------------- termination of the Plan shall not affect Shares already issued. 11. Compliance with Laws and Regulations. Shares shall not be issued ------------------------------------ under this Plan unless the issuance and delivery of such Shares shall comply with all relevant provisions of law, including without limitation, the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, state securities laws and the requirements of any stock exchange upon which Shares may then be listed. 12. Reservation of Shares. The Company, during the term of the Plan, will --------------------- at all times reserve and keep available, such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 13. Governing Law. The Plan shall be governed by the laws of the State of ------------- California. 14. Shareholder Approval. Continuance of the Plan shall be subject to -------------------- approval by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted. If such shareholder approval is obtained at a duly held share-holders' meeting, it must be obtained by the affirmative vote of the holders of a majority of the outstanding shares of the Company present or represented and entitled to vote thereon. If and in the event that the Company has registered any class of any equity security pursuant to Section 12 of the Exchange Act, the approval of such shareholders of the Company must be: (a) (1) solicited substantially in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder, or (2) solicited after the Company has furnished in writing to the holders entitled to vote substantially the same information concerning the Plan as that which would be required by the rules and regulations in effect under Section 14(a) of the Exchange Act at the time such information is furnished; and (b) obtained at or prior to the first annual meeting of shareholders held subsequent to the first registration of any class of equity securities of the Company under Section 12 of the Exchange Act. If such shareholder approval is obtained by written consent, it must be obtained by the unanimous written consent of all shareholders of the Company. 15. Information to Purchasers. The Company shall provide to each ------------------------- individual who purchases stock pursuant to this plan a balance sheet and an income statement at least annually. -4- EX-10.4 7 1997 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.4 QUICKLOGIC CORPORATION 1997 STOCK PLAN 1. Purposes of the Plan. The purposes of this Stock Plan are: -------------------- . to attract and retain the best available personnel for positions of substantial responsibility, . to provide additional incentive to Employees, Directors and Consultants, and . to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan. 2. Definitions. As used herein, the following definitions shall ----------- apply: (a) "Administrator" means the Board or any of its ------------- Committees as shall be administering the Plan, in accordance with Section 4 of the Plan. (b) "Applicable Laws" means the requirements relating to --------------- the administration of stock option plans under U. S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options or Stock Purchase Rights are, or will be, granted under the Plan. (c) "Board" means the Board of Directors of the Company. ----- (d) "Code" means the Internal Revenue Code of 1986, as ---- amended. (e) "Committee" means a committee of Directors appointed by --------- the Board in accordance with Section 4 of the Plan. (f) "Common Stock" means the common stock of the Company. ------------ (g) "Company" means Quicklogic Corporation, a California ------- corporation. (h) "Consultant" means any person, including an advisor, ---------- engaged by the Company or a Parent or Subsidiary to render services to such entity. (i) "Director" means a member of the Board. -------- (j) "Disability" means total and permanent disability as ---------- defined in Section 22(e)(3) of the Code. (k) "Employee" means any person, including Officers and -------- Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "Exchange Act" means the Securities Exchange Act of ------------ 1934, as amended. (m) "Fair Market Value" means, as of any date, the value of ----------------- Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator. (n) "Incentive Stock Option" means an Option intended to ---------------------- qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (o) "Nonstatutory Stock Option" means an Option not ------------------------- intended to qualify as an Incentive Stock Option. -2- (p) "Notice of Grant" means a written or electronic notice --------------- evidencing certain terms and conditions of an individual Option or Stock Purchase Right grant. The Notice of Grant is part of the Option Agreement. (q) "Officer" means a person who is an officer of the ------- Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (r) "Option" means a stock option granted pursuant to the ------ Plan. (s) "Option Agreement" means an agreement between the ---------------- Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (t) "Option Exchange Program" means a program whereby ----------------------- outstanding Options are surrendered in exchange for Options with a lower exercise price. (u) "Optioned Stock" means the Common Stock subject to an -------------- Option or Stock Purchase Right. (v) "Optionee" means the holder of an outstanding Option or -------- Stock Purchase Right granted under the Plan. (w) "Parent" means a "parent corporation," whether now or ------ hereafter existing, as defined in Section 424(e) of the Code. (x) "Plan" means this 1997 Stock Plan. ---- (y) "Restricted Stock" means shares of Common Stock acquired ---------------- pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan. (z) "Restricted Stock Purchase Agreement" means a written ----------------------------------- agreement between the Company and the Optionee evidencing the terms and restrictions applying to stock purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the Notice of Grant. (aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any ---------- successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. (bb) "Section 16(b)" means Section 16(b) of the Exchange Act. ------------- (cc) "Service Provider" means an Employee, Director or ---------------- Consultant. -3- (dd) "Share" means a share of the Common Stock, as adjusted in ----- accordance with Section 13 of the Plan. (ee) "Stock Purchase Right" means the right to purchase Common -------------------- Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant. (ff) "Subsidiary" means a "subsidiary corporation", whether ---------- now or hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section ------------------------- 13 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is (i) 1,000,000 shares, including the Shares which have been reserved but unissued under the Company's 1989 Stock Option Plan (as amended) (the "1989 Plan") as of the date of shareholder approval of this Plan and (ii) any Shares returned to the 1989 Plan as a result of termination of options under the 1989 Plan, plus an annual increase to be added on each anniversary date of the adoption of the Plan equal to the lesser of (i) 800,000 Shares, (ii) five percent (5%) of the outstanding Shares on such date or (iii) a lesser amount determined by the Board. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued -------- under the Plan, whether upon exercise of an Option or Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. Administration of the Plan. -------------------------- (a) Procedure. --------- (i) Multiple Administrative Bodies. The Plan may be ------------------------------ administered by different Committees with respect to different groups of Service Providers. (ii) Section 162(m). To the extent that the -------------- Administrator determines it to be desirable to qualify Options granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more "outside directors" within the meaning of Section 162(m) of the Code. (iii) Rule 16b-3. To the extent desirable to qualify ---------- transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3. -4- (iv) Other Administration. Other than as provided -------------------- above, the Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws. (b) Powers of the Administrator. Subject to the provisions --------------------------- of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value; (ii) to select the Service Providers to whom Options and Stock Purchase Rights may be granted hereunder; (iii) to determine the number of shares of Common Stock to be covered by each Option and Stock Purchase Right granted hereunder; (iv) to approve forms of agreement for use under the Plan; (v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right of the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vi) to reduce the exercise price of any Option or Stock Purchase Right to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option or Stock Purchase Right shall have declined since the date the Option or Stock Purchase Right was granted; (vii) to institute an Option Exchange Program; (viii) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (x) to modify or amend each Option or Stock Purchase Right (subject to Section 15(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan; -5- (xi) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; (xii) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option or Stock Purchase Right previously granted by the Administrator; (xiii) to make all other determinations deemed necessary or advisable for administering the Plan. (c) Effect of Administrator's Decision. The ---------------------------------- Administrator's decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options or Stock Purchase Rights. 5. Eligibility. Nonstatutory Stock Options and Stock Purchase ----------- Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. 6. Limitations. ----------- (a) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (b) Neither the Plan nor any Option or Stock Purchase Right shall confer upon an Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such relationship at any time, with or without cause. (c) The following limitations shall apply to grants of Options: (i) No Service Provider shall be granted, in any fiscal year of the Company, Options to purchase more than [ ] Shares. -6- (ii) In connection with his or her initial service, a Service Provider may be granted Options to purchase up to an additional [ ] Shares which shall not count against the limit set forth in subsection (i) above. (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 13. (iv) If an Option is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 13), the cancelled Option will be counted against the limits set forth in subsections (i) and (ii) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. 7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall ------------ become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 15 of the Plan. 8. Term of Option. The term of each Option shall be stated in the -------------- Option Agreement. In the case of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or such shorter term as may be provided in the Option Agreement. Moreover, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement. 9. Option Exercise Price and Consideration. --------------------------------------- (a) Exercise Price. The per share exercise price for the -------------- Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator, subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. -7- (ii) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be determined by the Administrator. In the case of a Nonstatutory Stock Option intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a merger or other corporate transaction. (b) Waiting Period and Exercise Dates. At the time an Option is --------------------------------- granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions which must be satisfied before the Option may be exercised. (c) Form of Consideration. The Administrator shall determine the --------------------- acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (i) cash; (ii) check; (iii) promissory note; (iv) other Shares which (A) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; (v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; (vi) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee's participation in any Company-sponsored deferred compensation program or arrangement; (vii) any combination of the foregoing methods of payment; or (viii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws. -8- 10. Exercise of Option. ------------------ (a) Procedure for Exercise; Rights as a Shareholder. Any Option ----------------------------------------------- granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 13 of the Plan. Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Relationship as a Service Provider. If an ------------------------------------------------- Optionee ceases to be a Service Provider, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (c) Disability of Optionee. If an Optionee ceases to be a Service ---------------------- Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for -9- twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. If an Optionee dies while a Service ----------------- Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Optionee's estate or, if none, by the person(s) entitled to exercise the Option under the Optionee's will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) Buyout Provisions. The Administrator may at any time offer to ----------------- buy out for a payment in cash or Shares an Option previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 11. Stock Purchase Rights. --------------------- (a) Rights to Purchase. Stock Purchase Rights may be issued ------------------ either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically, by means of a Notice of Grant, of the terms, conditions and restrictions related to the offer, including the number of Shares that the offeree shall be entitled to purchase, the price to be paid, and the time within which the offeree must accept such offer. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator. (b) Repurchase Option. Unless the Administrator determines ----------------- otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's service with the Company for any reason (including death or Disability). The purchase price for Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at a rate determined by the Administrator. -10- (c) Other Provisions. The Restricted Stock Purchase ---------------- Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. (d) Rights as a Shareholder. Once the Stock Purchase Right is ----------------------- exercised, the purchaser shall have the rights equivalent to those of a shareholder, and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 13 of the Plan. 12. Non-Transferability of Options and Stock Purchase Rights. Unless -------------------------------------------------------- determined otherwise by the Administrator, an Option or Stock Purchase Right may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option or Stock Purchase Right transferable, such Option or Stock Purchase Right shall contain such additional terms and conditions as the Administrator deems appropriate. 13. Adjustments Upon Changes in Capitalization, Dissolution, Merger --------------------------------------------------------------- or Asset Sale. ------------- (a) Changes in Capitalization. Subject to any required action by ------------------------- the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option and Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase -11- option applicable to any Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the Company -------------------- with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 14. Date of Grant. The date of grant of an Option or Stock Purchase ------------- Right shall be, for all purposes, the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant. 15. Amendment and Termination of the Plan. ------------------------------------- (a) Amendment and Termination. The Board may at any time ------------------------- amend, alter, suspend or terminate the Plan. -12- (b) Shareholder Approval. The Company shall obtain -------------------- shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) Effect of Amendment or Termination. No amendment, ---------------------------------- alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination. 16. Conditions Upon Issuance of Shares. ---------------------------------- (a) Legal Compliance. Shares shall not be issued pursuant ---------------- to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) Investment Representations. As a condition to the -------------------------- exercise of an Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 17. Inability to Obtain Authority. The inability of the Company to ----------------------------- obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 18. Reservation of Shares. The Company, during the term of this Plan, --------------------- will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 19. Shareholder Approval. The Plan shall be subject to approval by -------------------- the shareholders of the Company within twelve (12) months after the date the Plan is adopted. Such shareholder approval shall be obtained in the manner and to the degree required under Applicable Laws. -13- QUICKLOGIC CORPORATION 1997 STOCK PLAN STOCK OPTION AGREEMENT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. I. NOTICE OF STOCK OPTION GRANT ---------------------------- [Optionee's Name and Address] You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows: Grant Number _________________________ Date of Grant _________________________ Vesting Commencement Date _________________________ Exercise Price per Share $________________________ Total Number of Shares Granted _________________________ Total Exercise Price $_________________________ Type of Option: ___ Incentive Stock Option ___ Nonstatutory Stock Option Term/Expiration Date: _________________________ Vesting Schedule: ---------------- This Option may be exercised, in whole or in part, in accordance with the following schedule: 25% of the Shares subject to the Option shall vest twelve months after the Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall vest each month thereafter, subject to the Optionee continuing to be a Service Provider on such dates. Termination Period: ------------------ This Option may be exercised for three months after Optionee ceases to be a Service Provider. Upon the death or Disability of the Optionee, this Option may be exercised for one year after Optionee ceases to be a Service Provider. In no event shall this Option be exercised later than the Term/Expiration Date as provided above. II. AGREEMENT --------- 1. Grant of Option. The Plan Administrator of the Company hereby grants --------------- to the Optionee named in the Notice of Grant attached as Part I of this Agreement (the "Optionee") an option (the "Option") to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price"), subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 15(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail. If designated in the Notice of Grant as an Incentive Stock Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code. However, if this Option is intended to be an Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a Nonstatutory Stock Option ("NSO"). 2. Exercise of Option. ------------------ (a) Right to Exercise. This Option is exercisable during its term ----------------- in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement. (b) Method of Exercise. This Option is exercisable by delivery of ------------------ an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the "Exercised Shares"), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be completed by the Optionee and delivered to Vince McCord, the Secretary of the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price. No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares. -2- 3. Method of Payment. Payment of the aggregate Exercise Price ----------------- shall be by any of the following, or a combination thereof, at the election of the Optionee: (a) cash; or (b) check; or (c) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; or (d) surrender of other Shares which (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, AND (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares; or (e) with the Administrator's consent, delivery of Optionee's promissory note (the "Note") in the form attached hereto as Exhibit C, in the amount of the aggregate Exercise Price of the Exercised Shares together with the execution and delivery by the Optionee of the Security Agreement attached hereto as Exhibit B. The Note shall bear interest at the "applicable federal rate" prescribed under the Code and its regulations at time of purchase, and shall be secured by a pledge of the Shares purchased by the Note pursuant to the Security Agreement. 4. Non-Transferability of Option. This Option may not be ----------------------------- transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 5. Term of Option. This Option may be exercised only within the -------------- term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement. 6. Tax Consequences. Some of the federal tax consequences ---------------- relating to this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) Exercising the Option. --------------------- (i) Nonstatutory Stock Option. The Optionee may ------------------------- incur regular federal income tax liability upon exercise of a NSO. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price. If the Optionee is -3- an Employee or a former Employee, the Company will be required to withhold from his or her compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise. (ii) Incentive Stock Option. If this Option ---------------------- qualifies as an ISO, the Optionee will have no regular federal income tax liability upon its exercise, although the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price will be treated as an adjustment to alternative minimum taxable income for federal tax purposes and may subject the Optionee to alternative minimum tax in the year of exercise. In the event that the Optionee ceases to be an Employee but remains a Service Provider, any Incentive Stock Option of the Optionee that remains unexercised shall cease to qualify as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option on the date three (3) months and one (1) day following such change of status. (b) Disposition of Shares. --------------------- (i) NSO. If the Optionee holds NSO Shares for at --- least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. (ii) ISO. If the Optionee holds ISO Shares for at --- least one year after exercise and two years after the grant date, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. If the Optionee disposes of ISO Shares within one year after exercise or two years after the grant date, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the lesser of (A) the difference between the Fair Market Value of the Shares acquired on the date of exercise and the aggregate Exercise Price, or (B) the difference between the sale price of such Shares and the aggregate Exercise Price. Any additional gain will be taxed as capital gain, short-term or long-term depending on the period that the ISO Shares were held. (c) Notice of Disqualifying Disposition of ISO Shares. If the ------------------------------------------------- Optionee sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on or before the later of (i) two years after the grant date, or (ii) one year after the exercise date, the Optionee shall immediately notify the Company in writing of such disposition. The Optionee agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized from such early disposition of ISO Shares by payment in cash or out of the current earnings paid to the Optionee. 7. Entire Agreement; Governing Law. The Plan is incorporated ------------------------------- herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely -4- to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. 8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES --------------------------------- THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. By your signature and the signature of the Company's representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below. OPTIONEE: QUICKLOGIC CORPORATION - ----------------------------------- --------------------------------------- Signature By - ------------------------------------ -------------------------------------- Print Name Title - ------------------------------------ Residence Address - ------------------------------------ -5- CONSENT OF SPOUSE ----------------- The undersigned spouse of Optionee has read and hereby approves the terms and conditions of the Plan and this Option Agreement. In consideration of the Company's granting his or her spouse the right to purchase Shares as set forth in the Plan and this Option Agreement, the undersigned hereby agrees to be irrevocably bound by the terms and conditions of the Plan and this Option Agreement and further agrees that any community property interest shall be similarly bound. The undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the undersigned with respect to any amendment or exercise of rights under the Plan or this Option Agreement. --------------------------------------- Spouse of Optionee -6- EXHIBIT A --------- 1997 STOCK PLAN EXERCISE NOTICE Quicklogic Corporation 1277 Orleans Drive Sunnyvale, CA 94089 Attention: Vince McCord, Secretary 1. Exercise of Option. Effective as of today, ________________, ------------------ 199__, the undersigned ("Purchaser") hereby elects to purchase ______________ shares (the "Shares") of the Common Stock of Quicklogic Corporation (the "Company") under and pursuant to the 1997 Stock Plan (the "Plan") and the Stock Option Agreement dated , 19___ (the "Option Agreement"). The purchase price for the Shares shall be $ , as required by the Option Agreement. 2. Delivery of Payment. Purchaser herewith delivers to the ------------------- Company the full purchase price for the Shares. 3. Representations of Purchaser. Purchaser acknowledges that ---------------------------- Purchaser has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 4. Rights as Shareholder. Until the issuance (as evidenced by the --------------------- appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 13 of the Plan. 5. Tax Consultation. Purchaser understands that Purchaser may suffer ---------------- adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 6. Entire Agreement; Governing Law. The Plan and Option Agreement ------------------------------- are incorporated herein by reference. This Agreement, the Plan and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser's interest except by means of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of California. Submitted by: Accepted by: PURCHASER: QUICKLOGIC CORPORATION - ---------------------------------- ------------------------------------- Signature By - ---------------------------------- ------------------------------------- Print Name Its Address: Address: - ------- ------- - --------------------------------- Quicklogic Corporation 1277 Orleans Drive - --------------------------------- Sunnyvale, CA 94089 ------------------------------------- Date Received -2- EXHIBIT B --------- SECURITY AGREEMENT This Security Agreement is made as of __________, 19___ between Quicklogic Corporation, a California corporation ("Pledgee"), and _________________________ ("Pledgor"). Recitals -------- Pursuant to Pledgor's election to purchase Shares under the Option Agreement dated ________ (the "Option"), between Pledgor and Pledgee under Pledgee's 1997 Stock Plan, and Pledgor's election under the terms of the Option to pay for such shares with his promissory note (the "Note"), Pledgor has purchased _________ shares of Pledgee's Common Stock (the "Shares") at a price of $________ per share, for a total purchase price of $__________. The Note and the obligations thereunder are as set forth in Exhibit C to the Option. NOW, THEREFORE, it is agreed as follows: 1. Creation and Description of Security Interest. In consideration --------------------------------------------- of the transfer of the Shares to Pledgor under the Option Agreement, Pledgor, pursuant to the California Commercial Code, hereby pledges all of such Shares (herein sometimes referred to as the "Collateral") represented by certificate number ______, duly endorsed in blank or with executed stock powers, and herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"), who shall hold said certificate subject to the terms and conditions of this Security Agreement. The pledged stock (together with an executed blank stock assignment for use in transferring all or a portion of the Shares to Pledgee if, as and when required pursuant to this Security Agreement) shall be held by the Pledgeholder as security for the repayment of the Note, and any extensions or renewals thereof, to be executed by Pledgor pursuant to the terms of the Option, and the Pledge holder shall not encumber or dispose of such Shares except in accordance with the provisions of this Security Agreement. 2. Pledgor's Representations and Covenants. To induce Pledgee to --------------------------------------- enter into this Security Agreement, Pledgor represents and covenants to Pledgee, its successors and assigns, as follows: a. Payment of Indebtedness. Pledgor will pay the ----------------------- principal sum of the Note secured hereby, together with interest thereon, at the time and in the manner provided in the Note. b. Encumbrances. The Shares are free of all other ------------ encumbrances, defenses and liens, and Pledgor will not further encumber the Shares without the prior written consent of Pledgee. c. Margin Regulations. In the event that Pledgee's Common ------------------ Stock is now or later becomes margin-listed by the Federal Reserve Board and Pledgee is classified as a "lender" within the -1- meaning of the regulations under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any amendments to the Note or providing any additional collateral as may be necessary to comply with such regulations. 3. Voting Rights. During the term of this pledge and so long as ------------- all payments of principal and interest are made as they become due under the terms of the Note, Pledgor shall have the right to vote all of the Shares pledged hereunder. 4. Stock Adjustments. In the event that during the term of the ----------------- pledge any stock dividend, reclassification, readjustment or other changes are declared or made in the capital structure of Pledgee, all new, substituted and additional shares or other securities issued by reason of any such change shall be delivered to and held by the Pledgee under the terms of this Security Agreement in the same manner as the Shares originally pledged hereunder. In the event of substitution of such securities, Pledgor, Pledgee and Pledgeholder shall cooperate and execute such documents as are reasonable so as to provide for the substitution of such Collateral and, upon such substitution, references to "Shares" in this Security Agreement shall include the substituted shares of capital stock of Pledgor as a result thereof. 5. Options and Rights. In the event that, during the term of this ------------------ pledge, subscription Options or other rights or options shall be issued in connection with the pledged Shares, such rights, Options and options shall be the property of Pledgor and, if exercised by Pledgor, all new stock or other securities so acquired by Pledgor as it relates to the pledged Shares then held by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under the terms of this Security Agreement in the same manner as the Shares pledged. 6. Default. Pledgor shall be deemed to be in default of the Note ------- and of this Security Agreement in the event: a. Payment of principal or interest on the Note shall be delinquent for a period of 10 days or more; or b. Pledgor fails to perform any of the covenants set forth in the Option or contained in this Security Agreement for a period of 10 days after written notice thereof from Pledgee. In the case of an event of Default, as set forth above, Pledgee shall have the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee shall thereafter be entitled to pursue its remedies under the California Commercial Code. 7. Release of Collateral. Subject to any applicable contrary rules --------------------- under Regulation G, there shall be released from this pledge a portion of the pledged Shares held by Pledgeholder hereunder upon payments of the principal of the Note. The number of the pledged Shares which shall be released shall be that number of full Shares which bears the same proportion to the initial number of -2- Shares pledged hereunder as the payment of principal bears to the initial full principal amount of the Note. 8. Withdrawal or Substitution of Collateral. Pledgor shall not ---------------------------------------- sell, withdraw, pledge, substitute or otherwise dispose of all or any part of the Collateral without the prior written consent of Pledgee. 9. Term. The within pledge of Shares shall continue until the ---- payment of all indebtedness secured hereby, at which time the remaining pledged stock shall be promptly delivered to Pledgor, subject to the provisions for prior release of a portion of the Collateral as provided in paragraph 7 above. 10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency ---------- proceeding is instituted by or against it, or if a receiver is appointed for the property of Pledgor, or if Pledgor makes an assignment for the benefit of creditors, the entire amount unpaid on the Note shall become immediately due and payable, and Pledgee may proceed as provided in the case of default. 11. Pledgeholder Liability. In the absence of willful or gross ---------------------- negligence, Pledgeholder shall not be liable to any party for any of his acts, or omissions to act, as Pledgeholder. 12. Invalidity of Particular Provisions. Pledgor and Pledgee agree ----------------------------------- that the enforceability or invalidity of any provision or provisions of this Security Agreement shall not render any other provision or provisions herein contained unenforceable or invalid. 13. Successors or Assigns. Pledgor and Pledgee agree that all of the --------------------- terms of this Security Agreement shall be binding on their respective successors and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall be deemed to include, for all purposes, the respective designees, successors, assigns, heirs, executors and administrators. 14. Governing Law. This Security Agreement shall be interpreted ------------- and governed under the internal substantive laws, but not the choice of law rules, of California. -3- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. "PLEDGOR" _________________________________ Signature _________________________________ Print Name Address: _________________________________ _________________________________ "PLEDGEE" Quicklogic Corporation, a California corporation ________________________________ Signature ________________________________ Print Name ________________________________ Title "PLEDGEHOLDER" ________________________________ Secretary of Quicklogic Corporation -4- EXHIBIT C --------- NOTE $_______________ [City, State] ______________, 19___ FOR VALUE RECEIVED, _______________ promises to pay to Quicklogic Corporation, a California corporation (the "Company"), or order, the principal sum of _______________________ ($_____________), together with interest on the unpaid principal hereof from the date hereof at the rate of _______________ percent (____%) per annum, compounded semiannually. Principal and interest shall be due and payable on __________, 19___. Payment of principal and interest shall be made in lawful money of the United States of America. The undersigned may at any time prepay all or any portion of the principal or interest owing hereunder. This Note is subject to the terms of the Option, dated as of ________________. This Note is secured in part by a pledge of the Company's Common Stock under the terms of a Security Agreement of even date herewith and is subject to all the provisions thereof. The holder of this Note shall have full recourse against the undersigned, and shall not be required to proceed against the collateral securing this Note in the event of default. In the event the undersigned shall cease to be an employee, director or consultant of the Company for any reason, this Note shall, at the option of the Company, be accelerated, and the whole unpaid balance on this Note of principal and accrued interest shall be immediately due and payable. Should any action be instituted for the collection of this Note, the reasonable costs and attorneys' fees therein of the holder shall be paid by the undersigned. ____________________________________ ____________________________________ 1997 STOCK PLAN NOTICE OF GRANT OF STOCK PURCHASE RIGHT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Notice of Grant. [Grantee's Name and Address] You have been granted the right to purchase Common Stock of the Company, subject to the Company's Repurchase Option and your ongoing status as a Service Provider (as described in the Plan and the attached Restricted Stock Purchase Agreement), as follows: Grant Number _________________________ Date of Grant _________________________ Price Per Share $________________________ Total Number of Shares Subject _________________________ to This Stock Purchase Right Expiration Date: _________________________ YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES. By your signature and the signature of the Company's representative below, you and the Company agree that this Stock Purchase Right is granted under and governed by the terms and conditions of the 1997 Stock Plan and the Restricted Stock Purchase Agreement, attached hereto as Exhibit A-1, both of which are made a part of this document. You further agree to execute the attached Restricted Stock Purchase Agreement as a condition to purchasing any shares under this Stock Purchase Right. GRANTEE: QUICKLOGIC CORPORATION - --------------------------- -------------------------------- Signature By - --------------------------- -------------------------------- Print Name Title EXHIBIT A-1 ----------- 1997 STOCK PLAN RESTRICTED STOCK PURCHASE AGREEMENT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Restricted Stock Purchase Agreement. WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is an Service Provider, and the Purchaser's continued participation is considered by the Company to be important for the Company's continued growth; and WHEREAS in order to give the Purchaser an opportunity to acquire an equity interest in the Company as an incentive for the Purchaser to participate in the affairs of the Company, the Admin istrator has granted to the Purchaser a Stock Purchase Right subject to the terms and conditions of the Plan and the Notice of Grant, which are incorporated herein by reference, and pursuant to this Restricted Stock Purchase Agreement (the "Agreement"). NOW THEREFORE, the parties agree as follows: 1. Sale of Stock. The Company hereby agrees to sell to the ------------- Purchaser and the Purchaser hereby agrees to purchase shares of the Company's Common Stock (the "Shares"), at the per Share purchase price and as otherwise described in the Notice of Grant. 2. Payment of Purchase Price. The purchase price for the Shares may ------------------------- be paid by delivery to the Company at the time of execution of this Agreement of cash, a check, or some combination thereof. 3. Repurchase Option. ----------------- (a) In the event the Purchaser ceases to be a Service Provider for any or no reason (including death or disability) before all of the Shares are released from the Company's Repurchase Option (see Section 4), the Company shall, upon the date of such termination (as reasonably fixed and determined by the Company) have an irrevocable, exclusive option (the "Repurchase Option") for a period of sixty (60) days from such date to repurchase up to that number of shares which constitute the Unreleased Shares (as defined in Section 4) at the original purchase price per share (the "Repurchase Price"). The Repurchase Option shall be exercised by the Company by delivering written notice to the Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND, at the Company's option, (i) by delivering to the Purchaser or the Purchaser's executor a check in the amount of the aggregate Repurchase Price, or (ii) by cancelling an amount of the Purchaser's indebtedness to the Company equal to the aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that the combined payment and cancellation of indebtedness equals the aggregate Repurchase Price. Upon delivery of such notice and the payment of the aggregate Repurchase Price, the Company shall become the legal and beneficial owner of the Shares being repurchased and all rights and interests therein or relating thereto, and the Company shall have the right to retain and transfer to its own name the number of Shares being repurchased by the Company. (b) Whenever the Company shall have the right to repurchase Shares hereunder, the Company may designate and assign one or more employees, officers, directors or shareholders of the Company or other persons or organizations to exercise all or a part of the Company's purchase rights under this Agreement and purchase all or a part of such Shares. If the Fair Market Value of the Shares to be repurchased on the date of such designation or assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of such Shares, then each such designee or assignee shall pay the Company cash equal to the difference between the Repurchase FMV and the aggregate Repurchase Price of such Shares. 4. Release of Shares From Repurchase Option. ---------------------------------------- (a) _______________________ percent (______%) of the Shares shall be released from the Company's Repurchase Option [one year] after the Date of Grant and __________________ percent (______%) of the Shares [at the end of each month thereafter], provided that the Purchaser does not cease to be a Service Provider prior to the date of any such release. (b) Any of the Shares that have not yet been released from the Repurchase Option are referred to herein as "Unreleased Shares." (c) The Shares that have been released from the Repurchase Option shall be delivered to the Purchaser at the Purchaser's request (see Section 6). 5. Restriction on Transfer. Except for the escrow described in ----------------------- Section 6 or the transfer of the Shares to the Company or its assignees contemplated by this Agreement, none of the Shares or any beneficial interest therein shall be transferred, encumbered or otherwise disposed of in any way until such Shares are released from the Company's Repurchase Option in accordance with the provi sions of this Agreement, other than by will or the laws of descent and distribution. 6. Escrow of Shares. ---------------- (a) To ensure the availability for delivery of the Purchaser's Unreleased Shares upon repurchase by the Company pursuant to the Repurchase Option, the Purchaser shall, upon execution of this Agreement, deliver and deposit with an escrow holder designated by the Company (the "Escrow Holder") the share certificates representing the Unreleased Shares, together with the stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The Unreleased Shares and stock assignment shall be held by the Escrow Holder, pursuant to the Joint Escrow Instructions of the Company and Purchaser attached hereto as Exhibit A-3, until such time as the Company's Repurchase Option expires. As a further condition to the Company's obligations under this Agreement, the -2- Company may require the spouse of Purchaser, if any, to execute and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-4. (b) The Escrow Holder shall not be liable for any act it may do or omit to do with respect to holding the Unreleased Shares in escrow while acting in good faith and in the exercise of its judgment. (c) If the Company or any assignee exercises the Repurchase Option hereunder, the Escrow Holder, upon receipt of written notice of such exercise from the proposed transferee, shall take all steps necessary to accomplish such transfer. (d) When the Repurchase Option has been exercised or expires unexercised or a portion of the Shares has been released from the Repurchase Option, upon request the Escrow Holder shall promptly cause a new certificate to be issued for the released Shares and shall deliver the certificate to the Company or the Purchaser, as the case may be. (e) Subject to the terms hereof, the Purchaser shall have all the rights of a shareholder with respect to the Shares while they are held in escrow, including without limitation, the right to vote the Shares and to receive any cash dividends declared thereon. If, from time to time during the term of the Repurchase Option, there is (i) any stock dividend, stock split or other change in the Shares, or (ii) any merger or sale of all or substantially all of the assets or other acquisition of the Company, any and all new, substituted or additional securities to which the Purchaser is entitled by reason of the Purchaser's ownership of the Shares shall be immediately subject to this escrow, deposited with the Escrow Holder and included thereafter as "Shares" for purposes of this Agreement and the Repurchase Option. 7. Legends. The share certificate evidencing the Shares, if any, ------- issued hereunder shall be endorsed with the following legend (in addition to any legend required under applicable state securities laws): THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. 8. Adjustment for Stock Split. All references to the number of -------------------------- Shares and the purchase price of the Shares in this Agreement shall be appropriately adjusted to reflect any stock split, stock dividend or other change in the Shares which may be made by the Company after the date of this Agreement. 9. Tax Consequences. The Purchaser has reviewed with the ---------------- Purchaser's own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contem plated by this Agreement. The Purchaser is relying solely on such advisors and not on any statements -3- or representations of the Company or any of its agents. The Purchaser understands that the Purchaser (and not the Company) shall be responsible for the Purchaser's own tax liability that may arise as a result of the transactions contemplated by this Agreement. The Purchaser understands that Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary income the difference between the purchase price for the Shares and the Fair Market Value of the Shares as of the date any restrictions on the Shares lapse. In this context, "restriction" includes the right of the Company to buy back the Shares pursuant to the Repurchase Option. The Purchaser understands that the Purchaser may elect to be taxed at the time the Shares are purchased rather than when and as the Repurchase Option expires by filing an election under Section 83(b) of the Code with the IRS within 30 days from the date of purchase. The form for making this election is attached as Exhibit A-5 hereto. THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE PURCHASER'S BEHALF. 10. General Provisions. ------------------ (a) This Agreement shall be governed by the internal substantive laws, but not the choice of law rules of California. This Agreement, subject to the terms and conditions of the Plan and the Notice of Grant, represents the entire agreement between the parties with respect to the purchase of the Shares by the Purchaser. Subject to Section 15(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Agreement, the terms and conditions of the Plan shall prevail. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Agreement. (b) Any notice, demand or request required or permitted to be given by either the Company or the Purchaser pursuant to the terms of this Agreement shall be in writing and shall be deemed given when delivered personally or deposited in the U.S. mail, First Class with postage prepaid, and addressed to the parties at the addresses of the parties set forth at the end of this Agreement or such other address as a party may request by notifying the other in writing. Any notice to the Escrow Holder shall be sent to the Company's address with a copy to the other party hereto. (c) The rights of the Company under this Agreement shall be transferable to any one or more persons or entities, and all covenants and agreements hereunder shall inure to the benefit of, and be enforceable by the Company's successors and assigns. The rights and obligations of the Purchaser under this Agreement may only be assigned with the prior written consent of the Company. (d) Either party's failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, nor prevent that party from thereafter enforcing -4- any other provision of this Agreement. The rights granted both parties hereunder are cumulative and shall not constitute a waiver of either party's right to assert any other legal remedy available to it. (e) The Purchaser agrees upon request to execute any further documents or instruments necessary or desirable to carry out the purposes or intent of this Agreement. (f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. By Purchaser's signature below, Purchaser represents that he or she is familiar with the terms and provisions of the Plan, and hereby accepts this Agreement subject to all of the terms and provisions thereof. Purchaser has reviewed the Plan and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. Purchaser agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Agreement. Purchaser further agrees to notify the Company upon any change in the residence indicated in the Notice of Grant. DATED: --------------------- PURCHASER: QUICKLOGIC CORPORATION - ------------------------------ ---------------------------------- Signature By - ------------------------------ ---------------------------------- Print Name Title -5- EXHIBIT A-2 ----------- ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED I, __________________________, hereby sell, assign and transfer unto (__________) shares of the Common Stock of Quicklogic Corporation standing in my name of the books of said corporation represented by Certificate No. _____ herewith and do hereby irrevocably constitute and appoint ______________________ to transfer the said stock on the books of the within named corporation with full power of substitution in the premises. This Stock Assignment may be used only in accordance with the Restricted Stock Purchase Agreement (the "Agreement") between________________________ and the undersigned dated ______________, 19__. Dated: _______________, 19 Signature:______________________________ INSTRUCTIONS: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise the Repurchase Option, as set forth in the Agreement, without requiring additional signatures on the part of the Purchaser. EXHIBIT A-3 ----------- JOINT ESCROW INSTRUCTIONS ------------------------- ______, 19 __ Corporate Secretary Quicklogic Corporation 1277 Orleans Drive Sunnyvale, CA 94089 Dear _______________: As Escrow Agent for both Quicklogic Corporation, a California corporation (the "Company"), and the undersigned purchaser of stock of the Company (the "Purchaser"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement ("Agreement") between the Company and the undersigned, in accordance with the following instructions: 1. In the event the Company and/or any assignee of the Company (referred to collectively as the "Company") exercises the Company's Repurchase Option set forth in the Agreement, the Company shall give to Purchaser and you a written notice specifying the number of shares of stock to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice. 2. At the closing, you are directed (a) to date the stock assignments necessary for the transfer in question, (b) to fill in the number of shares being transferred, and (c) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company or its assignee, against the simultaneous delivery to you of the purchase price (by cash, a check, or some combination thereof) for the number of shares of stock being purchased pursuant to the exercise of the Company's Repurchase Option. 3. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as Purchaser's attorney-in-fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with any applicable state blue sky authority of any required applications for consent to, or notice of transfer of, the securities. Subject to the provisions of this paragraph 3, Purchaser shall exercise all rights and privileges of a shareholder of the Company while the stock is held by you. 4. Upon written request of the Purchaser, but no more than once per calendar year, unless the Company's Repurchase Option has been exercised, you shall deliver to Purchaser a certificate or certificates representing so many shares of stock as are not then subject to the Company's Repurchase Option. Within 90 days after Purchaser ceases to be a Service Provider, you shall deliver to Purchaser a certificate or certificates representing the aggregate number of shares held or issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant to exercise of the Company's Repurchase Option. 5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of the same to Purchaser and shall be discharged of all further obligations hereunder. 6. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto. 7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith. 8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law, and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. 9. You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder. 10. You shall not be liable for the outlawing of any rights under the statute of limitations with respect to these Joint Escrow Instructions or any documents deposited with you. 11. You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. -2- 12. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be an officer or agent of the Company or if you shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent. 13. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. 14. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings. 15. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the following addresses or at such other addresses as a party may designate by ten days' advance written notice to each of the other parties hereto. COMPANY: Quicklogic Corporation 1277 Orleans Drive Sunnyvale, CA 94089 PURCHASER: _________________________________ _________________________________ _________________________________ ESCROW AGENT: Corporate Secretary Quicklogic Corporation 1277 Orleans Drive Sunnyvale, CA 94089 16. By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement. -3- 17. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns. 18. These Joint Escrow Instructions shall be governed by, and construed and enforced in accordance with, the internal substantive laws, but not the choice of law rules, of California. Very truly yours, QUICKLOGIC CORPORATION ------------------------------------- By ------------------------------------- Title PURCHASER: ------------------------------------- Signature ------------------------------------- Print Name ESCROW AGENT: - ------------------------------------- Corporate Secretary -4- EXHIBIT A-4 ----------- CONSENT OF SPOUSE ----------------- I, ____________________, spouse of ___________________, have read and approve the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In consideration of the Company's grant to my spouse of the right to purchase shares of Quicklogic Corporation, as set forth in the Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under the Agreement and agree to be bound by the provisions of the Agreement insofar as I may have any rights in said Agreement or any shares issued pursuant thereto under the community property laws or similar laws relating to marital property in effect in the state of our residence as of the date of the signing of the foregoing Agreement. Dated: _______________, 19 ------------------------------------------ Signature of Spouse EXHIBIT A-5 ----------- ELECTION UNDER SECTION 83(b) ---------------------------- OF THE INTERNAL REVENUE CODE OF 1986 ------------------------------------ The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income for the current taxable year the amount of any compensation taxable to taxpayer in connection with his or her receipt of the property described below: 1. The name, address, taxpayer identification number and taxable year of the undersigned are as follows: NAME: TAXPAYER: SPOUSE: ADDRESS: IDENTIFICATION NO.: TAXPAYER: SPOUSE: TAXABLE YEAR: 2. The property with respect to which the election is made is described as follows: shares (the "Shares") of the Common Stock of Quicklogic Corporation (the "Company"). 3. The date on which the property was transferred is: , 19__. 4. The property is subject to the following restrictions: The Shares may be repurchased by the Company, or its assignee, upon certain events. This right lapses with regard to a portion of the Shares based on the continued performance of services by the taxpayer over time. 5. The fair market value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms will never lapse, of such property is: $_______________. 6. The amount (if any) paid for such property is: $_______________. The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the undersigned's receipt of the above-described property. The transferee of such property is the person performing the services in connection with the transfer of said property. The undersigned understands that the foregoing election may not be revoked - -------------------------------------------------------------------------- except with the consent of the Commissioner. - ------------------------------------------- Dated: ___________________, 19____ ___________________________________ Taxpayer The undersigned spouse of taxpayer joins in this election. Dated: ___________________, 19____ ___________________________________ Spouse of Taxpayer EX-10.5 8 1997 STOCK PLAN EXHIBIT 10.5 QUICKLOGIC CORPORATION 1997 EMPLOYEE STOCK PURCHASE PLAN The following constitute the provisions of the 1997 Employee Stock Purchase Plan of Quicklogic Corporation. 1. Purpose. The purpose of the Plan is to provide employees of the ------- Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. Definitions. ----------- (a) "Board" shall mean the Board of Directors of the ----- Company. (b) "Code" shall mean the Internal Revenue Code of ---- 1986, as amended. (c) "Common Stock" shall mean the Common Stock of the ------------ Company. (d) "Company" shall mean Quicklogic Corporation and any ------- Designated Subsidiary of the Company. (e) "Compensation" shall mean all base straight time ------------ gross earnings and commissions, but exclusive of payments for overtime, shift premium, incentive compensation, incentive payments, bonuses and other compensation. (f) "Designated Subsidiary" shall mean any Subsidiary --------------------- which has been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan. (g) "Employee" shall mean any individual who is an -------- Employee of the Company for tax purposes whose customary employment with the Company is at least twenty (20) hours per week and more than five (5) months in any calendar year. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company. Where the period of leave exceeds 90 days and the individual's right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated on the 91st day of such leave. (h) "Enrollment Date" shall mean the first day of each --------------- Offering Period. (i) "Exercise Date" shall mean the last day of each ------------- Purchase Period. (j) "Fair Market Value" shall mean, as of any date, the ----------------- value of Common Stock determined as follows: (1) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day on the date of such determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable, or; (2) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for the Common Stock on the date of such determination, as reported in The Wall Street Journal or such other source as the Board deems reliable, or; (3) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board, or; (4) For purposes of the Enrollment Date of the first Offering Period under the Plan, the Fair Market Value shall be the initial price to the public as set forth in the final prospectus included within the registration statement in Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Company's Common Stock (the "Registration Statement"). (k) "Offering Periods" shall mean the periods of ---------------- approximately twenty-four (24) months during which an option granted pursuant to the Plan may be exercised, commencing on the first Trading Day on or after October 1 and April 1 of each year and terminating on the last Trading Day in the periods ending twenty-four months later; provided, however, that the first Offering Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and ending on the last Trading Day on or before September 30, 1999. The duration and timing of Offering Periods may be changed pursuant to Section 4 of this Plan. (l) "Plan" shall mean this Employee Stock Purchase Plan. ---- (m) "Purchase Price" shall mean an amount equal to 85% -------------- of the Fair Market Value of a share of Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower. (n) "Purchase Period" shall mean the approximately six --------------- month period commencing after one Exercise Date and ending with the next Exercise Date, except that the first Purchase Period of any Offering Period shall commence on the Enrollment Date and end with the next Exercise Date. -2- (o) "Reserves" shall mean the number of shares of -------- Common Stock covered by each option under the Plan which have not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but not yet placed under option. (p) "Subsidiary" shall mean a corporation, domestic or ---------- foreign, of which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. (q) "Trading Day" shall mean a day on which national ----------- stock exchanges and the Nasdaq System are open for trading. 3. Eligibility. ----------- (a) Any Employee who shall be employed by the Company on a given Enrollment Date shall be eligible to participate in the Plan. (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) to the extent that, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Subsidiary, or (ii) to the extent that his or her rights to purchase stock under all employee stock purchase plans of the Company and its subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the fair market value of the shares at the time such option is granted) for each calendar year in which such option is outstanding at any time. 4. Offering Periods. The Plan shall be implemented by ---------------- consecutive, overlapping Offering Periods with a new Offering Period commencing on the first Trading Day on or after October 1 and April 1 each year, or on such other date as the Board shall determine, and continuing thereafter until terminated in accordance with Section 20 hereof; provided, however, that the first Offering Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and ending on the last Trading Day on or before April 1, 1999. The Board shall have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future offerings without shareholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected thereafter. -3- 5. Participation. ------------- (a) An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions in the form of Exhibit A to this Plan and filing it with the Company's payroll office prior to the applicable Enrollment Date. (b) Payroll deductions for a participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in Section 10 hereof. 6. Payroll Deductions. ------------------ (a) At the time a participant files his or her subscription agreement, he or she shall elect to have payroll deductions made on each pay day during the Offering Period in an amount not exceeding twenty percent (20%) of the Compensation which he or she receives on each pay day during the Offering Period. (b) All payroll deductions made for a participant shall be credited to his or her account under the Plan and shall be withheld in whole percentages only. A participant may not make any additional payments into such account. (c) A participant may discontinue his or her participation in the Plan as provided in Section 10 hereof, or may increase or decrease the rate of his or her payroll deductions during the Offering Period by completing or filing with the Company a new subscription agreement authorizing a change in payroll deduction rate. The Board may, in its discretion, limit the number of participation rate changes during any Offering Period. The change in rate shall be effective with the first full payroll period following five (5) business days after the Company's receipt of the new subscription agreement unless the Company elects to process a given change in participation more quickly. A participant's subscription agreement shall remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof. (d) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's payroll deductions may be decreased to zero percent (0%) at any time during a Purchase Period. Payroll deductions shall recommence at the rate provided in such participant's subscription agreement at the beginning of the first Purchase Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10 hereof. (e) At the time the option is exercised, in whole or in part, or at the time some or all of the Company's Common Stock issued under the Plan is disposed of, the participant must make adequate provision for the Company's federal, state, or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock. At any time, the -4- Company may, but shall not be obligated to, withhold from the participant's compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Employee. 7. Grant of Option. On the Enrollment Date of each Offering Period, --------------- each eligible Employee participating in such Offering Period shall be granted an option to purchase on each Exercise Date during such Offering Period (at the applicable Purchase Price) up to a number of shares of the Company's Common Stock determined by dividing such Employee's payroll deductions accumulated prior to such Exercise Date and retained in the Participant's account as of the Exercise Date by the applicable Purchase Price; provided that in no event shall an Employee be permitted to purchase during each Purchase Period more than [ ________ ] shares of the Company's Common Stock (subject to any adjustment pursuant to Section 19) on the Enrollment Date, and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The option shall expire on the last day of the Offering Period. 8. Exercise of Option. Unless a participant withdraws from the Plan as ------------------ provided in Section 10 hereof, his or her option for the purchase of shares shall be exercised automatically on the Exercise Date, and the maximum number of full shares subject to option shall be purchased for such participant at the applicable Purchase Price with the accumulated payroll deductions in his or her account. No fractional shares shall be purchased; any payroll deductions accumulated in a participant's account which are not sufficient to purchase a full share shall be retained in the participant's account for the subsequent Purchase Period or Offering Period, subject to earlier withdrawal by the participant as provided in Section 10 hereof. Any other monies left over in a participant's account after the Exercise Date shall be returned to the participant. During a participant's lifetime, a participant's option to purchase shares hereunder is exercisable only by him or her. 9. Delivery. As promptly as practicable after each Exercise Date on -------- which a purchase of shares occurs, the Company shall arrange the delivery to each participant, as appropriate, of a certificate representing the shares purchased upon exercise of his or her option. 10. Withdrawal. ---------- (a) A participant may withdraw all but not less than all the payroll deductions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by giving written notice to the Company in the form of Exhibit B to this Plan. All of the participant's payroll deductions credited to his or her account shall be paid to such participant promptly after receipt of notice of withdrawal and such participant's option for the Offering Period shall be automatically terminated, and no further payroll deductions for the purchase of shares shall be made for such Offering Period. If a participant withdraws from an Offering Period, payroll deductions shall -5- not resume at the beginning of the succeeding Offering Period unless the participant delivers to the Company a new subscription agreement. (b) A participant's withdrawal from an Offering Period shall not have any effect upon his or her eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering Periods which commence after the termination of the Offering Period from which the participant withdraws. 11. Termination of Employment. ------------------------- Upon a participant's ceasing to be an Employee, for any reason, he or she shall be deemed to have elected to withdraw from the Plan and the payroll deductions credited to such participant's account during the Offering Period but not yet used to exercise the option shall be returned to such participant or, in the case of his or her death, to the person or persons entitled thereto under Section 15 hereof, and such participant's option shall be automatically terminated. The preceding sentence notwithstanding, a participant who receives payment in lieu of notice of termination of employment shall be treated as continuing to be an Employee for the participant's customary number of hours per week of employment during the period in which the participant is subject to such payment in lieu of notice. 12. Interest. No interest shall accrue on the payroll deductions -------- of a participant in the Plan. 13. Stock. ----- (a) The maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be seven hundred fifty thousand (750,000) shares, plus an annual increase to be added on each anniversary date of the adoption of the Plan equal to the lesser of (i) 500,000 shares, (ii) 3% of the outstanding shares on such date or (iii) a lesser amount determined by the Board, subject to adjustment upon changes in capitalization of the Company as provided in Section 19 hereof. If, on a given Exercise Date, the number of shares with respect to which options are to be exercised exceeds the number of shares then available under the Plan, the Company shall make a pro rata allocation of the shares remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable. (b) The participant shall have no interest or voting right in shares covered by his option until such option has been exercised. (c) Shares to be delivered to a participant under the Plan shall be registered in the name of the participant or in the name of the participant and his or her spouse. -6- 14. Administration. The Plan shall be administered by the Board -------------- or a committee of members of the Board appointed by the Board. The Board or its committee shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Board or its committee shall, to the full extent permitted by law, be final and binding upon all parties. 15. Designation of Beneficiary. -------------------------- (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to exercise of the option. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 16. Transferability. Neither payroll deductions credited to a --------------- participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 15 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof. 17. Use of Funds. All payroll deductions received or held by ------------ the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. 18. Reports. Individual accounts shall be maintained for each ------- participant in the Plan. Statements of account shall be given to participating Employees at least annually, which statements shall set forth the amounts of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any. -7- 19. Adjustments Upon Changes in Capitalization, Dissolution, ------------------------------------------------------- Liquidation, Merger or Asset Sale. --------------------------------- (a) Changes in Capitalization. Subject to any required action ------------------------- by the shareholders of the Company, the Reserves, the maximum number of shares each participant may purchase each Purchase Period (pursuant to Section 7), as well as the price per share and the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration". Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. (b) Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, the Offering Period then in progress shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and shall terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the Board. The New Exercise Date shall be before the date of the Company's proposed dissolution or liquidation. The Board shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant's option has been changed to the New Exercise Date and that the participant's option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof. (c) Merger or Asset Sale. In the event of a proposed sale of -------------------- all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the option, any Purchase Periods then in progress shall be shortened by setting a new Exercise Date (the "New Exercise Date") and any Offering Periods then in progress shall end on the New Exercise Date. The New Exercise Date shall be before the date of the Company's proposed sale or merger. The Board shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant's option has been changed to the New Exercise Date and that the participant's option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof. -8- 20. Amendment or Termination. ------------------------ (a) The Board of Directors of the Company may at any time and for any reason terminate or amend the Plan. Except as provided in Section 19 hereof, no such termination can affect options previously granted, provided that an Offering Period may be terminated by the Board of Directors on any Exercise Date if the Board determines that the termination of the Plan is in the best interests of the Company and its shareholders. Except as provided in Section 19 hereof, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law, regulation or stock exchange rule), the Company shall obtain shareholder approval in such a manner and to such a degree as required. (b) Without shareholder consent and without regard to whether any participant rights may be considered to have been "adversely affected," the Board (or its committee) shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan. 21. Notices. All notices or other communications by a ------- participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 22. Conditions Upon Issuance of Shares. Shares shall not be ---------------------------------- issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. -9- 23. Term of Plan. The Plan shall become effective upon the ------------ earlier to occur of its adoption by the Board of Directors or its approval by the shareholders of the Company. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 20 hereof. 24. Automatic Transfer to Low Price Offering Period. To the extent ----------------------------------------------- permitted by any applicable laws, regulations, or stock exchange rules if the Fair Market Value of the Common Stock on any Exercise Date in an Offering Period is lower than the Fair Market Value of the Common Stock on the Enrollment Date of such Offering Period, then all participants in such Offering Period shall be automatically withdrawn from such Offering Period immediately after the exercise of their option on such Exercise Date and automatically re-enrolled in the immediately following Offering Period as of the first day thereof. -10- EXHIBIT A --------- QUICKLOGIC CORPORATION 1997 EMPLOYEE STOCK PURCHASE PLAN SUBSCRIPTION AGREEMENT _____ Original Application Enrollment Date: ___________ _____ Change in Payroll Deduction Rate _____ Change of Beneficiary(ies) 1. ______________________ hereby elects to participate in the Quicklogic Corporation 1997 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to purchase shares of the Company's Common Stock in accordance with this Subscription Agreement and the Employee Stock Purchase Plan. 2. I hereby authorize payroll deductions from each paycheck in the amount of ____% of my Compensation on each payday (from 1 to _____%) during the Offering Period in accordance with the Employee Stock Purchase Plan. (Please note that no fractional percentages are permitted.) 3. I understand that said payroll deductions shall be accumulated for the purchase of shares of Common Stock at the applicable Purchase Price determined in accordance with the Employee Stock Purchase Plan. I understand that if I do not withdraw from an Offering Period, any accumulated payroll deductions will be used to automatically exercise my option. 4. I have received a copy of the complete Employee Stock Purchase Plan. I understand that my participation in the Employee Stock Purchase Plan is in all respects subject to the terms of the Plan. I understand that my ability to exercise the option under this Subscription Agreement is subject to shareholder approval of the Employee Stock Purchase Plan. 5. Shares purchased for me under the Employee Stock Purchase Plan should be issued in the name(s) of (Employee or Employee and Spouse only):____________________________________. 6. I understand that if I dispose of any shares received by me pursuant to the Plan within 2 years after the Enrollment Date (the first day of the Offering Period during which I purchased such shares) or one year after the Exercise Date, I will be treated for federal income tax purposes as having received ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were purchased by me over the price which I paid for the shares. I hereby agree to notify the Company in writing ----------------------------------------------- within 30 days after the date of any disposition of my shares and I ------------------------------------------------------------------- will make adequate provision for Federal, state or other tax ------------------------------------------------------------ withholding obligations, if any, which arise upon the disposition of -------------------------------------------------------------------- the Common Stock. The Company may, but will not be obligated to, ---------------- withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by me. If I dispose of such shares at any time after the expiration of the 2-year and 1-year holding periods, I understand that I will be treated for federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares, or (2) 15% of the fair market value of the shares on the first day of the Offering Period. The remainder of the gain, if any, recognized on such disposition will be taxed as capital gain. 7. I hereby agree to be bound by the terms of the Employee Stock Purchase Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Employee Stock Purchase Plan. 8. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due me under the Employee Stock Purchase Plan: NAME: (Please print)______________________________________________ (First) (Middle) (Last) _______________________________ _____________________________________________ Relationship _____________________________________________ (Address) -2- Employee's Social Security Number: ____________________________________ Employee's Address: ____________________________________ ____________________________________ ____________________________________ I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME. Dated:_________________________ ________________________________________ Signature of Employee _______________________________________ Spouse's Signature (If beneficiary other than spouse) -3- EXHIBIT B --------- QUICKLOGIC CORPORATION 1997 EMPLOYEE STOCK PURCHASE PLAN NOTICE OF WITHDRAWAL The undersigned participant in the Offering Period of the Quicklogic Corporation 1997 Employee Stock Purchase Plan which began on ____________, 19____ (the "Enrollment Date") hereby notifies the Company that he or she hereby withdraws from the Offering Period. He or she hereby directs the Company to pay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Offering Period. The undersigned understands and agrees that his or her option for such Offering Period will be automatically terminated. The undersigned understands further that no further payroll deductions will be made for the purchase of shares in the current Offering Period and the undersigned shall be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement. Name and Address of Participant: ________________________________ ________________________________ ________________________________ Signature: ________________________________ Date:__________________________ EX-10.6 9 1997 DIRECTOR OPTION PLAN EXHIBIT 10.6 QUICKLOGIC CORPORATION 1997 DIRECTOR OPTION PLAN 1. Purposes of the Plan. The purposes of this 1997 Director -------------------- Option Plan are to attract and retain the best available personnel for service as Outside Directors (as defined herein) of the Company, to provide additional incentive to the Outside Directors of the Company to serve as Directors, and to encourage their continued service on the Board. All options granted hereunder shall be nonstatutory stock options. 2. Definitions. As used herein, the following definitions ----------- shall apply: (a) "Board" means the Board of Directors of the Company. ----- (b) "Code" means the Internal Revenue Code of 1986, as ---- amended. (c) "Common Stock" means the common stock of the Company. ------------ (d) "Company" means Quicklogic Corporation, a ------- California corporation. (e) "Director" means a member of the Board. -------- (f) "Employee" means any person, including officers and -------- Directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a Director's fee by the Company shall not be sufficient in and of itself to constitute "employment" by the Company. (g) "Exchange Act" means the Securities Exchange Act of ------------ 1934, as amended. (h) "Fair Market Value" means, as of any date, the ----------------- value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the date of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board. (i) "Inside Director" means a Director who is an --------------- Employee. (j) "Option" means a stock option granted pursuant to ------ the Plan. (k) "Optioned Stock" means the Common Stock subject to -------------- an Option. (l) "Optionee" means a Director who holds an Option. -------- (m) "Outside Director" means a Director who is not an ---------------- Employee. (n) "Parent" means a "parent corporation," whether now ------ or hereafter existing, as defined in Section 424(e) of the Code. (o) "Plan" means this 1997 Director Option Plan. ---- (p) "Share" means a share of the Common Stock, as ----- adjusted in accordance with Section 10 of the Plan. (q) "Subsidiary" means a "subsidiary corporation," ---------- whether now or hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of 1986. 3. Stock Subject to the Plan. Subject to the provisions of ------------------------- Section 10 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 500,000 Shares, plus an annual increase to be added on each anniversary date of adoption of the Plan equal to (i) 25,000 Shares, or (ii) a lesser amount determined by the Board (collectively, the "Pool"). The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan. 4. Administration and Grants of Options under the Plan. --------------------------------------------------- (a) Procedure for Grants. All grants of Options to Outside -------------------- Directors under this Plan shall be automatic and nondiscretionary and shall be made strictly in accordance with the following provisions: (i) No person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options granted to Outside Directors. -2- (ii) Each Outside Director shall be automatically granted an Option to purchase 30,000 Shares (the "First Option") on the date on which the later of the following events occurs: (A) the effective date of this Plan, as determined in accordance with Section 6 hereof, or (B) the date on which such person first becomes an Outside Director, whether through election by the shareholders of the Company or appointment by the Board to fill a vacancy; provided, however, that an Inside Director who ceases to be an Inside Director but who remains a Director shall not receive a First Option. (iii) Each Outside Director shall be automatically granted an Option to purchase 6,000 Shares (a "Subsequent Option") on the first day of May of each year provided he or she is then an Outside Director and if as of such date, he or she shall have served on the Board for at least the preceding six (6) months. (iv) Notwithstanding the provisions of subsections (ii) and (iii) hereof, any exercise of an Option granted before the Company has obtained shareholder approval of the Plan in accordance with Section 16 hereof shall be conditioned upon obtaining such shareholder approval of the Plan in accordance with Section 16 hereof. (v) The terms of a First Option granted hereunder shall be as follows: (A) the term of the First Option shall be ten (10) years. (B) the First Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof. (C) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the First Option. In the event that the date of grant of the First Option is not a trading day, the exercise price per Share shall be the Fair Market Value on the next trading day immediately following the date of grant of the First Option. (D) subject to Section 10 hereof, the First Option shall become exercisable as to 25% of the Shares subject to the First Option on the first anniversary of its date of grant, and 1/48 of the Shares subject to the First Option shall vest each month thereafter, provided that the Optionee continues to serve as a Director on such dates. (vi) The terms of a Subsequent Option granted hereunder shall be as follows: (A) the term of the Subsequent Option shall be ten (10) years. (B) the Subsequent Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof. -3- (C) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the Subsequent Option. In the event that the date of grant of the Subsequent Option is not a trading day, the exercise price per Share shall be the Fair Market Value on the next trading day immediately following the date of grant of the Subsequent Option. (D) subject to Section 10 hereof, the Subsequent Option shall become exercisable as to 25% of the Shares subject to the Subsequent Option on the first anniversary of its date of grant, and 1/48 of the Shares subject to the Subsequent Option shall vest each month thereafter, provided that the Optionee continues to serve as a Director on such dates. (vii) In the event that any Option granted under the Plan would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased under Options to exceed the Pool, then the remaining Shares available for Option grant shall be granted under Options to the Outside Directors on a pro rata basis. No further grants shall be made until such time, if any, as additional Shares become available for grant under the Plan through action of the Board or the shareholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder. 5. Eligibility. Options may be granted only to Outside ----------- Directors. All Options shall be automatically granted in accordance with the terms set forth in Section 4 hereof. The Plan shall not confer upon any Optionee any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate the Director's relationship with the Company at any time. 6. Term of Plan. The Plan shall become effective upon the ------------ earlier to occur of its adoption by the Board or its approval by the shareholders of the Company as described in Section 16 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 11 of the Plan. 7. Form of Consideration. The consideration to be paid for the --------------------- Shares to be issued upon exercise of an Option, including the method of payment, shall consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (iv) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, or (v) any combination of the foregoing methods of payment. 8. Exercise of Option. ------------------ (a) Procedure for Exercise; Rights as a Shareholder. Any ----------------------------------------------- Option granted hereunder shall be exercisable at such times as are set forth in Section 4 hereof; provided, however, -4- that no Options shall be exercisable until shareholder approval of the Plan in accordance with Section 16 hereof has been obtained. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allowable under Section 7 of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 10 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Continuous Status as a Director. Subject to ---------------------------------------------- Section 10 hereof, in the event an Optionee's status as a Director terminates (other than upon the Optionee's death or total and permanent disability (as defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her Option, but only within three (3) months following the date of such termination, and only to the extent that the Optionee was entitled to exercise it on the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of such termination, and to the extent that the Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. (c) Disability of Optionee. In the event Optionee's status as ---------------------- a Director terminates as a result of total and permanent disability (as defined in Section 22(e)(3) of the Code), the Optionee may exercise his or her Option, but only within twelve (12) months following the date of such termination, and only to the extent that the Optionee was entitled to exercise it on the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of termination, or if he or she does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. (d) Death of Optionee. In the event of an Optionee's death, ----------------- the Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance may exercise the Option, but only within twelve (12) months following the date of death, and only to the extent that -5- the Optionee was entitled to exercise it on the date of death (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of death, and to the extent that the Optionee's estate or a person who acquired the right to exercise such Option does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. 9. Non-Transferability of Options. The Option may not be sold, ------------------------------ pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 10. Adjustments Upon Changes in Capitalization, Dissolution, ------------------------------------------------------- Merger or Asset Sale. -------------------- (a) Changes in Capitalization. Subject to any required action ------------------------- by the shareholders of the Company, the number of Shares covered by each outstanding Option, the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per Share covered by each such outstanding Option, and the number of Shares issuable pursuant to the automatic grant provisions of Section 4 hereof shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, to the extent that an Option has not been previously exercised, it shall terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the -------------------- Company with or into another corporation or the sale of substantially all of the assets of the Company, outstanding Options may be assumed or equivalent options may be substituted by the successor corporation or a Parent or Subsidiary thereof (the "Successor Corporation"). If an Option is assumed or substituted for, the Option or equivalent option shall continue to be exercisable as provided in Section 4 hereof for so long as the Optionee serves as a Director or a director of the Successor Corporation. Following such assumption or substitution, if the Optionee's status as a Director or director of the Successor Corporation, as applicable, is terminated other than upon a voluntary resignation by the Optionee, the Option or option shall become fully exercisable, including as to Shares for which it would not otherwise be exercisable. Thereafter, the Option or option shall remain exercisable in accordance with Sections 8(b) through (d) above. -6- If the Successor Corporation does not assume an outstanding Option or substitute for it an equivalent option, the Option shall become fully vested and exercisable, including as to Shares for which it would not otherwise be exercisable. In such event the Board shall notify the Optionee that the Option shall be fully exercisable for a period of thirty (30) days from the date of such notice, and upon the expiration of such period the Option shall terminate. For the purposes of this Section 10(c), an Option shall be considered assumed if, following the merger or sale of assets, the Option confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares). If such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 11. Amendment and Termination of the Plan. ------------------------------------- (a) Amendment and Termination. The Board may at any time ------------------------- amend, alter, suspend, or discontinue the Plan, but no amendment, alteration, suspension, or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with any applicable law, regulation or stock exchange rule, the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. Any such amendment or ---------------------------------- termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated. 12. Time of Granting Options. The date of grant of an Option ------------------------ shall, for all purposes, be the date determined in accordance with Section 4 hereof. 13. Conditions Upon Issuance of Shares. Shares shall not be issued ---------------------------------- pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, state securities laws, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. -7- As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares, if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 14. Reservation of Shares. The Company, during the term of this --------------------- Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 15. Option Agreement. Options shall be evidenced by written ---------------- option agreements in such form as the Board shall approve. 16. Shareholder Approval. Continuance of the Plan shall be -------------------- subject to approval by the shareholders of the Company at or prior to the first annual meeting of shareholders held subsequent to the granting of an Option hereunder. Such shareholder approval shall be obtained in the degree and manner required under applicable state and federal law and any stock exchange rules. -8- QUICKLOGIC CORPORATION DIRECTOR OPTION AGREEMENT Quicklogic Corporation, a California corporation (the "Company"), has granted to ______________________________________ (the "Optionee"), an option to purchase a total of [__________________ (_________)] shares of the Company's Common Stock (the "Optioned Stock"), at the price determined as provided herein, and in all respects subject to the terms, definitions and provisions of the Company's 1997 Director Option Plan (the "Plan") adopted by the Company which is incorporated herein by reference. The terms defined in the Plan shall have the same defined meanings herein. 1. Nature of the Option. This Option is a nonstatutory option and is -------------------- not intended to qualify for any special tax benefits to the Optionee. 2. Exercise Price. The exercise price is $_______ for each share of -------------- Common Stock. 3. Exercise of Option. This Option shall be exercisable during its ------------------ term in accordance with the provisions of Section 8 of the Plan as follows: (i) Right to Exercise. ----------------- (a) This Option shall become exercisable in installments cumulatively with respect to 25% of the Optioned Stock one year after the date of grant, and as to an additional 1/48 of the Optioned Stock each month thereafter, so that one hundred percent 100% of the Optioned Stock shall be exercisable four years after the date of grant; provided, however, that in no event shall any Option be exercisable prior to the date the stockholders of the Company approve the Plan. (b) This Option may not be exercised for a fraction of a share. (c) In the event of Optionee's death, disability or other termination of service as a Director, the exercisability of the Option is governed by Section 8 of the Plan. (ii) Method of Exercise. This Option shall be exercisable by written ------------------ notice which shall state the election to exercise the Option and the number of Shares in respect of which the Option is being exercised. Such written notice, in the form attached hereto as Exhibit A, shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the exercise price. 4. Method of Payment. Payment of the exercise price shall be by any ----------------- of the following, or a combination thereof, at the election of the Optionee: (i) cash; (ii) check; or (iii) surrender of other shares which (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; or (iv) delivery of a properly executed exercise notice together with such other documentation as the Company and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price. 5. Restrictions on Exercise. This Option may not be exercised if the ------------------------ issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulations, or if such issuance would not comply with the requirements of any stock exchange upon which the Shares may then be listed. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 6. Non-Transferability of Option. This Option may not be transferred in ----------------------------- any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 7. Term of Option. This Option may not be exercised more than ten (10) -------------- years from the date of grant of this Option, and may be exercised during such period only in accordance with the Plan and the terms of this Option. 8. Taxation Upon Exercise of Option. Optionee understands that, upon -------------------------------- exercise of this Option, he or she will recognize income for tax purposes in an amount equal to the excess of the then Fair Market Value of the Shares purchased over the exercise price paid for such Shares. Since the Optionee is subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain limited circumstances the measurement and timing of such income (and the commencement of any capital gain holding period) may be deferred, and the Optionee is advised to contact a tax advisor concerning the application of Section 83 in general and the availability a Section 83(b) election in particular in connection with the exercise of the Option. Upon a resale of such Shares by the Optionee, any difference between the sale price and the Fair Market Value of the Shares on the date -2- of exercise of the Option, to the extent not included in income as described above, will be treated as capital gain or loss. DATE OF GRANT: ______________ QUICKLOGIC CORPORATION, a California corporation By: __________________________ Optionee acknowledges receipt of a copy of the Plan, a copy of which is attached hereto, and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan. Dated: _________________ ------------------------------ Optionee -3- EXHIBIT A DIRECTOR OPTION EXERCISE NOTICE Quicklogic Corporation 1277 Orleans Drive Sunnyvale, CA 94089 Attention: Corporate Secretary 1. Exercise of Option. The undersigned ("Optionee") hereby elects to ------------------ exercise Optionee's option to purchase ______ shares of the Common Stock (the "Shares") of Quicklogic Corporation (the "Company") under and pursuant to the Company's 1997 Director Option Plan and the Director Option Agreement dated _______________ (the "Agreement"). 2. Representations of Optionee. Optionee acknowledges that Optionee --------------------------- has received, read and understood the Agreement. 3. Federal Restrictions on Transfer. Optionee understands that the Shares -------------------------------- must be held indefinitely unless they are registered under the Securities Act of 1933, as amended (the "1933 Act"), or unless an exemption from such registration is available, and that the certificate(s) representing the Shares may bear a legend to that effect. Optionee understands that the Company is under no obligation to register the Shares and that an exemption may not be available or may not permit Optionee to transfer Shares in the amounts or at the times proposed by Optionee. 4. Tax Consequences. Optionee understands that Optionee may suffer adverse ---------------- tax consequences as a result of Optionee's purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultant(s) Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice. 5. Delivery of Payment. Optionee herewith delivers to the Company the ------------------- aggregate purchase price for the Shares that Optionee has elected to purchase and has made provision for the payment of any federal or state withholding taxes required to be paid or withheld by the Company. 6. Entire Agreement. The Agreement is incorporated herein by ---------------- reference. This Exercise Notice and the Agreement constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof. This Exercise Notice and the Agreement are governed by California law except for that body of law pertaining to conflict of laws. Submitted by: Accepted by: OPTIONEE: QUICKLOGIC CORPORATION By: ------------------------------------ Its: ----------------------------------- Address: Dated: Dated: --------------------------- -------------------------------- -2- EX-10.7 10 SERIES E PREFERRED STOCK PURCHASE AGREEMENT EXHIBIT 10.7 ================================================================================ QUICKLOGIC CORPORATION Series E Preferred Stock Purchase Agreement _______________, 1995 ================================================================================ TABLE OF CONTENTS
Page ---- 1. Authorization and Sale of Preferred Stock.................................... 1 1.1 Authorization.......................................................... 1 1.2 Sale of the Shares..................................................... 1 2. Closing Date; Delivery....................................................... 1 2.1 First Closing Date..................................................... 1 2.2 Delivery............................................................... 2 2.3 Subsequent Closings.................................................... 2 2.4 Minimum Closing Amounts................................................ 2 3. Representations and Warranties of the Company................................ 2 3.1 Organization and Standing; Articles of Incorporation and Bylaws........ 2 3.2 Corporate Power........................................................ 2 3.3 No Subsidiaries........................................................ 3 3.4 Capitalization......................................................... 3 3.5 Authorization.......................................................... 3 3.6 Financial Statements................................................... 4 3.7 Title to Properties; Liens and Encumbrances............................ 4 3.8 Intellectual Property Rights........................................... 5 3.9 Proprietary Information Agreements..................................... 5 3.10 Operating Rights....................................................... 6 3.11 Manufacturing, Distribution and License Rights......................... 6 3.12 Compliance with Other Instruments, None Burdensome, etc................ 6 3.13 Litigation, etc........................................................ 6 3.14 Employee Compensation Plans............................................ 7 3.15 Insurance.............................................................. 7 3.16 Registration Rights.................................................... 7 3.17 Governmental Consent, etc.............................................. 7 3.18 Offering............................................................... 7 3.19 Material Contracts and Obligations..................................... 7 3.20 Tax Returns and Payments............................................... 8 3.21 Related Party Transactions............................................. 8 3.22 Certain Transactions................................................... 8 3.23 Environmental Protection............................................... 8 3.24 Brokers or Finders..................................................... 9
3.25 Changes................................................................ 9 3.26 Foreign Investment in Real Property Act................................ 10 3.27 Disclosure............................................................. 10 4. Representations and Warranties of the Purchaser.............................. 10 4.1 Authorization.......................................................... 11 4.2 Experience............................................................. 11 4.3 Investment............................................................. 11 4.4 Rule 144............................................................... 11 4.5 No Public Market....................................................... 11 4.6 Access to Data......................................................... 11 4.7 Further Limitations on Dispositions.................................... 11 5. Conditions to Purchasers' Obligations at the Closing......................... 12 5.1 Representations and Warranties Correct................................. 12 5.2 Covenants.............................................................. 12 5.3 Opinion of Counsel..................................................... 12 5.4 Permits................................................................ 12 5.5 Amended and Restated Articles of Incorporation......................... 12 5.6 Good Standing Certificates............................................. 12 5.7 Officer's Certificate.................................................. 12 5.8 Secretary's Certificate................................................ 13 5.9 Stock Certificate...................................................... 13 5.10 Legal Investment....................................................... 13 5.11 Shareholders Agreement................................................. 13 5.12 Registration Rights Agreement.......................................... 13 6. Conditions to Company's Obligations at the Closing........................... 13 6.1 Representations and Warranties Correct................................. 13 6.2 Permits................................................................ 13 6.3 Amended and Restated Articles.......................................... 13 6.4 Payment of the Purchase Price.......................................... 14 7. Covenant to Participate in Future Financings................................. 14 8. Miscellaneous................................................................ 14 8.1 Attorneys' Fees........................................................ 14 8.2 Waivers and Amendments................................................. 14 8.3 Governing Law.......................................................... 14 8.4 Survival............................................................... 14
8.5 Successors and Assigns................................................. 15 8.6 Entire Agreement....................................................... 15 8.7 Severability of this Agreement......................................... 15 8.8 Finder's Fees.......................................................... 15 8.9 Legends................................................................ 15 8.10 Removal of Legends and Transfer Restrictions........................... 16 8.11 Titles and Subtitles................................................... 16 8.12 Counterparts........................................................... 16 8.13 Delays or Omissions.................................................... 16 8.14 Notices................................................................ 16 8.15 Transaction Fees and Expenses.......................................... 17
SCHEDULES AND EXHIBITS Schedule A Schedule of Purchasers Exhibit A Amended and Restated Articles of Incorporation Exhibit B Fourth Amended and Restated Shareholders Agreement Exhibit C Schedule of Exceptions Exhibit D Opinion of Wilson, Sonsini, Goodrich & Rosati Exhibit E Fourth Amended and Restated Registration Rights Agreement QUICKLOGIC CORPORATION SERIES E PREFERRED STOCK ------------------------ PURCHASE AGREEMENT ------------------ This SERIES E PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made as of _________, 1995 by and among QuickLogic Corporation, a California corporation (the "Company") and the persons and entities listed on Schedule A hereto (the "Purchasers"). In consideration of the mutual promises, representations, warranties, covenants, and conditions set forth in this Agreement, the parties to this Agreement mutually agree as follows: 1. Authorization and Sale of Preferred Stock. ----------------------------------------- 1.1 Authorization. The Company has authorized the issuance and sale ------------- of up to 21,428,571 shares of its Series E Preferred Stock (the "Shares") having the rights, preferences, and privileges set forth in the Amended and Restated Articles of Incorporation of the Company (the "Articles") attached hereto as Exhibit A. The aggregate shares of common stock issuable upon conversion of the Shares are referred to in this Agreement as the "Conversion Stock." 1.2 Sale of the Shares. Subject to the terms and conditions hereof, ------------------ at the Closing Date (as defined in Section 2.1 hereof) the Company will issue and sell to each Purchaser, and each Purchaser will purchase from the Company the number of shares specified opposite the name of such Purchaser on Schedule A hereto at a purchase price of $0.70 per share. The Company's agreement with each Purchaser hereunder is a separate agreement and the sales of the Shares to each Purchaser are separate sales. 1.3 Sale of Additional Series E Preferred. The Company shall have ------------------------------------- until August 31, 1995 to sell any shares of Series E Preferred not sold at the First Closing (as defined below) at a purchase price of $0.70 per share. Any such shares sold after the First Closing are referred to herein as "Additional Shares." The Additional Shares shall be considered "Shares" and the purchasers of such Additional Shares (the "Additional Purchasers") shall be considered "Purchasers" for purposes of this Agreement, and shall have the same rights and obligations as if they had purchased their shares pursuant to this Agreement at the First Closing. The maximum number of shares of Series E Preferred the Company may sell under this Agreement is 21,428,571. 2. Closing Date; Delivery. ---------------------- 2.1 First Closing Date. The closing of the purchase and sale of the ------------------ Shares hereunder (the "Closing") shall be held at the law offices of Wilson, Sonsini, Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304 at __________ on __________, 1995, or at such other time, date or place that the Company and the Purchasers shall agree (which time and date are referred to in this Agreement as the "Closing Date"). 2.2 Delivery. Subject to the terms of this Agreement, at the First -------- Closing the Company shall deliver to each Purchaser a certificate, registered in such Purchaser's name, representing the number of Shares, designated on Schedule A hereto, to be purchased by the Purchaser against payment of the purchase price for the Shares by check or wire transfer of immediately available funds, or by conversion of promissory notes payable by the Company, or by any combination of such methods of payment. 2.3 Subsequent Closings. The purchase and sale of any Additional Shares ------------------- shall be held at a time and place to be agreed upon by the Company and a majority-in-interest of the Additional Purchasers purchasing at such closing (a "Subsequent Closing"), but no later than August 31, 1995. At each Subsequent Closing, the Company shall deliver to each Additional Purchaser purchasing at such closing the certificates representing the Additional Shares which such Additional Purchaser is purchasing against delivery to the Company by such Additional Purchaser of the purchase price therefor by check or wire transfer payable to the Company, in the amount specified the appropriate revised Schedule A. The Company and each Additional Purchaser shall execute and deliver signature pages to this Agreement. 2.4 Minimum Closing Amount. The Company shall not sell any Shares at the ---------------------- First Closing if the aggregate amount to be sold at such closing does not equal 14,285,714 Shares or more. 3. Representations and Warranties of the Company. Except as set forth on --------------------------------------------- the Schedule of Exceptions attached hereto as Exhibit C, the Company hereby represents and warrants to each Purchaser as follows: 3.1 Organization and Standing; Articles of Incorporation and Bylaws. --------------------------------------------------------------- The Company is a corporation duly organized and validly existing under, and by virtue of, the laws of the State of California, is in good standing under such laws and is authorized to exercise all of its corporate powers, rights and privileges. The Company has the requisite legal and corporate power and authority to own, lease and operate its properties and assets and to conduct its business as presently conducted and as proposed to be conducted. The Company is qualified to do business as a foreign corporation in each jurisdiction where the failure to be so qualified would have a material adverse effect on the business of the Company as now conducted or as proposed to be conducted (as reflected in the Company's March 1995 Business Plan, a copy of which business plan has previously been delivered to the Purchaser (the "Business Plan")). True, correct and complete copies of the Company's Articles, Bylaws and other charter documents, each as will be in effect at the Closing have been delivered to each Purchaser. 3.2 Corporate Power. The Company has the requisite legal and --------------- corporate power to execute and deliver the Agreement, the Fourth Amended and Restated Shareholders Agreement (the "Amended Shareholders Agreement") and the Fourth Amended and Restated Registration -2- Rights Agreement (the "Amended Registration Rights Agreement") (the Agreement, Amended Shareholders Agreement and the Amended Registration Rights Agreement are hereafter collec tively referred to as the "Financing Agreements"), to issue and sell the Shares hereunder, to issue the Conversion Stock and to carry out and perform its obligations under the terms of the Financing Agreements. 3.3 No Subsidiaries. The Company has no subsidiaries or affiliated --------------- companies and does not otherwise own or control, directly or indirectly, any equity interest in any other corporation, partnership, association or other business entity. 3.4 Capitalization. The authorized capital stock of the Company -------------- consists of 75,000,000 shares of Common Stock (the "Common Stock") and 49,508,208 shares of Preferred Stock (the "Preferred Stock"), 2,505,000 of which are designated Series A Preferred Stock ("Series A Preferred"), 10,274,637 are designated Series B Preferred Stock ("Series B Preferred"), 12,175,000 of which are designated Series C Preferred, 3,125,000 of which are designated Series D Preferred and 21,428,571 of which are designated Series E Preferred Stock. Immediately prior to the Closing Date, 3,626,939 shares of Common Stock, 2,505,000 shares of Series A Preferred, 10,274,637 shares of Series B Preferred, 11,975,561 shares of Series C Preferred and 3,125,000 shares of Series D Preferred were issued and outstanding. All such issued and outstanding shares have been duly authorized and validly issued, are fully paid and nonassessable, and were issued in compliance with all applicable federal and state securities laws. The rights, preferences and privileges of the Preferred Stock are as stated in the Articles. Each share of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series E Preferred is convertible into one share of Common Stock of the Company. The Company has reserved 49,508,208 shares of Common Stock for issuance upon conversion of the Preferred Stock. Except for (i) the conversion privileges of the Preferred Stock, (ii) 9,700,000 shares of Common Stock reserved for issuance pursuant to the Company's 1989 Stock Option Plan, under which options to purchase 4,398,300 shares are currently outstanding and 4,483,011 shares remain available for future grant, (iii) 100,000 shares reserved for issuance pursuant to the Company's Sales Representative Stock Purchase Plan, (iv) 131,250 shares of Series C Preferred Stock reserved for issuance pursuant to the exercise of a warrant to purchase Series C Preferred Stock, and (v) the rights provided in Section 3 of the Amended Shareholders Agreement to the Shareholders (as defined therein), at the closing there will be no other outstanding rights of first refusal, preemptive rights or other rights, options, warrants, conversion rights, or other agreements either directly or indirectly for the purchase or acquisition from the Company of any shares of its capital stock. 3.5 Authorization. All corporate action on the part of the Company, ------------- its officers, directors and shareholders necessary for the authorization, execution, delivery and performance of the Financing Agreements and for the authorization, sale, issuance (or reservation for issuance) and delivery of the Shares and the Conversion Stock, and the performance of the Company's obligations hereunder has been taken. The Financing Agreements when executed and delivered by the Company, will constitute legal, valid and binding obligations of the Company enforceable against -3- the Company in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights and, with respect to Amended Registration Rights Agreement except as the enforceability of Section 7 thereof may be limited by public policy. The Shares and the Conversion Stock, when issued in compliance with the provisions of this Agreement, will be, validly issued, fully paid and nonassessable, and free of any liens or encumbrances; provided, however, that the Shares and the Conversion Stock may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein. The Shares and the Conversion Stock will be, assuming the accuracy of the representations set forth in Section 4 hereof, issued in compliance with the state and/or federal securities laws. The Shares and the Conversion Stock are not subject to any preemptive rights or rights of first refusal except as have been waived or satisfied. Except as provided in the Amended Shareholders Agreement, the Company is not a party or subject to any agreement or understanding, and, to the Company's knowledge, there is no agreement or understanding between any persons and/or entities, which affects or relates to the voting or giving of written consents with respect to any security or by a director of the Company. 3.6 Financial Statements. The Company has delivered to the Purchaser -------------------- its audited financial statements (balance sheet and statement of operations) and statement of shareholders' equity for the years ended December 31, 1993 and 1992 and its unaudited financial statements (balance sheet and statement of operations) and statement of shareholders' equity for the year ended December 31, 1994 and the three (3) month period ended March 31, 1995 (collectively, the "Financial Statements"). The Financial Statements are complete and correct in all material respects and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis for the periods indicated and with each other. The Finan cial Statements accurately set out and describe the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein, subject, in the case of the unaudited financial statements, to normal year-end audit adjustments. Except as set forth in the Financial Statements, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Financial Statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with generally accepted accounting principles. 3.7 Title to Properties; Liens and Encumbrances. The Company has ------------------------------------------- good and marketable title to all of its properties and assets. Such properties and assets are not subject to any mortgage, pledge, lien, security interest, conditional sales agreement, encumbrance or charge, except liens for current taxes not yet due and payable. The Company is not in default or in breach and has not received notice of default of any provision of its leases or licenses and the Company holds valid leaseholds or licensed interests in the properties which it leases or which is licensed to it. The Company's properties and assets are in good condition and repair in all material respects. -4- 3.8 Intellectual Property Rights. Except as disclosed in Exhibit C, ---------------------------- the Company (a) owns or has the right to use, free and clear of all liens, claims and restrictions, all patents, trademarks, service marks, trade names, copyrights and other intangible or intellectual property rights (and licenses with respect to the foregoing) needed for or used in the conduct of its business as now conducted and as proposed to be conducted (as reflected in the Business Plan) without infringing upon or otherwise acting adversely to the right or claimed right of any person under or with respect to any of the foregoing, and (b) is not obligated or under any liability whatsoever to make any payments by way of royalties, fees or otherwise to any owner of, licensor of, or other claimant to, any patent, trademark, trade name, copyright or other intangible assets, with respect to the use thereof or in connection with the conduct of its business or otherwise. Except as disclosed in Exhibit C, the Company owns or has the unrestricted right to use all trade secrets, including know-how, inventions, designs, processes, and technical data required for or incident to the development, manufacture, operation and sale of all products and services sold or proposed to be sold by the Company and all of the patents, trademarks, service marks, trade names, copyrights and trade secrets of the Company are held by the Company free and clear of any rights, liens or claims of others, including, without limitation, current and former employees, former employers of all current and former employees, consultants, officers, directors and shareholders of the Company. 3.9 Proprietary Information Agreements. All employees and ---------------------------------- consultants of the Company are parties to a written agreement ("Proprietary Information and Inventions Agreement") under which each such employee or consultant (i) is obligated to disclose and transfer to the Com pany, without the receipt by such person of any additional value therefor (other than normal salary or fees for consulting services), all inventions, developments and discoveries which, during the period of his employment with or performance of services for the Company, he makes or conceives of either solely or jointly with others, that relate to any subject matter with which his work for the Company may be concerned, or relate to or are connected with the business, products or projects of the Company, or involve the use of the time, material or facilities of the Company, and (ii) is obligated to maintain the confidentiality of proprietary information of the Company. To the best of the Company's knowledge, none of the Company's employees or consultants, are in violation of the Proprietary Information and Inventions Agreement to which such employee or consultant is a party. None of the Company's employees or consultants are obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would conflict with their obligation to use their best efforts to promote the interests of the Company or that would conflict with the Company's business as conducted or as proposed to be conducted. Neither the execution nor delivery of the Financing Agreements, nor the carrying on of the Company's business by its employees and consultants, nor the conduct of the Company's business as proposed, will conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees or consultants are now obligated. The Company does not believe it is or will be necessary to utilize, and will not utilize, any inventions of any of the Company's employees or consultants (or people it currently intends to hire) made or owned prior to -5- their employment by the Company or that it is or will be necessary to utilize any other assets or rights of any of its employees or consultants (or people it currently intends to hire) made or owned prior to their employment with or engagement by the Company, in violation of any limitations or restrictions to which any such employee or consultant is a party or to which any of such assets or rights may be subject. To the best of the Company's knowledge, none of the Company's employees or consultants, have taken, removed or made use of any proprietary documentation, manuals, products, materials, or any other tangible item from his previous employer, and the Company will not make use of any such proprietary items in the business of the Company. 3.10 Operating Rights. The Company has all operating authority, ---------------- licenses, franchises, permits, certificates, consents, rights and privileges (collectively, the "Permits") as are necessary or appropriate to the operation of its business as now or as proposed to be conducted, the absence of which would have a material and adverse effect on the business of the Company. Such Permits are in full force and effect, no violations have been or are expected to have been recorded in respect of any such Permits, and no proceeding is pending or threatened that could result in the revocation or limitation of any of such Permits. The Company has conducted its business so as to comply in all respects with all such material Permits. 3.11 Manufacturing, Distribution and License Rights. The Company has ---------------------------------------------- not granted rights or licenses to manufacture, assemble, distribute or sell its products to any person or entity, is not bound by any agreement that affects the Company's exclusive right to manufacture, assemble, distribute or sell its products, and has not licensed or sold any of its technology or proprietary information to any person or entity. 3.12 Compliance with Other Instruments, None Burdensome, etc. The ------------------------------------------------------- Company is not in violation of any term of its Articles or Bylaws. The Company is not in violation of any term or provision of any material mortgage, indenture, contract, agreement, instrument, judgment or decree and the Company is not in violation of any applicable order, statute, rule or regulation where such violation would have a material and adverse effect on the Company. The execution, delivery and performance of and compliance with this Agreement and the other Financing Agreements and the issuance of the Shares and the Conversion Stock have not resulted and will not result in any violation of or conflict with the Company's Articles or Bylaws, and have not resulted and will not result in any material violation of, or be in conflict with, or constitute a default under, or result in the creation of, any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company; and there is no such violation or default or event which, with the passage of time or giving of notice or both, would constitute a violation or default which would materially and adversely affect the business of the Company or any of its properties or assets. 3.13 Litigation, etc. Except as disclosed in Exhibit C, there are no ---------------- actions, suits proceedings or investigations pending against the Company or its properties before any court or governmental agency (nor is there any threat thereof) which, either in any case or in the aggregate, might result in any material adverse change in the business or financial condition of the Company or -6- any of its properties or assets, or in any material impairment of the right or ability of the Company to carry on its business as now conducted or as proposed to be conducted, or in any material liability on the part of the Company, and none which questions the validity of this Agree ment and the other Financing Agreements or any action taken or to be taken in connection herewith or therewith. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or governmental agency or instrumentality. The foregoing includes, without limitation, actions pending or threatened (or any basis therefor known to the Company) involving the prior employment of any of the Company's employees, their use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreement with prior employers. There is no action, suit, proceeding or investigation by the Company currently pending or which the Company intends to initiate. 3.14 Employee Compensation Plans. Except for the Company's 1989 Stock ---------------------------- Option Plan and 1991 Sales Representative Stock Purchase Plan, the Company is not a party to or bound by any currently effective employment contract, deferred compensation agreement, benefit plan, pension, profit-sharing plan, stock option, retirement agreement, or other employee compensation agreement. The Company has provided copies of all such plans, contracts, and agreements to which the Company is currently a party. The Company is not bound by or subject to (and none of its assets are bound by or subject to) any arrangement with any labor union and does not have any collective bargaining agreements covering any of its employees. 3.15 Insurance. The Company has obtained and maintained in full force ---------- and effect fire, casualty and liability insurance policies with recognized insurers with such coverages as are carried by similar companies, sufficient in amount to allow replacement of the tangible properties of the Company that might be damaged or destroyed. 3.16 Registration Rights. Except as contemplated by this Agreement ------------------- and the Amended Registration Rights Agreement, the Company is not under any obligation to register any of its presently outstanding securities or any of its securities which may hereafter be issued. 3.17 Governmental Consent, etc. No consent, approval or authorization -------------------------- of, or designation, declaration or filing with, any governmental authority on the part of the Company is required in connection with the valid execution, delivery, and performance of this Agreement and the other Financing Agreements or the offer, sale or issuance of the Shares or the Conversion Stock, or the consummation of any other transaction contemplated by this Agreement and the other Financing Agreements except certain filings as may be under the Securities Act of 1933, as amended (the "Securities Act") and the California Corporations Code. 3.18 Offering. Subject to the accuracy of the Purchaser's -------- representations in Section 4 hereof, the offer, sale and issuance of the Shares and the Conversion Stock constitute transactions exempt from the registration requirements of Section 5 of the Securities Act, and from the qualification requirements of applicable state or other securities laws. -7- 3.19 Material Contracts and Obligations. Set forth in Exhibit C ---------------------------------- hereto is a list of all agreements, contracts, indebtedness, liabilities and other obligations to which the Company is a party or by which the Company is bound that are material to the conduct and operations of its business and properties, that provide for payments to or by the Company in excess of $50,000, that relate to any product or technology the Company is developing, or that involve transactions or proposed transactions between the Company and its officers or directors. All of such agreements and contracts are valid, binding and in full force and effect in all material respects, assuming due execution by the other parties to such agreements and contracts. 3.20 Tax Returns and Payments. The Company has accurately prepared ------------------------ and timely filed all tax returns (foreign, federal, state and local) required to be filed by it. All taxes shown to be due and payable on said returns, any assessments received, and all other taxes due and payable by the Company on or before the date hereof have been paid or will be paid prior to the time they become delinquent. The federal income tax returns of the Company have not been audited by the Internal Revenue Service. No deficiency assessment or proposed adjustment of the Company's foreign or federal income tax or state or local taxes is pending and the Company has no knowledge of any proposed liability for any tax to be imposed upon its properties or assets for which the Company has not adequately reserved. 3.21 Related Party Transactions. No officer or director of the -------------------------- Company (a) is an officer, director or general partner of, or directly or indirectly owns beneficially more than 5% of the equity of, any business which (i) furnishes or sells services or products which compete with services or products furnished or sold by the Company, or (ii) purchases from or sells or furnishes to the Company any goods or services on terms less favorable than the Company could obtain from third parties, or (b) has a beneficial interest in any contract or agreement to which the Company is a party or by which it may be bound or affected involving the payment or receipt of in excess of $10,000. 3.22 Certain Transactions. Except as set forth on Exhibit C attached -------------------- hereto, the Company is not indebted, directly or indirectly, to any of its officers, directors or shareholders or to their respective spouses or children, in any amount whatsoever; none of such officers, directors, or shareholders, or any members of their immediate families, are indebted to the Company or have any direct or indirect ownership interest in any firm or corporation with which the Company has a business relationship, or any firm or corporation that competes with the Company. No officer, director or shareholder, or any member of their immediate families, is, directly or indirectly, interested in any material contract with the Company. The Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation. 3.23 Environmental Protection. Except as disclosed in Exhibit C: ------------------------ (a) The Company has not caused or allowed, nor has the Company contracted with any party for, the generation, use, transportation, treatment, storage or disposal of -8- any Hazardous Substances (as defined below) in connection with the operations of its business or otherwise. (b) The Company, the operations of its business, and any real property that the Company owns, leases, or otherwise occupies or uses (the "Premises") are in compliance with all applicable Environmental Laws (as defined below) and orders or directives of any governmental authorities having jurisdiction under such Environmental Laws including, without limitation, any Environmental Laws or orders or directives with respect to any cleanup or remediation of any release or threat of release of Hazardous Substances. (c) The Company has not received any citation, directive, letter or other communication, written or oral, or any notice of any proceedings, claims or lawsuits, from any person, entity or governmental authority arising out of the ownership or occupation of the Premises, or the conduct of its operations, nor is it aware of any basis therefor. (d) The Company has obtained and is maintaining in full force and effect all necessary permits, licenses and approvals required by any Environmental Laws applicable to the Premises and the business operations conducted thereon (including operations conducted by tenants on the Premises) and is in compliance with all such permits, licenses and approvals. (e) The Company has not caused, or allowed a release, or a threat of release, of any Hazardous Substance unto, at or near the Premises nor, to the best of the Company's knowledge, has the Premises or any property at or near the Premises ever been subject to a release, or a threat of release, of any Hazardous Substance. The term "Environmental Laws" shall mean any federal, state or local law, ordinance or regulation pertaining to the protection of human health or the environment including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Sections 9601, et seq., Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections 11001, et seq., and the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901, et seq. The term "Hazardous Substance" includes oil and petroleum products, asbestos, polychlorinated biphenyls and urea formaldehyde, and any other materials classified as hazardous or toxic under any Environmental Laws. 3.24 Brokers or Finders. The Company has not incurred, directly or ------------------ indirectly, any liability for brokerage or finders' fees, agent's commission, or other similar charges in connection with this Agreement or any of the transactions contemplated hereby. 3.25 Changes. Since March 31, 1995, there has not been: ------- (a) any changes in the assets, liabilities, financial condition or operating -9- results of the Company from that reflected in the Financial Statements, except changes in the ordi nary course of business which have not been, in the aggregate, materially adverse; (b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, prospects or business of the Company (as such business is presently conducted and as it is proposed to be conducted); (c) any waiver by the Company of a valuable right or of a material debt owed to it; (d) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and which is not material to the assets, properties, financial condition, operating results or business of the Company (as such business is presently conducted and as it is proposed to be conducted); (e) any change or amendment to a material contract or arrangement by which the Company or any of its assets or properties is bound or subject; (f) any material change in any compensation arrangement or agreement with any employee; or (g) to the Company's knowledge, any other event or condition of any character which might materially and adversely affect the assets, properties, financial condition, operating results or business of the Company (as such business is presently conducted and as it is proposed to be conducted). 3.26 Foreign Investment in Real Property Act. The Company is not a --------------------------------------- "United States real property holding corporation" for the purposes of Section 897(c)(2) of the Internal Revenue Code of The United States of America and the Treasury Regulations thereunder ("FIRPTA"). 3.27 Disclosure. No statement by the Company contained in the ---------- Financing Agreements, nor any written statement or certificate furnished or to be furnished to the Purchaser in connection with the transactions contemplated hereby including without limitation the Business Plan (when read with other documents so furnished) contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made except that, with respect to the financial projections contained in the Business Plan, the Company only represents that such projections where made in good faith. 4. Representations and Warranties of the Purchasers. Each Purchaser, ------------------------------------------------ severally and not jointly, represents and warrants to the Company with respect to the purchase of the Shares as -10- follows: 4.1 Authorization. All action on the part of the Purchaser necessary ------------- for the authorization, execution, delivery and performance by the Purchaser of the Financing Agreements has been taken, and the Financing Agreements when executed and delivered by the Purchaser will constitute valid and binding obligations of the Purchaser, enforceable in accordance with their terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditor's rights and, with respect to the Amended Registration Rights Agreement, except as the enforceability of Section 7 thereof may be limited by public policy. 4.2 Experience. The Purchaser is experienced in evaluating and ---------- investing in new high technology companies such as the Company. 4.3 Investment. The Purchaser is acquiring the Shares for ---------- investment, for its own account, and not with a view to, or for resale in connection with, any distribution. The Purchaser understands that the Shares have not been, and will not be (except as contemplated in the Amended Registration Rights Agreement) registered under the Securities Act or applicable state or other securities laws by reason of a specific exemption from the registration provisions of the Securities Act and applicable state and other securities laws which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. 4.4 Rule 144. The Purchaser acknowledges that the Shares must be -------- held indefinitely unless subsequently registered under the Securities Act and applicable state and other securities laws or unless an exemption from such registration is available. The Purchaser is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions. 4.5 No Public Market. The Purchaser understands that no public ---------------- market now exists for the Shares or the Conversion Stock and that it is unlikely that a public market will ever exist for the Shares. 4.6 Access to Data. The Purchaser has had an opportunity to discuss -------------- the Company's business, management and financial affairs with the Company's management and an opportunity to review the Company's facilities. The Purchaser understands that such discussions, as well as the written information issued by the Company, were intended to describe the aspects of the Company's business and prospects which it believes to be material but were not necessarily a thorough or exhaustive description. 4.7 Further Limitations on Dispositions. Without in any way limiting ----------------------------------- the representations set forth above, the Purchaser further agrees that, if at the time of any transfer of any Shares or Conversion Stock, such Shares or Conversion Stock shall not be registered under the Securities Act, prior to any disposition of all or any portion of the Shares or Conversion Stock, the -11- Company may require, as a condition of allowing such transfer, that the holder or transferee furnish to the Company (i) such information as is necessary in order to establish that such transfer may be made without registration under the Securities Act; and (ii) at the expense of the holder or transferee, an opinion by legal counsel designated by such holder or transferee and reasonably satisfactory in form and substance to the Company, to the effect that such transfer may be made without registration under the Securities Act. Notwithstanding the foregoing, no such opinion of counsel shall be necessary for a transfer pursuant to Rule 144 of the Securities and Exchange Commission or by a Purchaser which is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner or to any person or entity that is deemed to be an "affiliate" of the Purchaser for purposes of the Securities Act. 5. Conditions to Purchasers' Obligations at the Closing. The Purchasers' ---------------------------------------------------- obligation to purchase the Shares at the First Closing or any Subsequent is subject to the fulfillment on or prior to the Closing Date of each of the following conditions, any of which may be waived in whole or in part by a majority-in-interest of the Purchasers. 5.1 Representations and Warranties Correct. The representations and -------------------------------------- warranties made by the Company in Section 3 hereof shall be true and correct when made, and shall be true and correct on the Closing Date with the same force and effect as if they had been made on and as of the same date. 5.2 Covenants. All covenants, agreements, and conditions in this --------- Agreement required to be performed or complied with by the Company on or prior to the Closing Date shall have been performed or complied with by the Company. 5.3 Opinion of Counsel. The Purchasers shall have received from ------------------ Wilson, Sonsini, Goodrich & Rosati, counsel to the Company, an opinion letter dated as of the Closing Date, substantially in the form attached hereto as Exhibit D. 5.4 Permits. All governmental and third party approvals, permits, ------- licenses and waivers necessary or appropriate for consummation of the transactions to be consummated at the First Closing Date shall have been obtained. 5.5 Amended and Restated Articles of Incorporation. The Company ---------------------------------------------- shall have filed the Articles with the Secretary of State of the State of California on or prior to the Closing Date. 5.6 Good Standing Certificates. The Company shall have delivered a -------------------------- Certificate dated as of a recent date issued by the Secretary of State of the State of California to the effect that the Company is legally existing and in good standing and a letter dated as of a recent date from the Franchise Tax Board of the State of California to the effect that the Company is in good standing. -12- 5.7 Officer's Certificate. The Company shall have delivered a --------------------- certificate or certificates, executed by the Chief Executive Officer or the President of the Company, dated the Closing Date, certifying to the fulfillment of the conditions specified in Sections 5.1, 5.2, and 5.4 of this Agreement. 5.8 Secretary's Certificate. The Company shall have delivered a ----------------------- certificate executed by the Secretary or Assistant Secretary of the Company dated the Closing Date, certifying the following matters: (a) the resolutions adopted by the Company's Board of Directors and shareholders relating to the transactions contemplated by this Agreement; (b) the Articles of the Company; (c) the Bylaws of the Company; and (d) incumbency of officers of the Company. 5.9 Stock Certificate. The Company shall have delivered to each ----------------- Purchaser a certificate for the number of Shares set forth opposite such Purchaser's name on Schedule A hereto. 5.10 Legal Investment. At the Closing Date, the purchase of the ---------------- Shares by the Purchasers hereunder shall be legally permitted by all laws and regulations to which the Purchasers and the Company are subject. 5.11 Shareholders Agreement. The Company and the Purchasers shall ---------------------- have entered into the Amended Shareholders Agreement. 5.12 Registration Rights Agreement. The Company and the Purchasers ----------------------------- shall have entered into the Amended Registration Rights Agreement substantially in the form attached hereto as Exhibit E. 6. Conditions to Company's Obligations at the Closing. The Company's -------------------------------------------------- obligation to issue, sell and deliver the Shares at the First Closing or any Subsequent is subject to the fulfillment at or prior to the Closing Date of the following conditions, any of which may be waived in whole or in part by the Company in accordance with the provisions of Section 7.2 hereof: 6.1 Representations and Warranties Correct. The representations and -------------------------------------- warranties made by the Purchasers in Section 4 hereof shall be true and correct when made, and shall be true and correct on the Closing Date with the same force and effect as if they had been made on or as of the same date. 6.2 Permits. All governmental and third party approvals, permits, ------- licenses and waivers necessary or appropriate for consummation of the transactions to be consummated at such Closing shall have been obtained. 6.3 Amended and Restated Articles. The Articles shall have been ----------------------------- filed with the Secretary of State of the State of California. -13- 6.4 Payment of the Purchase Price. The Purchasers shall have ----------------------------- delivered to the Company the purchase price for the Shares to be purchased hereby. 7. Miscellaneous. -------------- 7.1 Attorneys' Fees. If either the Company or the Purchasers bring --------------- any suit, action, counterclaim, or arbitration to enforce the provisions of this Agreement, the prevailing party therein shall be entitled to recover a reasonable allowance for attorneys' fees and litigation expenses in addition to court costs. "Prevailing Party" within the meaning of this section includes, without limitation, a party who agrees to dismiss an action or proceeding upon the other party's payment of the sums allegedly due or performance of the covenants allegedly breached, or who obtains substantially the relief sought by it. 7.2 Waivers and Amendments. With the written consent of the holders ---------------------- of two-thirds of the Shares, the obligations of the Company under this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely), and with the same consent, the Company, when authorized by resolution of its Board of Directors, may enter into a supplementary agreement for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement. 7.3 Governing Law. This Agreement shall be governed in all respects ------------- by the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within California. 7.4 Survival. The representations, warranties, covenants and -------- agreements made herein shall survive any investigation made by the Purchaser and the closing of the transactions contemplated hereby. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto or in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder as of the date of such certificate or instrument. 7.5 Successors and Assigns. Except as otherwise expressly provided ---------------------- herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 7.6 Entire Agreement. This Agreement constitutes the full and entire ---------------- understanding and agreement between the parties with regard to the subjects hereof. 7.7 Severability of this Agreement. In case any provision of this ------------------------------ Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. -14- 7.8 Finder's Fees. The Company represents and warrants that it has ------------- retained no finder or broker in connection with the transactions contemplated by this Agreement and hereby agrees to indemnify and to hold the Purchasers harmless of and from any liability for commission or compensation in the nature of a finder's fee to any broker or other person or firm (and the costs and expenses of defending against such liability or asserted liability) for which the Company, or any of its employees or representatives, are responsible. Each Purchaser represents and warrants that such Purchaser has retained no finder or broker in connection with the transactions contemplated by this Agreement and hereby agrees to indemnify and to hold the Company harmless of and from any liability for any commission or compensation in the nature of a finder's fee to any broker or other person or firm (and the costs and expenses of defending against such liability or asserted liability) for which such Purchaser, or any of its employees or representatives, are responsible. 7.9 Legends. Each certificate representing the Shares shall be ------- endorsed with a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHE CATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR ITS SUCCESSOR RULE UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. Each certificate representing the Shares shall also bear any legend required by any applicable state securities law. The Company need not register a transfer of Shares, unless the conditions specified in the foregoing legends are satisfied. The Company may also instruct its transfer agent not to register the transfer of any of the Shares unless the conditions specified in the foregoing legend is satisfied. 7.10 Removal of Legends and Transfer Restrictions. The legend -------------------------------------------- relating to the Securities Act endorsed on a stock certificate pursuant to Section 8.9 of this Agreement and the stop transfer instructions with respect to the Shares represented by such certificate shall be removed and the Company shall issue a certificate without such legend to the holder of such Shares if such Shares are registered under the Securities Act and a prospectus meeting the requirements of Section 10 of the Securities Act is available or if such holder provides to the Company an opinion of counsel reasonably satisfactory to the Company to the effect that a public sale, transfer or assignment may be made without registration or if the Shares may be sold pursuant to Rule 144(k) of the Securities Act of 1933. 7.11 Titles and Subtitles. The titles of the sections and subsections -------------------- of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. -15- 7.12 Counterparts. This Agreement may be executed in counterparts, ------------ each of which shall be an original, but all of which together shall constitute one instrument. 7.13 Delays or Omissions. It is agreed that no delay or omission to ------------------- exercise any right, power or remedy accruing to the Purchasers, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach or default, or any acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character by any Purchaser of any breach or default under this Agreement, or any waiver by any Purchaser of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in writing and that all remedies, either under this Agreement, or by law or otherwise afforded to the Purchasers, shall be cumulative and not alternative. 7.14 Notices. All notices and other communications required or ------- permitted hereunder shall be in writing and shall be deemed effectively given upon personal delivery or upon deposit with the United Stated Post Office, by first class mail, postage prepaid, addressed: (a) if to a Purchaser, at such Purchaser's address set forth on Schedule A attached hereto, or at such other address as such Purchaser shall have furnished to the Company in writing, or (b) if to the Company, at the Company's address as set forth below, or at such other address as the Company shall have furnished to the Purchaser in writing: To the Company: -------------- QuickLogic Corporation 2933 Bunker Hill Lane, Ste. 100A Santa Clara, CA 95054 Attn: President 7.15 Transaction Fees and Expenses. The Company shall pay the ----------------------------- reasonable fees and costs of the Purchasers' special counsel, in connection with the transactions contemplated by this Agreement; provided, however, that the Company shall not be obligated to pay fees incurred by Purchasers' special counsel in excess of $__________. -16- IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first written above. THE COMPANY: QUICKLOGIC CORPORATION By /s/ ______________________________ Title___________________________ "Purchaser" ________________________________ Print Individual or Entity Name By: /s/ _____________________________ Signature ________________________________ Print Signatory's Name ________________________________ Title of Agent* * Agent, officer, partner trustee, etc. -17- SCHEDULE A ---------- Schedule of Purchasers ----------------------
NAME/ADDRESS NUMBER PURCHASE - ------------ OF PRICE SHARES ----------------------- OF ACCRUED STOCK CASH PRINCIPAL INTEREST TOTAL ------ ---- --------- -------- -----
EXHIBIT C QUICKLOGIC CORPORATION SERIES E PREFERRED STOCK PURCHASE AGREEMENT SCHEDULE OF EXCEPTIONS The disclosures set forth in this Schedule of Exceptions are itemized to correspond to the first or principal section of the QuickLogic Corporation Series E Preferred Stock Purchase Agreement (the "Agreement") to which they relate. Each of the disclosures made herein shall qualify each of the sections of the Agreement to which they relate. Section 3.4 Capitalization -------------- The Company has authorized 175,000 shares of Series C Preferred Stock in order to enable the Company to issue Preferred Stock Warrants to banks and/or equipment lessors in connection with debt financing which may be provided by such entities. Section 3.7 Title to Properties; Liens and Encumbrances. ------------------------------------------- The Company owns no real property. The Company has leased certain office and manufacturing equipment used in its business and does not own such equipment. The aggregate value of such equipment is approximately $500,000. Section 3.8 Intellectual Property Rights. ---------------------------- With respect to the representation that the Company has the unrestricted right to use all trade secrets, including know-how, inventions, design processes and technical data, the Company has not conducted an investigation or audit of its or third parties' intellectual property rights or its or third parties' proprietary rights, nor has it retained patent counsel for that purpose. The exceptions to the representations contained in Section 3.8 that the Company is currently aware are set forth below, however the Company's business is in a field where intellectual property litigation is frequent. Additional claims and/or litigation maybe brought. Licenses. -------- The Company has granted certain technology license rights and manufacturing rights to VLSI Technology, Inc. ("VLSI") pursuant to an agreement dated May 9, 1990, as amended (the "VLSI" Agreement"). The Company has granted certain technology license rights and manufacturing rights to Cypress Semiconductor Corp. ("Cypress") pursuant to an agreement dated October 2, 1992 (the "Cypress Agreement"). Actel Litigation. ---------------- On January 20, 1994, Actel Corporation filed suit against QuickLogic alleging infringement by QuickLogic of U.S. Patents No. 4,758,745; 4,873,459; 5,055,718; and 5,198,705. Plaintiff seeks damages and injunctive relief. On or about February 10, 1994, QuickLogic filed an answer and counter-claim seeking in the counter-claim a declaration that each of the patents alleged to be infringed was not infringed and in addition that each of the patents upon which suit was brought was invalid, void and unenforceable. Discovery has begun. QuickLogic moved to stay proceedings pending reexamination of two patents involved in the litigation and the court granted this motion in early Summer 1994. The United States Patent and Trademark Office confirmed the patentability of the two Actel patents placed in reexamination (the '745 and the '459 patents) in late summer and early fall 1994. The court then lifted the stay in late November 1994 and shortly thereafter Actel filed a motion for summary judgment with respect to claim 1 of the '718 patent. QuickLogic has opposed Actel's motion. The court has scheduled a two hour tutorial on the technology for June 30, 1995. No hearing has been set for the summary judgment motion. Actel on or about March 15, 1995 amended its complaint to add to the suit U.S. Patent No. 5,367,208 (the "'208 patent"), a patent which issued on November 22, 1994 and which is assigned to Actel. On or about April 12, 1995, QuickLogic filed a counterclaim against Actel alleging infringement by Actel of QuickLogic U.S. Patents No. 5,220,213 (the "'213 patent") entitled "Programmable Application in Specific Integrated Circuit and Logic Cell Therefore" and 5,396,127 (the "'127 patent"), entitled "Programmable Application in Specific Integrated Circuit and Logic Cell Therefore". This counterclaim was in response to the amended complaint filed by Actel against QuickLogic on or about March 15, 1995. A trial date has been set for September 23, 1996. Instant Circuit Corporation. --------------------------- The Company has received correspondence from Instant Circuit Corporation "ICC") alleging that the Company's technology may infringe one or more of ICC's patents. The Company and its patent counsel have reviewed the ICC patents and have notified ICC that the Company does not believe that the Company's technology infringes ICC's patents. ICC has responded by letter dated February 5, 1992 reiterating its belief that the Company's products infringe ICC's patents, but indicating ICC's intent to wait to see whether the Company's products are successful in the marketplace before pursuing the matter. On June 12, 1992, the Company received a letter from Xilinx requesting the Company to review Xilinx's patent 4,870,302 entitled "Configurable Electrical Circuit Having Configurable Logic Elements and Configurable Interconnects" and stating Xilinx's belief that at least one claim under that patent is infringed by the Company's products. No litigation has been instituted by Xilinx, and there has been no correspondence between the Company and Xilinx regarding this matter during the year preceding the Closing Date. While the Company does not believe that there is any basis for a legal claim by Xilinx, there can be no assurance that Xilinx will not elect to take further legal action in the future. Such legal action, if instituted, could have a material adverse effect on the Company's business. See disclosure under Section 3.9. Section 3.9 Proprietary Information Agreements. ---------------------------------- Actel has claimed that QuickLogic has misappropriated the trade secrets of Actel based, at least in part, upon the fact that John Birkner, a founder of QuickLogic, performed consulting services for Actel prior to and allegedly after joining the Company. Section 3.11 Manufacturing, Distribution and License Rights. ---------------------------------------------- The Company has granted certain rights to VLSI and Cypress pursuant to the VLSI Agreement and the Cypress Agreement, respectively. Section 3.13 Litigation ---------- See the discussion of the Actel, Xilinx and ICC and other issued discussed in Section 3.8 above. Section 3.19 Material Contracts and Obligations. ---------------------------------- The following is a list of all agreements and obligations described in Section 3.19: 1. VLSI Agreement. 2. The Company subleases its facility at 2933 Bunker Hill Lane. Its current lease is due to expire on December 31, 1996. 3. Software OEM Distribution Agreement with Data I/O, Inc. pursuant to which the Company obtained rights to sublicense certain Data I/O software on an OEM basis. The Company is required to make annual royalty payments of up to $100,000 to Data I/O pursuant to this Agreement. 4. Employee Restricted Stock Purchase Agreements between the Company and each of the founders and option agreements with persons who have been granted options. 5. Cypress Agreement. The Company also has outstanding miscellaneous licensing agreement with entities including Synopsis, Simplicity, SimulCad, Saros, and Premia. None of these agreements currently involve annual payment obligations in excess of $50,000. -3- Section 3.21 Related Party Transactions. The Company has entered into --------------------------- the Cypress Agreement with Cypress. See also Section 3.22 below regarding loans to John Birkner and from certain shareholders of the Company. Section 3.22 Certain Transactions. -------------------- The Company has loaned John Birkner $114,000, evidenced by demand promissory notes from Mr. Birkner to the Company secured by a pledge of Mr. Birkner's shares of the Company's stock. These loans were approved by the Company's Board of Directors and shareholders. The Company has obtained loans with a principal amount of approximately $4.639 million from certain entities, including certain shareholders of the Company, evidenced by promissory notes made by the Company. The Company expects all such promissory notes to be converted into Series E Preferred Stock of the Company pursuant to this Agreement. -4- EX-10.8 11 SERIES F PREFERRED STOCK PURCHASE AGMT. EXHIBIT 10.8 ================================================================================ QUICKLOGIC CORPORATION Series F Preferred Stock Purchase Agreement November 27, 1996 ================================================================================ TABLE OF CONTENTS PAGE ---- 1. Authorization and Sale of Preferred Stock............................... 1 1.1 Authorization..................................................... 1 1.2 Sale of the Shares................................................ 1 1.3 Sale of Additional Series F Preferred............................. 1 2. Closing Date; Delivery.................................................. 1 2.1 First Closing Date................................................ 1 2.2 Delivery.......................................................... 2 2.3 Subsequent Closing................................................ 2 2.4 Minimum Closing Amount............................................ 2 3. Representations and Warranties of the Company........................... 2 3.1 Organization and Standing; Articles of Incorporation and Bylaws... 2 3.2 Corporate Power................................................... 2 3.3 No Subsidiaries................................................... 3 3.4 Capitalization.................................................... 3 3.5 Authorization..................................................... 4 3.6 Financial Statements.............................................. 4 3.7 Title to Properties; Liens and Encumbrances....................... 5 3.8 Intellectual Property Rights...................................... 5 3.9 Proprietary Information Agreements................................ 5 3.10 Operating Rights.................................................. 6 3.11 Manufacturing, Distribution and License Rights.................... 6 3.12 Compliance with Other Instruments, None Burdensome, etc........... 6 3.13 Litigation, etc................................................... 7 3.14 Employee Compensation Plans....................................... 7 3.15 Insurance......................................................... 7 3.16 Registration Rights............................................... 7 3.17 Governmental Consent, etc......................................... 7 3.18 Offering.......................................................... 8 3.19 Material Contracts and Obligations................................ 8 3.20 Tax Returns and Payments.......................................... 8 3.21 Related Party Transactions........................................ 8 -1- 3.22 Certain Transactions.............................................. 9 3.23 Environmental Protection.......................................... 9 3.24 Brokers or Finders................................................10 3.25 Changes...........................................................10 3.26 Foreign Investment in Real Property Act...........................11 3.27 Disclosure........................................................11 4. Representations and Warranties of the Purchasers........................11 4.1 Authorization.....................................................11 4.2 Experience........................................................11 4.3 Investment........................................................11 4.4 Rule 144..........................................................11 4.5 No Public Market..................................................12 4.6 Access to Data....................................................12 4.7 Further Limitations on Dispositions...............................12 5. Conditions to Purchasers' Obligations at the Closing....................12 5.1 Representations and Warranties Correct............................12 5.2 Covenants.........................................................13 5.3 Opinion of Counsel................................................13 5.4 Permits...........................................................13 5.5 Amended and Restated Articles of Incorporation....................13 5.6 Good Standing Certificates........................................13 5.7 Officer's Certificate.............................................13 5.8 Secretary's Certificate...........................................13 5.9 Stock Certificate.................................................13 5.10 Legal Investment..................................................13 5.11 Shareholders Agreement............................................14 5.12 Registration Rights Agreement.....................................14 6. Conditions to Company's Obligations at the Closing......................14 6.1 Representations and Warranties Correct............................14 6.2 Permits...........................................................14 6.3 Amended and Restated Articles.....................................14 6.4 Payment of the Purchase Price.....................................14 7. Miscellaneous...........................................................14 -2- 7.1 Attorneys' Fees...................................................14 7.2 Waivers and Amendments............................................14 7.3 Governing Law.....................................................15 7.4 Survival..........................................................15 7.5 Successors and Assigns............................................15 7.6 Entire Agreement..................................................15 7.7 Severability of this Agreement....................................15 7.8 Finder's Fees.....................................................15 7.9 Legends...........................................................15 -3- SCHEDULES AND EXHIBITS Schedule A Schedule of Purchasers Exhibit A Amended and Restated Articles of Incorporation Exhibit B Fifth Amended and Restated Shareholders Agreement Exhibit C Fifth Amended and Restated Registration Rights Agreement Exhibit D Schedule of Exceptions Exhibit E Opinion of Wilson, Sonsini, Goodrich & Rosati -4- QUICKLOGIC CORPORATION SERIES F PREFERRED STOCK ------------------------ PURCHASE AGREEMENT ------------------ This SERIES F PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made as of November 27, 1996 by and among QuickLogic Corporation, a California corporation (the "Company"), and the persons and entities listed on Schedule A hereto (the "Purchasers"). In consideration of the mutual promises, representations, warranties, covenants, and conditions set forth in this Agreement, the parties to this Agreement mutually agree as follows: 1. Authorization and Sale of Preferred Stock. ------------------------------------------ 1.1 Authorization. The Company has authorized the issuance and sale ------------- of up to 9,482,759 shares of its Series F Preferred Stock ("Series F Preferred") having the rights, preferences, and privileges set forth in the Amended and Restated Articles of Incorporation (the "Restated Articles") of the Company, attached hereto as Exhibit A. The aggregate shares of common stock issuable upon conversion of the shares of Series F Preferred are referred to in this Agreement as the "Conversion Stock." 1.2 Sale of the Shares. Subject to the terms and conditions hereof, ------------------ at the First Closing (as defined in Section 2.1 hereof) and the Subsequent Closing (as defined in Section 2.3 hereof), the Company will issue and sell to each Purchaser, and each Purchaser will purchase from the Company the number of shares of Series F Preferred (the "Shares") specified opposite the name of such Purchaser on Schedule A hereto at a purchase price of $1.16 per share. The Company's agreement with each Purchaser hereunder is a separate agreement and the sale of the Shares to each Purchaser is a separate sale. 1.3 Sale of Additional Series F Preferred. The Company shall have ------------------------------------- until December 15, 1996 to sell any Shares not sold at the First Closing (as defined below) at a purchase price of $1.16 per share. Any such shares sold after the First Closing are referred to herein as "Additional Shares." The Additional Shares shall be considered "Shares," and the purchasers of such Additional Shares (the "Additional Purchasers") shall be considered "Purchasers" for purposes of this Agreement and shall have the same rights and obligations as if they had purchased their shares pursuant to this Agreement at the First Closing. The maximum number of Shares the Company may sell under this Agreement is 9,482,759. In the event that said maximum number of shares are not sold and issued on or before December 15, 1996, the Company will promptly take all necessary action to amend the Articles to reduce the authorized number of shares to the number of shares sold on or before such date. 2. Closing Date; Delivery. ----------------------- 2.1 First Closing Date. The closing of the purchase and sale of the ------------------ Shares hereunder (the "First Closing") shall be held at the law offices of Wilson, Sonsini, Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304 at 2:00 p.m. on November 27, 1996, or at such other time, date or place that the Company and the Purchasers shall agree (which time and date are referred to in this Agreement as the "First Closing Date"). 2.2 Delivery. Subject to the terms of this Agreement, at the First -------- Closing the Company shall deliver to each Purchaser a certificate, registered in such Purchaser's name, representing the number of Shares, designated on Schedule A hereto, to be purchased by such Purchaser against payment of the purchase price for the Shares by check or wire transfer of immediately avail able funds, or by a combination of such methods of payment. 2.3 Subsequent Closings. The purchase and sale of any Additional ------------------- Shares shall be held at a time and place to be agreed upon by the Company and a majority-in-interest of the Additional Purchasers purchasing at such closing (a "Subsequent Closing"), but no later than December 15, 1996. At each Subsequent Closing, the Company shall deliver to each Additional Purchaser purchasing at such closing the certificates representing the Additional Shares which such Additional Purchaser is purchasing against delivery to the Company by such Additional Purchaser of the purchase price therefor by check or wire transfer payable to the Company, in the amount specified the appropriate revised Schedule A. The Company and each Additional Purchaser shall execute and deliver signature pages to this Agreement. 2.4 Minimum Closing Amount. The Company shall not sell any Shares at ---------------------- the First Closing if the aggregate amount to be sold at such closing does not equal $8,100,000 (6,982,759 Shares) or more. 3. Representations and Warranties of the Company. Except as set forth on --------------------------------------------- the Schedule of Exceptions attached hereto as Exhibit D, the Company hereby represents and warrants to each Purchaser as follows: 3.1 Organization and Standing; Articles of Incorporation and Bylaws. --------------------------------------------------------------- The Company is a corporation duly organized and validly existing under, and by virtue of, the laws of the State of California, is in good standing under such laws and is authorized to exercise all of its corporate powers, rights and privileges. The Company has the requisite legal and corporate power and authority to own, lease and operate its properties and assets and to conduct its business as presently conducted and as proposed to be conducted. The Company is qualified to do business as a foreign corporation in each jurisdiction where the failure to be so qualified would have a material adverse effect on the business of the Company as now conducted or as proposed to be conducted. True, correct and complete copies of the Company's Articles, Bylaws and other charter documents, each as will be in effect at the Closing have been delivered to each Purchaser. 3.2 Corporate Power. The Company has the requisite legal and --------------- corporate power to execute and deliver the Agreement, the Fifth Amended and Restated Shareholders Agreement in substantially the form attached hereto as Exhibit B (the "Amended Shareholders Agreement") and the Fifth Amended and Restated Registration Rights Agreement in substantially the form attached hereto as Exhibit C (the "Amended Registration Rights Agreement") (the Agreement, Amended -2- Shareholders Agreement and the Amended Registration Rights Agreement are hereafter collectively referred to as the "Financing Agreements"), to file the Restated Articles with the Secretary of State of California, to issue and sell the Shares hereunder, to issue the Conversion Stock and to carry out and perform its obligations under the terms of the Financing Agreements. 3.3 No Subsidiaries. Except as described in Exhibit D, the Company --------------- has no subsidiaries or affiliated companies and does not otherwise own or control, directly or indirectly, any equity interest in any other corporation, partnership, association or other business entity. 3.4 Capitalization. The authorized capital stock of the Company -------------- consists of 85,000,000 shares of Common Stock (the "Common Stock") and 61,567,874 shares of Preferred Stock (the "Preferred Stock"), 2,505,000 of which are designated Series A Preferred Stock ("Series A Preferred"), 10,274,637 of which are designated Series B Preferred Stock ("Series B Preferred"), 12,106,811 of which are designated Series C Preferred Stock ("Series C Preferred"), 3,125,000 of which are designated Series D Preferred ("Series D Preferred"), 23,873,667 of which are designated Series E Preferred Stock ("Series E Preferred") and 9,482,759 of which are designated Series F Preferred. Immediately prior to the First Closing Date, 4,785,364 shares of Common Stock, 2,505,000 shares of Series A Preferred, 10,274,637 shares of Series B Preferred, 11,975,561 shares of Series C Preferred, 3,125,000 shares of Series D Preferred and 23,873,667 shares of Series E Preferred will be issued and outstanding. All such issued and outstanding shares have been duly authorized and validly issued, are fully paid and nonassessable, and were issued in compliance with all applicable federal and state securities laws. The rights, preferences and privileges of the Preferred Stock are as stated in the Articles. Each share of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series F Preferred is convertible into one share of Common Stock of the Company (as subject to adjustment pursuant to its terms). The Company has reserved 61,567,874 shares of Common Stock for issuance upon conversion of the Preferred Stock. Except for (i) the conversion privileges of the Preferred Stock, (ii) 14,700,000 shares of Common Stock reserved for issuance pursuant to the Company's 1989 Stock Option Plan, under which options to purchase 7,779,789 shares are currently outstanding and 6,920,211 shares remain available for future grant, (iii) 100,000 shares reserved for issuance pursuant to the Company's Sales Representative Stock Purchase Plan, (iv) 131,250 shares of Series C Preferred Stock reserved for issuance pursuant to the exercise of a warrant to purchase Series C Preferred Stock, and (v) the rights provided in Section 3 of the Amended Shareholders Agreement to the Shareholders (as defined therein), at the First Closing there will be no other outstanding rights of first refusal, preemptive rights or other rights, options, warrants, conversion rights, or other agreements either directly or indirectly for the purchase or acquisition from the Company of any shares of its capital stock. 3.5 Authorization. All corporate action on the part of the Company, ------------- its officers, directors and shareholders necessary for the authorization, execution, delivery and performance of -3- the Financing Agreements and for the authorization, sale, issuance (or reservation for issuance) and delivery of the Shares and the Conversion Stock, and the performance of the Company's obligations under the Financing Agreements has been taken. The Financing Agreements when executed and delivered by the Company, will constitute legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights and, with respect to the Amended Registration Rights Agreement, except as the enforceability of Section 7 thereof may be limited by public policy. The Shares and the Conversion Stock, when issued in compliance with provisions of this Agreement, will be, validly issued, fully paid and nonassessable, and free of any liens or encumbrances; provided, however, that the Shares and the Conversion Stock may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein. The Shares and the Conversion Stock will be, assuming the accuracy of the representations set forth in Section 4 hereof, issued in compliance with all applicable state and/or federal securities laws. The Shares and the Conversion Stock are not subject to any preemptive rights or rights of first refusal except as have been waived or satisfied. Except as provided in the Amended Shareholders Agreement, the Company is not a party or subject to any agreement or understanding, and, to the Company's knowledge, there is no agreement or under standing between any persons and/or entities, which affects or relates to the voting or giving of written consents with respect to any security or by a director of the Company. 3.6 Financial Statements. The Company has delivered to each -------------------- Purchaser its audited financial statements (balance sheet, and statement of operations and statement of cash flows and statement of shareholders' equity) for the years ended December 31, 1995, 1994 and 1993 and its unaudited financial statements (balance sheet, statement of operations, statement of cash flows and statement of shareholders' equity) for the ten (10) month period ended October 31, 1996 (collectively, the "Financial Statements"). The Financial Statements are complete and correct in all material respects and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis for the periods indicated and with each other. The Financial Statements accurately set out and describe the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein, subject, in the case of the unaudited financial statements, to normal yearend audit adjustments. Except as set forth in the Financial Statements, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Financial Statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with generally accepted accounting principles. 3.7 Title to Properties; Liens and Encumbrances. The Company has ------------------------------------------- good and marketable title to all of its properties and assets. Such properties and assets are not subject to any -4- mortgage, pledge, lien, security interest, conditional sales agreement, encumbrance or charge, except liens for current taxes not yet due and payable. The Company is not in default or in breach and has not received notice of default of any provision of its leases or licenses and the Company holds valid leaseholds or licensed interests in the properties which it leases or which is licensed to it. The Company's properties and assets are in good condition and repair in all material respects. 3.8 Intellectual Property Rights. Except as disclosed in Exhibit D, ---------------------------- the Company (a) owns or has the right to use, free and clear of all liens, claims and restrictions, all patents, trade marks, service marks, trade names, copyrights and other intangible or intellectual property rights (and licenses with respect to the foregoing) needed for or used in the conduct of its business as now conducted and as proposed to be conducted without infringing upon or otherwise acting adversely to the right or claimed right of any person under or with respect to any of the foregoing, and (b) is not obligated or under any liability whatsoever to make any payments by way of royalties, fees or otherwise to any owner of, licensor of, or other claimant to, any patent, trademark, trade name, copyright or other intangible assets, with respect to the use thereof or in connection with the conduct of its business or otherwise. Except as disclosed in Exhibit D, the Company owns or has the unrestricted right to use all patents, trademarks, service marks, trade names, copyrights, trade secrets, including knowhow, inventions, designs, processes, and technical data required for or incident to the development, manufacture, operation and sale of all products and services sold or proposed to be sold by the Company and all of the patents, trademarks, service marks, trade names, copyrights and trade secrets of the Company are held by the Company free and clear of any rights, licenses, liens or claims of others, including, without limitation, current and former employees, former employers of all current and former employees, consultants, officers, directors and shareholders of the Company. 3.9 Proprietary Information Agreements. All employees and ---------------------------------- consultants of the Company are parties to a written agreement ("Proprietary Information and Inventions Agreement") under which each such employee or consultant (i) is obligated to disclose and transfer to the Com pany, without the receipt by such person of any additional value therefor (other than normal salary or fees for consulting services), all inventions, developments and discoveries which, during the period of his employment with or performance of services for the Company, he makes or conceives of either solely or jointly with others, that relate to any subject matter with which his work for the Company may be concerned, or relate to or are connected with the business, products or projects of the Company, or involve the use of the time, material or facilities of the Company, and (ii) is obligated to maintain the confidentiality of proprietary information of the Company. To the best of the Company's knowledge, none of the Company's employees or consultants, are in violation of the Proprietary Information and Inventions Agreement to which such employee or consultant is a party. None of the Company's employees or consultants are obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would conflict with their obligation to use their best efforts to promote the interests of the Company or that would conflict with the Company's -5- business as conducted or as proposed to be conducted. Neither the execution nor delivery of the Financing Agreements, nor the carrying on of the Company's business by its employees and con sultants, nor the conduct of the Company's business as proposed, will conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees or consultants are now obligated. The Company does not believe it is or will be necessary to utilize, and will not utilize, any inventions of any of the Company's employees or consultants (or people it currently intends to hire) made or owned prior to their employment by the Company or that it is or will be necessary to utilize any other assets or rights of any of its employees or consultants (or people it currently intends to hire) made or owned prior to their employment with or engagement by the Company, in violation of any limitations or restrictions to which any such employee or consultant is a party or to which any of such assets or rights may be subject. To the best of the Company's knowledge, none of the Company's employees or consultants, have taken, removed or made use of any proprietary documentation, manuals, products, materials, or any other tangible item from his previous employer, and the Company will not make use of any such proprietary items in the business of the Company. 3.10 Operating Rights. The Company has all operating authority, ---------------- licenses, franchises, permits, certificates, consents, rights and privileges (collectively, the "Permits") as are necessary or appropriate to the operation of its business as now or as proposed to be conducted, the absence of which would have a material and adverse effect on the business of the Company. Such Permits are in full force and effect, no violations have been or are expected to be recorded in respect of any such Permits, and no proceeding is pending or threatened that could result in the revocation or limitation of any of such Permits. The Company has conducted its business so as to comply in all respects with all such material Permits. 3.11 Manufacturing, Distribution and License Rights. The Company has ---------------------------------------------- not granted rights or licenses to manufacture, assemble, distribute or sell its products to any person or entity, is not bound by any agreement that affects the Company's exclusive right to manufacture, assemble, distribute or sell its products, and has not licensed or sold any of its technology or proprietary information to any person or entity. 3.12 Compliance with Other Instruments, None Burdensome, etc. The ------------------------------------------------------- Company is not in violation of any term of its Articles or Bylaws. The Company is not in violation of any term or provision of any material mortgage, indenture, contract, agreement, instrument, judgment or decree and the Company is not in violation of any applicable order, statute, rule or regulation where such violation could have a material and adverse effect on the Company. The execution, delivery and performance of and compliance with this Agreement and the other Financing Agreements and the issuance of the Shares and the Conversion Stock have not resulted and will not result in any violation of or conflict with the Company's Articles or Bylaws, and have not resulted and will not result in any violation of, or be in conflict with, or constitute a default under, or result in the creation -6- of, any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company; and there is no such violation or default or event which, with the passage of time or giving of notice or both, would constitute a violation or default which would materially and adversely affect the business of the Company or any of its properties or assets. 3.13 Litigation, etc. Except as disclosed in Exhibit D, there are no --------------- actions, suits proceedings or investigations pending against the Company or its properties before any court or governmental agency (nor is there any threat thereof) which, either in any case or in the aggregate, might result in any material adverse change in the business or financial condition of the Company or any of its properties or assets, or in any material impairment of the right or ability of the Company to carry on its business as now conducted or as proposed to be conducted, or in any material liability on the part of the Company, and none which questions the validity of this Agreement and the other Financing Agreements or any action taken or to be taken in connection herewith or therewith. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or governmental agency or instrumentality. The foregoing includes, without limitation, actions pending or threatened (or any basis therefor known to the Company) involving the prior employment of any of the Company's employees, their use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreement with prior employers. There is no action, suit, proceeding or investigation by the Company currently pending or which the Company intends to initiate. 3.14 Employee Compensation Plans. Except for the Company's 1989 --------------------------- Stock Option Plan and 1991 Sales Representative Stock Purchase Plan, the Company is not a party to or bound by any currently effective employment contract, deferred compensation agreement, benefit plan, pension, profit-sharing plan, stock option, retirement agreement, or other employee compensation agreement. The Company has provided copies of all such plans, contracts, and agreements to which the Company is currently a party. The Company is not bound by or subject to (and none of its assets are bound by or subject to) any arrangement with any labor union and does not have any collective bargaining agreements covering any of its employees. 3.15 Insurance. The Company has obtained and maintained in full --------- force and effect fire, casualty and liability insurance policies with recognized insurers with such coverages as are carried by similar companies, sufficient in amount to allow replacement of the tangible properties of the Company that might be damaged or destroyed. 3.16 Registration Rights. Except as contemplated by this Agreement ------------------- and the Amended Registration Rights Agreement, the Company is not under any obligation to register any of its presently outstanding securities or any of its securities which may hereafter be issued. 3.17 Governmental Consent, etc. No consent, approval or -------------------------- authorization of, or designation, declaration or filing with, any governmental authority on the part of the Company is -7- required in connection with the valid execution, delivery, and performance of this Agreement and the other Financing Agreements or the offer, sale or issuance of the Shares or the Conversion Stock, or the consummation of any other transaction contemplated by this Agreement and the other Financing Agreements except certain filings as may be under the Securities Act of 1933, as amended (the "Securities Act"), the California Corporations Code and the securities laws of other states in which Purchasers reside. 3.18 Offering. Subject to the accuracy of the Purchaser's -------- representations in Section 4 hereof, the offer, sale and issuance of the Shares and the Conversion Stock constitute transactions exempt from the registration requirements of Section 5 of the Securities Act, and from the qualification requirements of applicable state or other securities laws. 3.19 Material Contracts and Obligations. Set forth in Exhibit D ---------------------------------- hereto is a list of all agreements, contracts, indebtedness, liabilities and other obligations to which the Company is a party or by which the Company is bound that are material to the conduct and operations of its business, properties and prospects, that provide for payments to or by the Company in excess of $80,000, that relate to any product or technology the Company is developing, or that involve transactions or proposed transactions between the Company and its officers or directors. All of such agreements and contracts are valid, binding and in full force and effect in all material respects, assuming due execution by the other parties to such agreements and contracts. 3.20 Tax Returns and Payments. The Company has accurately prepared ------------------------ and timely filed all tax returns (foreign, federal, state and local) required to be filed by it. All taxes shown to be due and payable on said returns, any assessments received, and all other taxes due and payable by the Company on or before the date hereof have been paid or will be paid prior to the time they become delinquent. The federal income tax returns of the Company have not been audited by the Internal Revenue Service. No deficiency assessment or proposed adjustment of the Company's foreign or federal income tax or state or local taxes is pending and the Company has no knowledge of any proposed liability for any tax to be imposed upon its properties or assets for which the Company has not adequately reserved. 3.21 Related Party Transactions. No officer or director of the -------------------------- Company (a) is an officer, director or general partner of, or directly or indirectly owns beneficially more than 5% of the equity of, any business which (i) furnishes or sells services or products which compete with services or products furnished or sold by the Company, or (ii) purchases from or sells or furnishes to the Company any goods or services on terms less favorable than the Company could obtain from third parties on an armslength basis, or (b) has a beneficial interest in any contract or agreement to which the Company is a party or by which it may be bound or affected involving the payment or receipt of in excess of $10,000. -8- 3.22 Certain Transactions. Except as set forth on Exhibit D attached -------------------- hereto, the Company is not indebted, directly or indirectly, to any of its officers, directors or shareholders or to their respective spouses or children, in any amount whatsoever; none of such officers, directors, or shareholders, or any members of their immediate families, are indebted to the Company or have any direct or indirect ownership interest in any firm or corporation with which the Company has a business relationship, or any firm or corporation that competes with the Company. No officer, director or shareholder, or any member of their immediate families, is, directly or indirectly, interested in any material contract with the Company. The Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation. 3.23 Environmental Protection. Except as disclosed in Exhibit D: ------------------------ (a) The Company has not caused or allowed, nor has the Company contracted with any party for, the generation, use, transportation, treatment, storage or disposal of any Hazardous Substances (as defined below) in connection with the operations of its business or otherwise. (b) The Company, the operations of its business, and any real property that the Company owns, leases, or otherwise occupies or uses (the "Premises") are in compliance with all applicable Environmental Laws (as defined below) and orders or directives of any governmental authorities having jurisdiction under such Environmental Laws including, without limitation, any Environmental Laws or orders or directives with respect to any cleanup or remediation of any release or threat of release of Hazardous Substances. (c) The Company has not received any citation, directive, letter or other communication, written or oral, or any notice of any proceedings, claims or lawsuits, from any person, entity or governmental authority arising out of the ownership or occupation of the Premises, or the conduct of its operations, nor is it aware of any basis therefor. (d) The Company has obtained and is maintaining in full force and effect all necessary permits, licenses and approvals required by any Environmental Laws applicable to the Premises and the business operations conducted thereon (including operations conducted by tenants on the Premises) and is in compliance with all such permits, licenses and approvals. (e) The Company has not caused, or allowed a release, or a threat of release, of any Hazardous Substance onto, at or near the Premises nor, to the best of the Company's knowledge, has the Premises or any property at or near the Premises ever been subject to a release, or a threat of release, of any Hazardous Substance. The term "Environmental Laws" shall mean any federal, state or local law, ordinance or regulation -9- pertaining to the protection of human health or the environment including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Sections 9601, et seq., Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections 11001, et seq., and the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901, et seq. The term "Hazardous Substance" includes oil and petroleum products, asbestos, polychlorinated biphenyls and urea formaldehyde, and any other materials classified as hazardous or toxic under any Environmental Laws. 3.24 Brokers or Finders. The Company has not incurred, directly or ------------------ indirectly, any liability for brokerage or finders' fees, agent's commission, or other similar charges in connection with this Agreement or any of the transactions contemplated hereby. 3.25 Changes. Since October 31, 1996, there has not been: ------- (a) any changes in the assets, liabilities, financial condition,operating results or prospects of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business which have not been, in the aggregate, materially adverse; (b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, pros pects or business of the Company (as such business is presently conducted and as it is proposed to be conducted); (c) any waiver by the Company of a valuable right or of a material debt owed to it; (d) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and which is not material to the assets, properties, financial condition, operating results, prospects or business of the Company (as such business is presently conducted and as it is proposed to be conducted); (e) any change or amendment to a material contract or arrangement by which the Company or any of its assets or properties is bound or subject; (f) any material change in any compensation arrangement or agreement with any employee; or (g) to the Company's knowledge, any other event or condition of any character which might materially and adversely affect the assets, properties, financial condition, -10- operating results, propects or business of the Company (as such business is presently conducted and as it is proposed to be conducted). 3.26 Foreign Investment in Real Property Act. The Company is not a --------------------------------------- "United States real property holding corporation" for the purposes of Section 897(c)(2) of the Internal Revenue Code of The United States of America and the Treasury Regulations thereunder ("FIRPTA"). 3.27 Disclosure. No statement by the Company contained in the ---------- Financing Agreements, nor any written statement or certificate furnished or to be furnished to the Purchaser in connection with the transactions contemplated hereby including without limitation the Business Plan (when read with other documents so furnished) contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made except that, with respect to the financial projections given by the Company, the Company only represents that such projections where made in good faith. 4. Representations and Warranties of the Purchasers. Each Purchaser, ------------------------------------------------ severally and not jointly, represents and warrants to the Company with respect to the purchase of the Shares as follows: 4.1 Authorization. All action on the part of the Purchaser necessary ------------- for the authorization, execution, delivery and performance by the Purchaser of the Financing Agreements has been taken, and the Financing Agreements when executed and delivered by the Purchaser will constitute valid and binding obligations of the Purchaser, enforceable in accordance with their terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditor's rights and, with respect to the Amended Registration Rights Agreement, except as the enforceability of Section 7 thereof may be limited by public policy. 4.2 Experience. The Purchaser is experienced in evaluating and ---------- investing in new high technology companies such as the Company. 4.3 Investment. The Purchaser is acquiring the Shares for ---------- investment, for its own account, and not with a view to, or for resale in connection with, any distribution. The Purchaser understands that the Shares have not been, and will not be (except as contemplated in the Amended Registration Rights Agreement) registered under the Securities Act or applicable state or other securities laws by reason of a specific exemption from the registration provisions of the Securities Act and applicable state and other securities laws which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. -11- 4.4 Rule 144. The Purchaser acknowledges that the Shares must be -------- held indefinitely unless subsequently registered under the Securities Act and applicable state and other securities laws or unless an exemption from such registration is available. The Purchaser is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions. 4.5 No Public Market. The Purchaser understands that no public ---------------- market now exists for the Shares or the Conversion Stock and that it is unlikely that a public market will ever exist for the Shares. 4.6 Access to Data. The Purchaser has had an opportunity to discuss -------------- the Company's business, management and financial affairs with the Company's management and an opportunity to review the Company's facilities. The Purchaser understands that such discussions, as well as the written information issued by the Company, were intended to describe the aspects of the Company's business and prospects which it believes to be material but were not necessarily a thorough or exhaustive description. 4.7 Further Limitations on Dispositions. Without in any way limiting ----------------------------------- the representations set forth above, the Purchaser further agrees that, if at the time of any transfer of any Shares or Conversion Stock, such Shares or Conversion Stock shall not be registered under the Securities Act, prior to any disposition of all or any portion of the Shares or Conversion Stock, the Company may require, as a condition of allowing such transfer, that the holder or transferee furnish to the Company (i) such information as is necessary in order to establish that such transfer may be made without registration under the Securities Act; and (ii) at the expense of the holder or transferee, an opinion by legal counsel designated by such holder or transferee and reasonably satisfactory in form and substance to the Company, to the effect that such transfer may be made without registration under the Securities Act. Notwithstanding the foregoing, no such opinion of counsel shall be necessary for a transfer pursuant to Rule 144 of the Securities and Exchange Commission or by a Purchaser which is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner or to any person or entity that is deemed to be an "affiliate" of the Purchaser for purposes of the Securities Act. 5. Conditions to Purchasers' Obligations at the Closing. The Purchasers' ---------------------------------------------------- obligation to purchase the Shares at the First Closing or any Subsequent Closing (either, a "Closing") is subject to the fulfillment on or prior to the closing date for such Closing (a "Closing Date") of each of the following conditions, any of which may be waived in whole or in part by the Purchasers holding at least 75% of the shares at such Closing. -12- 5.1 Representations and Warranties Correct. The representations and -------------------------------------- warranties made by the Company in Section 3 hereof shall be true and correct when made, and shall be true and correct on such Closing Date with the same force and effect as if they had been made on and as of the same date. 5.2 Covenants. All covenants, agreements, and conditions in this --------- Agreement required to be performed or complied with by the Company on or prior to such Closing Date shall have been performed or complied with by the Company. 5.3 Opinion of Counsel. The Purchasers shall have received from ------------------ Wilson, Sonsini, Goodrich & Rosati, counsel to the Company, an opinion letter dated as of such Closing Date, substantially in the form attached hereto as Exhibit E. 5.4 Permits. All governmental and third party approvals, ------- permits, licenses and waivers necessary or appropriate for consummation of the transactions to be consummated at such Closing shall have been obtained. 5.5 Amended and Restated Articles of Incorporation. The Company ---------------------------------------------- shall have filed the Articles with the Secretary of State of the State of California on or prior to the First Closing Date. 5.6 Good Standing Certificates. The Company shall have delivered a -------------------------- Certificate dated as of a recent date issued by the Secretary of State of the State of California to the effect that the Company is legally existing and in good standing and a letter dated as of a recent date from the Franchise Tax Board of the State of California to the effect that the Company is in good standing. 5.7 Officer's Certificate. The Company shall have delivered a --------------------- certificate or certificates, executed by the Chief Executive Officer or the President of the Company, dated such Closing Date, certifying to the fulfillment of the conditions specified in Sections 5.1, 5.2, and 5.4 of this Agreement. 5.8 Secretary's Certificate. The Company shall have delivered a ----------------------- certificate executed by the Secretary or Assistant Secretary of the Company dated such Closing Date, certifying the following matters: (a) the resolutions adopted by the Company's Board of Directors and share holders relating to the transactions contemplated by this Agreement; (b) the Articles of the Company; (c) the Bylaws of the Company; and (d) incumbency of officers of the Company. 5.9 Stock Certificate. The Company shall have delivered to each ----------------- Purchaser purchasing Shares at such Closing a certificate for the number of Shares being purchased set forth opposite such Purchaser's name on Schedule A hereto or (for a Subsequent Closing) on a revised -13- Schedule A. 5.10 Legal Investment. At such Closing Date, the purchase of the ---------------- Shares by the Purchasers hereunder shall be legally permitted by all laws and regulations to which the Purchasers and the Company are subject. 5.11 Shareholders Agreement. The Company and the Purchasers shall ---------------------- have entered into the Amended Shareholders Agreement in substantially the form attached hereto as Exhibit B. 5.12 Registration Rights Agreement. The Company and the Purchasers ----------------------------- shall have entered into the Amended Registration Rights Agreement in substantially the form attached hereto as Exhibit C. 6. Conditions to Company's Obligations at the Closing. The Company's -------------------------------------------------- obligation to issue, sell and deliver the Shares at the First Closing or any Subsequent Closing is subject to the fulfillment at or prior to the Closing Date for such Closing of the following conditions, any of which may be waived in whole or in part by the Company in accordance with the provisions of Section 7.2 hereof: 6.1 Representations and Warranties Correct. The representations and -------------------------------------- warranties made by the Purchasers purchasing Shares at such Closing in Section 4 hereof shall be true and correct when made, and shall be true and correct on such Closing Date with the same force and effect as if they had been made on or as of the same date. 6.2 Permits. All governmental and third party approvals, permits, ------- licenses and waivers necessary or appropriate for consummation of the transactions to be consummated at such Closing shall have been obtained. 6.3 Amended and Restated Articles. The Articles shall have been ----------------------------- filed with the Secretary of State of the State of California. 6.4 Payment of the Purchase Price. The Purchasers shall have ----------------------------- delivered to the Company the purchase price for the Shares to be purchased at such Closing. 7. Miscellaneous. ------------- 7.1 Attorneys' Fees. If either the Company or any Purchaser bring --------------- any suit, action, counterclaim, or arbitration to enforce the provisions of this Agreement, the prevailing party therein shall be entitled to recover a reasonable allowance for attorneys' fees and litigation expenses in addition to court costs. "Prevailing Party" within the meaning of this section includes, without -14- limitation, a party who agrees to dismiss an action or proceeding upon the other party's payment of the sums allegedly due or performance of the covenants allegedly breached, or who obtains substantially the relief sought by it. 7.2 Waivers and Amendments. With the written consent of the holders ---------------------- of two-thirds of the Shares, the obligations of the Company under this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely), and with the same consent, the Company, when authorized by resolution of its Board of Directors, may enter into a supplementary agreement for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement. 7.3 Governing Law. This Agreement shall be governed in all respects ------------- by the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within California. 7.4 Survival. The representations, warranties, covenants and -------- agreements made herein shall survive any investigation made by the Purchasers and the closing of the transactions contemplated hereby. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto or in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder as of the date of such certificate or instrument. 7.5 Successors and Assigns. Except as otherwise expressly provided ---------------------- herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 7.6 Entire Agreement. This Agreement constitutes the full and entire ---------------- understanding and agreement between the parties with regard to the subjects hereof. 7.7 Severability of this Agreement. In case any provision of this ------------------------------ Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 7.8 Finder's Fees. The Company represents and warrants that it has ------------- retained no finder or broker in connection with the transactions contemplated by this Agreement and hereby agrees to indemnify and to hold the Purchasers harmless of and from any liability for commission or compensation in the nature of a finder's fee to any broker or other person or firm (and the costs and expenses of defending against such liability or asserted liability) for which the Company, or any of its employees or representatives, are responsible. Each Purchaser represents and warrants that such -15- Purchaser has retained no finder or broker in connection with the transactions contemplated by this Agreement and hereby agrees to indemnify and to hold the Company harmless of and from any liability for any commission or compensation in the nature of a finder's fee to any broker or other person or firm (and the costs and expenses of defending against such liability or asserted liability) for which such Purchaser, or any of its employees or representatives, are responsible. 7.9 Legends. Each certificate representing the Shares shall be ------- endorsed with a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 OR ITS SUCCESSOR RULE UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. Each certificate representing the Shares shall also bear any legend required by any applicable state securities law. The Company need not register a transfer of Shares, unless the conditions specified in the foregoing legends are satisfied. The Company may also instruct its transfer agent not to register the transfer of any of the Shares unless the conditions specified in the foregoing legend is satisfied. 7.10 Removal of Legends and Transfer Restrictions. The legend -------------------------------------------- relating to the Securities Act endorsed on a stock certificate pursuant to Section 7.9 of this Agreement and the stop transfer instructions with respect to the Shares represented by such certificate shall be removed and the Company shall issue a certificate without such legend to the holder of such Shares if such Shares are registered under the Securities Act and a prospectus meeting the requirements of Section 10 of the Securities Act is available or if such holder provides to the Company an opinion of counsel reasonably satisfactory to the Company to the effect that a public sale, transfer or assignment may be made without registration or if the Shares may be sold pursuant to Rule 144(k) of the Securities Act of 1933. 7.11 Titles and Subtitles. The titles of the sections and -------------------- subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 7.12 Counterparts. This Agreement may be executed in counterparts, ------------ each of which shall be an original, but all of which together shall constitute one instrument. -16- 7.13 Delays or Omissions. It is agreed that no delay or omission to ------------------- exercise any right, power or remedy accruing to any Purchaser, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach or default, or any acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character by any Purchaser of any breach or default under this Agreement, or any waiver by any Purchaser of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in writing and that all remedies, either under this Agreement, or by law or otherwise afforded to the Purchasers, shall be cumulative and not alternative. 7.14 Notices. All notices and other communications required or ------- permitted hereunder shall be in writing and shall be deemed effectively given upon personal delivery or upon deposit with the United Stated Post Office, by first class mail, postage prepaid, addressed: (a) if to a Purchaser, at such Purchaser's address set forth on Schedule A attached hereto, or at such other address as such Purchaser shall have furnished to the Company in writing, or (b) if to the Company, at the Company's address as set forth below, or at such other address as the Company shall have furnished to the Purchasers in writing: To the Company: QuickLogic Corporation 2933 Bunker Hill Lane, Ste. 100A Santa Clara, CA 95054 Attn: President 7.15 Transaction Fees and Expenses. The Company shall pay the ----------------------------- reasonable fees and costs of the Purchasers' special counsel, in connection with the transactions contemplated by this Agreement, provided that such fees and costs do not exceed $13,328. -17- IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first written above. "THE COMPANY" QUICKLOGIC CORPORATION By /s/ ______________________________ Title ___________________________ "PURCHASERS" ________________________________ Print Individual or Entity Name By: /s/ ____________________________ Signature ________________________________ Print Signatory's Name ________________________________ Title of Agent* * Agent, officer, partner trustee, etc. -18- SCHEDULE A ---------- Schedule of Purchasers ---------------------- - ---------------------------------------------------------------------- NAME/ADDRESS NUMBER OF PURCHASE PRICE SHARES OF STOCK - ---------------------------------------------------------------------- US TRUST 2,586,207 $3,000,000.12 UST Private Equity Investors Fund, Inc. 114 W. 47th Street New York, NY 10036 Attention: Douglas A. Lindgren with copy to: O'Sullivan Graev & Karabell 30 Rockefeller Plaza New York, NY 10112 Attention: Lawrence G. Graev - ---------------------------------------------------------------------- ANDREAS BECHTOLSHEIM 75,426 87,494.16 1140 Hamilton Avenue Palo Alto, CA 94301 - ---------------------------------------------------------------------- BURR, EGAN AND DELEAGE & CO. 272,483 316,080.28 1 Post Office Square, Suite 380 Boston, MA 02109 - ---------------------------------------------------------------------- Alta IV Limited Partnership 230,440 267,310.40 - ---------------------------------------------------------------------- C.V. Sofinnova Partners Five 42,043 48,769.88 - ---------------------------------------------------------------------- GLYNN VENTURES III, L.P. 54,072 62,723.52 3000 Sand Hill Road Bldg. 4, Suite 235 Menlo Park, CA 94025 - ---------------------------------------------------------------------- MORGENTHALER VENTURE PARTNERS III 552,083 640,416.28 - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- 2730 Sand Hill Road, Suite 280 Menlo Park, CA 94025 - ---------------------------------------------------------------------- NEW ENTERPRISE ASSOCIATES VI, LIMITED 576,768 669,050.88 PARTNERSHIP 1119 St. Paul Street Baltimore, MD 21202 - ---------------------------------------------------------------------- SEQUOIA ENTITIES 215,517 249,999.72 3000 Sand Hill Road Bldg. 4, Suite 280 Menlo Park, CA 94025 - ---------------------------------------------------------------------- Sequoia Capital V 200,431 232,499.96 - ---------------------------------------------------------------------- Sequoia Technology 6,465 7,499.40 Partners V - ---------------------------------------------------------------------- Sequoia XXIV 8,621 10,000.36 - ---------------------------------------------------------------------- TECHNOLOGY VENTURE INVESTORS IV 862,069 1,000,000.04 c/o August Capital 2480 Sand Hill Road, Suite 101 Menlo Park, CA 94025 - ---------------------------------------------------------------------- US VENTURE PARTNER ENTITIES 517,241 599,999.56 2180 Sand Hill Road, Suite 300 Menlo Park, CA 94025 - ---------------------------------------------------------------------- U.S. Venture Partners IV, L.P. 136,909 158,814.44 - ---------------------------------------------------------------------- Second Ventures II, L.P. 16,619 19,278.04 - ---------------------------------------------------------------------- USVP Entrepreneur Partners II, L.P. 4,748 5,507.68 - ---------------------------------------------------------------------- U.S. Venture Partners III 344,606 399,742.96 - ---------------------------------------------------------------------- Second Ventures Limited Partners 10,769 12,492.04 - ---------------------------------------------------------------------- U.S.V. Entrepreneur Partners 3,590 4,164.40 - ---------------------------------------------------------------------- VERTEX MANAGEMENT ENTITIES 1,293,104 1,500,000.64 3 Lagoon Drive, Suite 220 Redwood City, CA 94064 - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- Vertex Asia Limited 574,655 666,599.80 - ---------------------------------------------------------------------- Vertex Investment (II) Limited 574,655 666,599.80 - ---------------------------------------------------------------------- HWH Investment Pte. Ltd. 143,794 166,801.04 - ---------------------------------------------------------------------- TOTAL 7,004,970 $8,125,765.20 - ---------------------------------------------------------------------- EXHIBIT A Amended and Restated Articles of Incorporation See attached. EXHIBIT B Fifth Amended and Restated Shareholders Agreement See attached. EXHIBIT C Fifth Amended and Restated Registration Rights Agreement See attached. EXHIBIT E Opinion of Wilson Sonsini Goodrich & Rosati EXHIBIT D QUICKLOGIC CORPORATION SERIES F PREFERRED STOCK PURCHASE AGREEMENT SCHEDULE OF EXCEPTIONS The disclosures set forth in this Schedule of Exceptions are itemized to correspond to the first or principal section of the QuickLogic Corporation Series F Preferred Stock Purchase Agreement (the "Agreement") to which they relate. Each of the disclosures made herein shall qualify each of the sections of the Agreement to which they relate. Section 3.3 Subsidiaries. ------------ The Company has exercised its right under its agreement with Cypress Semiconductor to pay Cypress $4,500,000 in exchange for additional wafer capacity and an equity interest in Cypress or one of its subsidiary. Although the Company has paid such amount to Cypress, the exact form of the equity interest has not been determined by the Company and Cypress. Section 3.7 Title to Properties; Liens and Encumbrances. ------------------------------------------- The Company owns no real property. The Company has leased certain office and manufacturing equipment used in its business and does not own such equipment. The aggregate value of such equipment is approximately $600,000. Section 3.8 Intellectual Property Rights. ---------------------------- With respect to the representation that the Company has the unrestricted right to use all trade secrets, including know-how, inventions, design processes and technical data, the Company has not conducted an investigation or audit of its or third parties' intellectual property rights or its or third parties' proprietary rights, nor has it retained intellectual property counsel for that purpose. The exceptions to the representations contained in Section 3.8 that the Company is currently aware are set forth below. Licenses. -------- The Company has granted certain technology license rights and manufacturing rights to VLSI Technology, Inc. ("VLSI") pursuant to an agreement dated May 9, 1990, as amended (the "VLSI" Agreement"). The Company has granted certain technology license rights and manufacturing rights to Cypress Semiconductor Corp. ("Cypress") pursuant to an agreement dated October 2, 1992 (the "Cypress Agreement"). Actel Litigation. ---------------- On January 20, 1994, Actel Corporation filed suit against QuickLogic alleging infringement by QuickLogic of U.S. Patents No. 4,758,745; 4,873,459; 5,055,718; and 5,198,705. Plaintiff seeks damages and injunctive relief. On or about February 10, 1994, QuickLogic filed an answer and counter-claim seeking in the counter-claim a declaration that each of the patents alleged to be infringed was not infringed and in addition that each of the patents upon which suit was brought was invalid, void and unenforceable. Discovery has begun. QuickLogic moved to stay proceedings pending reexamination of two patents involved in the litigation and the court granted this motion in early Summer 1994. The United States Patent and Trademark Office confirmed the patentability of the two Actel patents placed in reexamination (the '745 and the '459 patents) in late summer and early fall 1994. The court then lifted the stay in late November 1994 and shortly thereafter Actel filed a motion for summary judgment with respect to the interpretation claim 1 of the '705 patent and its infringement which QuickLogic opposed. On October 4, 1996, the Special Master recommended that Actel's motion be granted; QuickLogic has objected to this recommendation. (The recommendation does not address the validity of claim 1 of the '705 patent. Validity must still be resolved by the court or at trial.) No hearing on the recommendation has been set, but it is expected Judge Ware will rule on the matter in December, 1996 or early 1997. Actel on or about March 15, 1995 amended its complaint to add to the suit U.S. Patent No. 5,367,208 (the "'208 patent"), a patent which issued on November 22, 1994 and which is assigned to Actel. On or about April 12, 1995, QuickLogic filed a counterclaim against Actel alleging infringement by Actel of QuickLogic U.S. Patents No. 5,220,213 (the "'213 patent") entitled "Programmable Application in Specific Integrated Circuit and Logic Cell Therefore" and 5,396,127 (the "'127 patent"), entitled "Programmable Application in Specific Integrated Circuit and Logic Cell Therefore". This counterclaim was in response to the amended complaint filed by Actel against QuickLogic on or about March 15, 1995. On March 7, 1995, Actel filed its second supplemental complaint, which alleged patent infringement of Actel U.S. Patent No. 5,479,113 ("the '113' patent"), entitled "User-Configurable Logic Circuits Comprising Antifuses and Multiplexer-Based Logic Modules." QuickLogic filed its answer, denying these allegations, on April 12, 1995. On June 14, 1995, Actel again amended its complaint to include counterclaims against QuickLogic and John Birkner for misappropriation of trade secrets, breach of contract, breach of confidential relationship, unfair competition and assignment of patents. Mr. Birkner and QuickLogic denied each of these claims, in replies to Actel's counterclaims, filed July 5, 1995 and July 7, 1995, respectively. The parties have each made summary judgment motions covering various claims of the patents in dispute. No hearing dates on these motions have been set. For much of 1996 the parties were embroiled in a dispute concerning the disqualification of Actel's former counsel who was replaced after Judge Ware ruled in favor of QuickLogic's motion to disqualify the former counsel and Actel's appeal to the Federal Circuit Court of Appeals was unsuccessful. Both parties are engaged in discovery. A discovery cut off of January 30, 1998 has been set in the case. No trial date has been set, but both parties have requested that the trial be held in September or October of 1998. Instant Circuit Corporation. --------------------------- The Company has received correspondence from Instant Circuit Corporation "ICC") alleging that the Company's technology may infringe one or more of ICC's patents. The Company and its patent counsel have reviewed the ICC patents and have notified ICC that the Company does not believe that the Company's technology infringes ICC's patents. ICC has responded by letter dated February 5, 1992 reiterating its belief that the Company's products infringe ICC's patents, but indicating ICC's intent to wait to see whether the Company's products are successful in the marketplace before pursuing the matter. The Company has not heard anything further from ICC since that date. Xilinx ------ On June 12, 1992, the Company received a letter from Xilinx requesting the Company to review Xilinx's patent 4,870,302 entitled "Configurable Electrical Circuit Having Configurable Logic Elements and Configurable Interconnects" and stating Xilinx's belief that at least one claim under that patent is infringed by the Company's products. No litigation has been instituted by Xilinx, and there has been no correspondence between the Company and Xilinx regarding this matter during the year preceding the Closing Date. While the Company does not believe that there is any basis for a legal claim by Xilinx, there can be no assurance that Xilinx will not elect to take further legal action in the future. Such legal action, if instituted, could have a material adverse effect on the Company's business. Phil Ferguson ------------- California EDD has filed a claim against the Company relating to services rendered by Phil Ferguson. The Company expects to settle the claim for less than $25,000. See disclosure under Section 3.9. -3- Section 3.9 Proprietary Information Agreements. ---------------------------------- Actel has claimed that QuickLogic has misappropriated the trade secrets of Actel based, at least in part, upon the fact that John Birkner, a founder of QuickLogic, performed consulting services for Actel prior to and allegedly after joining the Company. Section 3.11 Manufacturing, Distribution and License Rights. ---------------------------------------------- The Company has granted certain rights to VLSI and Cypress pursuant to the VLSI Agreement and the Cypress Agreement, respectively. The Company has entered into an MOU with TSMC U.S.A. providing for the acquisition of eight (8) inch wafers. Section 3.13 Litigation ---------- See the discussion of the Actel, Xilinx and ICC and other issues discussed in Section 3.8 above. Section 3.17 Governmental Consent. -------------------- See Section 3.5. Section 3.19 Material Contracts and Obligations. ---------------------------------- The following is a list of all agreements and obligations described in Section 3.19: 1. VLSI Agreement. 2. The Company subleases its facility at 2933 Bunker Hill Lane. Its current lease is due to expire on December 31, 1996. 3. The Company has entered into a lease agreement for its new facility at 1277 Orleans Drive, Saratoga, California. The lease expires on November 26, 2003. 4. Software OEM Distribution Agreement with Data I/O, Inc. pursuant to which the Company obtained rights to sublicense certain Data I/O software on an OEM basis. The Company is required to make annual royalty payments of up to $100,000 to Data I/O pursuant to this Agreement. 5. Employee Restricted Stock Purchase Agreements between the Company and each of the founders and option agreements with persons who have been granted options. -4- 6. Cypress Agreement. The Company also has outstanding miscellaneous licensing agreements with entities including Synplicity, SimuCad, Doulos, Saros, Premia and Data I/O. None of these agreements currently involve annual payment obligations in excess of $80,000. Section 3.21 Related Party Transactions. The Company has entered --------------------------- into the Cypress Agreement with Cypress. See also Section 3.22 below regarding loans to John Birkner and from certain shareholders of the Company. In addition to the existing relationships directly between the Company and Cypress, Pierre Lamond, a partner in the Sequoia Capital venture funds, is a director of Cypress. Mark Stevens, a director of the Company, is also a partner in the Sequoia Capital venture funds. Section 3.22 Certain Transactions. -------------------- The Company has loaned John Birkner $114,000, plus interest, evidenced by demand promissory notes from Mr. Birkner to the Company secured by a pledge of Mr. Birkner's shares of the Company's stock. These loans were approved by the Company's Board of Directors and shareholders. -5- EX-10.12 12 SIXTH AMENDED & RESTATED SHAREHOLDERS RIGHTS EXHIBIT 10.12 EXHIBIT G TO TERMINATION AGREEMENT --------------------------------- QUICKLOGIC CORPORATION SIXTH AMENDED AND RESTATED SHAREHOLDERS AGREEMENT This SIXTH AMENDED AND RESTATED SHAREHOLDERS AGREEMENT (the "Agreement") is made and entered into this 29th day of March 1997 by and among QuickLogic Corporation, a California corporation (the "Company"); John Birkner, Andrew Chan and H. T. Chua (the "Founders"); the purchasers of Series A Preferred Stock of the Company (the "Series A Purchasers") pursuant to the Series A Preferred Stock and Series B Warrant Purchase Agreement dated September 6, 1989 (the "Series A Agreement"); the purchasers of Series B Preferred Stock (the "Series B Purchasers") pursuant to the Series B Preferred Stock Purchase Agreement dated September 7, 1990 (the "Series B Agreement"); the purchasers of Series C Preferred Stock of the Company (the "Series C Purchasers") pursuant to the Series C Preferred Stock Purchase Agreement dated December 9, 1991 (the "Series C Agreement"); the purchaser of Series D Preferred Stock (the "Series D Purchaser") pursuant to the Series D Preferred Stock Purchase Agreement dated October 8, 1992 (the "Series D Agreement"), the purchasers of Series E Preferred Stock (the "Series E Purchasers") pursuant to the Series E Preferred Stock Purchase Agreement dated June 1, 1995 (the "Series E Agreement"), the purchasers of Series F Preferred Stock (the "Series F Purchasers") pursuant to the Series F Preferred Stock Purchase Agreement dated November 27, 1996 (the "Series F Agreement") and Cypress Semiconductor Corporation (the "Common Purchaser") pursuant to the Common Stock Purchase Agreement of even date (the "Common Agreement"). The Series A Purchasers, the Series B Purchasers, the Series C Purchasers, the Series D Purchaser, the Series E Purchasers, the Series F Purchasers and the Common Purchaser are collectively referred to herein as the "Purchasers". The Purchasers and the Founders are collectively referred to herein as the "Shareholders". RECITALS -------- A. Pursuant to the Series A Agreement and the exercise of certain Warrants to purchase Series B Preferred Stock of the Company granted under the Series A Agreement, the Series A Purchasers have purchased shares of Series A Preferred Stock of the Company ("Series A Preferred"), and pursuant to the Series B Agreement, the Series B Purchasers purchased Series B Preferred Stock of the Company ("Series B Preferred"), and pursuant to the Series C Agreement, the Series C Purchasers purchased Series C Preferred Stock of the Company (the "Series C Preferred"), and pursuant to the Series D Agreement, the Series D Purchaser purchased Series D Preferred Stock of the Company ("Series D Preferred"), and pursuant to the Series E Agreement, the Series E Purchasers purchased Series E Preferred Stock of the Company ("Series E Preferred"), and pursuant to the Series F Agreement, the Series F Purchasers purchased Series F Preferred Stock of the Company ("Series F Preferred") (the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Series F Preferred are collectively referred to herein as the "Preferred Stock") and pursuant to the Common Agreement, the Common Purchaser purchased Common Stock of the Company ("Common Stock"). In connection with the Series F Agreement, the Company, the Founders, the Series A Purchasers, the Series B Purchasers, the Series C Purchasers, the Series D Purchaser, the Series E Purchasers and the Series F Purchasers entered into the Fifth Amended and Restated Shareholders Agreement (the "Prior Shareholders Agreement") dated November 27, 1996 setting forth their agreement and understandings with respect to voting of shares of the Company's Capital Stock (as defined below) in the election of directors and to transactions in shares of the Capital Stock held by the Founders. B. The Company has issued and sold to the Common Purchaser shares of its Common Stock pursuant to the Common Agreement. C. The Shareholders own a majority of the outstanding shares of Common Stock and the Preferred Stock (the Common Stock and Preferred Stock collectively referred to herein as the "Capital Stock"). D. The Series A Purchasers, Series B Purchasers, Series C Purchasers, the Series D Purchaser, Series E Purchasers, Series F Purchasers and Founders desire to waive their rights under the Prior Shareholders Agreement and to accept in lieu of those rights the rights set forth in this Agreement. NOW THEREFORE, the Series A Purchasers, the Series B Purchasers, the Series C Purchasers, the Series D Purchasers, the Series E Purchasers and the Series F Purchasers agree to terminate the Prior Shareholders Agreement and all parties agree as follows: 1. Board of Directors. ------------------ (a) The Founders and Purchasers hereby agree to vote that number of shares of the Capital Stock of the Company as to which they have beneficial ownership sufficient to elect and appoint to the Board of Directors of the Company (the "Board of Directors") the following persons: (i) one member as shall be designated from time to time by each of the Major Holders (as hereinafter defined), (ii) one member as shall be designated, from time to time, by the Founders, (iii) one member who shall be the Chief Executive Officer of the Company (provided that, during any period in which a Founder shall be serving as Chief Executive Officer of the Company, one position on the Board of Directors shall remain vacant), and (iv) one or more members (as may be necessary to fill all board seats not occupied by members elected and appointed pursuant to Sections 1(a)(i)-(iii) above) as may be designated, from time to time, by all Purchasers other than the Major Holders and Cypress Semiconductor Corporation. "Major Holders," as the term is used in this Section 1(a), shall include the following: (x) Technology Venture Investors IV and its affiliated entities (collectively, "TVM"), for so long as TVM beneficially owns at least seventy-five percent (75%) of the number of shares of the Company's Capital Stock beneficially owned by it immediately following the closing of the last sale of Series F Preferred Stock pursuant to the Series F Agreement, (y) Sequoia Capital V and its affiliated entities (collectively, "Sequoia"), for so long as Sequoia beneficially owns at least seventy-five percent (75%) of the number of shares of the Company's Capital Stock beneficially owned by it immediately following the closing of the last sale of Series F Preferred Stock pursuant to the Series F Agreement, and (z) Vertex Investment Pte. Ltd. ("Vertex"), for so long as Vertex beneficially owns at least seventy-five percent (75%) of the number of shares of the Company's Capital Stock beneficially owned by it immediately following the closing of the last sale of Series F Preferred Stock pursuant to the Series F Agreement. The designation of a director by the Founders pursuant to Section 1(a)(iii) shall be made by Founders holding a majority of shares of Common Stock held by all Founders, and the designation of a director or directors by the Purchasers other than the Major Holders pursuant to Section 1(a)(iv) shall be made by persons holding a majority of shares held by such persons voting on an as-converted basis and such designation shall be binding on the remaining members of each respective group. The appointee of Sequoia is currently Mark Stevens. The appointee of TVI is currently David Marquardt. The initial appointee of Vertex is currently Bruce Graham. The appointee of the Purchasers other than TVI, Sequoia and Vertex is currently Irwin Federman. The appointee of the Founders is currently H. T. Chua. The Chief Executive Officer is currently E. Thomas Hart. In the event that any director elected pursuant to the terms hereof ceases to serve as a member of the Board of Directors, the Company, the Purchasers and the Founders agree to take all such action as is reasonable and necessary, including the voting of shares of Capital Stock of the Company by the Founders and Purchasers as to which they have beneficial ownership, to cause the election or appointment of such other substitute person to the Board of Directors as may be designated on the terms as herein provided. The Company shall promptly give the Purchasers written notice of any election to or appointment of, or change in composition of, the Board of Directors of the Company. In the election of directors pursuant to this Section 1, the Founders and Purchasers shall vote that number of their shares sufficient to elect such persons to the Board of Directors utilizing cumulative voting. (b) During the term of this Agreement, the Founders and the Purchasers agree to vote their shares of Capital Stock of the Company and otherwise to take such action so as to maintain the number of authorized positions on the Board of Directors at no less than six (6). (c) Each of the Founders, Purchasers and the Company agrees not to take any actions which would materially and adversely affect the provisions of this Agreement and the intention of the parties with respect to the composition of the Board of Directors as herein stated. 2. Right of First Refusal--Founders Shares. In the event that a Founder --------------------------------------- proposes to sell, transfer, assign or otherwise alienate any shares of the Capital Stock of the Company now or hereafter owned by such Founder (the "Founder Shares"), each Purchaser shall have the right to purchase, pro rata, a portion of such Founder Shares. Each Purchaser's pro rata share, for purposes of this right of first refusal, shall be the ratio of the number of shares of Capital Stock held by such Purchaser (assuming conversion of all shares of Preferred Stock held by such Purchaser and delivery of all shares of Common Stock deliverable to the Common Purchaser (the "Cypress Common")) to the total number of shares of Capital Stock then outstanding (assuming conversion of all shares of Preferred Stock held by all Purchasers and delivery of all shares of the Cypress Common) at the time of such Founder's proposed sale, transfer, assignment or alienation of Founder Shares. This right of first refusal shall be subject to the following provisions: (a) In the event that a Founder proposes to sell or transfer any Founder Shares, the Founder shall give written notice of his intention, describing the type and amount of Founder Shares, the price, the general terms upon which he proposes to sell or transfer the same, and the names and addresses of the other proposed offerees. Each Purchaser shall have twenty (20) days from the date of receipt of any such notice to agree to purchase up to his pro rata share of such Founder Shares for the price and upon the general terms specified in the notice by giving written notice to the Founder and stating therein the quantity of Founder Shares to be purchased. The Founder shall promptly give written notice to the other Purchasers in the event any Purchaser fails to exercise his right of first refusal in full. Each Purchaser shall have a right of over-allotment such that if any Purchaser fails to exercise his right hereunder to purchase his full pro rata portion of Founder Shares, the other Purchasers may elect to purchase the non-participating Purchaser's portion on a pro rata basis, by giving notice to the Founder within ten (10) days from the date of receipt of written notice from the Founder that such non-participating Purchaser has failed to exercise his rights hereunder to purchase his full pro rata share of Founder Shares. (b) In the event that the Purchasers fail to exercise in full their right of first refusal within said time periods, the Founder shall have ninety (90) days thereafter to sell (or enter into an agreement pursuant to which the sale of Founder Shares covered thereby shall be closed, if at all, within ninety (90) days from the date of said agreement) the Founder Shares covered by the Purchasers' right but with respect to which such rights were not exercised, at a price and upon general terms no less favorable to the Founder than specified in the notice. In the event that the Founder has not sold the Founder Shares within said time period, the Founder shall not thereafter sell or transfer any Founder Shares, without first offering such Founder Shares to the Purchasers in the manner provided above. (c) The right of any Purchaser to participate in the purchase of any Founder Shares pursuant to this Section 2 shall be: (i) subject to the ability of the Purchaser to purchase its portion of the Founder Shares in a transaction which is exempt from registration under the Securities Act of 1933, as amended (the "Securities Act") and under applicable blue sky laws, as determined in good faith by the Company's counsel; (ii) assignable by each Purchaser to any transferee who acquires any of such Purchaser's shares of Series A Preferred in accordance with Section 4.7 of the Series A Agreement or such Purchaser's shares of Series B Preferred in accordance with Section 4.7 of the Series B Agreement or such Purchaser's shares of Series C Preferred in accordance with Section 4.7 of the Series C Agreement or such Purchaser's shares of Series D Preferred in accordance with Section 4.7 of the Series D Agreement or such Purchaser's shares of Series E Preferred in accordance with Section 4.7 of the Series E Agreement or such Purchaser's shares of Series F Preferred in accordance with Section 4.7 of the Series F Agreement, or such Purchaser's shares of Common Stock in accordance with Section 4.7 of the Common Agreement; (iii) assignable by each Purchaser, subject to compliance with applicable federal securities and blue sky laws, to such Purchaser's limited and/or general partner(s) or other affiliate(s) and (iv) available only to those Purchasers (in combination with any of such Purchasers' affiliates) holding an aggregate of 250,000 shares of Preferred Stock, an equivalent number of shares of Common Stock issued upon conversion of the Preferred Stock ("Conversion Stock"), an equivalent number of shares of Cypress Common, or a combination thereof, at the time of such proposed sale or transfer. 3. Right of First Refusal -- New Securities. The Company hereby grants ---------------------------------------- to each Purchaser the right to purchase, pro rata, a portion of any New Securities (as defined below in this Section 3) that the Company may from time to time propose to sell and issue. Each Purchaser's pro rata share, for purposes of this right of first refusal, shall be the ratio of the number of shares of Capital Stock held by such Purchaser (assuming conversion of all shares of Preferred Stock held by such Purchaser and delivery of all shares of Cypress Common) to the total number of shares of Capital Stock then outstanding (assuming conversion of all outstanding shares of Preferred Stock and other convertible securities and delivery of all shares of Cypress Common) at the time of issuance of such New Securities. This right of first refusal shall be subject to the following provisions: (a) "New Securities" shall mean any capital stock of the Company, whether now authorized or not, and rights, options or warrants to purchase capital stock, and securities of any type whatsoever that are, or may become, convertible into capital stock; provided, however, that "New Securities" shall not include (i) the Conversion Stock, (ii) securities offered pursuant to a registration statement filed under the Securities Act, (iii) securities issued pursuant to the acquisition of another corporation by the Company by merger, purchase of substantially all of its assets or other reorganization, (iv) shares of Common Stock issued in connection with any stock split, reverse stock split or stock dividend, (v) shares of Common Stock issuable after the date hereof to employees, directors, officers or consultants of the Company pursuant to any employee or consultant stock offering plan or arrangement unanimously approved by the Board of Directors of the Company, (vi) shares of Common Stock issued in connection with the Company's 1991 Sales Representative Stock Purchase Plan, (vii) shares of the Company's Common Stock or Preferred Stock, or options or warrants exercisable therefor, issued to banks, savings and loan associations, equipment lessors or other similar institutions or entities in connection with such entities providing debt financing to the Company which has been unanimously approved by the Board of Directors, or (viii) the Cypress Common. (b) In the event that the Company proposes to undertake an issuance of New Securities, the Company shall give written notice of its intention, describing the type and amount of New Securities, the price, the general terms upon which the Company proposes to issue the same, and the names and addresses of any other proposed offerees. Each Purchaser shall have twenty (20) days from the date of receipt of any such notice to agree to purchase up to his pro rata share of such New Securities for the price and upon the general terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. (c) In the event that the Purchasers fail to exercise in full the right of first refusal within said time periods, the Company shall have ninety (90) days' thereafter to sell (or enter into an agreement pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within ninety (90) days from the date of said agreement) the New Securities covered by the Purchasers' right but with respect to which such rights were not exercised, at a price and upon general terms no more favorable to the purchasers thereof than specified in the Company's notice. In the event the Company has not sold the New Securities within said time period, the Company shall not thereafter issue and sell any New Securities, without first offering such securities to the Purchasers in the manner provided above. (d) The right of any Purchaser to participate in the purchase of any New Securities pursuant to this Section 3 shall be: (i) subject to the ability of the Company to sell such New Securities in a transaction which is exempt from registration under the Securities Act and under applicable blue sky laws, as determined in good faith by its counsel; (ii) assignable by each Purchaser to any transferee who acquires any of such Purchaser's Shares of Series A Preferred in accordance with Section 4.7 of the Series A Agreement or such Purchaser's shares of Series B Preferred in accordance with Section 4.7 of the Series B Agreement or such Purchaser's shares of Series C Preferred in accordance with Section 4.7 of the Series C Agreement or such Purchaser's shares of Series D Preferred in accordance with Section 4.7 of the Series D Agreement or such Purchaser's shares of Series E Preferred Stock in accordance with Section 4.7 of the Series E Agreement or such Purchaser's shares of Series F Preferred in accordance with Section 4.7 of the Series F Agreement, or such Purchaser's shares of Common Stock in accordance with Section 4.7 of the Common Agreement; (iii) assignable by each Purchaser, subject to compliance with applicable federal securities and blue sky laws, to such Purchaser's limited and/or general partner(s) or other affiliate(s); and (iv) available only to those Purchasers (in combination with any of such Purchasers' affiliates) holding an aggregate of 250,000 shares of Preferred Stock, an equivalent number of shares of Conversion Stock, an equivalent number of shares of Cypress Common, or a combination thereof at the time of such proposed issuance. 4. Transferees; Legends on Certificates. ------------------------------------ (a) All transferees or assignees of shares of Capital Stock of the Company from the Shareholders shall be bound by and subject to the terms and conditions of this Agreement. (b) The Shareholders agree that all share certificates now or hereafter held by them will be stamped with the following legend, substantially in the following form: "THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS IN REGARD TO THEIR VOTING RIGHTS AND TRANSFER BY THE PROVISIONS OF AN AGREEMENT, A COPY OF WHICH IS ON FILE IN THE OFFICE OF THE SECRETARY OF THE CORPORATION." 5. Covenants of the Company. The Company hereby covenants and agrees ------------------------ that: (a) Financial Statements. The Company shall mail the following -------------------- reports to each Purchaser for so long as such Purchaser is the holder of any Preferred Stock, Conversion Stock or Cypress Common: (a) as soon as available, and in any event within 90 days after the end of each fiscal year of the Company, an audited balance sheet of the Company as of the end of such fiscal year, an audited statement of income and retained earnings of the Company for such fiscal year, and an audited statement of cash flows of the Company for such fiscal year, prepared by a nationally recognized accounting firm in accordance with generally accepted accounting principles consistently applied, all in reasonable detail, and setting forth in comparative form the figures as of the end of and for the previous fiscal year, accompanied by a written report from the Company's Chief Financial Officer explaining in narrative form any material discrepancies between the results of operations as reported and the Company's annual budget for the same period, as well as any other financial or business events of material importance, and the Company shall use its best efforts to ensure that each related audit opinion is unqualified; (b) as soon as available, and in any event within 45 days after the end of each fiscal quarter, a commentary on any major changes affecting operations in such fiscal quarter, including such changes in the area of personnel (management team), product line, competition, marketing, finance, labor relations, supplier/customer relations and any other relevant areas; and (c) as soon as available, and in any event within 30 days after the end of each month, an unaudited report of financial results during the preceding month prepared in accordance with generally accepted accounting principles consistently applied, which report shall include a balance sheet, profit and loss statement, cash flow analysis, and comparison of results with results during the prior fiscal year and with the Company's annual budget, with revisions on such budget as approved by the Company's Board of Directors, and with such financial and budget information shown both on a monthly and year-to-date basis. In the event that the Company at any time hereafter shall be required, by law or by generally accepted accounting principles, to consolidate its financial statements with those of a subsidiary corporation, the Company shall thereafter furnish the financial statements required by this Section 5(a) on a consolidated basis, and the annual finan cial statements specified above shall be furnished also with consolidating financial statements. (b) Additional Information. For so long as any Purchaser (in ---------------------- combination with any of such Purchaser's affiliates) is a holder of an aggregate 250,000 shares of Preferred Stock, an equivalent number of shares of Conversion Stock, an equivalent number of shares of Cypress Common, or a combination thereof, the Company shall (a) prior to the end of each fiscal year, furnish to such Purchaser an annual budget for the next fiscal year, and (b) promptly after each meeting or the execution of an action by unanimous written consent, furnish copies of the minutes of proceedings or actions by written consent of the Company's Board of Directors and shareholders; (c) furnish to such Purchaser such information concerning the Company as the Purchaser may from time to time reasonably request; and (d) offer the Purchaser the right to visit the properties of the Company at reasonable times, to interview key employees of the Company at their places of employment at reasonable times and to examine the books of account and tax returns of the Company and to make copies therefrom; provided, however, that the Company may require any Purchaser seeking to obtain information of the Company pursuant to this Section 5(b), to the extent such information contains proprietary information of the Company, to enter into a non-disclosure agreement with the Company. (c) Board Composition. Until the closing of the Company's initial ----------------- firm commitment public offering which is underwritten by a nationally recognized underwriting firm at a price per share of not less than $3.33 (as such number may be adjusted as a result of stock splits, reverse stock splits or other similar events after the date hereof) and an aggregate offering price to the public of not less than fifteen million dollars ($15,000,000) (the "Initial Public Offering"), the Bylaws of the Company shall provide, unless amended by a resolution unanimously adopted by the Company's Board of Directors after the date hereof, that the number of directors on the Company's Board of Directors shall be six (6). (d) Maintain Assets. The Company shall maintain its properties in --------------- good repair, working order and condition, will maintain its leases and other instruments comprising its properties in full force and effect, will not sell or transfer any of its assets other than in the ordinary course of its business, will keep its properties free and clear of all liens (other than liens permitted hereunder or incurred in the normal course of business) and adverse claims of any party, and will maintain insurance covering its properties and its business with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties. (e) Taxes. The Company will pay all taxes, assessments, government ----- charges and levies imposed on the Company and its assets, income and profits prior to the date on which penalties attach thereto; provided that the Company shall not be required to pay any such charge which is being contested in good faith by proper proceedings. (f) Preserve Legal Standing. The Company will preserve and maintain ----------------------- in good standing its legal corporate existence and all of its rights, privileges and franchises and conduct its business in an orderly, efficient and regular manner and in compliance with all applicable laws, rules, regulations and orders of government authorities. (g) Employee Agreements. For so long as Purchasers own any Shares, ------------------- the Company will require all new employees and consultants of the Company having access to proprietary information to sign and deliver the Company's standard form of Proprietary Information and Inventions Agreement. (h) Perform Obligations. The Company will duly and punctually pay, ------------------- observe and perform each of its obligations set forth herein and under any material binding agreement to which it may be obliged as the same may be at any time amended, modified or supplemented and in effect, in accordance with the terms thereof. (i) Use of Proceeds. The cash proceeds received by the Company from --------------- the sale of the Shares hereunder will be used for working capital. (j) Cooperation. The Company and the Purchasers hereby agree that ----------- each will cooperate fully with the other in securing any governmental permits, approvals, licenses or waivers necessary or appropriate for the consummation of the transactions contemplated by this Agreement and the agreements and documents attached as exhibits hereto. 6. Specific Performance. The parties acknowledge that execution, -------------------- delivery and performance of this Agreement were material inducements to the Purchasers to make an equity investment in the Company pursuant to the terms and conditions of the Series A Agreement, Series B Agreement, Series C Agreement, the Series D Agreement, the Series E Agreement, Series F Agreement and/or the Common Agreement and that they will be irreparably damaged in the event that this Agreement is not specifically enforced. Accordingly, should any dispute arise pursuant to this Agreement, the parties agree that a decree of specific performance shall be an appropriate remedy. Such remedy shall be cumulative and shall be in addition to any other remedies which the parties may have. 7. Term. This Agreement shall commence on the date first above written ---- and shall terminate upon the first to occur of the following events: (a) The adjudication by a court of competent jurisdiction that the Company is bankrupt or insolvent; (b) The filing of a certificate of dissolution of the Company; (c) Immediately upon the effectiveness of a registration statement filed under the Securities Act covering the offer and sale of the Company's Common Stock to the public at a price per share of not less than $3.33 (which number shall be adjusted to reflect any stock split, reverse stock split or similar event after the date hereof) with estimated gross proceeds to the Company (prior to underwriting commissions and expenses) of at least fifteen million dollars ($15,000,000); or (d) Termination pursuant to Section 8(f) of this Agreement. 8. Miscellaneous. ------------- (a) Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of California applicable to contracts made among residents of, and wholly to be performed in, the State of California. (b) Further Instruments. From time to time, each party hereto shall ------------------- execute and deliver such instruments and documents as may be reasonably necessary to carry out the purposes and intent of this Agreement. (c) Binding Effect. This Agreement shall be binding upon and shall -------------- inure to the benefit of the executors, administrators, legal representatives, heirs, successors, and assigns of the parties hereto. (d) 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. (e) Entire Agreement. This document constitutes and contains the ---------------- entire agreement of the parties and supersedes any and all prior negotiations, correspondence, understandings and agreements among the parties respecting the subject matter hereof, and each of the Purchasers hereby waives any and all rights under the Prior Shareholders Agreement, the Fourth Amended and Restated Shareholders Agreement dated June 1, 1995, the Third Amended and Restated Shareholders Agreement dated October 8, 1992 among the Company and the Shareholders named therein, the Second Amended and Restated Shareholders Agreement dated December 9, 1991 among the Company and the Shareholders named therein, the First Amended and Restated Shareholders Agreement dated September 7, 1990 among the Company and the Shareholders named therein, and the Shareholders Agreement dated September 6, 1989 among the Company and the Shareholders named therein. (f) Amendment. Neither this Agreement nor any term hereof may be --------- amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought; provided, however, that any provision hereof may be amended, waived, discharged or terminated upon the written consent of the Company and the holders of at least two-thirds of the outstanding shares of Preferred Shares and the Cypress Common (whether outstanding or not) voting together as a single class and Founders holding a majority of the outstanding shares of Common Stock of the Company held by all Founders; provided further, however, that any amendment, waiver, discharge or termination of Section 1 of this Agreement which would have the effect of termi nating a board seat designated pursuant to paragraphs 1(a)(i)-(iv) while not similarly terminating each of the board seats designated pursuant to Sections 1(a)(i)-(iv) shall not be effective unless approved by holders of the party adversely affected and provided further that this Agreement shall not be amended without the consent of the holders of two-thirds of the outstanding shares of Preferred Stock, and the Cypress Common (whether outstanding or not) voting together as a single class, voting together as a single class on an as-converted basis, if such amendment would alter or change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Preferred Stock. Notwithstanding the foregoing, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated without the written consent of Cypress to the extent such amendment, waiver, discharge or termination affects Cypress in a manner different from the other Shareholders. (g) Transfer. The rights and obligations of this Agreement may be -------- assigned by a Shareholder to a transferee, provided that the transferee execute an agreement in the form satisfactory to the Company agreeing to be bound by the provisions of this Agreement. Notwithstanding the foregoing, the right to designate a member of the board pursuant to Section 1(a)(i)-(iii) shall not be transferable except to a partner or affiliate (as that term is defined in Rule 405 of the Regulations under the Securities Act of 1933) of a Shareholder. * * * IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written. "COMPANY" "FOUNDERS" QUICKLOGIC CORPORATION /s/ John Birkner a California corporation __________________________ John Birkner /s/ E. Thomas Hart /s/ Andrew Chan ____________________________ __________________________ E. Thomas Hart Andrew Chan President /s/ H.T. Chua __________________________ H.T. Chua "SHAREHOLDERS" /s/ Ronald L. Perkins __________________________ Ronald L. Perkins /s/ Tench Coxe __________________________ Tench Coxe /s/ William H. Younger, Jr. __________________________ William H. Younger, Jr. Saunders Holdings, L.P. By: /s/ G. Leonard Baker, Jr. ________________________________________ G. Leonard Baker, Jr., General Partner /s/ G. Leonard Baker, Jr. __________________________ G. Leonard Baker, Jr. /s/ David L. Anderson __________________________ David L. Anderson Anvest, L.P. By: /s/ David L. Anderson ________________________________________ David L. Anderson, General Partner Paul M. & Marsha R. Wythes, Trustees of the Wythes Living Trust By: /s/ Paul M. Wythes ________________________________________ Paul M. Wythes, Trustee TOW Partners, A California Limited Partnership By: /s/ Paul M. Wythes ________________________________________ Paul M. Wythes, General Partner Sutter Hill Ventures, A California Limited Partnership By: /s/ David L. Anderson ________________________________________ David L. Anderson General Partner of the General Partner TVI Management-3, L.P. By: /s/ ________________________________________ General Partner TVI Venture Investors-3, L.P. By: TVI Management-3 General Partner By: /s/ ________________________________________ General Partner Technology Venture Investors-IV, as nominee for Technology Venture Investors-4, L.P. TVI Partners-4, L.P. and TVI Affiliates-4, L.P. By: TVI Management-4, L.P. General Partner By: /s/ ________________________________________ General Partner New Enterprise Associates VI, Limited Partnership By: NEA Partners VI, Limited Partnership Its General Partner By: /s/ Nancy Dorman ________________________________________ Nancy Dorman Glynn Ventures III, L.P. By: /s/ John W. Glynn, Jr. ________________________________________ John W. Glynn, Jr., General Partner U.S. Venture Partners III, A California Limited Partnership, By: BHMS Partners III A California Limited partnership Its General Partner By: /s/ Michael P. Maher ________________________________________ Attorney-In-Fact Michael P. Maher Second Ventures Limited Partnership By: BHMS Partners III A California Limited Partnership Its General Partner By: /s/ Michael P. Maher ________________________________________ Attorney-In-Fact Michael P. Maher U.S.V. Entrepreneur Partners, A California Limited Partnership By: BHMS Partners III, A California Limited Partnership Its General Partner By: /s/ Michael P. Maher ________________________________________ Attorney-In-Fact Michael P. Maher Vertex Investment Pte. Ltd. By: /s/ ________________________________________ Cypress Semiconductor Corporation By: /s/ Emmanuel Hernandez ________________________________________ Emmanuel Hernandez V.P. of Finance, CFO C.V. Sofinnova Partners Five By: Sofinnova (International) Five N.V. General Partner By: /s/ ________________________________________ Under Power of Attorney ALTA IV LIMITED PARTNERSHIP By: Alta IV Management Partners, L.P. By: /s/ ________________________________________ General Partner Morgenthaler Venture Partners III by Morgenthaler Management Partners III its General Partner By: /s/ Gary J. Morgenthaler ________________________________________ Gary J. Morgenthaler, General Partner SEQUOIA CAPITAL V SEQUOIA TECHNOLOGY PARTNERS V SEQUOIA XXIV, SEQUOIA XXIII By: /s/ Mark Stevens ________________________________________ Mark Stevens, General Partner /s/ A. Bechtolsheim ___________________________________________ A. Bechtolsheim U.S. Venture partners IV, L.P. By Presidio Management Group IV, L.P., Its General partner By: /s/ Phil Young ________________________________________ Phil Young, General Partner SECOND VENTURES II, L.P. By Presidio Management Group IV, L.P. Its General Partner By: /s/ Phil Young ________________________________________ Phil Young, General Partner USVP ENTREPRENEUR PARTNERS II, L.P. A Delaware Limited Partnership By Presidio Management Group IV, L.P. Its General Partner By: /s/ Phil Young ________________________________________ Phil Young, General Partner /s/ James C. Gaither ___________________________________________ James C. Gaither ___________________________________________ Print Individual or Entity Name By: /s/ ________________________________________ Signature ___________________________________________ Print Name (if Agent*) ___________________________________________ Title of Agent* * Agent, officer, partner, trustee, etc. Print Individual or Entity Name By: /s/ ________________________________________ Signature ___________________________________________ Print Signatory's Name (if Agent) ___________________________________________ Title of Agent* * Agent, officer, partner, trustee, etc. -Shareholders' Agreement- EX-10.13 13 SIXTH AMENDED & RESTATED REGISTRATION RIGHTS EXHIBIT 10.13 EXHIBIT F TO TERMINATION AGREEMENT ---------------------------------- QUICKLOGIC CORPORATION SIXTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT This SIXTH AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of March 29, 1997 by and among QuickLogic Corporation, a California corporation (the "Company"), and the persons named on the signature pages hereof (the "Shareholders"). RECITALS -------- WHEREAS, certain Shareholders (the "Prior Holders") possess registration rights granted under the Fifth Amended and Restated Registration Rights Agreement (the "Prior Registration Agreement") dated November 27, 1996 among the Company and the Prior Holders; WHEREAS, the Company has entered into that certain Termination Agreement (the "Termination Agreement") dated March 29, 1997 and that certain Common Stock Purchase Agreement (the "Stock Purchase Agreement") of even date herewith, both by and between the Company and Cypress Semiconductor Corporation ("Cypress"); WHEREAS, the obligations of the Company and Cypress under the Termination Agreement are conditioned, among other things, upon the execution and delivery by the Shareholders and the Company of this Agreement; and WHEREAS, the Prior Holders desire to waive the registration rights held by them pursuant to the Prior Registration Agreement and to accept the rights created herein in lieu of those rights. NOW, THEREFORE, in consideration of the recitals and the mutual covenants and conditions set forth herein, the Prior Holders agree to terminate the Prior Registration Agreement and all parties hereto agree as follows: AGREEMENT --------- 1. Definitions. As used in this Agreement: ----------- (a) The terms "register", "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and the declaration or ordering of the effectiveness of such registration statement by the SEC; (b) The term "Preferred Stock" means the Company's Series A, Series B, Series C, Series D, Series E and Series F Preferred Stock; (c) The term "Registrable Securities" means: (i) any Common Stock of the Company issued or issuable upon conversion of the Preferred Stock; (ii) any Common Stock issued or issuable to any bank, savings and loan association, equipment lessor or other similar institution or entity which provides debt financing to the Company now holding or hereafter issued warrants to purchase shares of the Company's equity securities provided that (a) at the time a warrant is issued to such entity the Board of Directors grants such entity rights hereunder and (b) such entity agrees to be bound by the provisions hereof, which agreement shall be evidenced by such entity's execution hereof (and, upon execution hereof, such entity shall be deemed to be included within the definition of "Shareholder" for all purposes hereunder); (iii) Common Stock issued or deliverable pursuant to the Stock Purchase Agreement (the "Cypress Stock") (iv) any Common Stock of the Company issued or issuable in respect to the Common Stock referred to in (i), (ii) or (iii) or in respect of the Preferred Stock; and (v) any Common Stock issued or issuable in respect to other securities issued or issuable in respect of the Common Stock referred to in (i), (ii) or (iii) or the Preferred Stock, including in each case and without limitation, upon any stock split, stock dividend, recapitalization, or as a distribution; provided, however, that shares of Common Stock or other securities shall only be treated as Registrable Securities if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (B) sold or are available for sale in a single three-month period in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale; (d) The term "Holder" means any Shareholder holding Registrable Securities or Preferred Stock (and any person holding Preferred Stock or Registrable Securities to whom the registration rights have been transferred pursuant to Section 12); (e) The term "SEC" means the Securities and Exchange Commission or any successor agency thereto; (f) The term "Securities Act" means the Securities Act of 1933, as amended, or any successor statute thereto, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time; (g) The term "Registration Expenses" shall mean all expenses incurred by the Company in complying with Sections 2, 3, 4, 5 and 7, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company and one special counsel for the selling Holders (including for Cypress pursuant to Sections 3 and 4), and blue sky fees and expenses (all as limited by Section 7) provided, however, that the term "Registration Expenses" shall not include compensation of regular employees of the Company which in any event shall be paid by the Company; and (h) The term "Selling Expenses" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holders (including when registered by Cypress pursuant to Sections 3 and 4). 2. Requested Registration -- General. --------------------------------- (a) In case the Company shall receive from the Holders a written request that the Company effect any registration, qualification or compliance with respect to at least thirty percent (30%) of the Registrable Securities or any lesser percentage of Registrable Securities if the reasonable anticipated aggregate offering price (net of Selling Expenses) would exceed $5,000,000, the Company will: (i) promptly give written notice of the proposed registration, qualification or compliance to all other Holders; and (ii) use its best efforts to effect, as soon as practicable, all such registrations, qualifications and compliances (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualifications under the applicable blue sky or other state securities laws, and appropriate compliance with exemptive regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within thirty (30) days after written notice pursuant to Section 2(a)(i) is given; provided, however, that (iii) the Company shall not be obligated to take any action to effect any such registration, qualification, or compliance pursuant to this Section 2: (A) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (B) Within six (6) months immediately following the effective date of any registration statement pertaining to an underwritten public offering of securities of the Company for its own account (other than a registration relating solely to a transaction under SEC Rule 145 or any successor thereto or a registration relating solely to employee benefit plans); (C) Prior to the earlier of (i) November 30, 1996 or (ii) the effective date of the first registration statement filed by the Company for an offering of its securities to the general public (the "Initial Public Offering"); (D) After the Company has effected two (2) such registrations pursuant to this Section 2; or (E) If the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its stockholders for a registration statement to be filed in the near future, then the Company's obligation to use its best efforts to register, qualify or comply under this Section 2 shall be deferred for a period not to exceed 120 days from the date of receipt of written request from the Holders. Subject to the foregoing, the Company will use its best efforts to file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. (b) From and after the date hereof, the Company shall not enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder to require the Company to include shares or securities in any registration initiated under this Agreement, nor shall the Company include any shares or securities for its own account, without the written consent of a majority in interest of the Holders requesting registration unless under the terms of such agreement such holder or prospective holder may include such securities in such registration only to the extent that the inclusion of its securities will not diminish the amount of Registrable Securities which are included. (c) The Holders shall include in their request made pursuant to this Section 2 the name, if any, of the underwriter or underwriters that the majority in interest of such Holders would propose, with the consent of the Company (which consent shall not be unreasonably withheld) to employ in connection with the public offering proposed to be made pursuant to the registration requested; and the Company shall include such information in the written notice referred to in Section 2(a)(i). The right of any Holder to registration pursuant to this Section 2 shall be conditioned on such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent requested (unless otherwise mutually agreed by a majority in interest of the Holders and such Holder) to the extent provided herein. The Company shall (together with all Holders proposing to distribute their Registrable Securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting in the manner set forth above. Notwithstanding any other provision of this Section 2 (with the exception of subsection (d) below), if the underwriter advises such Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among such Holders therein in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders at the time of filing the registration statement. No Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. (d) Notwithstanding the cutback provisions of Section 2(c), if Cypress desires to include Registrable Securities held by it in a registration of the Company's securities pursuant to this Section 2, unless Cypress consents in writing, in no event shall the number of Registrable Securities held by Cypress and included in such registration be less than thirty-three and one-third percent (33-1/3%) of the total number of shares of the Company's securities registered thereunder. (e) If any Holder disapproves of the terms of the underwriting, such Holder may elect to withdraw therefrom by written notice to the Company, the underwriter and the other Holders proposing to distribute Registrable Securities through such underwriting. The Registrable Securities so withdrawn shall also be withdrawn from registration and shall not be transferred in a public distribution prior to 120 days after the effective date of such registration statements or such shorter period of time as the underwriter may require; provided, however, that, if by the withdrawal of such Registrable Securities a greater number of Registrable Securities held by other Holders may be included in such registration (up to the maximum of any limitation imposed by the underwriters), then the Company shall offer to all Holders who have included Registrable Securities in the registration the right to include additional shares of Registrable Securities in the proportions specified in Section 2(c). 3. Requested Registration -- Cypress. --------------------------------- (a) In case the Company shall receive from Cypress a written request that the Company effect any registration, qualification or compliance with respect to Registrable Securities held by Cypress if the reasonable anticipated aggregate offering price (net of Selling Expenses) would exceed $5,000,000, the Company will: (i) use its best efforts to effect, as soon as practicable, all such registrations, qualifications and compliances (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualifications under the applicable blue sky or other state securities laws, and appropriate compliance with exemptive regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request; provided, however, that (ii) the Company shall not be obligated to take any action to effect any such registration, qualification, or compliance pursuant to this Section 3: (A) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (B) Within (i) six (6) months immediately following the effective date of the registration statement pertaining to the initial underwritten public offering of securities of the Company for its own account or (ii) ninety (90) days immediately following the effective date of any registration statement pertaining to any other underwritten public offering of securities of the Company for its own account (in either case other than a registration relating solely to a transaction under SEC Rule 145 or any successor thereto or a registration relating solely to employee benefit plans); (C) Prior to the effective date of the Initial Public Offering; (D) After the Company has effected one (1) such registration pursuant to this Section 3; or (E) If the Company shall furnish to Cypress a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its stockholders for a registration statement to be filed in the near future, then the Company's obligation to use its best efforts to register, qualify or comply under this Section 3 shall be deferred for a period not to exceed 120 days from the date of receipt of written request from Cypress. Subject to the foregoing, the Company will use its best efforts to file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request or requests of Cypress. (b) From and after the date hereof, the Company shall not enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder to require the Company to include shares or securities in any registration initiated under this Section 3, nor shall the Company include any shares or securities for its own account, without the written consent of Cypress unless, with respect to all cases set forth above, under the terms of such agreement such holder or prospective holder may include such securities in such registration only to the extent that if the underwriter advises such holder in writing that marketing factors require a limitation of the number of shares underwritten, the number of shares of securities that may be included in the registration shall be so reduced and in the event of such cutback, Cypress shall receive full priority with respect to all of its Registrable Securities to be registered. (c) Cypress shall include in its request made pursuant to this Section 3 the name, if any, of the underwriter or underwriters that Cypress would propose, with the consent of the Company (which consent shall not be unreasonably withheld) to employ in connection with the public offering proposed to be made pursuant to the registration requested. The Company shall (together with Cypress) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting in the manner set forth above. Notwithstanding any other provision of this Section 3, if the underwriter advises Cypress in writing that marketing factors require a limitation of the number of shares to be underwritten, then the number of shares of Registrable Securities that may be included in the registration and underwriting shall be so reduced. No Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. (d) A registration effected pursuant to this Section 3 shall not be counted as a request for registration effected pursuant to Section 2. (e) If Cypress disapproves of the terms of the underwriting agreement or the nature of the underwriter's cutback pursuant to Section 3(c) above, Cypress may elect to withdraw from such underwriting by written notice to the Company, the underwriter and other Holders, if any, proposing to distribute Registrable Securities through such underwriting. The Registrable Securities so withdrawn shall also be withdrawn from registration, and such registration shall not count as Cypress's right to request registration under this Section 3. 4. Shelf Registration -- Cypress. ----------------------------- (a) The Company shall use its best efforts to promptly cause all of the issued and/or deliverable but unsold shares of the Cypress Stock to be registered under the Securities Act as to permit the sale thereof. The filing of such registration statement shall be filed at least forty-five (45) days before the expiration of the market stand-off period (the "Initial Lockup Period") imposed upon the Company's directors, officers and greater than 1% shareholders in connection with the Initial Public Offering. (b) The Company shall use its best efforts (i) to cause such registration statement to become effective concurrent with the expiration of the Initial Lockup Period (including any extension to such period in the event of an offering of the Company's securities following the Initial Public Offering that occurs during the Initial Lockup Period), and (ii) to keep such registration statement effective until the earlier of (A) the date all of the shares of Cypress Stock are sold; (B) the date three (3) years after the "Closing" (as defined in the Termination Agreement); or (C) the date Cypress is able to sell all of the shares of the Cypress Stock pursuant to SEC Rule 144 in a three-month period. (c) The Company may suspend Cypress's ability to sell under such registration statement pursuant to this Section 4 (i) during the period from expiration of the Lockup Period until one year from the effective date of the Initial Public Offering for the last four weeks of each fiscal quarter until the day after the end of the set "blackout" period with respect to such fiscal quarter's earnings release provided in the Company's insider trading policy and (ii) beginning one year after the effective date of the Initial Public Offering for up to forty-five (45) days if such registration would be detrimental to the Company based upon the good faith determination of its Board of Directors; provided, the Company's right to suspend use of such registration pursuant to this Section 4 (a) shall terminate earlier upon the public disclosure of such material information (by a party other than Cypress) underlying the need for suspension, and (b) once exercised, may not be again exercised for one hundred twenty (120) days. 5. Form S-3 Registration. --------------------- (a) In case the Company shall receive from any Holder or Holders a written request or requests that the Company effect a registration on Form S-3 (or any successor thereto) and any related qualification or compliance with respect to all or a part of the Registrable Securities held by such Holder or Holders, the Company will use its best efforts to cause such Registrable Securities to be registered on such form; provided, however, that the Company shall not be obligated to take any action to effect such registration, qualification or compliance pursuant to this Section 5: (i) if the Company is not qualified as a registrant entitled to use Form S-3; (ii) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (iii) if the Company has effected one such registration pursuant to this Section 5 during the preceding six (6) months; or (iv) if the reasonably anticipated offering price to the public of all shares of Common Stock to be sold pursuant to such registration (net of Selling Expenses) is less than $500,000. (b) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. (c) The provisions of Sections 2(a)(i) and (ii), 2(c), 2(d) and 2(e) shall apply to any registration effected pursuant to this Section 5. (d) Registrations effected pursuant to this Section 5 shall not be counted as requests for registration effected pursuant to Section 2 or Section 3. 6. Company Registration. -------------------- (a) If at any time, or from time to time, the Company shall determine to register any of its securities, either for its own account or for the account of a security holder or holders, other than (i) a registration relating solely to a transaction under SEC Rule 145 or any successor thereto, or (ii) a registration relating solely to employee benefit plans, or (iii) a registration pursuant to sections 2, 3 or 4, the Company will: (i) promptly give to each Holder written notice thereof (which shall include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable blue sky laws or other state securities laws) and (ii) include in such registration (and any related qualification under blue sky laws or other compliance) and in any underwriting involved therein, all the Registrable Securities specified in any written request or requests by any Holder or Holders received by the Company within thirty (30) days after such written notice is given on the same terms and conditions as the Common Stock, if any, otherwise being sold through the underwriter in such registration. (b) If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 6(a)(i). In such event the right of any Holder to registration pursuant to this Section 6 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting (together with the Company and the other holders distributing their securities through such underwriting) shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. (c) Notwithstanding any other provision of this Section 6 (with the exception of subsection (d) below), if the underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the underwriter may limit the amount of Registrable Securities to be included in such registration and underwriting; provided, however, that the underwriter may not limit the Registrable Securities to be included in any proposed registration (other than the Initial Public Offering) to an amount that is less than thirty percent (30%) of the total value of the securities to be distributed through such registration and underwriting. In the case of the Initial Public Offering, the underwriter shall have the right pursuant to this Section 6(c) to reduce the number of Registrable Securities to be included in such registration to zero, subject to Section 6(d) herein. The Company shall so advise all Holders, and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders at the time of filing the registration statement. (d) Notwithstanding the cutback provisions of Section 6(c), if Cypress desires to include Registrable Securities held by it in a registration of the Company's securities pursuant to this Section 6, unless Cypress consents in writing, in no event shall the number of Registrable Securities held by Cypress and included in such registration be less than thirty-three and one-third percent (33-1/3%) of the total number of shares of the Company's securities registered thereunder. (e) If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter. Any Registrable Securities excluded or withdrawn from such underwriting shall also be withdrawn from registration and shall not be transferred in a public distribution prior to 120 days after the effective date of the registration statement relating thereto, or such shorter period of time as the underwriter may require. 7. Expenses of Registration. All Registration Expenses incurred ------------------------ in connection with any registration pursuant to Sections 2, 3, 4, 5 or 6 shall be borne by the Company. Unless otherwise stated, all Selling Expenses relating to securities registered on behalf of the Holders shall be borne by the Holders pro rata on the basis of the number of shares so registered; provided, however, that the Company shall not be required to effect or to pay any Registration Expenses of any registration begun pursuant to Section 2 or Section 3, the request for which has been subsequently withdrawn by Holders (including Cypress, for purposes of Section 3) of a number of shares of Registrable Securities such that there are no Holders of Registrable Securities intending to participate in the registration sufficient to request such a registration, in which case such expenses shall be borne by the Holders (including Cypress, for purposes of Section 3) of securities (including Registrable Securities) requesting or causing such withdrawal; provided further, however, that if at the time of such withdrawal, the Holders (including Cypress, for purposes of Section 3) have learned of a material adverse change in the condition, business or prospects of the Company from that known to the Holders (including Cypress, for purposes of Section 3) at the time of their request, then the Holders (including Cypress, for purposes of Section 3) shall not be required to pay any of such Registration Expenses and shall retain their rights pursuant to Sections 2, 3 and 7. 8. Registration Procedures. If and whenever the Company is ----------------------- required by the provisions of this Agreement to use its best efforts to effect the registration of any of the Registrable Securities under the Securities Act, the Company will, as expeditiously as possible: (a) Prepare and file with the SEC a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for at least 120 days or until the Holder or Holders have completed the distribution described in the registration statement relating thereto, whichever first occurs; (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to comply with the provisions of the Securities Act and to keep such registration statement effective for that period of time specified in Section 8(a); (c) Prepare and file with the SEC promptly upon the request of any such Holders, any amendments or supplements to such registration statement or prospectus which, in the reasonable opinion of special counsel for such Holders, is required under the Securities Act or the rules and regulations thereunder in connection with the distribution of the Registrable Securities by such Holders; (d) Prepare and promptly file with the SEC, and promptly notify such Holders or their special counsel of the filing of, such amendment or supplement to such registration statement or prospectus as may be necessary to correct any statements or omissions if, at the time when a prospectus relating to such securities is required to be delivered under the Securities Act, any event has occurred as the result of which any such prospectus must be amended in order that it does not make any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading, in light of the circumstances in which they were made; (e) In case any of such Holders or any underwriter for any such Holders is required to deliver a prospectus at a time when the prospectus then in effect may no longer be used under the Securities Act, prepare promptly upon request such amendment or amendments to such registration statement and such prospectus as may be necessary to permit compliance with the requirements of the Securities Act; (f) Furnish to each Holder participating in the registration such number of prospectuses, preliminary prospectuses, final prospectuses and such other documents as such seller may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities being sold by such Holder; (g) Enter into a written underwriting agreement in customary form and substance reasonably satisfactory to the Company, the Holders and the underwriters, if the offering is to be underwritten in whole or in part; and (h) Use its best efforts to register or qualify the Registrable Securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as each such selling Holder of Registrable Securities shall reasonably request and do any and all other acts and things which may be necessary or desirable to enable such Holder to consummate the public sale or other disposition in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or file a general consent to service of process in any such jurisdictions. (i) Except with respect to subsections (c), (d), (e), (f) and (h), the provisions of this Section 8 shall not apply to the registration effected pursuant to Section 4. 9. Indemnification. --------------- (a) The Company agrees to indemnify and hold harmless each Holder of Registrable Securities with respect to which a registration statement has been filed under the Securities Act pursuant to this Agreement, each of such Holder's partners, officers and directors, each underwriter of any of the Registrable Securities included in such registration statement, and each person, if any, who controls any such Holder or underwriter within the meaning of the Securities Act (hereinafter collectively referred to as the "Holder-Underwriters"), as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever arising out of any untrue statement or alleged untrue statement of a material fact contained in such registration statement (or any amendment thereto) or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, or arising out of any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, or any violation by the Company of any rule or regulation promulgated under the any state or federal securities laws applicable to the Company or such Holder-Underwriters in connection with any such registration, qualification and compliance unless such untrue statement or omission, or such alleged untrue statement or omission, or any alleged violation or violation was made in reliance upon and in conformity with or was the result of written information furnished to the Company by any such Holder-Underwriter expressly for use in such registration statement (or any amendment thereto) or such preliminary prospectus or prospectus (or any amendment or supplement thereto); (ii) against any and all loss, liability, claim, damage and expense whatsoever to the extent of the aggregate amount paid in settlement of any litigation, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, or any such alleged violation or violation if such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, or any such alleged violation or violation, to the extent that any such expense is not paid under Section 9(a)(i) or (ii); provided, however, that the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any such untrue statement or alleged untrue statement, omission or alleged omission, violation or alleged violation made in a preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the registration statement becomes effective, or in the amended prospectus filed with the SEC pursuant to Rule 424(b) (the "Final Prospectus"), such indemnity agreement shall not inure to the benefit of any Holder if the underwriter of any such Holder fails to furnish (to the extent and only to the extent such Holder's underwriter is in fact required to furnish) a copy of the Final Prospectus to the person or entity asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act. In no case shall the Company be liable under this indemnity agreement with respect to any loss, liability, claim, damage or expense with respect to any claim made against any Holder-Underwriter unless the Company shall be notified in writing of the nature of the claim within a reasonable time after the assertion thereof, but failure to so notify the Company shall not relieve the Company from any liability which it may have otherwise than on account of this indemnity agreement. In case of any such notice, the Company shall be entitled to participate at its expense in the defense, or if it so elects within a reasonable time after receipt of such notice, to assume the defense of any suit brought to enforce any such claim; but if it so elects to assume the defense, such defense shall be conducted by counsel chosen by it and approved by the Holder-Underwriter and other defendant or defendants, if any, in any suit so brought, which approval shall not be unreasonably withheld. In the event that the Company elects to assume the defense of any such suit and retain such counsel, the Holder-Underwriter and other defendant or defendants, if any, in the suit, shall bear the fees and expenses of any additional counsel thereafter retained by them; provided, however, that if a conflict of interests exists or arises such that the it would be inappropriate for counsel selected by the Company to represent the Holder-Underwriters, the Company will pay the reasonable fees and expenses of one counsel to the Holder-Underwriter. (b) Each Holder severally agrees that it will indemnify and hold harmless the Company, each officer and director of the Company, each person, if any, who controls the Company within the meaning of the Securities Act, each underwriter of Registrable Securities included in any registration statement which has been filed under the Securities Act pursuant to this Agreement, each person, if any, who controls such underwriter within the meaning of the Securities Act, each other Holder, each of such other Holder's partners, officers and directors, and each person controlling such other holder within the meaning of the Securities Act against any and all loss, liability, claim, damage and expense described in clauses (a)(i) through (a)(iii), inclusive, of this Section 9, but only with respect to statements or omissions, or alleged statements or omissions, or violations or alleged violations made in such registration statement (or any amendment thereto) or any preliminary prospectus or prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with or as a result of written information furnished to the Company by such Holder expressly for use in such registration statement (or any amendment thereto) or such preliminary prospectus or prospectus (or any amendment or supplement thereto). In case any action shall be brought against the Company or any person so indemnified pursuant to the provisions of this Section 9(b) and in respect of which indemnity may be sought against any Holder, the Holders from whom indemnity is sought shall have the rights and duties given to the Company, and the Company and the other persons so indemnified shall have the rights and duties given to the persons entitled to indemnification by the provisions of Section 9 (a). Notwithstanding anything to the contrary herein contained, a Holder's indemnity obligation shall be limited to the amount received by such Holder from the offering out of which the indemnity obligation arises. 10. Information by Holder. The Holder or Holders of Registrable --------------------- Securities included in any registration shall furnish to the Company such information regarding such Holder or Holders, and the distribution proposed by such Holder or Holders, as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement. 11. Rule 144 Reporting. With a view to making available the benefits of ------------------ certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the first registration filed by the Company for an offering of its securities to the general public; (b) File with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act; and (c) Furnish the Holders forthwith upon request (i) a written statement by the Company as to its compliance with the public information requirements of said Rule 144 (at any time after ninety (90) days after the Initial Public Offering), (ii) a copy of the most recent annual or quarterly report of the Company, and (iii) such other reports and documents as may be reasonably requested in availing the Holders of any rule or regulation of the SEC permitting the sale of any such securities without registration. 12. Transfer of Registration Rights. ------------------------------- (a) The rights to cause the Company to register securities granted by the Company under Sections 2, 5 and 6 may be assigned in writing by any Holder of Registrable Securities to a partner, shareholder, equity holder, officer or director of any Holder without regard to the number of Registrable Securities transferred or assigned or to a transferee or assignee of not less than 10,000 shares of the Registrable Securities (as appropriately adjusted from time to time for stock splits and the like) if such transfer may otherwise be effected in accordance with applicable securities laws and if the Company is given written notice by such Holder at the time of or within a reasonable time after said transfer, stating the name and address of said transferee or assignee and identifying the securities with respect to which such registration rights are being assigned and if such transferee or assignee executes and delivers to the Company an agreement in form and substance satisfactory to the Company agreeing to be bound by all terms and provisions of this agreement applicable to a Holder. (b) The rights of Cypress to cause the Company to register securities under Sections 3 and 4 may be assigned to a successor-in-interest of all or substantially all the stock and/or assets of Cypress. (c) The right of Cypress to cause the Company to register securities under Section 3 may be assigned, prior to the Initial Public Offering, to a transferee or assignee (or, subject to Section 12(e), transferees or assignees) of not less than an aggregate 3,000,000 shares of the Cypress Stock (as appropriately adjusted from time to time for stock splits and the like) if such assignment or transfer may otherwise be effected in accordance with applicable securities laws and if the Company is given written notice by Cypress at the time of or within a reasonable time after said transfer, stating the name and address of said transferee(s) or assignee(s) and identifying the securities with respect to which such registration rights are being assigned and if such transferee(s) or assignee(s) execute(s) and deliver(s) to the Company an agreement in form and substance satisfactory to the Company agreeing to be bound by all terms and provisions of this agreement applicable to Cypress. If, after such transfer or assignment, Cypress has so transferred or assigned all of the Cypress Stock, Cypress shall have no further rights pursuant to Section 3. Notwithstanding any transfer or assignment by Cypress pursuant to this Section 12(c), the rights under Section 3 may be exercised only once by all Holders of rights under Section 3 (including Cypress), collectively, as if such Holders were Cypress. In the event the Company receives a written request to register securities pursuant to Section 3(a), it shall promptly give written notice of the proposed registration to all other Holders of rights under Section 3 and shall include in such registration all or such portion of the Registrable Securities of any such Holder or Holders joining in such request as are specified in a written request received by the Company within twenty (20) days after written notice by the Company to such Holder or Holders pursuant to this paragraph is given. After the Company has effected one (1) registration under Section 3, the Company shall not be obligated to take any action to effect any further registration, qualification, or compliance pursuant to Section 3. (d) The right of Cypress under Section 4 may be assigned, prior to the Initial Public Offering, to a transferee or assignee (or, subject to Section 12(e), transferees or assignees) of not less than an aggregate 3,000,000 shares of the Cypress Stock (as appropriately adjusted from time to time for stock splits and the like) if such assignment or transfer may otherwise be effected in accordance with applicable securities laws and if the Company is given written notice by Cypress at the time of or within a reasonable time after said transfer, stating the name and address of said transferee(s) or assignee(s) and identifying the securities with respect to which such registration rights are being assigned and if: (i) such transferee(s) or assignee(s) execute(s) and deliver(s) to the Company an agreement in form and substance satisfactory to the Company agreeing to be bound by all terms and provisions of this agreement applicable to Cypress and by all terms and provisions of Cypress's confidentiality obligations under Section 5.1 of the Termination Agreement; and (ii) such transferee(s) or assignee(s) execute(s) and deliver(s) to the Company an agreement in form and substance satisfactory to the Company agreeing not to sell, in any 90-day period, more than one percent (1%) of the total outstanding shares of capital stock of the Company outstanding, as shown by the Company's most recent report filed with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, for as long as the registration statement filed by the Company under Section 4 is effective. (e) For purposes of clarification, the right of Cypress to assign its rights under Section 3 or Section 4 pursuant to Section 12(c) and Section 12(d) shall include: (i) an assignment to a group of transferees or assignees of not less than an aggregate 3,000,000 shares, provided that (A) all assignees or transferees in such group appoint a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under Section 3 or Section 4 and (B) such group involves a relationship between two or more persons who are affiliates of each other; and (ii) the right to transfer such rights to multiple transferees or assignees provided that (A) each such transfer or assignment involves at least 3,000,000 shares and (B) for purposes of exercising rights under Section 3, all such transferees or assignees coordinate the exercise of the single demand registration right provided in Section 12(c) above. As used in the preceding sentence, an "affiliate" means any corporation or other entity controlled by, controlling, or under common control with such person, with "control" meaning direct or indirect beneficial ownership of fifty percent (50%) or more of the voting stock of such corporation or a fifty percent (50%) or greater interest in the decision-making authority of such other entity. 13. Lock-up Agreement. ----------------- (a) General Lockup. In consideration for the Company agreeing -------------- to its obligations under this Agreement, each Holder hereby agrees in connection with the registration of the Company's securities whether for its own account or under Section 2, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registrable Securities (other than those included in the registration) without the prior written consent of the Company or underwriters managing the offering, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as the Company or the underwriters may specify; provided that, (a) ------------- nothing herein shall prevent any Holder that is a partnership from making a distribution of Registrable Securities to the partners thereof that is otherwise in compliance with applicable securities laws, provided that all such partners shall remain subject to this Section 13; (b) such agreement shall not be effective unless all executive officers, directors and holders of 1% or more of the issued and outstanding capital stock of the Company who are not parties to this Agreement have entered into similar agreements; (c) in the event that the Initial Lockup Period provides for a set number of days where the Initial Lockup Period would expire in a period where the Company's directors and officers are prevented from trading because of the set "blackout" period between earnings releases provided in the Company's insider trading policy, then, notwithstanding the 180-day limit set forth above, the Initial Lockup Period shall not expire until the date that trading can commence under the Company's insider trading policy. (b) Release from Lockup Any early releases of any lockup shall ------------------- include the pro-rata release of the Cypress Stock based on the total number of shares that are locked-up, and such early-released shares of Cypress Stock shall not, at the time of such early release, be subject to any blackout provision on Cypress's released Registrable Securities set forth in this Agreement. 14. Miscellaneous. ------------- (a) Additional Actions and Documents. The parties hereto shall -------------------------------- execute and deliver such further documents and instruments and shall take such other further actions as may be required or appropriate to carry out the intent and purposes of this Agreement. (b) Successors and Assigns. This Agreement shall bind and ---------------------- inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Shareholders shall not make any assignment of any of their rights hereunder except as otherwise provided herein or unless the Company shall otherwise consent. (c) Amendment. This Agreement shall not be changed, amended, --------- or modified, in whole or in part, except by written agreement signed by the Company and Holders holding in excess of fifty percent (50%) of aggregate number of Registrable Securities (including securities exercisable for or convertible into Registrable Securities) then held by all Holders; provided however, that (i) this Agreement shall not be amended without the consent of the holder of two-thirds of the outstanding Preferred Stock, ,voting together as a single class on or an as-converted basis, if such amendment would alter or change the preferences, rights, privileges or powers of, or restrictions provided for the benefit of, the Preferred Stock and (ii) this Agreement may not be amended without the consent of Cypress if such amendment would adversely alter or change the preferences, rights, privileges or powers of, or restrictions provided for the benefit of Cypress pursuant to Sections 2, 3, 4, 5 and 6 in a manner different from the other Holders. (d) Notices. All notices, requests, demands, and other ------- communications pursuant to this Agreement shall be in writing and shall be deemed to have been duly given upon the date of service if served personally on the party to whom notice is to be given, or on the Sixth (6th) day after mailing if mailed to the party to whom notice is to be given, by first class mail, registered or certified, postage prepaid, and properly addressed, to the party as follows: In the case of a Holder, at his or her last address shown in the Company's records, and in the case of the Company at 1277 Orleans Drive, Sunnyvale, California 94089-1138. Any party may change its address for the purpose of this Section 12(d) by giving the other parties written notice of its new address in accordance herewith. (e) Governing Law. The rights and obligations of the parties ------------- hereto shall be governed by, and this Agreement shall be construed in accordance with, the laws of the State of California, excluding its conflict of laws rules to the extent such rules would apply the law of another jurisdiction. (f) Entire Agreement. This Agreement and the documents and ---------------- agreements contemplated herein constitute the entire agreement between the parties with regard to the subject matter hereof and thereof. This Agreement supersedes all prior written and oral agreements and understandings between the parties hereto with respect to the subject matter hereof, and each of the Holders hereby waives any and all rights under the Prior Registration Agreement, the Fourth Amended and Restated Registration Rights Agreement dated June 1, 1995, the Third Amended and Restated Registration Rights Agreement dated October 8, 1992 among the Company and the Shareholders named therein, the Second Amended and Restated Registration Rights Agreement date December 9, 1991 among the Company and the Shareholders named therein, the First Amended and Restated Registration Rights Agreement dated September 7, 1990 among the Company and the Shareholders named therein, and the Registration Rights Agreement dated September 6, 1989, among the Company and the Stockholders (named therein). (g) Counterparts. This Agreement may be executed in any number ------------ of counterparts, each of which may be executed by less than all of the parties hereto, each of which shall be enforceable only against the parties actually executing such counterparts, and all of which together shall constitute one instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. "COMPANY" "SHAREHOLDERS" QUICKLOGIC CORPORATION a California corporation /s/ Ronald L. Perkins -------------------------------------- Ronald L. Perkins By: /s/ E. Thomas Hart /s/ Tench Coxe ------------------------------ -------------------------------------- E. Thomas Hart, President Tench Coxe /s/ William H. Younger, Jr. -------------------------------------- William H. Younger, Jr. Saunders Holdings, L.P. By: /s/ G. Leonard Baker, Jr. ---------------------------------- G. Leonard Baker, Jr., General Partner /s/ G. Leonard Baker, Jr. -------------------------------------- G. Leonard Baker, Jr. /s/ David L. Anderson -------------------------------------- David L. Anderson Anvest, L.P. By: /s/ David L. Anderson ---------------------------------- David L. Anderson, General Partner Paul M. & Marsha R. Wythes, Trustees of the Wythes Living Trust By: /s/ Paul M. Wythes ---------------------------------- Paul M. Wythes, Trustee TOW Partners, A California Limited Partnership By: /s/ Paul M. Wythes ---------------------------------- Paul M. Wythes, General Partner Sutter Hill Ventures, A California Limited Partnership By: /s/ David L. Anderson ---------------------------------- David L. Anderson General Partner of the General Partner TVI Management-3, L.P. By: /s/ ---------------------------------- General Partner TVI Venture Investors-3, L.P. By: TVI Management-3 General Partner By: /s/ ---------------------------------- General Partner Technology Venture Investors-IV, as nominee for Technology Venture Investors-4, L.P. TVI Partners-4, L.P. and TVI Affiliates-4, L.P. By: TVI Management-4, L.P. General Partner By: /s/ ---------------------------------- General Partner New Enterprise Associates VI, Limited Partnership By: NEA Partners VI, Limited Partnership Its General Partner By: /s/ Nancy Dorman ---------------------------------- Nancy Dorman Glynn Ventures III, L.P. By: /s/ John W. Glynn, Jr. ---------------------------------- John W. Glynn, Jr., General Partner U.S. Venture Partners III, A California Limited Partnership, By: BHMS Partners III A California Limited partnership Its General Partner By: /s/ Michael P. Maher ---------------------------------- Attorney-In-Fact Michael P. Maher Second Ventures Limited Partnership By: BHMS Partners III A California Limited Partnership Its General Partner By: /s/ Michael P. Maher ---------------------------------- Attorney-In-Fact Michael P. Maher U.S.V. Entrepreneur Partners, A California Limited Partnership By: BHMS Partners III, A California Limited Partnership Its General Partner By: /s/ Michael P. Maher ---------------------------------- Attorney-In-Fact Michael P. Maher Vertex Investment Pte. Ltd. By: /s/ ---------------------------------- Cypress Semiconductor Corp. By: /s/ Emmanual Hernandez ---------------------------------- Emmanuel Hernandez V.P. of Finance, CFO C.V. Sofinnova Partners Five By: Sofinnova (International) Five N.V. General Partner By: /s/ ---------------------------------- Under Power of Attorney ALTA IV LIMITED PARTNERSHIP By: Alta IV Management Partners, L.P. By: /s/ ---------------------------------- General Partner Morgenthaler Venture Partners III by Morgenthaler Management Partners III its General Partner By: /s/ Gary J. Morgenthaler ---------------------------------- Gary J. Morgenthaler, General Partner SEQUOIA CAPITAL V SEQUOIA TECHNOLOGY PARTNERS V SEQUOIA XXIV, SEQUOIA XXIII By: /s/ Mark Stevens ---------------------------------- Mark Stevens, General Partner /s/ A. Bechtolsheim -------------------------------------- A. Bechtolsheim U.S. Venture partners IV, L.P. By Presidio Management Group IV, L.P., Its General partner By: /s/ Phil Young ---------------------------------- Phil Young, General Partner SECOND VENTURES II, L.P. By Presidio Management Group IV, L.P. Its General Partner By: /s/ Phil Young ---------------------------------- Phil Young, General Partner USVP ENTREPRENEUR PARTNERS II, L.P. A Delaware Limited Partnership By Presidio Management Group IV, L.P. Its General Partner By: /s/ Phil Young ---------------------------------- Phil Young, General Partner /s/ James C. Gaither -------------------------------------- James C. Gaither Print Individual or Entity Name By: /s/ ---------------------------------- Signature /s/ -------------------------------------- Print Name (if Agent*) /s/ -------------------------------------- Title of Agent* * Agent, officer, partner, trustee, etc. EX-10.15 14 LEASE DATED JUNE 17, 1995 EXHIBIT 10.15 LEASE DATED June 17, 1996 BY AND BETWEEN KAIROS, LLC, and Moffett Orchard Investors AS LANDLORD AND Quicklogic Corporation AS TENANT AFFECTING PREMISES COMMONLY KNOWN AS 1277 Orleans Drive Sunnyvale, Ca 95122 [12/15/95 MULTI TENANT NET INDUSTRIAL LEASE] TABLE OF CONTENTS
PAGE: ----- ARTICLE 1 - DEFINITIONS - ----------------------- 1.1 General 1 1.2 Additional Rent 1 1.3 Address for Notices 1 1.4 Agents 1 1.5 Agreed Interest Rate 1 1.6 Base Monthly Rate 1 1.7 Building 1 1.8 Commencement Date 1 1.9 Common Area 1 1.10 Common operating Expense 1 1.11 Consumer Price Index 1 1.12 Effective Date 1 1.13 Event of Tenant's Default 1 1.14 Hazardous Materials 1 1.15 Insured and Uninsured Peril 1 1.16 Law 1 1.17 Lease 1 1.18 Lease Term 1 1.19 Lender 1 1.20 Permitted Use 2 1.21 Premises 2 1.22 Project 2 1.23 Private Restrictions 2 1.24 Real Property Taxes 2 1.25 Scheduled Commencement Date 2 1.26 Security Instrument 2 1.27 Summary 2 1.28 Tenant's Alterations 2 1.29 Tenant's Share 2 1.30 Trade Fixtures 2 ARTICLE 2 DEMISE, CONSTRUCTION, AND ACCEPTANCE 2 - ----------------------------------------------- 2.1 Demise of Premises 2 2.2 Commencement Date 2 2.3 Construction of Improvements 2 2.4 Delivery and Acceptance of Possession 2 2.5 Early Occupancy 3 ARTICLE 3 - RENT 3 - ----------------- 3.1 Base Monthly Rent 3 3.2 Additional Rent 3 3.3 Payment of Rent 3 3.4 Late charge and Interest on Rent in Default 3 3.5 Security Deposit 3 ARTICLE 4 - USE OF PREMISES 3 - ----------------------------
4.1 Limitation on Use 3 4.2 compliance with Regulations 4 4.3 Outside Areas 4 4.4 Signs 4 4.5 Parking 4 4.6 Rules and Regulations 4
i TABLE OF CONTENTS (continued)
PAGE ---- ARTICLE 5 - TRADE FIXTURES AND ALTERATIONS 4 - ------------------------------------------ 5.1 Trade Fixtures 4 5.2 Tenant's Alterations 4 5.3 Alterations Required by Law 5 5.4 Amortization of Certain Capital Improvements 5 5.5 Mechanic's Liens 5 5.6 Taxes on Tenant's Property 6 ARTICLE 6 - REPAIR AND MAINTENANCE 6 - ---------------------------------- 6.1 Tenant's Obligation to Maintain 6 6.2 Landlord's Obligation to Maintain 6 6.3 Control of Common Area 6 ARTICLE 7 - WASTE DISPOSAL AND UTILITIES 7 - ---------------------------------------- 7.1 Waste Disposal 7 7.2 Hazardous Materials 7 7.3 Utilities 7.4 Compliance with Governmental Regulations ARTICLE 8 - COMMON OPERATING EXPENSES - ------------------------------------- 8.1 Tenant's Obligation to Reimburse 8 8.2 Common Operating Expenses Defined 8 8.3 Real Property Taxes Defined 9 ARTICLE 9 - INSURANCE 9 - --------------------- 9.1 Tenant's Insurance 9 9.2 Landlord's Insurance 10 9.3 Tenant's Obligation to Reimburse 10 9.4 Release and Waiver of Subrogation 10 ARTICLE 10 - LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY 10 - ------------------------------------------------------------- 10.1 Limitation on Landlord's Liability 10 10.2 Limitation on Tenant's Recourse 11 10.3 Indemnification of Landlord 11 ARTICLE 11 - DAMAGE TO PREMISES 11 - ------------------------------- 11.1 Landlord's Duty to Restore 11 11.2 Landlord's Right to Terminate 11 11.3 Tenant's Right to Terminate 12
I1.4 Abatement of Rent 12 ARTICLE 12 - CONDEMNATION 12 - ------------------------- 12.1 Landlord's Termination Right 12 12.2 Tenant's Termination Right 12 12.3 Restoration and Abatement of Rent 12 12.4 Temporary Taking 12 12.5 Division of Condemnation Award 12
ii TABLE OF CONTENTS (continued)
PAGE: ----- ARTICLE 13 - DEFAULT AND REMEDIES 13 - --------------------------------- 13.1 Events of Tenant's Default 13 13.2 Landlord's Remedies 13 13.3 Waiver 14 13.4 Limitation an Exercise of Rights 14 13.5 Waiver by Tenant of Certain Remedies 14 ARTICLE 14 - ASSIGNMENT AND SUBLETTING 14 - -------------------------------------- 14.1 Transfer by Tenant 14 14.2 Transfer by Landlord 16 ARTICLE 15 - GENERAL PROVISIONS 16 - ------------------------------- 15.1 Landlord's Right to Enter 16 15.2 surrender of the Premises 17 15.3 Holding Over 17 15.4 Subordination 17 15.5 Mortgagee Protection and Attornment 17 15.6 Estoppel Certificates and Financial Statements 17 15.7 Reasonable consent 18 15.8 Notices 18 15.9 Attorney's Fees 18 15.10 Corporate Authority 18 15.11 Miscellaneous 18 15.12 Termination by Exercise of Right 18 15.13 Brokerage Commissions 19 15.14 Force Majeure 19 15.15 Entire Agreement 19
EXHIBITS - -------- Exhibit A - Site plan of the Project containing a description of the Premises Exhibit B - Improvement Agreement Exhibit C - Approved Specifications Exhibit D - Acceptance Agreement Exhibit E - Description of Private Restrictions Exhibit F - Sign Criteria Exhibit G - Form of Subordination Agreement Exhibit H - Hazardous Materials Questionnaire Exhibit I - New Window Construction iii SUMMARY OF BASIC LEASE TERMS ----------------------------
SECTION TERMS (LEASE REFERENCE) A. Lease Reference Date: June 17, 1996 -------------------- (Introduction) KAIROS, LLC, and B. Landlord: Orchard Moffett Investors, -------- (Introduction) a California general Partnership C. Tenant: QuickLogic Corporation, ------ (Introduction) a California corporation D. Premises: That area consisting of 42,624 -------- ( pound 1.21) area the address of which is square feet of gross leasable within the Building as Shown 1277 Orleans Drive, Sunnyvale. on Exhibit A. --------- E. Project: The land and improvements ------- ( pound 1.21) shown on Exhibit A consisting --------- of one ( 1) buildings the aggregate gross leasable area of which is 42,624 square feet. F. Building: The Building in which the -------- ( pound 1.7) Premises are located known as 1277 Orleans Drive, Sunnyvale containing 42,624 square feet of gross leasable area. G. Tenant's Share: 100% -------------- ( pound 1.29) H. Tenant's Allocated Parking Stalls: 153 Stalls. --------------------------------- (pound 4.5) I. Scheduled Commencement Date: Upon Substantial Completion -------------------------------------------------------- ( pound 1.26) of the Interior Improvements as provided for in ----------------------------------------------- Paragraph 2D of Exhibit B to this Lease. --------------------------------------- J. Lease Term: 84 calendar months (plus the partial ---------- month following the Commencement (pound 1.18) Date if such date is not the first day of a month). K. Base Monthly Rent: ----------------- Months 1 - 30: $42,624.00 per Month (pound 3.1) Months 31 - 60: $46,033.92 per Month Months 61 - 84: $49,017.60 per Month ______________________________________
L. Prepaid Rent: $ 42,624.00 ------------ (pound 3.3) M. Security Deposit: 342,624.00 ---------------- (pound 3.5) See First Addendum To Lease Paragraph 11 N. Permitted Use: Office, marketing, test, engineering, research, ------------- (pound 4.1) development, design, storage, and distribution of electronic components, and all Other related legal uses. 0. Permitted Tenant's Alterations Limit: $ 5,000.00 ------------------------------------ (pound 5.2) P. Tenant's Liability Insurance Minimum: $ 2,000,000.00 ------------------------------------ (pound 9.1)
Q. Landlord's Address: Suite 300 ------------------ (pound 1.3) 2290 North First Street San Jose, Ca 95131 R. Tenant's Add Suite 100A ------------ (pound 1.3) 2933 Bunker Hill Lane Santa Clara, Ca 95054 S. Retained Real Estate Brokers: Cornish & Carey ---------------------------- (pound 15.13) T. Lease: This Lease includes the summary of the Basic Lease Terms, ----- (pound 1.17) the Lease, and the following exhibits and addenda: First Addendum to Lease, Exhibit A (site plan of the Project --------- containing description of the Premises), Exhibit B -------- (Improvement Agreement), Exhibit C (Approved Specifi- --------- cations), Exhibit D (acceptance agreement), Exhibit E --------- --------- (description of Private Restrictions), Exhibit F (sign --------- criteria), Exhibit G (form of subordination agreement), --------- Exhibit H (Hazardous Materials Questionnaire), and Exhibit I --------- --------- (New Window Construction)
The foregoing Summary is hereby incorporated into and made a part of this Lease. Each reference in this Lease to any term of the Summary shall mean the respective information set forth above and shall be construed to incorporate all of the terms provided under the particular paragraph pertaining to such information, In the event of any conflict between the Summary and the Lease, the Summary shall control. LANDLORD: TENANT: KAIROS, LLC, a California limited liability company QuickLogic Corporation a California Corporation By Orchard Moffett Investors, a California general partnership, Its authorized agent By /s/ Anthony S.S. Chan Anthony S.S. Chan By /s/ Michael J. Biggar VP Finance/Administration Michael J. Biggar Chief Financial Officer Manager ORCHARD MOFFETT INVESTORS, a California general partnership Date June 24, 1996 By /s/ Michael J. Biggar Michael J. Biggar, Manager Date 6/26/96 2 This Lease is dated as of the lease reference date specified in Section A --------- of the Summary and is made by and between the party identified as Landlord in Section B of the Summary and the party identified as Tenant in Section C of the - --------- --------- Summary. ARTICLE 1 --------- DEFINITIONS ----------- 1.1 General: Any initially capitalized term that is given a special ------- meaning by this Article 1, the Summary, or by any other provision of this Lease (including the exhibits attached hereto) shall have such meaning when used in this Lease or any addendum or amendment hereto unless otherwise clearly indicated by the context. 1.2 Additional Rent: The term "Additional Rent" is defined in paragraph --------------- 32. 1.3 Address for Notices: The term Address for Notices" shall mean the ------------------- addresses set forth in Sections Q and R of the Summary, provided, however, that ---------- after the Commencement Date. Tenant's Address for Notices shall be the address of the Premises. 1.4 Agents: The term "Agents" shall mean the following: (i) with respect ------ to Landlord or Tenant, the agents, employees, contractors, and invitees of such party; and (ii) in addition with respect to Tenant, Tenant's subtenants and their respective agents, employees, contractors, and invitees. 1.5 Agreed Interest Rate: The term "Agreed Interest Rate" shall mean that -------------------- interest rate determined as of the time it is to be applied that is equal to the lesser of (i) 5% in excess of the discount rate established by the Federal Reserve Bank of San Francisco as it may be adjusted from time to time, or (ii) the maximum interest rate permitted by Law. 1.6 Base Monthly Rent: The term "Base Monthly Rent" shall mean the fixed ----------------- monthly rent payable by Tenant pursuant to paragraph 3.1 which is specified in Section K of the Summary. - --------- 1.7 Building: The term "Building" shall mean the building in which the -------- Premises are located which Building is identified in Section F of the Summary, -------- the gross leasable area of which is referred to herein as the "Building Gross Leasable Area." 1.8 Commencement Date: The term "Commencement Date" is the date the Lease ----------------- Term commences, which term is defined in paragraph 2.2. 1.9 Common Area. The term "Common Area" shall mean all areas and ----------- facilities within the Project that are not designated by Landlord for the exclusive use of Tenant or any other lessee or other occupant of the Project, including the parking areas. access and perimeter roads, pedestrian sidewalks, landscaped areas, trash enclosures. recreation areas and to like. 1.10 Common Operating Expenses: The term 'Common Operating Expenses' is ------------------------- defined in paragraph 8.2. 1.11 Consumer Price Index: The term "Consumer Price Index" shall refer to -------------------- the Consumer Price Index, All Urban Consumers, subgroup 'All Items', for the San Francisco-Oakland-San Jose metropolitan area (base year 1982-84 equals 100), which is presently being published monthly by the United States Department of Labor. Bureau of Labor Statistics. However, if this Consumer Price Index is changed so that the base year is altered from that used as of the commencement of the initial term of this Lease, the Consumer Price Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics to obtain the same results that would have been obtained had the base year not been changed. If no conversion factor is available or if the Consumer Price Index is otherwise changed, revised or discontinued for any reason there shall be substituted in lieu thereof and the term "Consumer Price Index" shall thereafter refer to the most nearly comparable official price index of the United States government in order to obtain substantially the same result as would have been obtained had the original Consumer Price indent not been discontinued, revised or changed, which alternative index shall be selected by Landlord and shall be subject to Tenant's written approval. 1.12 Effective Date: The term "Effective Date" shall mean the date the --------------- last signatory to this Lease whose execution is required to make it binding on the parties hereto shall have executed this Lease. 1.13 Event of Tenant's Default: The term " Event of Tenant's Default: is ------------------------ defined i in paragraph 13.1. 1.14 Hazardous Materials: The terms "Hazardous Materials" and "Hazardous ------------------- Materials Laws" are defined in paragraph 7.2E. 1.15 Insured and Uninsured Peril: The terms "Insured Peril' and Uninsured --------------------------- Peril" are defined in paragraph 11.2E 1.16 Law: The term "Law" shall mean any judicial decision, statute. ---- constitution, ordinance, resolution, regulation, rule, administrative order, or other requirement of any municipal, county, state, federal or other government agency or authority having jurisdiction over the parties to this Lease or the Premises, or both, in effect either at the Effective Date or any time during the Lease Term. 1.17 Lease: The term "Lease" shall mean the Summary and all elements of ----- this Lease identified in Section T of the Summary, all of which are attached --------- hereto and incorporated herein by this reference. 1.18 Lease Term: The term "Lease term' shall mean the term of this Lease ---------- which shall commence on the Commencement Date and continue for the period specified in Section J of the Summary. - --------- 1.19 Lender: The term "Lender" shall mean any beneficiary, mortgagee, ------ secured party, lessor, or other holder of any Security Instrument. 1.20 Permitted Use: The term "Permitted Use" shall mean the use specified ------------- in Section N of the Summary. -------- 1.21 Premises: The term "Premises" shall mean that building area described -------- in Section D of the Summary that is within the Building. --------- 1.22 Project: The term "Project" shall mean that real property and the ------- improvements thereon which are specified in Section E of the Summary, the --------- aggregate gross leasable area of which is referred to herein as the "Project Gross Leasable Area." 1.23 Private Restrictions: The term "Private Restrictions' shall mean all -------------------- recorded covenants, conditions and restrictions, private agreements, reciprocal casement agreements, and any other recorded instruments affecting the use of the Premises which (i) exist as of the Effective Date. or (ii) are recorded after the Effective Date and are approved by Tenant. 1.24 Real Property Taxes: The term 'Real Property Taxes' is defined in ------------------- paragraph 8.3. 1.25 Scheduled Commencement Date: The term "Scheduled Commencement Date" --------------------------- shall mean the date specified in Section I of the Summary. --------- 1.26 Security Instrument: The term "Security Instrument" shall mean any -------------------- underlying lease, mortgage or deed of trust which now or hereafter affects the Project, and any renewal, modification, consolidation, replacement or extension thereof. 1.27 Summary: The term "Summary" shall mean the Summary of Basic Lease -------- Terms executed by Landlord and Tenant that is part of this Lease. 1.28 Tenant's Alterations: The term Tenant's Alterations" shall mean all -------------------- improvements, additions, alterations, and fixtures installed in the Premises by Tenant at its expense which are not Trade Fixtures. 1.29 Tenant's Share: The term Tenant's Share" shall mean the percentage -------------- obtained by dividing Tenant's Gross Leasable Area by the Building Gross Leasable Area, which as of the Effective Date is the percentage identified in Section G --------- of the Summary. 1.30 Trade Fixtures: The term "Trade Fixtures" shall mean (i) Tenant's -------------- inventory, furniture, signs. and business equipment, and (ii) anything affixed to the Premises by Tenant at its expense for purposes of trade, manufacture, ornament or domestic use (except replacement of similar work or material originally installed by Landlord) which can be removed without material injury to the Premises unless such thing has, by the manner in which it is a affixed become an integral part of the Premises. ARTICLE 2 --------- DEMISE, CONSTRUCTION, AND ------------------------- ACCEPTANCE ---------- 2.1 Demise of Premises: Landlord hereby leases to Tenant, and Tenant ------------------ leases from Landlord, for the Lease Term upon the terms and conditions of this Lease. the Premises for Tenant's own use in the conduct of Tenant's business together with (i) the non-exclusive right to use the number of Tenant's Allocated Parking Stalls within the Common Area ( subject to the limitations set forth in paragraph 4.5), and (ii) the non-exclusive right to use the Common Area for including without limitations ingress to and egress from the remises. Landlord reserves the use of the exterior walls, the roof and the area beneath and above the Premises, together with the right to install, maintain, use, and replace ducts, wires, conduits and pipes leading through the Premises in locations which will not materially interfere with Tenant's use of the Premises. 2.2 Commencement Date: If Landlord is not obligated to construct ------------------ improvements prior to the Commencement Date pursuant to paragraph 2.3, then on the Scheduled Commencement Date Landlord shall deliver possession of the Premises to Tenant and the Lease Term shall commence, and such date shall be referred to herein as the "Commencement Date". If Landlord is required to construct improvements to the Premises prior to the Commencement Date, then the Scheduled Commencement Date shall be only an estimate of the actual Commencement Date, and the term of this Lease shall begin on the first to occur of the following, which shall be the "Commencement Date": (i) the date Landlord offers to deliver possession of the Premises to Tenant following substantial Completion (as defined in Exhibit B)of all improvements to be constructed by Landlord --------- pursuant to paragraph 2.3 except for punchlist items which do not prevent Tenant from using the Premises for the Permitted Use and such work as Landlord is required to perform but cannot complete until Tenant performs necessary portions of construction work it has elected or is required to do; or (ii) the date Tenant enters into occupancy of the Premises; provided, however, that Tenant's access to the Premises as provided for in Paragraph 10 of Exhibit B to this Lease shall not cause the Commencement Date to be established. 2.3 Construction of Improvements: Prior to the Commencement Date, ---------------------------- Landlord shall construct Certain improvements that shall constitute or become part of the Premises if required by, and then in accordance with, the terms of Exhibit B and Exhibit C and the First Addendum to this Lease - -------- --------- 2.4 Delivery and Acceptance of Possession: If Landlord is unable to ------------------------------------- deliver possession of the Premises to Tenant on or before such date for any reason whatsoever, this Lease shall not be void or voidable for a period of 180 days thereafter, and Landlord shall not be liable to Tenant for any loss or damage resulting therefrom. Tenant shall accept possession and enter into good faith occupancy of the entire Premises and Commence on the Commencement Date. Tenant acknowledges that it has had an opportunity to conduct, and has conducted, such inspections of the Premises as it deems necessary to evaluate its condition. Except as otherwise specifically provided herein, Tenant agrees to accept possession of the Premises in its then existing condition, "as-is" including all patent and latent defects. Tenant's taking possession of any part of the Premises shall be deemed to be in acceptance by Tenant of any of work of improvement done by Landlord in such part as complete and in accordance with the terms of this Lease except for defects of which Tenant ties given Landlord written notice prior to the time Tenant takes possession. At the time Landlord delivers possession of the Premises to Tenant, Landlord and Tenant shall together execute an acceptance agreement in the form attached as Exhibit D, appropriately completed. Landlord shall have no obligation to - --------- deliver possession, nor shall Tenant be entitled to take occupancy, of the Premises until such acceptance agreement has been executed, and Tenant's obligation to pay Base Monthly Rent and Additional Rent shall not be excused or delayed because of Tenant's failure to execute such acceptance agreement. See First Addendum to Lease paragraph 5. 2.5 Early Occupancy: If Tenant enters or permits its contractors to enter --------------- the Premises prior to the Commencement Date with the written permission of Landlord, it shall do so upon-all of the terms of this Lease (including its obligations regarding indemnity and insurance) except those regarding the obligation to pay rent, which shall commence on the Commencement Date. ARTICLE 3 --------- RENT ---- 3.1 Base Monthly Rent: Commencing on the Commencement Date and continuing ----------------- throughout the Lease Term, Tenant shall pay to Landlord the Base Monthly Rent set forth in Section K of the Summary. --------- 3.2 Additional Rent: Commencing on the Commencement Date and continuing --------------- throughout the Lease Term. Tenant shall pay the following as additional rent (the "Additional Rent"): (i) any late charges or interest due Landlord pursuant to paragraph 3.4; (ii) Tenant's Share of Common Operating Expenses as provided in paragraph 8.1; (iii) Landlord's share of any Subrent received by Tenant upon certain assignments and sublettings as required by paragraph 4.1 (iv) any legal fees and costs due Landlord pursuant to paragraph 15.9; and (v) any other charges due Landlord pursuant to this Lease. 3.3 Payment of Rent: Concurrently with the execution of this Lease by --------------- both parties, Tenant shall pay to Landlord the amount set forth in Section L of --------- the Summary as prepayment of rent for credit against the first installment(s) of Base Monthly Rent. All rent required to be paid in monthly installments shall be paid in advance on the first day of each calendar month during the Lease Term. If Section K of the Summary provides that the Base Monthly Rent is to be --------- increased during the Lease Term and if the date of such increase does not fall on the First day of a calendar month. such increase shall become effective on the first day of the next calendar month. All rent shall be paid in lawful money of the United States, without any abatement, deduction or offset whatsoever (except as specifically provided in paragraph 11.4 and paragraph 12.3), and without any prior demand therefor. Rent shrill be paid to Landlord at its address set forth in Section P of the Summary, or at such other place as --------- Landlord may designate from time to time. Tenant's obligation to pay Base Monthly Rent and Tenant's Share of Common Operating Expenses shall be prorated at the Commencement and expiration of the Lease Term. 3.4 Late Charge and Interest on Rent in Default: If any Base Monthly Rent -------------------------------------------- or Additional Rent is not received by Landlord from Tenant within three business days after Landlord has notified Tenant in writing that payment of such rent has not been received by Landlord, then Tenant shall immediately pay to Landlord a late charge equal to 5% of such delinquent rent as liquidated damages for Tenant's failure to make timely payment. In no event shall this provision for a late charge be deemed to grant to Tenant a grace period or extension of time within which to pay any rent or prevent Landlord from exercising any right or remedy available to Landlord upon Tenant's failure to pay any rent due under this Lease in a timely fashion, including any right to terminate this Lease pursuant to paragraph 3.2B. If any rent remains delinquent for a Period in excess of 30 days, then, in addition to such late charge, Tenant shall pay to Landlord interest on any rent that is not paid when due at the Agreed Interest Rate following the date such. amount became due until paid. 3.5 Security Deposit: On the Effective Date, Tenant shall deposit with ---------------- Landlord the amount set forth in Section M of the Summary as security for the --------- performance by Tenant of its obligations under this Lease, and not as prepayment of rent (the "Security Deposit"). Landlord may from time to time apply such portion of the Security Deposit as is reasonably necessary for the following purposes: (i) to remedy any default by Tenant in the payment of rent; (ii) to repair damage to the Premises caused by Tenant: (iii) to clean the Premises upon termination of the Lease; and (iv) to remedy any other default of Tenant to the extent permitted by Law and, in this regard, Tenant hereby waives any restriction on the uses to which the Security Deposit may be put contained in California Civil Code Section 1950.7. In the event the Security Deposit or any portion thereof is so used, Tenant agrees to pay to Landlord promptly upon demand an amount in cash sufficient to restore the Security Deposit to the full original amount. Landlord shall not be deemed a trustee of the Security Deposit, may use the Security Deposit in business, and shall not be required to segregate it from its general accounts. Tenant shall not be entitled to any interest on the Security Deposit. If Landlord transfers the Premises during the Lease Term, Landlord may pay the Security Deposit to any transferee of Landlord's interest in conformity with the provisions of California Civil Code Section 1950.7 and/or any successor statute, in which event the transferring Landlord will be released from all liability for the return of the Security Deposit. See First Addendum To Lease Paragraph 6 and 11. ARTICLE 4 --------- USE OF PREMISES --------------- 4.1 Limitation on Use: Tenant shall use the Premises solely for the ------------------ Permitted Use specified in Section N of the Summary, Tenant shall not do --------- anything in or about the Premises which will (i) cause structural injury to the Building, or (ii) cause damage to any part of the Building except to the extent reasonably necessary for the installation of Tenant's Trade Fixtures land Tenant's Alterations, and then only in a manner which has been first approved by Landlord in writing. Tenant shall not operate any equipment within the Premises which will (i) materially damage the Building or the Common Area. (ii) overload existing electrical systems or other mechanical equipment servicing the Building, (iii) impair the efficient operation of the sprinkler system or the heating, ventilating or air conditioning ("HVAC") equipment within or servicing the Building, or (iv) damage, overload or corrode the sanitary sewer system. Tenant shall not attach. hang or suspend anything from the ceiling, roof. walls or columns of the Building or set any load on the floor in excess of the load limits for which such items are designed nor operate hard wheel forklifts within the Premises. Any dust, fumes, or waste products generated by Tenant's use of the Premises shall be contained and disposed so that they do not (i) Create an unreasonable fire or health hazards (ii) damage the Premises, or (iii) result in the violation of any Law. Except as approved by Landlord, Tenant shall not change the exterior of the Building or install any equipment or antennas on or make any penetrations of the exterior or roof of the Building. Tenant shall not commit any waste in or about the Premises, and Tenant shall keep the Premises in an neat, clean, attractive and orderly condition, free of any nuisances. If Landlord designates a standard window covering for use throughout the Building, Tenant shall use this standard window covering to cover all windows in the Premises. Tenant shall not conduct on any portion of the Premises or the Project any sale of any kind, including any public or private auction, fire sale, going-out-of-business sale distress sale or other liquidation sale. 4.2 Compliance with Regulations: Tenant shall not use the Premises in any ---------------------------- manner which violates any Laws or Private Restrictions which affect the Premises. Tenant shall abide by and promptly observe and comply with all Laws and Private Restrictions. Tenant shall not use the Premises in any manner which will cause a cancellation of any insurance policy covering Tenant's Alternations or any improvements installed by Landlord at its expense or which poses an unreasonable risk of damage or injury to the Premises. Tenant shall not sell, or permit to be kept, used, or sold in or about he Premises any article which may be prohibited by the standard form of fire insurance policy. Tenant shall comply with A reasonable requirements of any insurance company, insurance underwriter, or Board of Fire Underwriters which are necessary to maintain the insurance coverage carried by either Landlord or Tenant pursuant to this Lease. 4.3 Outside Areas: No materials, supplies, tanks or containers equipment, -------------- finished products or semi-finished products, raw materials, inoperable vehicles or articles of any nature shall be stored upon or permitted to remain outside of the Premises except in fully fenced and screened areas outside the Building which have been designed for such purpose and have been approved in writing by Landlord for such use by Tenant. 4.4 Signs: Tenant shall not place on any portion of the Premises any ----- sign, placard, lettering in or on windows, banner, displays or other advertising or communicative material which is visible from the exterior of the Building without the prior written ,approval of Landlord. All such approved signs shall strictly conform to all Laws. Private Restrictions, and Landlord's sign criteria attached as Exhibit F, and shall be installed at the expense of Tenant, Tenant --------- shall maintain such signs in good condition and repair. Tenant, at Tenant's sole cost, shall have the right, subject to Exhibit F, to place its name on the existing street monument base, and on the glass at the entrance to the Premises. 4.5 Parking: Tenant is allocated and shall have the exclusive right to ------- all the number of Tenant's Allocated Parking Stalls contained within the Project described in Section H of the Summary for its use and the use of Tenant's Agents --------- subject to Landlord's and Landlord's Agents rights and obligations this Lease. Tenant shall not at any time use more parking spaces than the number so allocated to Tenant or park its vehicles or the vehicles of others in any portion of the Project not designated by Landlord as exclusive parking area. Tenant shall have the exclusive right to use any specific parking space. Landlord reserves the right, after having given Tenant reasonable notice, to have any vehicles owned by Tenant or Tenant's Agents utilizing parking spaces in excess of the parking spaces allowed for Tenant's use to be towed away at Tenant's cost. All trucks and delivery vehicles shall be (i) parked at the rear of the Building, (ii) In the event Landlord elects or is required by any Law to limit or control parking in the Project, whether by validation of parking tickets or any other method of assessment, Tenant agrees to participate in such validation or assessment program under such reasonable rules and regulations as are from time to time established by Landlord. 4.6 Rules and Regulations: Landlord may from time to time. promulgate --------------------- reasonable and nondiscriminatory rules and regulations applicable to all occupants of the Project for the care and orderly management of the Project and the safety of its tenants and invitees. Such rules and regulations shall be binding upon Tenant upon delivery of a copy thereof to Tenant, and Tenant agrees to abide by such rules and regulations. If there is a conflict between the rules and regulations and any of the provisions of these Lease, the provisions of this Lease shall prevail. Landlord shall not be responsible for the violation by any other tenant of the Project of any such rules regulations. ARTICLE 5 --------- TRADE FIXTURES AND ALTERATIONS ------------------------------ 5.1 Trade Fixtures: Throughout the Lease Term, Tenant may provide and -------------- install, and shall maintain in good condition, any Trade Fixtures required in the conduct of its business in the Premises. All, Trade Fixtures shall remain Tenant's property. 5.2 Tenant's Alterations: Construction by Tenant of Tenant's Alterations --------------------- shall be governed by following: A. Tenant shall not construct any Tenant's Alterations or otherwise alter the Premises without Landlord's prior approval, which shall not be unreasonably withheld or delayed to make Tenant's Alterations (i) which do not affect the structural or exterior parts or water tight character of the Building, and (ii) the reasonably estimated cost of which, plus the original cost of any part of the Premises removed or materially altered in connection with such Tenant's Alterations, together do not exceed the Permitted Tenant Alterations Limit specified in Section 0 of the Summary per work of improvement. In the event --------- Landlord's approval for any Tenant's Alterations is required, Tenant shall not construct the Tenant's Alterations until Landlord has approved in writing the plans and specifications therefor, and such Tenant's Alterations shall be constructed substantially in compliance with such approved plans and specifications by a licences contractor first reasonably approval by Landlord. All Tenants Alterations constructed by Tenant shall be constructed by a licensed contractor in accordance with all Laws using new materials of good quality. B. Tenant shall not commence construction of any Tenant's Alterations until (i) all required governmental approvals and permits have been obtained, (ii) all requirements regarding insurance imposed by this Lease have been satisfied, (iii) Tenant has given Landlord at least five days' prior written notice of its intention to commence such construction, and (iv) if reasonably requested by Landlord, Tenant has obtained contingent liability and broad form builders' risk insurance in an amount reasonably satisfactory to Landlord if there are any perils relating to the proposed construction not covered by insurance carried pursuant to Article 9. C. All Tenant's Alterations shall remain the property of Tenant during the Lease Term but shall not be altered or removed from the Premises. At the expiration or sooner termination of the Lease Term, all Tenant's Alterations shall be surrendered to Landlord as part of the realty and shall then become Landlord's property, and Landlord shall have no obligation to reimburse Tenant for all or any portion of the value or cost thereof; provided, however, that if Landlord requires Tenant to remove any Tenant's Alterations, Tenant shall so remove such Tenant's Alterations prior to the expiration or sooner termination of the Lease Term. Notwithstanding the foregoing, Tenant shall not be obligated to remove any Tenant's Alterations with respect to which the following is true: (i) Tenant was required, or elected, to obtain the avotaval of Landlord to the installation of the Tenant Alterations in question: (ii) at the time Tenant requested Landlord's approval, Tenant requested of Landlord in writing that Landlord inform Tenant of whether or not Landlord would require Tenant to remove such Tenant Alterations at the expiration of the Lease Term; and (iii) at the time Landlord granted its approval, it did not inform Tenant that it would require Tenant to remove such Tenant Alterations at the expiration of the Lease Term. 5.3 Alterations Required by Law: Tenant shall make any alteration, --------------------------- addition or change of any sort to the Premises that is required by any Law because of (i) Tenant's particular use or change of use of the Premises; (ii) Tenant's application for any permit or governmental approval; or (iii) Tenant's construction or installation of any Tenant's Alterations or Trade Fixtures. Any other alteration, addition, or change required by Law which is not the responsibility of Tenant pursuant to the foregoing shall be made by Landlord (subject to Landlord's right to reimbursement from Tenant specified in 5.4). 5.4 Amortization of Certain Capital Improvements: Tenant shall pay -------------------------------------------- Additional Rent in the event Landlord reasonably elects or is required by Law to make any of the following kinds of capital improvements, as determined pursuant to generally accepted accounting principals to the Project and the cost thereof is not reimbursable as a Common Operating Expense: (i) capital improvements required to be constructed in order to comply with any Law (excluding any Harzardous Materials Law) not in effect or applicable to the Project as of the Effective Date, (ii) modification of existing or construction of additional capital improvements or building service equipment, for the purpose of reducing the, consumption of utility services or Common Operating Expenses of the Project (iii) replacement of capital improvements or building service equipment existing as of the Effective Date when required because of normal wear and tear; and (iv) restoration of any part of the Project that has, been damaged by any peril to the extent the cost thereof is not covered by insurance proceeds actually recovered by Landlord up to a maximum amount per occurrence of 10% of the then replacement cost of the Project ("Cost not covered by insurance proceeds" shall include, for the purpose of this Article 5.4 only, the amount of any "deductible" on Landlord's policy(ies) of insurance for which Tenant is responsible under this Lease.) The amount of Additional Rent Tenant is to pay with respect to each such capital improvement shall be determined as follows: A. All costs paid by Landlord to construct such improvements (including reasonable financing cost) shall be amortized over the useful life of such improvement (as reasonably determined by Landlord in accordance with generally accepted accounting principles) with interest on the unamortized balance at the then prevailing market rate Landlord would pay if it borrowed funds to construct such improvements from an institutional lender, and Landlord shall inform Tenant of the monthly amortization payment required to so amortize such costs, and shall also provide Tenant with the information upon which such determination is made. B. As Additional Rent. Tenant shall pay at the same time the Base Monthly Rent is due an amount equal to Tenant's Share of that puttion of such monthly amortization payment fairly allocable to the Building (as reasonably determined by Landlord) for each month after such improvements as completed until the first to occur of (i) the expiration of the Lease Term (as it may be extended but only if the Base Monthly Rent for the Extended term does not take into account such expenditure. 5.5 Mechanic's Leins: Tenant shall keep the Project free form any liens ---------------- and shall pay when due all bills arising out of any work performed, materials furnished, or obligations incurred by Tenant or Tenant's Agents relating to the Project. If any claim of lien is recorded (except those caused by Landlord or Landlord's Agents), Tenant shall bond against or discharge the same within 10 days after Tenant has actual knowledge that the same has been recorded against the Project. Should any lien be filed against the Project or any action be commenced affecting title to the Project, the party receiving notice of such lien or action shall immediately give the other party written notice thereof. 5.6 Taxes on Tenant's Property: Tenant shall --------------------------- pay before delinquency any and all taxes, assessments, license fees and public charges levied assessed or imposed against Tenant or Tenant's estate in this Lease or the property of Tenant situated within the Premises which become due during the Lease Term. If any tax or other charge is assessed by any governmental agency because of the execution of this Lease, such tax shall be paid by Tenant. On demand by Landlord, Tenant shall furnish Landlord with satisfactory evidence of these payments. ARTICLE 6 --------- REPAIR AND MAINTENANCE ---------------------- 6.1 Tenant's Obligation to Maintain: Except as otherwise provided in ------------------------------- paragraph 6.2, paragraph 11.1 and paragraph 12.3, Tenant shall be responsible for the following during the Lease Term: A. Tenant shall clean and maintain in good order, condition, and repair the interiors of and replace when necessary the Premises and every part thereof, through regular inspections and servicing, including, but not limited to: (i) all plumbing and sewage facilities (including all sinks, toilets, faucets and drains), and all ducts, pipes, vents or other parts of the HVAC or plumbing system; (ii) all fixtures, interior walls, floors, carpets and ceilings, (iii) all windows, doors, entrances, plate glass, showcases and skylights (including cleaning both interior and exterior surfaces; (iv) all electrical facilities and all equipment (including all lighting fixtures, lamps, bulbs, tubes, fans, vents, exhaust equipment and systems); and (v) any automatic fire extinguisher equipment in the Premises. B. With respect to utility facilities serving the Premises (including electrical wiring and conduits, gas lines, water pipes, and plumbing and sewage fixtures and pipes), Tenant shall be responsible for the maintenance and repair of any such facilities which serve only the Premises, including all such facilities that are within the walls or floor, or on the roof of the Premises, and any part of such facility that is not within the Premises, but only up to the point where such facilities join a main or other junction (e.g., sewer main or electrical transformer) from which such utility services are distributed to other parts of the Project as well as to the Premises. Tenant shall replace any damaged or broken glass in the Premises (including all interior and exterior doors and windows) with glass of the same kind, size and quality. Tenant shall repair any damage to the Premises (including exterior doors and windows) caused by vandalism or any unauthorized entry. C. Tenant shall (i) maintain, repair and replace when necessary all HVAC equipment which services only the Premises, and shall keep the same in good condition through regular inspection and servicing, and (ii) maintain continuously throughout the Lease Term a service contract for the maintenance of all such HVAC equipment with a licensed HVAC repair and maintenance contractor approved by Landlord, which contract provides for the periodic inspection and servicing of the HVAC equipment at least once every 60 days during the Lease Term. Notwithstanding the foregoing, Landlord may elect at any time to assume responsibility for (he maintenance, repair and replacement of such HVAC equipment which serves only the Premises. Tenant shall maintain continuously throughout the Lease Term a service contract for the washing of all windows (both interior and exterior services) in the Premises with a contractor approved by Landlord, which contract provides for the periodic washing of all such windows at least once every 60 days during the Lease Term. Tenant shall furnish Landlord with copies of all such service contracts, which shall provide that they may not be cancelled or changed without at least 30 days' prior written notice to Landlord. D. All repairs and replacements required of Tenant shall be promptly made with new materials of like kind and quality. If the work affects the structural parts of the Building or if the estimated cost of any item of repair or replacement is in excess of the Permitted Tenant's Alterations Limit, then Tenant shall first obtain Landlord's written approval of the scope of the work, plans therefor, materials to be used, and the contractor. See first addendum to lease paragraph 7. 6.2 Landlord's Obligation to Maintain: Landlord shall repair, maintain --------------------------------- and operate the common Area and repair and maintain the roof, exterior and structural parts of (the buildings located on the Project so that the same are kept in good order and repair. If there is central HVAC or other building service equipment and/or utility facilities serving portions of the Common Area and/or both Premises and other parts of the Building, Landlord shall maintain and operate (and replace when necessary) such equipment. Landlord shall not be responsible for repairs required by an accident, fire or other Peril or for damage caused to any part of the Project by any act or omission of Tenant or Tenant's Agents except as otherwise required by Article 11. Landlord may engage contractors of its choice to perform the obligations required of it by this Article, and the necessity of any expenditure to perform such obligations shall be at the sole discretion of Landlord. See first addendum to lease paragraph 15. 6.3 Control of Common Area. Landlord shall have the right, without the ---------------------- same constituting an actual or constructive eviction and without entitling Tenant to any abatement of rent, to: (i) close any part of the Common Area to whatever extent required in the opinion of Landlord's counsel to prevent a dedication thereof or the accrual of any prescriptive rights therein; (ii) temporarily close the Common Area to perform maintenance or for any other reason deemed sufficient by Landlord; (iii) change the shape, size, location and extent of the Common Area; (iv) eliminate from or add to the Project any land of improvement, including multi-deck parking structures; (v) make changes to the Common Area including, without limitation, changes in the location of driveways, entrances, passageways, doors and doorways, elevators, stairs, restrooms, exits, parking spaces, parking areas, sidewalks or the direction of the flow of traffic and the site of the Common Area; (vi) remove unauthorized persons from the Project; and/or (vi) change the name or address of the Building or Project. Tenant shall keep the Common Area clear of all obstructions created or permitted by Tenant. If in the opinion of Landlord unauthorized persons are using any of the Common Area by reason of the presence of Tenant in the Building, Tenant, upon demand of Landlord, shall restrain such unauthorized use by appropriate proceedings. In exercising any such rights regarding [The Common Area, (i) Landlord shall make a reasonable effort to minimize any disruption to Tenant's business, and (ii) Landlord shall not exercise its rights to control the Common Area in a manner that would materially interfere with Tenant's use of the Premises without first obtaining Tenant's consent. Landlord shall have no obligation to provide guard services or other security measures for the benefit of the Project. Tenant assumes all responsibility for the protection of Tenant and Tenant's Agents from acts of third parties; provided, however, that nothing contained herein shall prevent Landlord, at its sole option, from providing security measures for the Project. ARTICLE 7 --------- WASTE DISPOSAL AND UTILITIES ---------------------------- 7.1 Waste Disposal: Tenant shall store its waste either inside the -------------- Premises or within outside fresh enclosures that are fully fenced and screened in compliance with all Private Restrictions. and designed for such purpose. All entrances to such outside trash enclosures shall be kept closed, and waste shall be stored in such manner as not to be visible from the exterior of such outside enclosures. Tenant shall cause all of its waste to be regularly removed from the Premises at Tenant's sole cost. Tenant shall keep all fire corridors and mechanical equipment rooms in the Premises free and clear of all obstructions at all times. 7.2 Hazardous Materials: Landlord and Tenant agree as follows with ------------------- respect to the existence or use of Hazardous Materials on the Project: A. Any handling, transportation, storage, treatment, disposal or use of Hazardous Materials by Tenant and Tenant's Agents after the Effective Date in or about the Project shall strictly comply with all applicable. Hazardous facilities Laws. Tenant shall indemnify, defend upon demand with counsel reasonably acceptable to Landlord, and hold harmless Landlord from and against any liabilities, losses, claims, damages, lost profits, consequential damages. interest, penalties, mines, monetary sanctions, attorneys' fees, experts, fees, court costs, remediation costs, investigation costs, and other expenses which result from or arise in any manner whatsoever out of the use, storage, treatment, transportation, release, or disposal of Hazardous Materials on or about the Project by Tenant or Tenant's Agents after the Effective Date. B. If the presence of Hazardous Materials on the Project caused or permitted by Tenant or Tenant's Agents after the Effective Date results in contamination or deterioration of water or soil resulting in a level of contamination greater than the levels established as acceptable by any governmental agency having jurisdiction over such contamination, then Tenant shall promptly take any and all action necessary to investigate and remediate such contamination if required by Law or as a condition to the issuance or continuing effectiveness of any governmental approval which relates to the use of the Project or any part thereof. Tenant shall further be solely responsible for, and shall defend, indemnify and hold Landlord and its agents harmless from and against, all claims, costs and liabilities, including attorneys' fees and costs, arising out of or in connection with any investigation and remediation required hereunder to return the Project to its condition existing prior to the appearance of such Hazardous Materials. C. Landlord and Tenant shall each give written notice to the other as soon as reasonably practicable of (i) any communication received from any governmental authority concerning Hazardous Materials which relates to the Project, and (ii) any contamination of the Project by Hazardous Materials which constitutes a violation of any Hazardous Materials Law. Tenant may use small quantities of household chemicals such as adhesives, lubricants and cleaning fluids in order to conduct its business at the Premises and such other Hazardous Materials as are necessary for the operation of Tenant's business of which Landlord receives notice prior to such Hazardous Materials being brought onto the Premises and which Landlord consents in writing may be brought onto the Premises. At any time during the Lease Term, Tenant shall, within five (5) business days after its receipt of written request therefor received from Landlord, disclose in writing all Hazardous Materials that are being used by Tenant on the project, the nature of such use, and the manner of storage and disposal. 6 D. Landlord at its sole cost, may cause testing wells to be installed on the Project, and may cause the ground water to be tested to detect the presence of Hazardous Material by the use of such tests as are then customarily used for such purposes. If Tenant so requests, Landlord shall supply Tenant with copies of such test results. The cost of such tests and of the installation, maintenance, repair and replacement of such wells shall be paid by Tenant if such tests disclose the existence of facts which give rise to liability of Tenant pursuant to its indemnity given in paragraph 7.2A and/or paragraph 7.2B. E. As used herein, the term "Hazardous Material," means any hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of California or the United States Government. The term "Hazardous Material," includes, without limitation, petroleum products, asbestos, PCB's, and any material or substance which is (i) listed under Article 9 or defined as hazardous or extremely hazardous pursuant to Article 11 of Title 22 of the California Administrative Code, Division 4, Chapter 20, (ii) defined is a hazardous waste pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq. (42 U.S.C. 6903), or (iii) defined as a "hazardous substance pursuant to Section 101 of the Comprehensive Environmental Response: Compensation and Liability Act, 42 U.S.C. 9601 et seq. (42 U.S.C. 9601). As used herein, the term "Hazardous Material Law" shall mean any statute, law, ordinance, or regulation of any governmental body or agency (including the U.S. Environmental Protection Agency, the California Regional Water Quality Control Board, and the California Department of Health Services) which regulates the use, storage, release or disposal of any Hazardous Material. F. (See Page 7.A.) 7 Insert to Paragraph 7.F. F. Landlord's Representation Regarding Hazardous Materials. ------------------------------------------------------- Landlord hereby makes the following representations to Tenant as of the Effective Date without having made any investigation to verify the accuracy thereof and subject to and qualified by all information and disclosures made to Tenant by Landlord. A. The soil and groundwater on or under the Project do not contain Hazardous Materials in amounts which violate any Hazardous Materials Laws to the extent that any governmental entity could require either Landlord or Tenant to take any remedial action with respect to such Hazardous Materials. B. During the time the Landlord has owned the Project, Landlord has received no written notice of: (i) any violation, or alleged violation, of any hazardous Materials Law with respect to the Project that has not been remediated to the extent that no other remediation is then legally required by applicable Law; (ii) any pending claims relating to the presence of Hazardous Materials on the Project; or, (iii) any pending investigation by a governmental agency concerning the Project relating to Hazardous Materials. 7.A. F. The obligations of Landlord and Tenant under this Paragraph 7.2 shall survive the expiration or earlier termination of the Lease Term. The rights and obligations of Landlord and Tenant with respect to issues relating to Hazardous Materials are exclusively established by this Paragraph 7.2. In the event of any inconsistency between any other part of this Lease and this Paragraph 7.2, the terms of this Paragraph 7.2 shall control. 7.3 Utilities: Tenant shall promptly pay, as the same become due, all --------- charges for water, gas, electricity, telephone, sewer service, waste pick-up and any other utilities, materials or services furnished directly to or used by Tenant on or about the Premises during the Lease Term, including, without limitation, (i) meter, use and/or connection fees, hook-up fees, or standby fee (excluding any connection fees or hook-up fees which relate to making the existing electrical, gas, and water service available to the Premises as of the Commencement Date), and On penalties for discontinued or interrupted service. 7.4 Compliance with Governmental Regulations. Landlord and Tenant shall ---------------------------------------- comply with all rules, regulations and requirements promulgated by national, state or local governmental agencies or utility suppliers concerning the use of utility services, including any rationing, limitation or other control. Tenant shall not be entitled to terminate this Lease nor to any abatement in rent by reason of such compliance ARTICLE 8 --------- COMMON OPERATING EXPENSES ------------------------- 8.1 Tenant's Obligation to Reimburse: As Additional Rent, Tenant shall -------------------------------- pay Tenant's Share (specified in Section G of the Summary) of all Common Operating Expenses. provided, however, if the Project contains more than one building, then Tenant shall pay Tenant's Share of all Common Operating Expenses fairly allocable to the Building, including (i) all Common Operating Expenses paid with respect to the maintenance, repair, replacement and use of the Building, and (ii) a proportionate share (based on the Building Gross Leasable Area as a percentage of the Project Gross Leasable Area) of all Common Operating Expenses which relate to the Project in general are not fairly allocable to any one building that is part of the Project. Tenant shall pay such share of the actual Common Operating Expense incurred or paid by Landlord but not theretofore billed to Tenant within 30 days after receipt of a written bill therefor from Landlord, on such periodic basis as Landlord shall designate, but in no event more frequently than once a month. Alternatively, Landlord may from time to time require that Tenant pay Tenant's Share of Common Operating Expenses in advance in estimated monthly installments, in accordance with the following: (I) Landlord shall deliver to Tenant Landlord's reasonable estimate of the Common Operating expenses it anticipates will be paid or incurred for the Landlord's fiscal year in question; (ii) during such Landlord's fiscal year Tenant shall pay such share of the estimated common Operating Expenses in advance in monthly installments as required by Landlord due with the installments of Base Monthly Rent; and (iii) within 90 days after the end of each Landlord's fiscal year. Landlord shall furnish to Tenant a statement in reasonable detail of the actual Common Operating Expenses paid or incurred by Landlord during the just ended Landlord's fiscal year and thereupon there shall be an adjustment between Landlord and Tenant, with payment to Landlord or credit by Landlord against the next installment of Base Monthly Rent (or payment by landlord if the lease has terminated or expired) as the case may require, within 30 days after delivery by Landlord to Tenant of said statement, so that Landlord shall receive the entire amount of Tenant's Share of all Common Operating Expenses for such Landlord's fiscal year and no more. Tenant shall have the right at its expense exercisable upon reasonable prior written notice to Landlord, to inspect at Landlord's office during normal business hours Landlord's books and records as they relate to Common Operating Expenses. Such inspection must be within 90 days of Tenant's receipt of Landlord's annual statement for the same, and shall be limited to verification of the charges contained in such statement. Tenant may not withhold payment of such bill pending completion of such inspection. 8.2 Common Operating Expenses Defined: The term "Common Operating --------------------------------- Expenses" shall mean the following: A. All costs and expenses paid or incurred by Landlord in doing the following (including payments to independent contractors providing services related to the performance of the following): (i) maintaining, cleaning, repairing and resurfacing the roof (including repair of leaks) and the exterior surfaces (including painting) of all buildings located on the Project, (ii) maintenance of the liability, fire and property damage insurance covering the Project carried by Landlord pursuant to Paragraph 9.2 (including the prepayment of premiums for coverage of up to one year); (iii) maintaining, repairing, operating and replacing when necessary HVAC equipment, utility facilities and other building service equipment; (iv) providing utilities to the Common Area (including lighting, trash removal and water for landscaping irrigation); (v) complying with all applicable Laws and Private Restrictions: (vi) operating, maintaining, repairing, cleaning, painting, restriping and resurfacing the Common Area; (vii) replacement or installation of lighting fixtures, directional or other signs and signals, irrigation systems, trees, shrubs, ground cover and other plant materials, and all landscaping in the Common Area, and (viii) providing security; B. The following costs: (i) Real Property Taxes as defined in paragraph 8.3; (ii) the amount of any "deductible" paid by Landlord with respect to damage caused by any Insured Peril if the Lease is not terminated in connection with such damage; (iii) the cost to repair damage caused by an Uninsured Peril up to 8 a maximum amount in any 12 month period equal to 2% of the replacement cost of the buildings or other improvements damaged; and (iv) that portion of all compensation (including benefits and premiums for workers compensation and other insurance) paid to or on behalf of employees of Landlord but only to the extent they are involved in the performance of the work described by Paragraph 8.2A that is fairly allocable to the Project: C. Fees for management services rendered by either Landlord or a third party manager engaged by Landlord (which may be a party affiliated with Landlord), except that the total amount charged for management services and included in Tenant's Share of Common Operating Expenses shall not exceed the monthly rate of 5% of the Base Monthly Rent. D. All additional costs and expenses incurred by Landlord with respect to the operation, protection, maintenance, repair and replacement of the Project which would be considered a current expense (and not a capital expenditure) pursuant to generally accepted accounting principles; provided, however, that Common Operating Expenses shall not include any of the following: (i) payments on any loans or ground leases affecting the Project (ii) depreciation or amortization of reserves of any buildings or major systems of building service equipment within the Project; (iii) leasing commissions; (iv) the cost of tenant improvements installed for the exclusive use of other tenants of the Project; and (v) any cost incurred in complying with Hazardous Materials Laws, which subject is governed exclusively by Paragraph 7.2. 8.3 Real Property Taxes Defined: The term Real Property Taxes" shall mean --------------------------- all taxes, assessments, levies, and other charges of any kind or nature whatsoever, general and special, foreseen and unforeseen (including all installments of principal and interest required to pay any existing or future general or special assessments for public improvements, services or benefits, and any increases resulting from reassessments resulting from a change in ownership, new construction, or any other cause), now or hereafter imposed by any governmental or quasi-governmental authority or special district having the direct or indirect power to tax or levy assessments, which are levied or assessed against, or with respect to the value, occupancy or use of all or any portion of the Project (as now constructed or as may at any time hereafter be constructed, altered, or otherwise changed) or Landlord's interest therein, the fixtures, equipment and other property of Landlord, real or personal that are an integral part of and located on the Project. the gross receipts, income, or rentals from the Project, or the use of parking areas, public utilities, or energy within the Project, or Landlord's business of leasing the Project. If at any time during the Lease Term the method of taxation or assessment of the Project prevailing as of the Effective Date shall be altered so that in lieu of or in addition to any Real Property Tax described above there shall be levied, assessed or imposed (whether by reason of a change in the method of taxation or assessment, creation of a new tax or charge, or any other cause) an alternate or additional tax or charge (i) on the value, use or occupancy of the Project or Landlord's interest therein, or (ii) on or measured by the gross receipts, income or rentals from the Project, on Landlord's business of leasing the Project, or computed in any manner with respect to the operation of the Project, then any such tax or charge, however designated, shall be included within the meaning of the term "Real Property Taxes" for purposes of this Lease. If any Real Property Taxes is based upon property or rents unrelated to the Project, then only that part of such Real Property Tax that is fairly allocable to the Project shall be included within the meaning of the term "Real Property taxes". Notwithstanding the foregoing, the term "Real Property Taxes" shall not include (i) estate, inheritance, transfer, gift or franchise taxes of Landlord, (ii) the federal or state net income tax imposed on Landlord's income from all sources. See First Addendum to Lease Paragraph 9 ARTICLE 9 ---------- INSURANCE ---------- 9.1 Tenant's Insurance: Tenant shall maintain insurance complying with ------------------ all of the following: A. Tenant shall procure, pay for and keep in full force and effect the following: (1) Commercial general liability insurance including property damage, against liability for personal injury, bodily injury, death and damage to property occurring in or about, or resulting from an occurrence in or about, the Premises with combined single limit coverage of not less than the amount of Tenant's Liability I nsurance Minimum specified in Section P of the Summary, which insurance shall contain a "contractual liability" endorsement insuring ----------- Tenant's performance of Tenant's obligation to indemnify Landlord contained in Paragraph 10.3. (2) Fire and property damage insurance in so-called "all risk" form insuring Tenant's Trade fixtures and Tenant's Alterations for the full actual replacement cost thereof; (3) Such other insurance that is either (i) reasonably required by any Lender, or (ii) reasonably required by Landlord and customarily carried by tenants of similar properly in similar businesses. B. Where applicable and required by Landlord, each policy of insurance required to be carried by Tenant pursuant to this paragraph 9.1: (i) shall name Landlord and such other parties in interest as Landlord reasonably designates as additional insured; (ii) shall be primary insurance which provides that the insurer shall be liable for the full amount of the loss up to and including the total amount of liability set forth in the declarations without the right of contribution from any other insurance coverage of Landlord; (iii) shall be in a form satisfactory to Landlord; (iv) shall be carried with companies reasonably acceptable to Landlord; (v) shall provide that such policy shall not be subject to cancellation, lapse or change except after at least 30 days prior written notice to Landlord so long as such provision of 30 days notice is reasonably obtainable, but in any event not less than 10 day prior written notice; (vi) shall not have "deductible" in excess of such amount as is approved by Landlord; (vii) shall contain a cross liability endorsement: and (viii) shall contain a "severability" clause. If Tenant has in full force and effect a 9 blanket policy of liability insurance with the same coverage for the Premises as described above, as well as other coverage of other premises and properties of Tenant, or in which Tenant has some interest, such blanket insurance shall satisfy the requirements of this Paragraph 9.1. C. A copy of a certificate of the insurer, certifying that such policy has been issued, providing the coverage required by this Paragraph 9.1 and containing the provisions specified herein, shall be delivered to Landlord prior to the time Tenant or any of its Agents enters the Premises and upon renewal of such policies, but not less than 5 days prior to the expiration of the term of such coverage. Landlord may, at any time, and from time to time, inspect any and all insurance policies required to be procured by Tenant pursuant to this Paragraph 9.1. If any Lender or insurance advisor reasonably determines at any time that the amount of coverage required for any policy of insurance Tenant is to obtain pursuant to this Paragraph 9.1 is not adequate, then Tenant shall increase such coverage for such insurance to such amount as such Lender or insurance advisor reasonably deems adequate, not to exceed the level of coverage for such insurance commonly carried by comparable businesses similarly situated. 9.2 Landlord's Insurance: Landlord shall have the following obligations -------------------- and options regarding Insurance: A. Landlord shall maintain a policy or policies of fire and property damage insurance in so called "all risk" form insuring Landlord (and such others as Landlord may designate) against loss of rents for a period of not less than 12 months and from physical damage to the Project with coverage of not less than the full replacement cost thereof. Landlord may so insure the Project separately, or may insure the Project with other property owned by Landlord which Landlord elects to insure together under the same policy or policies. Such fire and property damage insurance (i) may be endorsed to cover loss caused by such additional perils against which Landlord may elect to insure, including earthquake and/or flood, and to provide such additional coverage as Landlord reasonably requires, and (ii) shall contain reasonable 'deductibles" which, in the case of earthquake and flood insurance, may be up to 15% of the replacement value of the property insured or such higher amount as is then commercially reasonable. Landlord shall not be required to cause such insurance to cover any Trade Fixtures or Tenant's Alterations of Tenant. B. Landlord may maintain a policy or policies of commercial general liability insurance insuring Landlord (and such others as are designated by Landlord) against liability for personal injury, bodily injury, death and damage to property occurring or resulting from an occurrence in, on or about the Project, with combined single limit coverage in such amount as Landlord from time to time determines is reasonably necessary for its protection. 9.3 Tenant's Obligation Reimburse: If Landlord's insurance rates for the ----------------------------- Building are increased at any time during the Lease Term as a result of the nature of Tenant's use of the Premises, Tenant shall reimburse Landlord for the full amount of such increase immediately upon receipt of a bill from Landlord therefore. 9.4 Release and Waiver of Subrogation: Notwithstanding anything to the --------------------------------- contrary contained in this lease, the parties hereto release each other, and their respective agents and employees, from any liability for injury to any person or damage to property that is caused by or results from any risk insured against under any valid and collectible insurance policy carried by either of the parties which contains a waiver of subrogation by the insurer and is in force at the time of such injury or damage; subject to the following limitations: (i) the foregoing provision shall not apply to the commercial general liability insurance described by subparagraphs Paragraph 9.1A and Paragraph 9.2B; (ii) such release shall apply to liability resulting from any risk insured against or covered by self-insurance maintained or provided by Tenant to satisfy the requirements of Paragraph 9.1 to the extent permitted by this Lease; and (iii) Tenant shall not be released from any such liability to the extent any damages resulting from such injury or damage are not covered by the recovery obtained by Landlord from such insurance, but only if the insurance in question permits such partial release in connection with obtaining a waiver of subrogation from the insurer. This release shall be in effect only so long as the applicable insurance policy contains a clause to the effect that this release shall not affect the right of the insured to recover under such policy. Each party shall use reasonable efforts to cause each insurance policy obtained by it to provide that the insurer waives all right of recovery by way of subrogation against the other party and its agents and employees in connection with any injury or damage covered by such policy. However, if any insurance policy cannot be obtained with such a waiver of subrogation, or if such waiver of subrogation is only available at additional cost and the party for whose benefit the waiver is to be obtained does not pay such additional cost, then the party obtaining such insurance shall notify the other party of that fact and thereupon shall be relieved of the obligation to obtain such waiver of subrogation rights from the insurer with respect to the particular insurance involved. See First Addendum to Lease Paragraph 13 ARTICLE 10 ---------- LIMITATION ON LANDLORD'S ------------------------ LIABILITY AND INDEMNITY ----------------------- 10.1 Limitation on Landlord's Liability: Landlord shall not be liable to ---------------------------------- Tenant, nor shall Tenant be entitled to terminate this Lease or to any abatement of rent (except as expressly provided otherwise herein), for any injury to Tenant or Tenant's Agents, damage to the property of Tenant or Tenant's Agents, or loss to Tenant's business resulting from any cause, including without limitation any: (i) failure, interruption or installation of any HVAC or other utility system or service: (ii) failure to furnish or delay in furnishing any utilities or services when such failure or delay is caused by fire or other peril, the elements, labor disturbances of any character, or any other accidents or other conditions beyond the reasonable control of 10 Landlord; (iii) limitation, curtailment, rationing or restriction an the use of water or electricity, gas or any other form of energy or any services or utility serving the Project: (iv) vandalism or forcible entry by unauthorized persons or the criminal act of any person; or (v) penetration of water into or onto any portion of the Premises or the Building through roof leaks or otherwise. Notwithstanding the foregoing but subject to Paragraph 9.4, Landlord shall be liable for any such injury, damage or loss which is proximately caused by Landlord's willful misconduct or gross or active negligence of Landlord 10.2 Limitation on Tenant Recourse: If Landlord is a corporation, trust, ----------------------------- partnership, joint venture, unincorporated association or other form of business entity: (i) the obligations of Landlord shall not constitute personal obligations of the officers, directors, trustees, partners, joint venturers, members, owners, stockholders, or other principals or representatives of such business entity; and (ii) Tenant shall not have recourse to the assets of such officers, directors, trustees, partners, joint venturers, members, owners, stockholders, principals or representatives except to the extent of their interest in the Project. Tenant shall have recourse only to the interest of Landlord in the Project for the satisfaction of the obligations of Landlord and shall not have recourse to any other Assets of Landlord for the satisfaction of such obligations. 10.3 Indemnification of Landlord: Tenant shall hold harmless, indemnify --------------------------- and defend Landlord, and its employees, agents and contractors, with competent counsel reasonably satisfactory to Landlord (and Landlord agrees to accept counsel that any insurer requires be used), from all liability, penalties, losses, damages, costs, expenses, causes of action, claims and/or judgments arising by reason of any death, bodily injury, personal injury or property damage resulting from (i) any cause or causes whatsoever (other than the willful misconduct or gross or active negligence of Landlord) occurring in or about or resulting from an occurrence in or about the Premises during the Lease Term, (ii) the negligence or willful misconduct of Tenant or its agents, employees and contractors, wherever the same may occur, or (iii) an Event of Tenant's Default. The provisions of this Paragraph 10.3 shall service the expiration or sooner termination of this Lease. ARTICLE 11 ---------- DAMAGE TO PREMISES ------------------ 11.1 Landlord's Duty to Restore: If the Premises are damaged by any peril -------------------------- after the Effective Date, Landlord shall restore the Premises unless the Lease is terminated by Landlord pursuant to Paragraph 11.2 or by Tenant pursuant to Paragraph 11.3. All insurance proceeds available from the fire and property damage insurance carried by Landlord pursuant to Paragraph 9.2 shall be paid to and become the property of Landlord. If this Lease is terminated pursuant to either Paragraph 11.2 or Paragraph 11.3, then all insurance proceeds available from insurance carried by Tenant which covers loss to property that is Landlord's property or would become Landlord's property on termination of this Lease shall be paid to and become the property of Landlord. If this Lease is not so terminated, then upon receipt of the insurance proceeds (if the loss is covered by insurance) and the issuance of all necessary governmental permits. Landlord shall commence and diligently prosecute to completion the restoration of the Premises, to the extent then allowed by Law, to substantially the same condition in which the Premises were immediately prior to such damage. Landlord's obligation to restore shall be limited to the Premises and interior improvements constructed by Landlord as they existed as of the Commencement Date, excluding any Tenant's Alterations, Trade Fixtures and/or personal property constructed or installed by Tenant in the Premises. Tenant shall forthwith replace or fully repair all Tenant's Alterations and Trade Fixtures installed by Tenant land existing at the time of such damage or destruction, and all insurance proceeds received by Tenant from the insurance carried by it pursuant to Paragraph 9.1A(2) shall be used for such purpose. 11.2 Landlord's Right to Terminate: Landlord shall have the right to ----------------------------- terminate this Lease in the event any of the following occurs, which right may be exercised only by delivery to Tenant of a written notice of election to terminate within 30 days after the date of such damage: A. Either the Project or the Building is damaged by an Insured Peril to such an extent that the estimated cost to restore exceeds 33% of the then actual replacement cost thereof; B. Either the Project or the Building is damaged by an Uninsured Peril to such an extent that the estimated cost to restore exceeds 2% of the then actual replacement cost thereof; provided, however, that Landlord may not terminate this Lease pursuant to this Paragraph 11.B1 if one or more tenants of the Project agree in writing to pay the amount by which the cost to restore the damage exceeds such amount and subsequently deposit such amount with Landlord within 30 days after Landlord has notified Tenant of its election to terminate this Lease; C. The Premises are damaged by any peril within 12 months of the last day of the Lease Term to such an extent that the estimated cost to restore equals or exceeds an interim equal to six times the Base Monthly Rent when due; provided. however, that Landlord may not terminate this Lease pursuant to this Paragraph 11.2C if Tenant, at the time of such damage, has a then valid express written option to extend the Lease Term and Tenant exercises such option to extend the Lease Term within 15 days following the date of such damage; or D. Either the Project or the Building is damaged by any peril and, because of the Laws then in force, (i) cannot be restored at reasonable cost to substantially the same condition in which it was prior to such damage, or (ii) cannot be used for the same use being made thereof before such damage if restored as required by this Article. E. As used herein, the following terms shall have the following meanings: (i) the term "Insured Peril" shall mean a peril actually insured 11 against for which the insurance proceeds actually received by Landlord are sufficient (except for any "deductible" amount specified by such insurance) to restore the Project under then existing building codes to the condition existing immediately prior to the damage; and (ii) the term "Uninsured Peril" shall mean any peril which is not an Insured Peril. Notwithstanding the foregoing, if the "deductible" for earthquake or flood insurance exceeds 2% of the replacement cost of the improvements insured, such peril shall be deemed an 'Uninsured Peril". 11.3 Tenant's Right to Terminate: If the Premises are damaged by any peril --------------------------- and Landlord does not elect to terminate this Lease or is not entitled to terminate this Lease pursuant to Paragraph 11.2, then as soon as reasonably practicable, Landlord shall furnish Tenant with the written opinion of Landlord's architect or construction consultant as to when the restoration work required of Landlord may be completed. Tenant shall have the right to terminate this Lease in the event any of the following occurs, which right may be exercised only by delivery to Landlord of written notice of election to terminate within 10 days after Tenant receives from Landlord the estimate of the time needed to complete such restoration. A. The Premises are damaged by any peril and, in the reasonable opinion of Landlord's architect or construction consultant, the restoration of the Premises cannot be substantially completed within 180 days after the date of such damage; or B. The Premises are damaged by any peril within 12 months of the last day of the Lease Term and, in the reasonable opinion of Landlord's architect or construction consultant, the restoration of the Premises cannot be substantially completed within 90 days after the date of which damage and such damage renders unusable more than 30% of the Premises. 11.4 Abatement of Rent: In the event of damage to the Premises which does ----------------- not result in the termination of this Lease, the Base Monthly Rent and the Additional Rent shall be temporarily abated during the period of restoration in proportion to the degree to which Tenant's use of the Premises is impaired by such damage. Tenant shall not be entitled to any compensation or damages from Landlord for loss of Tenant's business or property or for any inconvenience or annoyance caused by such damage or restoration. Tenant hereby waives the provisions of California Civil Code Sections 1932(2) and 1933(4) and the provisions of any similar law hereinafter enacted. ARTICLE 12 ---------- CONDEMNATION ------------ 12.1 Landlord's Termination Right: Landlord shall have the right to ---------------------------- terminate this Lease if, as a result of a taking by means of the exercise of the power of eminent domain (including a voluntary sale or transfer by Landlord to a condemnor under threat of condemnation), (i) (ii) more than 10% of the Building Leasable Area is so taken, or (iii) more than 50% of the Common Area is so taken. Any such right to terminate by Landlord must be exercised within a reasonable period of time, to be effective as of the date possession is taken by the condemnor. 12.2 Tenant's Termination Right: Tenant shall have the right to terminate -------------------------- this Lease if, as a result of any taking by means of the exercise of the power of eminent domain (including any voluntary sale or transfer by Landlord to any condemnor under threat of condemnation), (i) 10% or more of the Premises is so taken and that part of the Premises that remains cannot be restored within a reasonable period of time and thereby made reasonably suitable for the continued operation of the Tenant's business, or (ii) there is a taking affecting the Common Area and, as a result of such taking, Landlord cannot provide parking spaces within reasonable walking distance of the Premises equal in number to at least 80% of the number of Spaces allocated to Tenant by Paragraph 2.1, whether by rearrangement of the remaining parking areas in the Common Area (including construction of multi-deck parking structures or restriping for compact cars where permitted by Law) or by alternative parking facilities on other land. Tenant must exercise such right within a reasonable period of time, to be effective on the date that possession of that portion of the Premises or Common Area that is condemned is taken by the condemnor. 12.3 Restoration and Abatement of Rent: If any part of the Premises or the ---------------------------------- Common Area is taken by condemnation and this Lease is not terminated, then Landlord shall restore the remaining portion of the Premises and Common Area and interior improvements constructed by Landlord as they existed as of the Commencement Date, excluding any Tenant's Alterations, Trade Fixtures and/or personal property constructed or installed by Tenant. Thereafter, except in the case of a temporary taking, as of the date possession is taken the Base Monthly Rent shall be reduced in the same proportion that the floor area of that part of the Premises so taken (less any addition thereto by reason of any reconstruction) bears to the original floor area of the Premises. 12.4 Temporary Taking. If any portion of the Premises is temporarily taken ---------------- for 270 days or less this Lease shall remain in effect. If any portion of the Premises is temporarily taken by condemnation for a period which exceeds 270 days or which extends beyond the natural expiration of the Lease Term, and such taking materially and adversely affects Tenant's ability to use the Premises for the Permitted Use, then Tenant shall have the right to terminate this Lease, effective on the date possession is taken by the condemnor. 12.5 Division of Condemnation Award: Any award made as a result of any ------------------------------- condemnation of the Premises or the Common Area shall belong to and be paid to Landlord, and Tenant hereby assigns to Landlord all of its right, title and interest in any such award; provided however, that Tenant Shall be entitled to receive any condemnation award that is made directly to Tenant for the following so long as the award made to Landlord is not thereby reduced: (i) for the taking of personal property or Trade Fixtures belonging to Tenant, (ii) for the interruption of Tenant's business or its moving costs, (iii) for loss of Tenant's goodwill; or (iv) for 12 any temporary taking where this Lease is not terminated as a result of such taking. The rights of Landlord and Tenant regarding any condemnation shall be determined as provided in this Article, and each party hereby waives the provisions of California Code of Civil Procedure Section 1265.130 and the provisions of any similar law hereinafter enacted allowing either party to petition the Superior Court to terminate this Lease in the event of a partial taking of the Premises. ARTICLE 13 ---------- DEFAULT AND REMEDIES -------------------- 13.1 Events of Tenant's Default: Tenant shall be in default of its --------------------------- obligations under this Lease if any of the following events occurs (an "Event of Tenant's Default"): A. Tenant shall have failed to pay Base Monthly Rent or Additional Rent when due, and such failure is not cured within 3 business days after Tenant's receipt of written notice from Landlord specifying such failure to pay; or B. Tenant shall have failed to perform any term, covenant, or condition of this Lease except those requiring the payment of Base Monthly Rent or Additional Rent, and Tenant shall have failed to cure such breach within 30 days after written notice from Landlord specifying the nature of such breach where such breach could reasonably be cured within said 30 day period, or it such breach could not be reasonably cured within said 30 day period, Tenant shall have failed to commence such cure within said 30 day period and thereafter continue with due diligence to prosecute such cure to completion within such time period as is reasonably needed or C. Tenant shall have sublet the Premises or assigned its interest in the Lease in violation of the provisions contained in Article 14; or D. Tenant shall leave abandoned the Premises or E. The occurrence of the following: (i) the making by Tenant of any general arrangements or assignments for the benefit of creditors: (ii) Tenant becomes a "debtor" as defined in 11 USC Section 101 or any successor statute thereto (unless, in the case of a petition filed against Tenant, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this Section 13-1E is contrary to any applicable Law, such provision shall be of no force or effect; or F. Tenant shall have failed to deliver documents required of it pursuant to Paragraph 15.4 or Paragraph 15.6 within the time periods specified therein. 13.2 Landlord's Remedies: If an Event of Tenant's Default occur, Landlord -------------------- shall have the following remedies, in addition to all other rights and remedies provided by any Law or otherwise provided in this Lease, to which Landlord may resort cumulatively or in the alternative: A. Landlord may keep this Lease in effect and enforce by an action at law or in equity all of its rights and remedies under this Lease, including(i) the right to recover the rent and other sums as they become due by appropriate legal action, (ii) the right to make payments requited of Tenant or perform Tenant's obligations and be reimbursed by Tenant for the cost thereof with interest at the Agreed Interest Rate from the date the sum is paid by Landlord until Landlord is reimbursed by Tenant, and (iii) the remedies of injunctive relief and specific performance to compel Tenant to perform its obligations under this Lease. Notwithstanding anything contained in this Lease, in the event of a breach of an obligation by Tenant which results in a condition which poses an imminent danger to safety of persons or damage to property, an unsightly condition visible from the exterior of the Building, or a threat to insurance coverage, then if Tenant does not cure such breach within 3 business days after delivery to it of written notice from Landlord identifying the breach, Landlord may cure the breach of Tenant and be reimbursed by Tenant for the cost thereof with interest at the Agreed Interest Rate from the date the sum is paid by Landlord until Landlord is reimbursed by Tenant. B. Landlord may enter the Premises and release them to third parties for Tenant's account for any period, whether shorter or longer than the remaining Lease Term. Tenant shall be liable immediately to Landlord for all costs Landlord incurs in releasing the Premises, including brokers' commissions, expenses of altering and preparing the Premises required by the releasing. Tenant shall pay to Landlord the rent and other sums due under this Lease on the date the rent is due, less the rent and other sums Landlord received from any releasing. No act by Landlord allowed by this subparagraph shall terminate this Lease unless Landlord notifies Tenant in writing that Landlord elects to terminate this Lease. Notwithstanding any releasing without termination. Landlord may later elect to terminate this Lease because of the default by Tenant. C. Landlord may terminate this Lease by giving Tenant written notice of termination, in which event this Lease shall terminate on the date set forth for termination in such notice. Any termination under this Paragraph 13.2C shall not relieve Tenant from its obligation to pay sums then due Landlord or from any claim against Tenant for damages or rent previously accrued or then accruing. In no event shall any one or more of the following actions by Landlord, in the absence of a written election by Landlord to terminate this Lease, constitute a termination of this Lease: (i) appointment of a receiver or keeper in order to protect Landlord's interest hereunder; (ii) consent to any subletting of the Premises or assignment of this Lease by Tenant, whether pursuant to the provisions hereof or otherwise; or (iii) any other action by Landlord or Landlord's Agents intended 13 to mitigate the adverse effects of any breach of this Lease by Tenant, including without limitation any action taken to maintain and preserve the Premises or any action taken to relet the Premises or any portions thereof to the extent such actions do not effect a termination of Tenant's right to possession of be Premises. D. In the event Tenant breaches this Lease and abandons the Premises, this Lease shall not terminate unless Landlord gives Tenant written notice of its election to so terminate this Lease. No act by or on behalf of Landlord intended to mitigate the adverse effect of such breach, including those described by Paragraph 13.C, shall constitute a termination of Tenant's right to possession unless Landlord gives Tenant written notice of termination. Should Landlord not terminate this Lease by giving Tenant .written notice, Landlord may enforce all its rights and remedies under this Lease, including the right to recover the rent as it becomes due under the Lease as provided in California Civil Code Section 1951.4. E. In the event Landlord terminates this Lease, Landlord shall be entitled, at Landlord's election, to damages in an amount as set forth in California Civil Code Section 1951.2 as in effect on the Effective Date. For purposes of computing damages pursuant to California Civil Code Section 1951.2, (i) an interest rate equal to the Agreed interest Rate shall be used where permitted, and (ii) the term "rent" includes Base Monthly Rent and Additional Rent. Such damages shall include: (1) The worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided, computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%); and (2) Any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform Tenant's obligations under this Lease, or which in the ordinary course of things would be likely to result therefrom, including the following: (i) expenses for cleaning, repairing or restoring the Premises: (ii) expenses for altering, remodeling or otherwise improving the Premises for the purpose of reletting, including installation of leasehold improvements (whether such installation be funded by a reduction of rent, direct payment or allowance to a new tenant, or otherwise); (iii) broker's fees, advertising costs and other expenses of reletting the Premises; (iv) costs of carrying the Premises, such as taxes, insurance premiums, utilities and security precautions; (v) expenses in retaking possession of the Premises; and (vi) attorney's fees and court costs incurred by Landlord in retaking possession of the Premises and in releasing the Premises or otherwise incurred as a result of Tenant's default. F. Nothing in this Paragraph 13.2 shall limit Landlord's right to indemnification from Tenant as provided in Paragraph 7.2 and Paragraph 10.3. Any notice given by Landlord in order to satisfy the requirements of Paragraph 13.1A or Paragraph 13.1B above shall also satisfy the notice requirements of California Code of Civil Procedure Section 1161 regarding unlawful detainer proceedings. 13.3 Waiver: One party's consent to or approval of any act by the other ------- party requiring the first party's requiring or approval shall not be deemed to waive or tender unnecessary the first party's consent to or approval of any subsequent similar act by the other party. The receipt by Landlord of any rent or payment with or without knowledge of the breach of any other provision hereof shall not be deemed a waiver of any such breach unless such waiver is in writing and signed by Landlord. No delay or omission in the exercise of any right or remedy accruing to either party upon any breach by the other party under this Lease shall impair such right or remedy or be construed as a waiver of any such breach theretofore or thereafter occurring. The waiver by either party of any breach of any provision of this Lease shall not be deemed to be a waiver of any subsequent breach of the same or of any other provisions herein contained. 13.4 Limitation On Exercise of Rights: At any time that an Event of --------------------------------- Tenant's Default has occurred and remains uncured, (i) it shall not be unreasonable for Landlord to deny or withhold any consent or approval requested of it by Tenant which Landlord would otherwise be obligated to give, and (ii) Tenant may not exercise any option to extend, right to terminate this Lease, or other right granted to it by this Lease which would otherwise be available to it. 13.5 Waiver by Tenant of Certain Remedies: Tenant waives the provisions of ------------------------------------- Sections 1932(l), 1941 and 1942 of the California Civil Code and any similar or successor law regarding Tenant's right to terminate this Lease or to make repairs and deduct the expenses of such repairs from the rent due under this Lease. Tenant hereby waives any right of redemption or relief from forfeiture under the laws of the State of California, or under any other present or future law, including the provisions of Sections 1174 and 1179 of the California Code of Civil Procedure. ARTICLE 14 ---------- ASSIGNMENT AND SUBLETTING ------------------------- 14.1 Transfer By Tenant: The following provisions shall apply to any ------------------ assignment, subletting or other transfer by Tenant or any subtenant or assignee or other successor in interest of the original Tenant (collectively referred to if this Paragraph 14.1 as "Tenant": A. Tenant shall not do any of the following (collectively referred to herein as a "Transfer") whether voluntarily, involuntarily or by operation of law, without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed: (i) sublet all or any party of the Premises or allow it to be sublet, occupied or used by any person or entity other than Tenant; (ii) assign its interest in this Lease; (iii) mortgage of encumber the Lease (or otherwise use the Lease as a security device) in any manner; or (iv) materially amend or modify an assignment, sublease or other transfer that has been previously approved by Landlord. Tenant shall reimburse Landlord for all reasonable 14 cost and reasonable attorneys fees incurred by Landlord in connection with the evaluation, processing, and/or documentation of any requested Transfer, whether or not Landlord's consent is granted. Landlord's reasonable costs shall include the cost of any review or investigation performed by Landlord or consultant acting on Landlord's behalf of (i) Hazardous Materials (as defined in Section 7.2E of this Lease) used, stored, released, or disposed of by the potential Subtenant or Assignee, and/or (ii) violations of Hazardous Materials Law (as defined in Section 7.2E of this lease) by the Tenant or the proposed Subtenant or Assignee. Any Transfer so approved by Landlord shall not be effective until Tenant has delivered to Landlord an executed counterpart of the document evidencing the Transfer which (i) is in a form reasonably approved by Landlord, (ii) contains the same terms and conditions as stated in Tenant's notice Oven to Landlord pursuant to Paragraph 14.1B, and (iii) in the case of an assignment of the Lease, contains the agreement of the proposed transferee to assume all obligations of Tenant under this Lease arising after the effective date of such Transfer and to remain jointly and severally liable therefor with Tenant. Any attempted Transfer without Landlord's consent shall constitute an Event of Tenant's Default and shall be voidable at Landlord's option. Landlord's consent to any one Transfer shall not constitute a waiver of the provisions of this Paragraph 14.1 as to any subsequent Transfer or a consent to any subsequent Transfer. No Transfer, even with the consent of Landlord, shall relieve Tenant of its personal and primary obligation to pay the rent and to perform all of the other obligations to be performed by Tenant hereunder. The acceptance of rent by Landlord from any person shall not be deemed to be a waiver by Landlord of any provision of this Lease nor to be a consent to any Transfer. B. At least 30 days before a proposed Transfer is to become effective, Tenant shall give Landlord written notice of the proposed terms of such Transfer and request Landlord's approval, which notice shall include the following: (i) the name and legal composition of the proposed transferee; (ii) a current financial statement of the transferee, financial statements of the transferee covering the preceding three years if the same exist, and (if available) an audited financial statement of the transferee for a period ending not more than one year prior to the proposed effective date of the Transfer, all of which statements are prepared in accordance with generally accepted accounting principles; (iii) the nature of the proposed transferee's business to be carried on in the Premises; (iv) all consideration to be given on account of the Transfer; (v) a current financial statement of Tenant; and (vi) an accurately filled out response to Landlord's standard Hazardous Materials Questionnaire. Tenant shall provide to Landlord such other information as may be reasonably requested by Landlord within seven days after Landlord's receipt of such notice from Tenant. Landlord shall respond in writing to Tenant's request for Landlord's consent to a Transfer within the later of (i) 15 days of receipt of such request together with the required accompanying documentation, or (ii) seven days after Landlord's receipt of all information which Landlord reasonably requests within seven days after it receives Tenant's first notice regarding the Transfer in question. If landlord fails to respond in writing within said period, Landlord will be deemed to have withheld consent to such Transfer. Tenant shall immediately notify Landlord of any material modification to the proposed terms of such Transfer. C. In the event that Tenant seeks to make any Transfer with respect to the entire Premises for the balance of the Lease Term, landlord shall have the right to terminate this Lease or in the case of a sublease of less than all of the Premises for the balance of the Lease Term terminate this Lease as to that part of the Premises proposed to be so sublet, either (i) on the condition that the proposed transferee immediately enter into a direct lease of the Premises with Landlord (or, in the case of a partial sublease, a lease for the portion proposed to be so sublet) on the same terms and conditions contained in Tenant's notice, or (ii) so that Landlord is thereafter free to lease the Premises (or, in the case of a partial sublease, the portion proposed to be so sublet) to whomever it pleases on whatever terms are acceptable to Landlord. In the event Landlord elects to so terminate this Lease, then (i) if such termination is conditioned upon the execution of a lease between Landlord and the proposed transferee, Tenant's obligations under this Lease shall not be terminated until such transferee executes a new lease with Landlord, enters into possession and commences the payment of rent, and (ii) if Landlord elects simply to terminate this Lease (or, in the case of a partial sublease, terminate this Lease as to the portion to be so sublet), the Lease shall so terminate in its entirety (or as to the space to be so sublet) fifteen (15) days after Landlord has notified Tenant in writing of such election. Upon such termination, Tenant shall be released from any further obligation under this Lease if it is terminated in its entirety, or shall be released from any further obligation under the Lease with respect to the space proposed to be sublet in the case of a proposed partial sublease. In the case of a partial termination of the Lease, the Base Monthly Rent and Tenant's Share shall be reduced to an amount which bears the same relationship to the original amount thereof as the area of that part of the Premises which remains subject to the Lease bears to the original area of the Premises. Landlord and Tenant shall execute a cancellation and release with respect to the Lease to effect such termination. D. If Landlord consents to a Transfer proposed by Tenant, Tenant may enter into such Transfer, and if Tenant does so, the following shall apply: (1) Tenant shall not be released of its liability for the performance of all of its obligations under the Lease. (2) If Tenant assigns its interest in this Lease, then Tenant shall pay to Landlord 50% of all Subrent (as defined in Paragraph 14.1D(5)) received by Tenant over and above (i) the assignee's agreement to assume the obligations of Tenant under this Lease, and (ii) all Permitted Transfer Costs related to such assignment. In the case of assignment, the amount of Subrent owed to Landlord shall be paid to Landlord on the same basis, whether periodic or in lump sum, that such Subrent is paid to Tenant by the assignee. (3) If Tenant sublets of any parts of the Premises, Then with respect to the space so 15 subleased, Tenant shall pay to Landlord 50% of the positive difference, if any, between (i) all Subrent paid by the subtenant to Tenant, less (ii) the sum of all Base Monthly Rent and Additional Rent allocable to the space sublet and all Permitted Transfer Costs related to such sublease. Such amount shall be paid to Landlord on the same basis, whether periodic or in lump sum, that such Subrent is paid to Tenant by its subtenant. In calculating Landlord's share of any periodic payments, all Permitted Transfer Costs shall be first recovered by Tenant. (4) Tenant's obligations under this para. 14.1D) shall survive any Transfer, and Tenant's failure to perform its obligations hereunder shall be an Even of Tenant's Default. At the time Tenant makes any payment to Landlord required by this para. 14.1D, Tenant shall delivery an itemized statement of the method by which the amount to which Landlord is entitled was calculated, certified by Tenant as true and correct. Landlord shall have the right at reasonable intervals to inspect Tenant's books and records relating to the payments due hereunder. Upon request therefor, Tenant shall deliver to Landlord copies of all bills, invoices or other documents upon which its calculations are based. Landlord may condition its approval of any Transfer upon obtaining a certification from both Tenant and the proposed transferee of all Subrent and other amounts that are to be paid to Tenant in connection with such Transfer. (5) As used in this para. 14.1D, the term "Subrent" shall mean any consideration of any kind received, or to be received, by Tenant as a result of the Transfer, if such sums are related to Tenant's interest in this Lease or in the Premises, including payments from or on behalf of the transferee (in excess of the book value thereof) for Tenant's assets, fixtures, and leasehold improvements, As used in this paragraph 14.1D, the term "Permitted Transfer Costs shall mean (i) all reasonable leasing commissions paid to third parties not affiliated with Tenant in order to obtain the Transfer in question, and (ii) all reasonable attorneys' fees incurred by and (iii) the unamortized costs of any alterations installed in the Premises at Tenant's expense, and redecorating and remodeling costs incurred by Tenant to effect the Transfer. Tenant with respect to the Transfer in question. E. If Tenant is a corporation, the following shall be deemed a voluntary assignment of Tenant's interest in this Lease: (i) any dissolution, merger, consolidation, or other reorganization of or affecting Tenant, whether or not Tenant is the surviving corporation and; (ii) if the capital stock of Tenant is not publicly traded, the sale or transfer to one person or entity (or to any group of related persons or entities) stock possessing more than 50% of the total combined voting power of all classes of Tenant's capital stock issued, outstanding and entitled to vote for the election of directors. if Tenant is a partnership, any withdrawal or substitution (whether voluntary, involuntary or by operation of law, and whether occurring at one or over a period of time) of any partner owning 25% or more (cumulatively) of any interest in the capital or profits of the partnership, or the dissolution of the partnership, shall be deemed a voluntary assignment of Tenant's interest in this Lease. F. Notwithstanding anything contained in 114.1, so long as Tenant otherwise complies with (he provisions of 114.1 Tenant may enter into any of the following transfers (a 'Permitted Transfer") Without Landlord's prior written consent, and Landlord shot] not be entitled to (terminate the Lease pursuant to 114.1C or to receive any part of any Subrent resulting therefrom that( would otherwise be due it pursuant to 114.113: (1) Tenant may sublease it or part of the Premises or assign its interest in this Lease to any corporation which controls, is controlled by, or is under common control with the original Tenant to this Lease by means of an ownership interest of more than 50%, (2) Tenant may assign its interest in the Lease to a corporation which results from a merger, consolidation or other reorganization in which Tenant is not the surviving corporation, so long as the surviving corporation has a net worth at the time of such assignment that is equal to or greater than the net worth of Tenant immediately prior to such transaction; and (3) Tenant may assign this Lease to a corporation which purchases or otherwise acquires all or substantially all of the assets of Tenant, so long as such acquiring corporation has a net worth at the time of such assignment that is equal to or greater than the net worth of Tenant immediately prior to such transaction. Notwithstanding anything to the contrary contained herein, a public or private offering of Tenants capitol stock shall also be deemed a Permitted Transfer. 14.2 Transfer By Landlord: Landlord and its successors in interest shall --------------------- have the right to transfer their interest in this Lease and the Project it any time and to any person or entity. In the event of any such transfer, the Landlord originally named herein (and, in the case of any subsequent transfer, the transferor) from the date of such transfer, shall be automatically believed, without any further act by any person or entity, of all liability for the performance of the obligations of the Landlord hereunder which may accrue after the date of such transfer. After the date of any such transfer, the term Landlord" as used herein shall mean the transferee of such interest in the Premises. ARTICLE 15 ---------- GENERAL PROVISIONS ------------------ 15.1 Landlord's Right to Enter: Landlord and its agents may enter the -------------------------- Premises at any reasonable time after giving at least 24 hours' prior notice to Tenant (and immediately in the case of emergency) for the purpose of: (i) inspecting the same; 01) posting notices of non-responsibility, (iii) supplying any service to be provided by Landlord to Tenant (W) showing the Premises to prospective purchasers, mortgagees or tenants: (v) making necessary alterations, additions or repairs; (vi) performing Tenant's obligations when Tenant has failed to do so after written notice from Landlord (vii) (during the last 180 days of the Lease Term only), placing, upon the Premises ordinary "for lease signs lot sale" signs: and (viii) responding to an emergency. Landlord shall have the right to use any and all means Landlord may deem necessary and proper to enter the Premises in an emergency. Any entry into the Premises obtained by Landlord in accordance with this paragraph 15.1 shall not be a forcible or unlawful 16 entry into, or a detained of, the Premises, or an eviction, actual or constructive, of Tenant from the Premises. Any such entry by Landlord and Landlord's agents shall comply with all reasonable security measures of Tenant and shall not impair Tenant's operations more than reasonably necessary. During any such entry, Landlord and Landlord's agents shall at all times be accompanied by Tenant. 15.2 Surrender or the Premises: Upon the expiration or sooner termination -------------------------- of the Lease, Tenant shall vacate and surrender the Promises to Landlord in the same condition as existed at the Commencement Date, except for (i) reasonable wear and tear, (ii) damage caused by any peril or condemnation, and (iii) contamination by Hazardous Materials for which Tenant is not responsible pursuant to paragraph 7.2A or paragraph 7.2B. In this regard, normal wear and tear shall be construed to mean wear and tear caused to the Premises by the natural aging process which occurs in spite of prudent application of the best but reasonable standards for maintenance, repair and janitorial practices, and does not include items of neglected or deferred maintenance. In any event, Tenant shall cause the following to be done prior to the expiration or the sooner termination of this Lease: (i) all interior walls shall be painted or cleared so that they appear freshly painted; (ii) all tiled floors shall be cleaned and waxed; (iii) all carpets shall be cleaned and shampooed; (iv) all broken, marred, stained or nonconforming acoustical ceiling tiles shall be replaced, (v) all windows shall be washed; (vi) the HVAC system shall be serviced by a reputable and licensed service firm and left in good operating condition and repair as so certified by such firm; and (vii) the plumbing and electrical systems and lighting shall be placed in good order and repair (including replacement of any burned out, discolored or broken light bulbs, ballasts, or lenses). If Landlord so requests, Tenant shall, prior to the expiration or sooner termination of this Lease, (i) remove any Tenant's Alterations which Tenant is required to remove pursuant to paragraph 5.2 and repair all damage caused by such removal. If the Premises are not so surrendered at the termination of this Lease, Tenant shall be liable to Landlord for all costs incurred by Landlord in returning the Premises to the required condition, plus interest on all costs incurred at the Agreed Interest Rate. Tenant shall indemnify Landlord against loss or liability resulting from delay by Tenant in so surrendering the Premises, including, without limitation, any claims made by any succeeding tenant or losses to Landlord due to lost opportunities to lease to succeeding tenants. 15.3 Holding Over: This Lease shall terminate without further notice at ------------- the expiration of the Lease Term. Any holding over by Tenant after expiration of the Lease Term shall not constitute a renewal or extension of the Lease or give Tenant any rights in or to the Premises except as expressly provided in this Lease. Any holding over after such expiration with the written consent of Landlord shall be construed to be a tenancy from month to month on the same terms and conditions herein specified insofar as applicable except that Base Monthly Rent shall be increased to an amount equal to 150% of the Base Monthly Rent payable during the last full calendar month of the Lease Term. 15.4 Subordination: The following provisions shall govern the relationship ------------- of this Lease to any Security Instrument: A. The Lease is subject and subordinate to all Security Instruments existing as of the Effective Date. However, if any Lender so requires, the Lease shall become prior and superior to any such Security Instrument. See First Addendum To Lease Paragraph 10 B. At Landlord's election, this Lease shall become subject and subordinate to any Security Instrument created after the Effective Date. Notwithstanding such subordination, Tenant's right to quiet possession of the Premises shall not be disturbed so long as Tenant is not in default and performs all of its obligations under this Lease, unless this Lease is otherwise terminated pursuant to its terms C. Tenant shall upon request execute any document or instrument reasonably required by any Lender to make this Lease either prior or subordinate to a Security Instrument, which may include such other matters as the Lender customarily and reasonably requires in connection with such agreements, including provisions that the Lender not be liable for (i) the return of any security deposit unless the Lender receives it from Landlord, and (ii) any defaults on the part of Landlord occurring prior to the time the Lender takes possession of the Project in connection With the enforcement of its Security Instrument. Tenant's failure to execute any such document or instrument within 10 days after written demand therefor shall constitute an Event of Tenant's Default. Tenant approves as reasonable the form of subordination agreement attached to this Lease as Exhibit G. 15.5 Mortgage Protection and Attornment: In the even of any default on the ----------------------------------- part of the Landlord, Tenant will use reasonable efforts to give notice by certified mail to any Lender whose name has been provided to Tenant and shall offer such Lender a reasonable opportunity to cure the default including time to obtain possession of the Premises by power of sale or judicial foreclosure or other appropriate legal proceedings, if such should prove necessary to effect a cure. Tenant shall attorn to any purchaser of the Premises at any foreclosure sale or private sale conducted pursuant to any Security Instrument encumbering the Premises, or to any grantee or transferee designated in any deed given in lieu of foreclosure. 15.6 Estoppel Certificates and Financial Statements: At all times ----------------------------------------------- during the Lease term, each party agrees, following any request by the other party, promptly to execute end deliver to the requesting party within 15 days following, delivery of such request an estoppel certificate: (i) certifying that this Lease is unmodified and in full force and effect or, if modified, stating the nature of such modification and certifying that this lease, as so modified, is in full force and effect, (ii) Stating the date to which the rent and other charges are paid in advance, if any, (iii) acknowledging that there are not, to the certifying party's knowledge, any uncured defaults on the part of any party hereunder to, if there are uncured defaults, specifying the nature of such defaults, and (iv) certifying such other information about the Lease as may be reasonably required by the requesting party. A failure to 17 deliver an estoppel certificate within 15 days after delivery of a request therefor shall be a conclusive admission that, as of the date of the request for such statement: (i) this Lease is unmodified except as may be represented by the requesting party in said request and is in full force and effect, (ii) there are no uncured defaults in the requesting party's performance, and (iii) no rent has been paid more than 30 days in advance. At any time during the Lease Term Tenant shall, upon 15 days' prior written notice from Landlord, provide Tenant's most recent financial statement and financial statements covering the 24 month period prior to the date of such most recent financial statement to any existing Lender or to any potential Lender or buyer of the Premises; provided however, that Landlord shall ensure that any such statements are held by Landlord and any potential buyer or Lender in the strictest of confidence. Such statements shall be prepared in accordance with generally accepted accounting principles and, it such is the normal practice of Tenant, shall be audited by an independent certified public accountant. 15.7 Reasonable Consent: Whenever any party's approval or consent is ------------------- required by this Lease before an action may be taken by the other party, such approval or consent shall not be unreasonably withheld or delayed. 15.8 Notices: Any notice required or desired to be given regarding this -------- Lease shall be in writing and may be given by personal delivery, by facsimile telecopy, by courier service, or by mail. A Notice shall be deemed to have been given (i) on the third business day after mailing if such notice was deposited in the United States mail, certified postage prepaid, addressed to the party to be served at its Address for Notices specified in Section Q or Section R of the --------- --------- Summary (as applicable), (ii) when delivered if given by personal delivery, and (iii) in all other cases when actually received at the party's Address for Notices. Either party may change its address by giving notice of the same in accordance with this paragraph 15.8, provided, however, that any address to which notices may be sent must be a California address. 15.9 Attorneys' Fees: In the event either Landlord or Tenant shall bring ---------------- any action or legal proceeding for an alleged breach of any provision of this Lease, to recover rent, to terminate this Lease or otherwise to enforce, protect or establish any term or covenant of this Lease, the prevailing party shall be entitled to recover as a part of such action or proceeding, or in a separate action brought for that purpose, reasonable attorneys' fees, court costs, and experts' fees as may be fixed by the court. 15.10 Corporate Authority: If Tenant is a corporation (or partnership), -------------------- each individual executing this Lease on behalf of Tenant represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of such corporation in accordance with the by-laws of such corporation (or partnership in accordance with the partnership agreement of such partnership) and that this Lease is binding upon such corporation (or partnership) in accordance with its terms. Each of the persons executing this Lease on behalf of a corporation does hereby covenant and warrant that the party for whom it is executing this Lease is a duly authorized and existing corporation, that it is qualified to do business in California, and that the corporation has full right and authority to enter into this Lease. 15.11 Miscellaneous: Should any provision of this Lease prove to be -------------- invalid or illegal, such invalidity or illegality shall in no way affect, impair or invalidate any other provision hereof, and such remaining provisions shall remain in full force and effect. Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor. The captions lived in this Lease are for convenience only and shall not be considered in the construction or interpretation of any provision hereof. Any executed copy of this Lease shall be deemed an original for all purposes. This Lease shall, subject to the provisions regarding assignment, apply to and bind the respective heirs, successors, executors, administrators and assigns of Landlord and Tenant. Party shall mean Landlord or Tenant, as the context implies. If Tenant consists of more than one person or entity, then all members of Tenant shall be jointly and severally liable hereunder. This Lease shall be construed and enforced in accordance with the laws of the State of California. The language in all parts of this Lease shall in all cases be construed as a whole according to its fair meaning, and not strictly for or against either Landlord or Tenant. When the context of this Lease requires, the neuter gender includes the masculine, the feminine, a partnership or corporation or joint venture, and the singular includes the plural, The terms "shall, will and agree" are mandatory, The term may is permissive. When a party is required to do something by this Lease, it shall do so at its sole cost and expense without right of reimbursement from the other party unless a provision of this Lease expressly requires reimbursement. Landlord and Tenant agree that (i) the gross leasable area of the Premises includes any atriums, depressed loading docks, covered entrances or egresses, and covered loading areas, (ii) each has had an opportunity to determine to its satisfaction the actual area of the Project and the Premises, (iii) all measurements of area contained in this Lease are conclusively agreed to be correct and binding upon the parties, even if a subsequent measurement of any one of these areas determines that it is more or less than the amount of area reflected in this Lease, and (iv) any such subsequent determination that the area is more or less than shown in this Lease shall not result in a change in any of the computations of rent, improvement allowances, or other matters decided in this Lease where area is a factor. Where a party hereto is obligated not to perform any act, such party is also obligated to restrain any others within its control from performing said act, including the Agents of such party. Landlord shall not become or be deemed a partner or a joint venturer with Tenant by reason of the provisions of this Lease. 15.12 Termination by Exercise of Right: If this Lease is terminated --------------------------------- pursuant to its terms by the proper exercise of a right to terminate specifically granted to Landlord or Tenant by this Lease, then this Lease shall terminate 30 days after the date the right to terminate is properly exercised (unless another date is specified in that part of the Lease creating the right, in which event the date so specified for termination shall prevail), the rent and all other charges due hereunder shall be prorated as of the date of Termination, and neither Landlord nor Tenant shall have any further rights or obligations under this Lease except for those that have accrued 18 prior to the date of termination or those obligations which this Lease specifically provides we to survive termination. This paragraph 15.12 does not apply to a termination of this Lease by Landlord as a result of an Event of Tenant's Default. 15.13 Brokerage Commissions: Each party hereto (i) represents and ---------------------- warrants to the other that it has not had any dealings with any real estate brokers, leasing agents or salesmen, or incurred any obligations for the payment of real estate brokerage commissions or finder's fees which would be earned or due and payable by reason of the execution of this Lease, other than to the Retained Real Estate Brokers described in Section S of the Summary, and (ii) --------- agrees to indemnify, defend, and hold harmless the other party from any claim for any such commission of fees which result from the actions of the indemnifying party. Landlord shall be responsible for the payment of any commission owed to the Retained Real Estate Brokers. 15.14 Force Majeure: Any Prevention, delay or stoppage due to strikes, -------------- lock-outs, inclement weather, labor disputes, inability to obtain labor, materials, fuels or reasonable substitutes therefor, governmental restrictions, regulations, controls, action or inaction, civil commotion, fire or other acts of God, and other causes beyond the reasonable control of the party obligated to perform (except financial inability) shall excuse the performance, for a period equal to the period of any said prevention, delay or stoppage, of any obligation hereunder except the obligation of Tenant to pay rent or any other sums due hereunder. 15.15 Entire Agreement: This Lease constitutes the entire agreement ----------------- between the parties, and there are no binding agreements or representations between the parties except as expressed herein. Tenant acknowledges that neither Landlord nor Landlord's Agents has made any legally binding representation or warranty as to any matter except those expressly set forth herein, including any warranty as to (i) whether the Premises may be used for Tenant's intended use under existing Law, (ii) the suitability of the Premises or the Project for the conduct of Tenant's business, or (iii) the condition of any improvements. There are no oral agreements between Landlord and Tenant affecting this Lease, and this Lease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between Landlord and Tenant or displayed by Landlord to Tenant with respect to the subject matter of this Lease. This instrument shall not be legally binding until it is executed by both Landlord and Tenant. No subsequent change or addition to this Lease shall be binding unless in writing and signed by Landlord and Tenant. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease with the intent to be legally bound thereby, to be effective as of the as of the Effective Date. LANDLORD: KAIROS, LLC, a California limited liability company BY Orchard Moffett Investors, a California general partnership, Its authorized agent By /s/ Michael J. Biggar Michael J. Biggar, Manager ORCHARD MOFFETT INVESTORS, a California general partnership By /s/ Michael J. Biggar Michael J. Biggar Manager Date 6/26/96 TENANT: QuickLogic Corporation, a California corporation By /s/ Anthony S.S. Chan Anthony S.S. Chan VP Finance/Administration Chief Financial Officer Date June 24, 1996 19 FIRST ADDENDUM TO LEASE THIS FIRST ADDENDUM is dated for reference purposes as June 17, 1996, and is made a part of that Lease Agreement (the "Lease") dated June 17, 1996, by and between KAIROS, LLC and Orchard Moffet Investors, a California general partnership corporation ("Landlord") and QuickLogic Corporation, a California corporation ("Tenant") affecting certain real property commonly known as 1277 Orleans Drive, Sunnyvale. California , with reference to the following facts: 1. Option to Extend Lease Term: Landlord hereby grants to Tenant one ---------------------------- option to extend the Lease Term for a three ( 3 ) year term on the following terms and conditions: A. Tenant must give Landlord notice in writing of its exercise of the option in question no earlier than one hundred eight (180) days and no later than one hundred twenty (120) days before the date the Lease Term would end but for said exercise. B. Tenant may not extend the Lease Term pursuant to any option granted by this paragraph if Tenant is materially in default beyond any applicable cure period as of the date of exercise of the option in question or as of the date this Lease would have been terminated but for said exercise. C. All terms and conditions of this Lease shall apply during the option period, except that the Base Monthly Rent for the option period shall be determined as provided in Paragraph D. D. The Base Monthly Rent for the Option Period shall be the greater of (i) one hundred percent (100%) of the Base Monthly Rent due the last month of the previous Lease Term, or (ii) one-hundred percent ( 100% ) of the then fair market monthly rent determined as of the commencement of the option period in question based upon like buildings with like improvements in the Sunnyvale area. If the parties are unable to agree upon the fair market monthly rent for the Premises for the option period in question at least seventy-five (75) days prior to the commencement of the option period in question, then the fair market monthly rent shall be determined by appraisal conducted pursuant to subparagraph E. E. In the event it becomes necessary to determine by appraisal the fair market rent of the Premises for the purpose of establishing the Base Monthly Rent during the Option Period, then such fair market monthly rent shall be determined by three (3) real estate appraisers, all of whom shall be members of the American Institute of Real Estate Appraisers with not less than five (5) years experience appraising real property (other than residential or agricultural property) located in Santa Clara County, California, in accordance with the following procedures: (1) The party demanding an appraisal (the "Notifying Party") shall notify the other party (the "Non-Notifying Party") thereof by delivering a written demand for appraisal, which demand, to be effective, must give the name, address, and qualifications of an appraiser selected by the Notifying Party. Within ten (10) days of receipt of said demand, the Non-Notifying Party shall select its appraiser and notify the Notifying Party, in writing, of the name, address, and qualifications of an appraiser selected by it. Failure by the Non- Notifying Party to select a qualified appraiser within said ten (10) day period shall be deemed a waiver of its right to select a second appraiser on its own behalf and the Notifying Party shall select a second appraiser on behalf of the Non-Notifying Party within five (5) days after the expiration or said ten (10) day period. Within ten (10) days from the date the second appraiser shall have been appointed, the two (2) appraisers so selected shall appoint a third appraiser. If the two appraisers fail to select a third qualified appraiser, the third appraiser shall be selected by the American Arbitration Association or if it shall refuse to perform this function, then at the request or either Landlord or Tenant, such third appraiser shall be promptly appointed by the then Presiding Judge of the Superior Court of the State of California for the County of Santa Clara. Page Two (2) The three (3) appraisers so selected shall meet in Sunnyvale, California, not later than twenty (20) days following the selection of the third appraiser. At said meeting the appraisers so selected shall attempt to determine the fair market monthly rent of the Premises for the option period in question (including the timing and amount of periodic increases), (3) If the appraisers so selected are unable to complete their determinations in one meeting, they may continue to consult at such times as they deem necessary for a fifteen (15) day period from the date of the first meeting, in an attempt to have at least two (2) of them agree. If, at the initial meeting or at any time during said fifteen (15) day period, two (2) or more of the appraisers so selected agree on the fair market rent of the Leased Premises, such agreement shall be determinative and binding on the parties hereto, and the agreeing appraisers shall, in simple letter form executed by the agreeing appraisers, forthwith notify both Landlord and Tenant of the amount set by such agreement. (4) If two (2) or more appraisers do not so agree within said fifteen (15) day period, then each appraiser shall, within five (5) days after the expiration of said Fifteen (15) day period, submit his independent appraisal in simple letter form to Landlord and Tenant stating his determination of the fair market rent of the Premises for the option period in question. The parties shall then determine the fair market rent for the Premises by determining the average of the fair market rent set by each of the appraisers. However, if the lowest appraisal is less than eighty-five percent (85%) of the middle appraisal then such lowest appraisal shall be disregarded and/or if the highest appraisal is greater than one hundred Fifteen percent (I 15%) of the middle appraisal then such highest appraisal shall be disregarded. If the fair market rent set by any appraisal is so disregarded, then the average shall be determined by computing the average set by the other appraisals that have not been disregarded. (5) Nothing contained herein shall prevent Landlord and Tenant from jointly selecting a single appraiser to determine the fair market rent of the Premises, in which event the determination of such appraisal shall be conclusively deemed the fair market rent of the Premises. (6) Each party shall bear the fees and expenses of the appraiser selected by or for it, and the fees and expenses of the third appraiser (or the joint appraiser if one joint appraiser is used) shall be borne fifty percent (50%) by Landlord and fifty percent (50%) by Tenant. 2. Tenant Improvement Allowances: ------------------------------ A. The term "First Level Tenant Improvement Allowance" shall mean the maximum amount Landlord is required to spend toward the payment of Interior Improvement Costs for all Interior Improvements constructed in the Premises, which amount is $298,368.00 (i.e., $7.00 per square foot for Tenant's Gross Leasable Area within (The entire Premises). B. A second level Tenant Improvement Allowance ("Second Level Tenant Improvement Allowance") of $213,120.00 (i.e., $5.00 per square foot for Tenant's Gross Leasable Area within the entire Premises) shall be made available for an increase in the Base Monthly Rent as provided for in paragraph 3 of this Addendum To Lease. C. The First Level Tenant Improvement Allowance plus the Second Level Tenant Improvement Allowance shall be termed the "Total Tenant Improvement Allowance" consisting of $511,488.00 (i.e., $12.00 per square foot for Tenant's Gross Leasable Area within the entire Premise). D. Additionally, Landlord shall not be obligated to provide future use of any Tenant Improvement Allowance not spent prior to the Commencement Date. Notwithstanding the foregoing, all improvements constructed with the First Level Tenant Improvement Allowance or the Second Level Tenant Improvement Allowance shall be deemed to be Interior Improvements and not Tenant's Alterations. 3. Adjustments to the Base Monthly Rent: The Base Monthly Rent as ------------------------------------ provided for in Article 3 of the Lease shall be adjusted as follows: Page Three A. For every increment of $42,624.00 (i.e., $1.00 per square foot of Gross Leasable Area), or proportion thereof to the Second Level Tenant Improvement Allowance spent for the payment of the Interior Improvement Costs as defined in Exhibit B, "Interior Improvement Agreement", the Base Monthly Rent shall increase $0.0177 per square foot per month. As an example, if $63,936.00 of Second Level Tenant Improvement Allowance is spent, the Base Monthly Rent shall increase $0.02655 per square foot per month. B. No credit in the Base Monthly Rent shall be made if a portion of the First Level Tenant Improvement Allowance is not spent. 4. Condition of Premises: Landlord, at Landlord's sole cost, shall --------------------- provide the following ("collectively, "Landlord's Initial Improvements"): a. Demolition of specific interior walls resulting in a Door floor plan as shown on the attached Exhibit A to this Lease. b. Remove all floor carpeting and repaint and repaint the interior of the Premises. c. Install a new overly roofmembrane with a five-year warranty. d. Install additional windows of a similar (but not exact) design along body sides of the Building as shown in Exhibit I to this Lease. e. Reslurry and stripe the parking lot. f. The exterior of the Building has been painted. g. Upgrade the landscaping to Landlord's standards, h. Provide all HVAC, electrical, and plumbing systems in good working condition as of the Commencement Date. 5. Delivery and Acceptance of Possession: Notwithstanding any provision ------------------------------------- to the contrary contained in the Lease Landlord represents and warrants that on the Commencement Date all mechanical, electrical, plumbing, heating, air conditioning, ventilation systems. all other mechanical systems and the roof system will be in good working order and condition, and Landlord shall remain liable for such representation and warranty if it is incorrect, except to the extent Such representation becomes incorrect as a result of the acts or omissions of Tenant or its employees, contractors or invitees. Notwithstanding anything to the contrary in this Lease, Tenant's acceptance of the Premises shall not be deemed (I) a waiver of Tenant's fights (a) to have defects in the construction of the new Interior Improvements as provided for in Exhibit B to this Lease of which Tenant notifies Landlord within one (1) year after the Commencement Date repaired at Landlord's sole expense or (b) with respect to matters and items covered by an express representation and warranty of Landlord set forth herein, or (ii) a waiver of Landlord's maintenance and repair obligations hereunder. Tenant shall give notice to Landlord whenever any such defect becomes reasonably apparent, and Landlord shall repair such defect as soon as practicable. Tenant shall have the benefit of all warranties with respect to the Premises which would reduce Tenant's maintenance obligations hereunder and shall cooperate with Tenant to enforce all such warranties. 6. Security Deposit: Within 30 days of be expiration or sooner ----------------- termination of the Lease, Landlord shall promptly return to Tenant the balance of the Security Deposit held by Landlord on such date of expiration or termination, less any amounts used by Landlord in accordance with this Paragraph 6, plus any amounts received by Landlord after such date of expiration or termination to restore the Security Deposit. 7. Tenant's Obligation to Maintain: Notwithstanding anything to the -------------------------------- contrary contained Article 6.1, Tenant shall have no responsibility to perform or construct, any repair, maintenance or improvement to the Premises (I) necessitated by the acts or omissions of Landlord, or its Agents, (ii) occasioned by fire, acts of God or other casualty or by (he exercise of the power of eminent domain, (iii) required as a consequence of any violation of Law or construction defect in the Premises or the Project as of the Commencement Date, except as otherwise provided in this Lease, (iv) for which Landlord has a right of reimbursement from others, and (v) which is treated as a "capital expenditure" under generally accepted accounting principals in accordance with Article 5.4. 8. Common Operating Expenses Defined: Additional exclusions to Common ---------------------------------- Operating Expenses shall include: (vi) costs occasioned by the act, emission or violation of Law by Landlord, or any of its Agents; (vii) costs occasioned by fire, acts of God, or other casualties or by the exercise of the power of eminent domain, except as provided elsewhere in this Lease; (viii) Page Four cost (a) for which Landlord has a right of reimbursement from others, or (b) which Tenant reimburses Landlord directly or which Tenant pays directly to a third person, and (ix) insurance costs for coverage not customarily paid by tenants of similar projects in the vicinity of the Premises or co-insurance payments, unless required by law, or reasonably required by Landlord's Lender Tenant acknowledges that insurance costs at commercially reasonable rates relating to earthquake coverage shall not be excluded from the definition of Common Operating Expenses. 9. Real Property Taxes Defined: The following are additional exclusions to --------------------------- the term Real Property Taxes: Taxes, assessments or any other governmental levies, or any increases in the foregoing occasioned by or relating to (a) land and improvements not reserved for Tenant's exclusive or nonexclusive use, (b) assessments and other fees for improvements and services which in Landlord's sole but reasonable opinion do not benefit the Premises or (c) Hazardous Materials, Notwithstanding any provision to contrary contained herein, if Landlord elects to pay any tax, assessment or levy in total which landlord could have elected to pay in installments, but Landlord does not make such election. Tenant shall be required to pay only Tenant's Share of each installment payable with respect to the period of time covered by the Lease Term, as each such installment would have become due. 10. Subordination: Landlord shall use every reasonable effort to obtain a -------------- Nondisturbance, Recognition and Attornment Agreement from the holder of such Security Interest on such holder's standard form. Tenant shall pay the cost, if any, in obtaining such Agreement. 11. Letter of Credit Portion of Security Deposit: --------------------------------------------- A. Tenant shall provide to Landlord a Security Deposit tooling $342,624.00, of which $300,000.00 can be, at Tenant's sole cost, an irrevocable letter of credit which (i) is for an initial term of at least twelve (12) months; (ii) is drawn upon a local commercial bank reasonably acceptable to Landlord, (iii) is in the amount of $300,000.00; (iv) is in a form satisfactory to Landlord; and (v) may be drawn on by Landlord solely upon submission of a written certification of Landlord that there exists an Event of Tenant's Default (as defined in Paragraph 13.1 of this Lease or in this Paragraph), that Tenant has not cured such Event of Default, and that the amount drawn on the letter of credit is the net amount due Landlord after first applying any cash Security Deposit then being held by Landlord. Tenant's failure to replenish any cash Security Deposit which is applied by Landlord, within ten (10) days after notice that it has been applied, shall be an immediate Event of Tenant's Default, without further notice or opportunity to cure, which shall entitle Landlord to resort to the letter of credit to replenish its cash Security Deposit. Except as provided in Subparagraph B herein, Tenant shall keep the letter of credit in effect during the entire Lease term plus a period of four (4) weeks thereafter, and Tenant's failure to renew a letter of credit at least thirty (30) days prior to its expiration for additional periods of at least twelve (12) months and to furnish written evidence thereof to Landlord shall be deemed an Event of Tenant's Default under this Lease upon the expiration of the thirtieth (30th) day prior to the date of expiration of the then-current letter of credit if Landlord gives five (5) calendar days written notice that Tenant has failed to renew, and Tenant does not renew within such five day period. If Tenant provides Landlord with a letter of credit meeting the foregoing requirements, any cash Security Deposit previously provided to Landlord in excess of $42,624.00 shall be returned to Tenant. Any proceeds received by Landlord by drawing upon the letter of credit shall be applied in accordance with the provisions of Paragraph 3.5 of the Lease. If Landlord draws upon the letter of credit, thereafter Tenant shall once again have the right to post a letter or credit in place of a cash Security Deposit so long as there exits no Event of Tenant's Default under the Lease. If Landlord transfers the Premises during the Lease Term, and if a letter of credit is still posted as part of the Security Deposit, Tenant agrees to take such actions as are necessary to have the letter of credit redrawn in favor of the new owner of the Premises, at Tenant's sole cost and expense. B. Notwithstanding the foregoing, the letter of credit and any cash Security Deposit held by Landlord in excess of $42,624.00 shall be released by Landlord upon the achievement by Tenant of the following financial goals: 1. Tenant shall have achieved four (4) consecutive quarters of positive net operating income (which is defined as net operating income derived from continuing operations, as disclosed in Tenant's audited financial statements, and 2. The Tenant's net operating income over the four (4) consecutive quarters described in subsection 1 above, shall equal a minimum of $2,000,000.00. Page Five 12. Existing Incinerator: Landlord will remove the incinerator and all ash -------------------- residue presently located on the Property, in accordance with all applicable laws. 13. Release and Waiver of Subrogation: Notwithstanding any provision of this ---------------------------------- Lease to the contrary, the parties hereto release each other, and their respective agents and employees, from any liability for injury to any person or damage to property that is caused by or results from any risk insured against under any valid and collectible insurance policy carried by either of the parties which contains a waiver of subrogation by the insurer and is in force at the time of such injury or damage (or which is required by this lease to be so carried); subject to the following limitations: (i) the foregoing provision shall not apply to the commercial general liability insurance described by subparagraphs para. 9.1A and para. 9.2B; (ii) such release shall apply to liability resulting from any risk insured against or covered by self-insurance maintained or provided by Tenant to satisfy the requirements of para. 9.1 to the extent permitted by this Lease; and (iii) Tenant shall not be released from such liability to the extent any damages resulting from such injury or damage are not covered by the recovery obtained by Landlord from such insurance(or any recovery that the Landlord would have obtained had it purchased the insurance which it is obligated to carry under this Lease), but only if the insurance in question permits such partial release in connection with obtaining a waiver of subrogation from the insurer. 14. Force Majeure: Any prevention, delay or stoppage due to strikes, lock- -------------- outs, inclement weather, labor disputes, inability to obtain labor, material, fuels or reasonable substitutes thereof, governmental restrictions, regulations, controls, action or inaction, civil commotion, fire or other acts of God, and other causes beyond the reasonable control of the party obligated to perform (except financial inability) shall excuse the performance, for a period equal to the period of any said prevention, delay or stoppage, of any obligation hereunder except the obligation of Tenant to pay rent or any other sums dues hereunder, provided, however, that the foregoing shall not affect provisions for abatement of rent or termination of the Lease pursuant to the provisions of Articles 11 (Damage to Premises) and 12 (Condemnation) of this Lease. 15. Landlord's Obligation To Maintain: If Landlord fails to perform any --------------------------------- repairs required of Landlord under Para. 6.2 of the Lease, and if the lack of such repairs is materially and substantially interfering with Tenant's use and enjoyment of the Premises, and Landlord thereafter fails to make such repairs within forty five (45) days after written notice from Tenant specifying the nature of the repairs and the basis on which they are required, where such repairs could reasonably be cured in forty five (45) day period, or if such breach could not reasonably secured in forty five (45), Landlord fails to commence work on such repairs with said forty five (45) day period or thereafter fails to prosecute the making of such repairs with due diligence within such time period as is reasonably needed, then Tenant may make such repairs under the conditions set forth in the Paragraph. If Tenant proposes to make such repairs, Tenant shall first notify Landlord in writing of its intent to make such repairs, including in such notice a copy of the plans and specifications for the repairs and the identity of the licensed contractor through which Tenant proposes to conduct repairs. Landlord shall have ten (10) days following such notice to commence the repairs, and if Landlord does so, Tenant shall have no right to make the repairs, unless Landlord fails to pursue the repairs with due diligence to completion (and, in the event of a failure to pursue repairs to completion, Tenant gives Landlord a new ten (10) day notice under the procedures set forth above and Landlord still fails to diligently pursue the repairs to completion). If Landlord does not do so, Tenant may make the repairs under the following conditions: (i) the repairs shall be constructed substantially in compliance with the plans and specifications of which Landlord has received notice; (ii) the repairs shall be performed by the licensed contractor identified in the notice; (iii) the repairs shall be conducted in compliance with all Laws; and (iv) the repairs shall begin only after (1) all required governmental permits and approvals have been granted and (2) Tenant has obtained, and has provided Landlord with a certificate of, contingent liability and broad form builder's risk insurance relating to the performance of the repairs in a commercially reasonable amount to cover the risks of the job. Repairs performed by Tenant under this Paragraph shall fully comply with all building, electrical, Page Six plumbing, mechanical, structural, and other codes, and in a good and workmanlike manner, using only new materials of first quality. In the event that Tenant makes any such repairs, Tenant shall hue no right to any rent abatement nor termination of the Lease, but shall have the right to pursue whatever other remedies are allowed by law. LANDLORD: TENANT: KAIROS, LLC, a California limited liability company QuickLogic Corporation a California corporation By Orchard Moffett Investors, a California general partnership Its Authorized agent By /s/ Anthony S.S. Chan Anthony S.S. Chan By /s/ Michael J. Biggar VP Finance/Administration Michael J. Biggar, Chief Financial Officer Manager ORCHARD MOFFETT INVESTORS, a California general partnership Date June 24, 1996 By /s/ Michael J. Biggar Michael J. Biggar, Manager Date 6/26/96 SITE PLAN (IMAGE OMITTED) EXHIBIT A EXHIBIT B INTERIOR IMPROVEMENT AGREEMENT ------------------------------ THE IMPROVEMENT AGREEMENT is made part of that Lease dated June 17, 1996, (the "Lease") by and between KAIROS, LLC, and Orchard Moffett Investors ("Landlord"), and Quick-Logic Corporation ("Tenant"). Landlord and Tenant agree that the following terms are part of the Lease: 1. Purpose of Improvement Agreement: The purpose of this Improvement --------------------------------- Agreement is to set forth the rights and obligations of Landlord and Tenant with respect to the construction of Interior Improvements with the Premises prior to the Commencement Date. 2. Definitions: As used in this Improvement Agreement, the following ----------- terms shall have the following meanings, and terms which are not defined below, but which are defined in the Lease and which are used in this Interior Improvement Agreement, shall have the meanings ascribed to them by the Lease: A. Approved Specifications: The term "Approved Specifications" ----------------------- shall mean those specifications for the Interior Improvements to be constructed by Landlord which are described by Exhibit "C" to the Lease. ----------- B. Interior Improvements: The term "Interior Improvements" ---------------------- shall mean all interior improvements to be constructed by Landlord in accordance with the Approved Specifications (e.g., HVAC equipment and distribution, transformer and power distribution, partitions, floor, wall, and window covering, lighting fixtures). C. Interior Improvement Costs: The term "Interior Improvement --------------------------- Costs" shall mean the following (i) the total amount due pursuant to the general construction contract entered into by Landlord to construct the Interior Improvements; (ii) the cost of all governmental approvals required as a condition to the construction of the Interior Improvements (including all construction taxes imposed by the City of Sunnyvale) in connection with the issuance of a building permit for the Interior Improvements; (iii) all utility connection or use fees; (iv) fees of architects or engineers for services rendered in connection with the design and construction of the Interior Improvements; and (v) the cost of payment and performance bonds obtained by Landlord or Prime Contractor to assure completion of the Interior Improvement. Notwithstanding the foregoing, Interior Improvement Costs shall not mean the following: (I) costs resulting from the negligence or willful misconduct of Landlord or Landlord's Agents, occurring after the Effective Date hereof, (ii) costs resulting from the breach of contract by landlord or any other person or entity with which Landlord contracts to perform work to construct the Interior Improvements (iii) costs arising from or in connection with the presence of Hazardous Materials on the Project except fro any costs for which Tenant or Tenant's Agents are liable pursuant to Paragraph 7.2 of this Lease; (iv) costs resulting from a casualty or act of God and (vi) costs for overtime and premium time, unless otherwise approved by Tenant. D. Substantial Completion and Substantially Complete: The ------------------------------------------------- terms "Substantial Completion" and "Substantially Complete" shall each mean the date when all of the following have occurred with respect to the Interior Improvements in question: (i) the construction of the Interior Improvements in question has been substantially completed in accordance with the requirements of this lease; (ii) the architect responsible of preparing the plans shall have executed a certificate or statement representing that the Interior Improvements in question have been substantially completed in accordance with the plans and specifications therefor; and (iii) the Building Department of the City of Sunnyvale has completed its final inspection such improvements and has "signed off" the building inspection card approving such work as complete. EXHIBIT B Page Two 3. Schedule of Performance: Set forth in this paragraph is a ---------------------- schedule of certain critical dates relating to Landlord's and Tenant's respective obligations regarding the construction of the Interior Improvements (the "Schedule of Performance"). Landlord and Tenant shall each be obligated to use reasonable efforts to perform their respective obligations within the time periods set forth in the Schedule of Performance and elsewhere in this Interior Improvement Agreement. The Schedule of Performance is as follows: Action Responsible Items Due Date Party ----- -------- ----------- A. Delivery to Two weeks from Tenant Landlord of June 24, 1996 Tenants Interior Requirements B. Delivery to Within ten (10) business days Landlord Tenant of after the later of (i) full Lease Preliminary signature, or (ii) the delivery Interior to Landlord of Tenant's Interior Improvement Requirements. Plans C. Approval by Within five (5) business Tenant Tenant of days after Tenant receives Preliminary Preliminary Interior Plans. Interior Plans D. Delivery to Within ten( 10 )business Landlord Tenant of days after approval of the Final Preliminary Interior Plans Interior Plans E. Approval by Within five (5) days after Tenant Tenant Tenant of receives Final Interior Plans Final Interior Plans F. Commence- Within five (5) days after Landlord ment of issuance of all necessary construction governmental approvals of Interior Improvement G. Substantial Within forty-two (42) days after Landlord Completion issuance of building permit for of Interior the Interior Improvements Improvements 4. Construction of Interior Improvements: Landlord shall, at its sole -------------------------------------- cost and expense, construct the Interior Improvements in accordance with the following: A. Development and Approval of Preliminary Interior Plans: On or before the ------------------------------------------------------ due date specified in the Schedule of Performance, Tenant shall deliver to Landlord a proposed floor plan identifying its requirements for the Interior Improvements that is consistent with the Approved Specifications ("Tenant's Interior Requirements"). On or before the due date specified in the Schedule of Performance, Landlord shall and deliver to Tenant for its review and approval preliminary plans for the Interior Improvements which are consistent with and conform to Tenant's Interior Requirements and the Approved Specifications (the "Preliminary Interior Page Three Plans"). On or before the due date specified in the Schedule of Performance, Tenant shall either approve such plans or notify Landlord in writing of its specific objections to the Preliminary Interior Plans. If Tenant so objects, Landlord shall revise the Preliminary Interior Plans to address such objections in a manner consistent with the parameters for the Interior Improvements set forth in this Improvement Agreement and the Approved Specifications and shall resubmit such revised Preliminary Interior Plans as soon as reasonably practicable to Tenant for its approval. When such revised Preliminary Interior Plans are resubmitted to Tenant, it shall either approve such plans or notify Landlord of any further objections in writing within two (2) business days after receipt thereof. If Tenant has further objections to the revised Preliminary Interior Plans, the parties shall meet and confer to develop Preliminary Interior Plans that are acceptable to both Landlord and Tenant within five (5) business days after Tenant has notified Landlord of its second set of objections. In the event Tenant and Landlord do not resolve all of Tenant's objections within such five (5) business day period, Landlord and Tenant shall immediately cause Landlord's architect to meet and confer with Tenant's architect or construction consultant, who shall apply the standards set forth in this Improvement Agreement to resolve Tenant's objections and incorporate such resolution into the Preliminary Interior Plans, which process Landlord and Tenant shall cause to be completed within rive (5) business days after the conclusion of the five (5) business day period referred to in the immediately preceding sentence. B. Development and Approval of Final Interior Plans: Once the ------------------------------------------------- Preliminary Interior Plans have been approved by Landlord and Tenant (including all changes made to resolve Tenant's objections approved by Landlord's architect and Tenant's architect or construction consultant pursuant to subparagraph 4A), Landlord shall complete and submit to Tenant for its approval final working drawings for the Interior Improvements by the due date specified in the Schedule of Performance. Tenant shall approve the final plans for the Interior Improvements or notify Landlord in writing of its specific objections by the due date specified in the Schedule of Performance. If Tenant so objects, the parties shall confer and reach agreement upon final working drawings for the Interior Improvements within five (5) business days after Tenant has notified Landlord of its objections. In the event Tenant and Landlord do not resolve all of Tenant's objections within such five (5) business day period, Landlord and Tenant shall immediately cause Landlord's architect to meet and confer with Tenants architect or construction consultant, who shall apply with standards set forth in the Improvement Agreement to resolve Tenant's objections and incorporate such resolution into the Final Interior Plans, which process Landlord and Tenant shall cause to be completed within five (5) business days after the conclusion of the five (5) business day period referred to in the immediately preceding sentence. The final working drawings so approved by Landlord and Tenant (including all changes made to resolve Tenant's objections approved by Landlord's architect and Tenant's architect or construction consultant) are referred to herein as the "Final Interior Plans". C. Building Permit: As soon as the Final Interior Plans have been --------------- approved by Landlord and Tenant, Landlord shall apply for a building permit for the Interior Improvements, and shall diligently prosecute to completion such approval process. D. Construction Contract: Landlord and Tenant shall cooperate to ---------------------- cause the Interior Improvements to be constructed by a general contractor who is engaged by Landlord in accordance with the procedures set forth in subparagraph 4D (1) hereof. (1) The job of constructing the Interior Improvements shall be offered for "competitive bid", on a fixed price basis, to three (3) general contractors selected by Landlord and approved by Tenant. The construction contract shall be awarded to the bidder submitting the lowest responsive bid for the job. Landlord shall submit to Tenant a list of general contractors acceptable to Landlord to whom the job may be bid, and Tenant shall notify Landlord within three (3) business days after receipt of such list of its objection to any proposed contractor. Tenant's failure to object within such period of time shall be deemed to be its approval of all bidders on the list so submitted by Landlord. If the lowest responsive bid resulting from such competitive bidding process indicates that the Interior Improvement Costs will exceed $511,488.00 Dollars ($12.00 per gross leasable square foot of the Premises), Landlord shall promptly notify Tenant, in writing, to that effect, and Tenant shall have the right to propose modifications to the Final Interior Plans within five (5) business days after Tenant's receipt of Landlord's notice, subject to Landlord's approval of such changes, for the purpose of reducing the Interior Improvement costs. Such revision of the final Interior Plans shall be completed as expeditiously as possible; provided, however, that (i) the job shall nonetheless be awarded to the lowest responsive bidder whose price shall be adjusted based upon the changes requested by Page Four Tenant and approved by Landlord made to the Final Interior Plans; and (ii) if Tenant should choose to exercise its right to modify the final Interior Plans for the purpose of reducing the Interior Improvement costs, any delay resulting from the failure by Tenant to timely exercise its right to do so shall be a delay caused by Tenant for purposes of paragraph 7 hereof. (2) Landlord and Tenant shall use their best efforts to approve the general contractor and all subcontractors so that the construction contract may be executed as soon as possible. E. Commencement of Interior Improvements: On or before the due date -------------------------------------- specified in the Schedule of Performance, Landlord shall commence construction for the Interior Improvements and shall diligently prosecute such construction to completion, using all reasonable efforts to achieve Substantial Completion of the Interior Improvements by the due date specified in the Schedule of Performance. 5. Payment of Interior Improvement Costs: Landlord and Tenant shall have -------------------------------------- the following obligations with respect to the payment of Interior Improvement Costs: A. Landlord shall be obligated to pay an amount equal to the Tenant Improvement Allowance as provided for in Paragraph 2 of the First Addendum To Lease for the Payment of Interior Improvement costs. If the total of Interior Improvement Costs exceeds the amount of Landlord's required contribution, Tenant shall be obligated to pay the entire amount of such excess. To the extent the total of Interior Improvement Costs exceeds the First Level Tenant Improvement Allowance but is less than the Total Tenant Improvement Allowance, Landlord shall pay the amount of such excess, in which event the Base Monthly Rent shall be increased as provided for in Paragraph 3 of the First Addendum To Lease. In no event shall Landlord be obligated to pay for Interior Improvement Costs in excess of the allowances provided for in Paragraph 2 or the First Addendum To Lease. If Tenant becomes obligated to contribute toward paying Interior Improvement Costs pursuant to this subparagraph 5A, then Landlord shall estimate the amount of such excess prior to commencing construction of the Interior Improvements and Tenant shall pay to Landlord a proportionate share of each progress payment due to the general contractor which bears the same relationship to the total amount of the progress payment in question as the amount Tenant is obligated to contribute to the payment of Interior Improvement Costs bears to the total estimated Interior Improvement Costs. Tenant shall pay Tenant's share of any progress payment to Landlord within ten (10) business days after receipt of a statement therefor from landlord. At the time the final accounting is rendered by Landlord pursuant to subparagraph 5C hereof, there shall be an adjustment between Landlord and Tenant such that each shall only be required to contribute to the payment of Interior Improvement Costs in accordance with the obligations set forth in this subparagraph 5A, which adjustment shall be made within ten (10) days after Landlord notifies Tenant of the required adjustment. If Tenant is required to make a payment to Landlord, Tenant shall make such payment even if Tenant elects to audit the statement submitted by Landlord pursuant to subparagraph 5C. In the event Tenant's audit discloses that an overpayment or underpayment was made by Tenant, there shall be an adjustment between Landlord and Tenant as soon as reasonably practicable such that each shall only be required to contribute to the payment of costs in accordance with the obligations set forth in this subparagraph 5A. B. If Tenant fails to pay any amount when due pursuant to this paragraph 5, then (i) Landlord may (but without the obligation to do so) advance such funds on Tenants behalf, and Tenant shall be obligated to reimburse Landlord for the amount of funds so advanced on its behalf, and (ii) Tenant shall be liable for the payment of a late charge and interest in the same manner as if Tenant had failed to pay Base Monthly Rent when due as described in paragraph 3.4 of the Lease. Any amounts paid to Landlord by Tenant pursuant to this subparagraph shall be held by Landlord as Tenant's agent, for disbursal to the general contractor in payment for work costing in excess of Landlord's required contribution. C. When the Interior Improvements are Substantially Completed, Landlord shall submit to Tenant a Final and detailed accounting of all Interior Improvement Costs paid by Landlord, certified as true and correct by Landlord's financial officers. Tenant shall have the right to audit the books, records, and supporting documents of Landlord to the extent necessary to determine the accuracy of such accounting during normal business hours after giving Landlord at least two (2) days prior written notice. Tenant shall bear the cost of such audit, unless such audit discloses that Landlord has overstated the total of such costs by more than two percent Page Five (2%) of the actual amount of such costs, in which event Landlord shall pay the cost of Tenant's audit. Any such audit must be conducted, if at all, within ninety (90) days after Landlord delivers such accounting to Tenant. 6. Changes to Approved Plans: Once the Final Interior Plans have been -------------------------- approved by Landlord and Tenant, neither shall have the right to order extra work or change orders with respect to the construction of the Interior Improvements without the prior written consent of the other. Landlord and Tenant shall be required to approve change orders necessary to address errors and omissions of the architect or any other design professionals, changes required to comply with Laws, and changes required because of unanticipated conditions encountered in the field. All extra work or change orders requested by either Landlord or Tenant shall be made in writing, shall specify any added or reduced cost and/or construction time resulting therefrom, and shall become effective and a part of the Final Interior Plans once approved in writing by both parties. If a change order requested by Tenant results in an increase in the cost of constructing the Interior Improvements, Tenant shall pay the amount of such increase caused by the change order requested by Tenant at the time the change order is approved by both Landlord and Tenant if and to the extent such change order causes the Interior Improvement Costs to exceed Landlord's required contribution thereto described in subparagraph 5A. If a change order results in an increase in the amount of construction time needed by Landlord to complete the Interior Improvements, paragraph 7 hereof may apply. 7. Delay in Completion Caused by Tenant: The parties hereto acknowledge --------------------------------------- that the date on which Tenant's obligation to pay the Base Monthly Rent and the Additional Rent would otherwise commence may be delayed because of (i) Tenant's failure to submit necessary information to Landlord when required, (ii) Tenant's failure to promptly review and approve the plans for the Interior Improvements in accordance with the Schedule for Performance, (iii) ally act by Tenant which interferes with or delays the completion of the plans for the Interior Improvements or Landlord's construction work, (iv) change orders requested by Tenant and approved by Landlord, or (v) special materials or equipment ordered or specified by Tenant that cannot be obtained by Landlord at normal cost within a reasonable period of time because of limited availability. It is the intent of the parties hereto that the commencement of Tenant's obligation to pay the Base Monthly Rent and all Additional Rent not be delayed by any of such causes or by any other act of Tenant, and in the event it is so delayed, Tenant's obligation to pay the Base Monthly Rent and all Additional Rent shall commence as of the date it would otherwise have commenced absent delay caused by Tenant, provided that within a reasonable period of time after learning of the occurrence of the cause of any such delay, Landlord notifies Tenant in writing of the fact that such delay has occurred and the known or anticipated extent of any such delay. 8. Delivery of Possession, Punch List, and Acceptance Agreement: As soon ------------------------------------------------------------- as the Interior Improvements are Substantially Completed, Landlord and Tenant shall together walk through the Premises and inspect all Interior Improvements so completed, using reasonable efforts to discover all uncompleted or defective construction in the Interior Improvements. After such inspection has been completed, each party shall sign an acceptance agreement in the form attached to the Lease as Exhibit "D" which shall (i) include a list of all "punch list" items which the parties agree are to be corrected by Landlord and (ii) shall state the Commencement Date and the initial Base Monthly Rent. As soon as such inspection has been completed and such acceptance agreement executed, Landlord shall deliver possession of the Premises to Tenant. Landlord shall use reasonable efforts to complete and/or repair such "punch list" items within thirty (30) days after executing the acceptance agreement. Landlord shall have no obligation to deliver possession of the Premises to Tenant until such procedures regarding the preparation of a punch list and the execution of the acceptance agreement have been completed. Tenant's taking possession of any part of the Premises shall be deemed to be an acceptance by Tenant of Landlord's work of improvement in such part as complete and in accordance with the terms of the Lease except for the punch list items noted and latent defects that could not reasonable have been discovered by Tenant during its inspection of the Interior Improvements prior to completion of the acceptance agreement, which Landlord upon written receipt to notice of any such latent defect is required promptly to repair at its sole cost and expense. Not withstanding anything contained herein, Tenant's obligation to pay the Base Monthly Rent and Additional Rent shall commence as provided in the Lease, regardless of whether Tenant completes such inspection or executes such acceptance agreement. Page Six 9. Standard of Construction and Warranty: Landlord here by warrants that -------------------------------------- the Interior Improvements shall be constructed substantially in accordance with the Final Interior Plans (as modified by change orders approved by Landlord and Tenant), all Private Restrictions and all Laws, in a good and workmanlike manner, and all materials and equipment furnished shall conform to such final plans and shall be new and otherwise of good quality. The foregoing warranty shall be subject to, and limited by, the following: A. Once Landlord is notified in writing of any breach of the above- described warranty, Landlord shall promptly commence the cure of such breach and complete such cure with diligence at Landlord's sole cost and expense. B. Landlord's liability pursuant to such warranty shall be limited to the cost of correcting the defect or other matter in question. In no event shall Landlord be liable to Tenant for any damages or liability incurred by Tenant as a result or such defect or other matter, including without limitation damages resulting from any loss of business by Tenant or other consequential damages. C. Notwithstanding anything contained herein, Landlord shall not be liable for any defect in design, construction, or equipment furnished which is discovered and of which Landlord receives written notice from Tenant after the First (1st) anniversary of the recordation of a notice of completion for the work of improvement affected by the defect. D. With respect to defects for which Landlord is not responsible pursuant to subparagraph 9C; Tenant shall have the benefit of any construction or equipment warranties existing in favor of Landlord that would assist Tenant in correcting such defect and in discharging its obligations regarding the repair and maintenance of the Premises. Upon request by Tenant, Landlord shall inform Tenant of all written construction and equipment warranties existing in favor of Landlord which affect the Interior Improvements. Landlord shall cooperate with Tenant in enforcing such warranties and in bringing any suit that may be necessary to enforce liability with regard to any defect for which Landlord is not responsible pursuant to this paragraph so long as Tenant pays all costs reasonably incurred by Landlord in so acting. Additionally, during the period of time during which Landlord is soliciting bids from general contractors, Tenant shall have the right to request that Landlord provide to Tenant a list of the general contractor bids that landlord is considering and the warranties that each such contractor is willing to make. Tenant shall have the right to submit to landlord written comments on and suggested changes to such warranties which comments and changes Landlord shall consider. E. Landlord makes no other express or implied warranty with respect to the design, construction or operation of the Interior Improvements except as set that forth in this paragraph. 10. Tenant's Right to Install Trade Fixtures: When the construction of ----------------------------------------- the Interior Improvements has proceeded to the point where Tenant's work of installing its fixtures and equipment in the Premises can be commenced in accordance with good construction practices, Landlord shall notify Tenant to that effect and shall permit Tenant, and its authorized representatives and contractors, to have access to the Premises for the purpose of installing Tenant's trade fixtures and equipment. any such installation work by Tenant, or its authorized representatives and contractors, shall be undertaken at their sole risk, free from rent, and upon the following conditions: A. If the entry into the Premises by Tenant, or its representatives or contractors, interferes with or delays Landlord's construction work, after twenty-four (24) hours notice of such fact to Tenant (i) Tenant shall cause the party responsible for such interference or delay to leave the Premises, or (ii) Tenant shall cause to be taken such steps as may be reasonably necessary in the opinion of the general contractor to alleviate such interference or delay; B. Any contractor used by Tenant in connection with such entry and installation shall be subject to Landlord's approval, which approval shall not be unreasonably withheld; Page Seven C. Tenant's access to the Premises shall be subject to all of the terms and conditions of the Lease except for the obligation to pay Base Rent and Additional Rent. 11. Approvals: Except where otherwise expressly provided herein, wherever --------- this Agreement requires a party to give an approval, consent, designation, selection, determination or judgment, such approval, consent, designation, selection, determination or judgment shall not be unreasonably withheld or delayed. 12. Condition to Landlord's Performance: Landlord's obligations under the ------------------------------------ Lease are subject to the satisfaction or waiver of the condition that Landlord obtain all building permits and other governmental approvals required in order to commence construction of the Interior Improvements by the due dates specified in the Schedule of Performance. If such condition is not satisfied or waived within the applicable time period, Landlord shall have the option of terminating the Lease; provided, however, that Landlord shall have the option to extend the time period for the satisfaction of such condition for a period of up to sixty (60) days to enable Landlord to continue its efforts to cause such condition to be satisfied. If any such option to extend the time for satisfaction of this condition is exercised, (i) Landlord shall continue to use reasonable efforts to cause the condition to be satisfied; (ii) all other time periods contained in the Schedule of Performance which are impacted by such extension shall be appropriately adjusted; and (iii) such extension shall not constitute a delay caused by Tenant pursuant to paragraph 7 hereof, nor shall Landlord in any way be penalized for exercising such option to obtain additional time to cause the condition to be satisfied. If Landlord becomes entitled to and elects to so terminate the Lease, the Lease shall terminate on (he dated notice is so given to Tenant. Landlord shall be under an obligation of good faith to use all reasonable efforts to cause the condition to be satisfied. 13. Effect of Agreement: In the event of any inconsistency between this -------------------- Improvement Agreement and the Lease, the terms of this Improvement Agreement shall prevail. LANDLORD: TENANT: KAIROS, LLC, a California limited liability company QuickLogic Corporation a California corporation By Orchard Moffett Investors, a California general partnership Its Authorized agent By /s/ Anthony S.S. Chan Anthony S.S. Chan By: /s/ Michael J. Biggar VP Finance/Administration Manager Chief Financial Officer ORCHARD MOFFETT INVESTORS, a California general partnership Date June 24, 1996 By /s/ Michael J. Biggar Michael J. Biggar, Manager Date 6/26/96 Exhibit "C" ----------- APPROVED SPECIFICATIONS (To be added at a later date) A EXHIBIT C ACCEPTANCE AGREEMENT THIS ACCEPTANCE AGREEMENT is made as of June 17, 1996 by and between the parties hereto with regard to that Lease dated June 17, 1996 by and between KAIROS, LLC, and Orchard Moffet Investors, a California general partnership corporation ("Landlord") and QuickLogic Corporation, a California corporation ("Tenant"), affecting those Premises commonly known as 1277 Orleans Drive, Sunnyvale, California. The parties hereto agree as follows: 1. All improvements required to be constructed by Landlord by the Lease have been completed in accordance with the terms of the Lease and are hereby accepted by Tenant, subject to the completion of punchlist items identified on Exhibit "A" attached hereto. 2. Possession of the Premises has been delivered to Tenant and Tenant has accepted and taken Possession of the Premises. 3. The Commencement Date of the Lease Term is _____________ and the Lease Term shall expire on __________ unless sooner terminated according to the terms of the Lease or by mutual agreement. 4. The Base Monthly Rent initially due pursuant to the Lease is Forty Two Thousand and Six Hundred Twenty Four Dollars/100 ($42,624.00) per month, subject to any subsequent adjustments required by the Lease. 5. Landlord has received a Security Deposit in the amount of Three Hundred and Forty Two Thousand and Six Hundred Twenty Four Dollars/100 ($342,624.00). In addition, Tenant has prepaid rent in the amount of Forty Two Thousand and Six Hundred Twenty Four Dollars/100 ($42,624.00), which shall be applied to the first installment of Base Monthly Rent. 6. The Lease is in full force and effect, neither party is in default of its obligations under the Lease, and Tenant has no setoffs. claims, or defenses to the enforcement of the Lease. 7. Tenant has received three (3) mailbox keys for Tenants assigned mailbox. Tenant understands that lost keys are Tenant's responsibility and are to be replaced by Tenant at its own expense, and that unreturned keys are subject to a $50.00 per key charge as per the First Addendum to Lease. LANDLORD: TENANT: KAIROS, LLC, a California limited liability company QuickLogic Corporation a California corporation By Orchard Moffett Investors, a California general partnership Its Authorized agent By: ____________________ Anthony S.S. Chan By: __________________________ VP Finance/Administration Michael J. Biggar, Chief Financial Officer Manager ORCHARD MOFFETT INVESTORS, a California general partnership Date June 24, 1996 By: ______________________ Michael J. Biggar, Manager Date: _________________ EXHIBIT D Recording Requested By: TITLE INSURANCE & TRUST COMPANY TS-425904-1 When Recorded, Mail To: PRUDENTIAL INSURANCE COMPANY 155 Moffett Park Drive Building A, Suite 101 Sunnyvale, CA 94086 ATTN Lee Cashion DECLARATION OF PROTECTIVE COVENANTS ----------------------------------- MOFFETT INDUSTRIAL PARK NO. 11 ------------------------------ THIS DECLARATION, made this 5th day of April, 1980 by THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (hereinafter called Prudential), a New Jersey corporation, WITNESSETH: WHEREAS Prudential is the Owner of that certain real property located in the City of Sunnyvale, County of Santa Clara, State of California, described in Exhibit A (hereinafter called Moffett Industrial Park No. 11, and WHEREAS Prudential proposes to subdivide Moffett Industrial Park No. 11 and to subject it to the following restrictions: NOW, THEREFORE, Prudential hereby declares that Moffett Industrial Park No. 11 is and shall be held, conveyed, encumbered, leased and used subject to the following uniform restrictions, covenants and equitable servitudes in furtherance of a plan for the subdivision, improvement and sale thereof and to enhance the value, desirability and attractiveness of Moffett Industrial Park No. 11, the restrictions set forth herein shall run with the real property included within Moffett Industrial Park No. 11 shall be binding upon all persons having or acquiring any interest in such real property or any part thereof, shall inure to the benefit of every portion of Moffett Industrial Park No. 11 and any interest therein and shall inure to the benefit of and be binding upon each successor in interest of Prudential and may be enforced by Prudential or its successors in interest or by any Owner (as defined in Article I below) or his successors in interest. I. GENERAL PROVISIONS --------------------- A. Definitions 1. Architectural Control Committee means Prudential. or any committee which Prudential may appoint by an appropriate instrument recorded with the Santa Clara County Recorder. 2. Lot means each lot shown on the parcel or subdivision map or maps for Moffett Industrial Park No. 11. 3. Site means a parcel consisting either of a Lot, a portion of a Lot, contiguous Lots, or portions of contiguous Lots. 4. "Improvements" means all improvements to a Site including, but without limitations, buildings loading areas, trackage, parking areas, pavement, poles, fences, landscaping, signs and structures of any type. 5. Building means the main portion of any building or similar structure and all projections or extensions thereof, including garages, outside platforms and docks. 6. Owner" means the person or persons, partnership or corporation in whom title to a Site is vested, as shown by the official records of the office of the County Recorder of Santa Clara County. Owner does not mean mortgagees, 2 trustees and beneficiaries of deeds of trust or holders of any indebtedness secured by a mortgage or deed of trust. B. Purposes of Restrictions. The purpose of these covenants, conditions and restrictions is to insure proper development and use of Moffett Industrial Park No. 11, to protect the Owner of each Site against such improper development and use of other Sites as will depreciate the value of his Site, to prevent the erection of structures of unsuitable or inharmonious design or construction, to secure and maintain sufficient setbacks from streets and between structures, to maintain Common Landscaping (as defined in Article V) and in general to provide for a high quality of improvement of Moffett Industrial Park No. 11 in accordance with a general plan. II. REGULATION OF IMPROVEMENTS ------------------------------ A. Minimum Setback Lines. No improvement shall be constructed upon any Site within thirty-five (35) feet of the right-of-way line of any public street. No improvement other than landscaping, paving and fences shall be constructed upon any Site within twenty (20) feet of any other Site. The Architectural Control Committee may approve lesser setback lines if in its opinion a variation would be compatible with the general development of Moffett Industrial Park No. 11. B. Ground Coverage. No more than fifty percent (50%) of the surface of any Site shall be covered with a building or buildings for warehouse use or thirty-five percent (35%) for all other uses. C. Construction Operations. 3 Construction of all improvements shall be expedited so that none shall remain in a partially finished condition any longer than reasonably necessary for the completion thereof. D. Excavation. No excavation shall be made on, and no sand, gravel or soil shall be removed from, any Site, except in connection with the construction of Improvements, and upon completion thereof, exposed openings shall be backfilled, and disturbed ground shall be graded, leveled and paved or landscaped. E. Landscaping. Within ninety (90) days of the occupancy or completion of any Building on a Site, whichever occurs first, such Site shall be landscaped in accordance with plans approved by the Architectural Control Committee. The Owner of the Site shall maintain such landscaping in good order and condition. F. Signs No billboard or advertising signs shall be permitted on any Site other than those approved by the Architectural Control Committee which identify the name, business and products of the person or firm occupying the Site or offer the Site for sale or lease. G. Parking Areas. Each Site shall have facilities for parking sufficient to serve the business conducted thereon without using adjacent streets thereof, and no use shall be made of any Site which would require parking in excess of the parking spaces on the Site. In any event, the number and size of the parking spaces on each 4 F 309 page 45 Site shall conform with all ordinances of the City of Sunnyvale applicable with respect thereto. Parking areas shall be laid out and constructed according to plans approved by the Architectural Control Committee and shall be maintained thereafter in good condition. Except with the approval of the Architectural Control Committee, no parking shall be permitted within thirty-five (35) feet of the right-of-way line of any street. H. Loading Areas. All vehicle loading and unloading in connection with an Owner's business shall be conducted upon his Site, and sufficient space shall be provided therefore. Loading Areas shall be screened from view from streets and adjoining properties by a visual barrier not less than six (6) feet in height. Except with the prior written approval of the Architectural Control Committee, loading areas shall not be located between any building and any street or any closer than seventy-five (75) feet to the right-of- way line of any street. I. Storage Areas. No materials, supplies. equipment or trash containers shall be stored on a Site except inside a building or behind a visual barrier no less than six (6) feet in height or rising two (2) feet above the stored materials, supplies or equipment, whichever is higher, screening such storage areas from view from streets and adjoining Sites. Except with the prior written approval of the Architectural Control Committee, storage areas shall not be located between any building and any street. 5 F 309 page 46 J. Building Regulations. All Buildings shall be constructed and maintained in accordance with the following standards unless an exception is approved in writing by the Architectural Control Committee: 1. Exterior walls shall be of masonry, concrete or approved equal material. 2. Exterior walls shall be painted or otherwise finished in a manner acceptable to the Architectural Control Committee. Exterior walls shall not be repainted or refinished unless and until the Architectural Control Committee shall have approved the color or refinishing materials to be used. 3. All buildings shall be maintained in good order and repair and condition. All exterior painted surfaces shall be maintained in first-class condition and shall be repainted at least once every five (5) years. 4. All electrical, telephone and other utility lines shall be underground and shall not be exposed on the exterior of any Building. 5. All electrical and mechanical apparatus, equipment, fixtures (other than lighting fixtures) conduit, ducts, vents, flues and pipes located on the exterior of any Building shall be concealed from view and shall be architecturally treated in a manner acceptable to the Architectural Control Committee. III. APPROVAL OF PLANS ----------------------- No Improvement shall be erected, placed, altered, maintained or permitted to remain on any Site until plans and specifications showing plot layout and all exterior elevations, with materials and 6 F 309 page 47 colors therefore and structural designs, signs and landscaping shall have been submitted to and approved in writing by the Architectural Control Committee. Such plans and specifications shall be submitted in writing over the signature of the Owner of the Site or his authorized agent. Approval shall be based, among other things, on adquacy of Site dimensions; adquacy of structural design; effect of location and use of improvements on neighboring Sites; improvement operations, and uses; relation of topography, grade, and finished ground elevation of the Site being improved to that of neighboring Sites; proper facing of main elevation with respect to nearby streets; and conformity of the plans and specifications to the purpose and general plan and intent of this Declaration. The Architectural Control Committee shall not arbitrarily or unreasonably withhold its approval of such plans and specifications. If the Architectural Control Committee fails either to approve or disapprove such plans and specifications within thirty (30) days after the same have been submitted to it, it shall be conclusively presumed that the Architectural Control Committee has approved said plans and specifications, subject, however, to the restrictions contained in Articles II and IV hereof. Neither the Architectural Control Committee nor its successors or assigns shall be liable in damages to anyone submitting plans to them for approval, or to any Owner by reason of mistake in judgment, negligence, or nonfeasance arising out of or in connection with the approval or disapproval or failure to approve any such plans. Every person who submits plans to the Architectural 7 F 309 page 48 Control Committee for approval agrees, by submission of such plans, and every Owner agrees, by acquiring title to a Site, that he will not bring any action or suit against the Architectural Control Committee to recover any such damages. IV. REGULATION OF OPERATIONS AND USES -------------------------------------- A. Permitted Operations and Uses. Except as provided in paragraphs B and C below, any industrial use will be permitted on a Site including, but without limitation, manufacturing, processing, storage, wholesale, office, laboratory, professional and research and development. Such retail uses as may be required for the convenience of Owners and their employees shall be permitted and such retail uses may include, but without limitation, restaurants, drug stores, barber and beauty shops, shoe repair shops, cleaners, motels, post offices, banks and automobile service stations. Such municipal, governmental and public utility uses as may be necessary or appropriate shall be permitted. B. Prohibited Operations and Uses. No Site shall be used as a junk yard, stock yard, or slaughter yard or for commercial excavation of building or construction materials, fat rendering or distillation of bones, dumping, disposal, incineration or reduction of garbage, sewage, offal, dead animals or refuse, or the smelting of iron, tin, zinc or other ores or the prospecting or drilling for natural gas, oil or like substances, except with the prior written permission of the Architectural Control Committee, and then only in such manner as will not materially inconvenience other Owners or materially 8 F 309 PAGE 49 depreciate the value of adjacent property. C. Nuisance. No noxious or offensive activity shall be carried on nor shall anything be done on any Site which may be or become an annoyance or nuisance to the Owners or occupants of other Sites or which will be offensive by reason of odor, fumes, dust, dirt, fly-ash, smoke, noise, glare or which will be hazardous by reason of danger of fire or explosion. V. COMMON LANDSCAPING --------------------- The Owner of each Site shall maintain landscaping existing thereon at the time of purchase ("Common Landscaping") in a condition that meets the approval of the Architectural Control Committee. In the event that the Owner of any Site does not maintain Common Landscaping in such condition or the landscaping described in Article II E as therein provided, Prudential or its agents shall have the right to maintain such landscaping in such condition. Prudential or its agents shall have the right at any reasonable time to enter into any Site for the purpose of such maintenance and for such other purposes as are reasonably related thereto. Prudential shall use due diligente and reasonable care in repairing, maintaining and installing Common Landscaping to see that such repair, maintenance and installation does not interfere with the Owner's use of its Site. In the event that Prudential or its agents should undertake any such maintenance on any Site, the Owner thereof shall reimburse Prudential for all of Prudential's costs incurred in such maintenance. In any 9 legal proceeding brought by Prudential to recover such costs, the Owner shall be obligated to pay for the costs and expenses of such proceeding, including reasonable attorneys' fees. VI. ENFORCEMENT ---------------- A. Interpretation. In case of uncertainty as to the meaning of any article , section, subsection, paragraph, sentence, clause, phrase or word of this Declaration the interpretation of Prudential shall be final, conclusive and binding upon all interested parties. B. Abatement and Suit. Violation or breach of any restriction herein contained shall give to Prudential and every Owner the right to enter the property upon or as to which said violation or breach exists and to summarily abate and remove at the expense of the Owner thereof, any structure, thing or condition that may be or exist thereon contrary to the intent and meaning of the provisions hereof, or to prosecute a proceeding at law or in equity against the person or persons who have violated or are attempting to violate any of these restrictions to enjoin or prevent them from doing so, to cause said violation to be remedied or to remover damages for said violation. In any legal or equitable proceeding for the enforcement of this Declaration the losing party or parties shall pay the attorneys' fees of the prevailing party or parties, in such amount as may be fixed by the court in such proceedings. All remedies 10 F 309 page 51 provided herein or at law or in equity shall be cumulative and not exclusive. C. Inspection. Prudential may from time to time at any reasonable hour or hours, enter and inspect any property subject to these restrictions to ascertain compliance therewith. D. Failure to Enforce Not a Waiver of Rights. Except as provided in the last paragraph of Article III hereof, the failure of Prudential or any Owner to enforce any restriction contained herein shall in no event be deemed to be a waiver of the right to do so thereafter nor of the right to enforce any other restriction contained herein. VII. EXTINGUISHMENT, CONTINUATION AND MODIFICATION ---------------------------------------------------- This Declaration, every provision hereof and every covenant, condition and restriction contained herein shall continue in full force and effect for a period of forty (40) years from the date hereof; provided, however, that this Declaration, or any provision hereof, or any covenant, condition or restriction contained herein, may be terminated, extended, modified, or amended with the written consent of the Owners of sixty-five percent (65%) of the land in Moffett Industrial Park No. 11 (exclusive of portions thereof now or hereafter dedicated to public use); provided, further, that so long as Prudential owns at least twenty percent ((20%) of Moffett Industrial Park No. 11, no such termination, extension, modification or amendment shall be effective without the written consent of Prudential. No such termination, extension, modification or amendment shall be effective until a proper instrument in 11 F 309 page 52 Writing has been executed and acknowledged and recorded in the Office of the Recorder of Santa Clara County, California. VIII. MOFFETT INDUSTRIAL PARK NO. 11 OWNERS ASSOCIATION ------------------------------------------------------- A. Membership. Each Owner shall be a member of the Moffett Industrial Park No. 11 Owners Association, an unincorporated association (hereinafter called the Association). B. Transfer of Rights and Duties. The rights and duties of Prudential under this Declaration shall be transferred to and automatically assumed by the Association upon the earliest of the following to occur: 1. The sale of ninety percent (90%) of Moffett industrial Park No. 11 by Prudential to Owners as evidenced by the official records of the Santa Clara County Recorder; or 2. The recordation by Prudential of an appropriate instrument with the Santa Clara County Recorder transferring the rights and duties of Prudential under this Declaration to the Association. C. Organization. The members of the Association may at any time meet and adopt by-laws or rules of procedure to govern the operation of the Association. Until such by-laws or rules of procedure are adopted, meetings of the Association may be called by any member thereof upon seven (7) days written notice to each member setting forth the time and place thereof, provided that 12 F 309 page 53 notice may be waived in writing at any time by any member of members not so notified; twenty-five percent (25%) of the members of the Association shall constitute a quorum; and the Association may by a vote of a majority of its members present at a meeting, duly called, at which a quorum is present or without a meeting by unanimous written consent of its members. IX. ASSIGNABLILITY OF PRUDENTIALS RIGHTS AND DUTIES ---------------------------------------------------- Any and all of the rights, powers and reservations or Prudential herein contained may be assigned to any person, corporation or entity which assumes in writing the duties of Prudential pertaining to the particular rights, powers and reservations assigned, and thereafter to the extent of such assignment, such person, corporation or entity shall have the same rights and powers and be subject to the same obligations and duties as are herein given to and assumed by Prudential. X. CONSTRUCTIVE NOTICE AND ACCEPTANCE ------------------------------------- Every Owner is and shall he conclusively deemed to have consented and agreed to every covenant, condition and restriction contained herein. whether or not any reference to this Declaration is contained in the instrument by which such Owner acquired an interest in any portion of Moffett Industrial Park No. 11 13 F 309 page 54 IN WITNESS WHEREOF, Prudential, the declarant herein, has caused its name to be hereunto subscribed as of the day and year first above written. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA BY: /s/ Lee Cashion Lee Cashion, General Manager, REO STATE OF CALIFORNIA 55. COUNTY OF SANTA CLARA On April 24, 1980 before me, the undersigned, a Notary Public in and for said State, personally appeared Lee Cashion Known to me to be the President, and General Manager, R.E.O. known to me to be Blankline Secretary of the corporation that executed the within Instrument, known to me to be the persons who executed the within Instrument on behalf of the corporation therein named, and acknowledged to me that such corporation executed the within instrument pursuant to its by-laws or a resolution of its board of directors. WITNESS my hand and official seal. [SEAL OMITTED] Signature /s/ Judith L. Vedda Judith L. Vedda F 309 page 55 EXHIBIT "A" ALL THAT CERTAIN REAL PROPERTY IN THE CITY OF SUNNYVALE, COUNTY OF SANTA CLARA, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS: PARCEL ONE All of Parcels B and C, as shown upon that certain map entitled, "Parcel Map being a resubdivision of Parcel 2 as shown on that certain map recorded March 1, 1978, in Book 413 of Maps at Page 54 - Santa Clara County Records", which map was filed for record in the office of the recorder of the County of Santa Clara, State of California, on October 29, 1979, in Book 452 of Maps, at page 32. PARCEL TWO All of Parcel A, as shown upon that certain map entitled, "Parcel Map being a resubdivision of Parcel 3 as shown on map recorded in Book 413 of Maps at page 54 - Santa Clara County Records", which map was filed for record in the office of the recorder of the County of Santa Clara, State of California, on February 23, 1979, in Book 435 of Maps, at page 56. PARCEL THREE All of Parcel 4 and 5, as shown upon that certain map entitled Parcel Map being a resubdivision of Parcel 7 as shown on map recorded in Book 214 of Maps at page 23 - Santa Clara County Records", which map was filed for record in the office of the recorder of the County of Santa Clara, State of California, on March 1, 1978, in Book 413 of Maps, at page 54 PARCEL FOUR All of Parcel A, as shown upon that certain map entitled "Parcel Map being a resubdivision of Parcel 3 as shown on Map recorded in Book 413 of Maps at page 54 - Santa Clara County Records", which map was filed for record in the office of the recorder of the County of Santa Clara, State of California, on February 23, 1978, in Book 435 of maps at page 56: Certificate of Correction dated October 22, 1979, which was filed for record in the office of the recorder of the County of Santa Clara, State of California on October 22, 1979, in Book E891 of maps at page 700. F 309 page 56 THE UNDERSIGNED BEING FEE OWNER TO THAT PROPERTY DESCRIBED IN EXHIBIT B HEREBY ACCEPTS THE ENCUMBRANCE ON SAID PROPERTY CREATED BY THE WITHIN DECLARATION OF PROTECTIVE COVENANTS - MOFFETT INDUSTRIAL PARK NO. 11, DATED APRIL 5, 1980 AND EXECUTED BY PRUDENTIAL INSURANCE COMPANY OF AMERICA. DATE: April 22, 1980 /s/ William L. Marocco William L. Marocco State of California County of SANTA CLARA SS. on APRIL 22, 1980 before me, the undersigned, a Notary Public in and for said State, personally appeared WILLIAM L. MAROCCO known to me to be the person whose name subscribed to the within instrument and acknowledged that HE executed the same. WITNESS my hand and official seal. Signature /s/Janyce M. Webb [SEAL OMITTED] Janyce M. Webb F 309 page 57 EXHIBIT B ALL THAT CERTAIN REAL PROPERTY IN THE CITY OF SUNNYVALE, COUNTY OF SANTA CLARA, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS: All of Parcel A, as shown upon that certain map entitled, Parcel Map being a resubdivision of Parcel 2 as shown on that certain map recorded March 1, 1978, in Book 413 of Maps at Page 54 - Santa Clara County Records, which map was filed for record in the office of the recorder of the County of Santa Clara, State of California, on October 29, 1979, in Book 452 of Maps, at Page 32. ORCHARD INVESTMENT COMPANIES SIGN CRITERIA ------------------------------------------ These criteria have been established for the purpose of assuring an outstanding business complex and for the mutual benefits of all tenants. Conformance will be strictly enforced. and any installed non-conforming or unapproved signs must be brought into conformance at the expense of the tenant. A. GENERAL REQUIREMENTS 1. The Lessee shall submit a sketch of his proposed utilization of the Orchard Properties designated sign to Orchard Properties for written approval. 2. Lessee's sign base and frame shall be constructed by Orchard Properties' agent. The sign base shall be installed by Orchard Properties agent at Lessee's expense. All tenant lettering shall be done by the agent at Lessee's expense. 3. Lessee shall be responsible for the fulfillment of all requirements of these criteria. B. GENERAL SPECIFICATIONS 1 . No electrical or audible signs will be permitted. Internally illuminated signs may be installed by modification of the existing or designated sign base. Final details for modification and installation must be given written approval by the Lessor. 2. If the sign is lighted, the light source for the illumination of the sign shall be concealed from view, and the light source shall not travel from such light source straight to the viewer's eye. Instead, it shall be visible only from a reflecting or diffusing surface. No part of the sign's light shall revolve, rotate, move or create the illusion of same. 3. The sign's dimensions will be in accordance with the established sign program for the building. 4. Placement of the sign and method of attachment will be directed by Orchard Properties. Sign copy will be restricted to company name, logo and address numbers. The style, color and size of the individual company's name may vary 5. Upon the removal of any sign, any damage to the building or sign base must be repaired by the Lessee. 6. Tenants may place gold leaf lettering on the interior window area, not to exceed more than 144 square inches (gross area). The letters are not to exceed 3 inches in height. 7. Except as provided herein. no advertising placards, banners, pennants, names, insignia, trademarks or other description material shall be affixed or maintained upon the glass panes or exterior walls of the building. EXHIBIT F ] SAN JOSE ORCHARD BUSINESS PARK STANDARD DIRECTIONAL SIGN (SHIPPING/RECEIVING) - Alternate [IMAGE OMITTED SAN JOSE ORCHARD BUSINESS PARK STANDARD DIRECTIONAL SIGN [IMAGE OMITTED] ORCHARD PROPERTIES VISITOR PARKING SPACE DESIGNATION Signs designating visitor parking spaces are allowed in parking areas of single user buildings only, and conform to the following criteria: 1. A maximum of 3 inches high and consisting of only the word "Visitor" 2. Painted with a flat white exterior paint. 3. Applied to either the curb or bumpers of the approved designated spaces. 4. Painted by the tenant at tenant's expense but with the prior written approval of Orchard Properties. 5. Repainted a minimum of every three years. 6. Upon request from Orchard Properties, removed at the termination of the lease. No other designated parking signs are acceptable. ORCHARD PROPERTIES REAR MAN DOORS In order to insure uniformity in the printing of company names or receiving and shipping signs on real man doors, we have made the following specifications: 1. The business name is to be the same as the name used on the tenant identification sign. In addition to the names, the words "shipping" and "receiving" and the tenant's logo may be used. 2. The letters will be 2 inches high, black or white and in a specified, uniform style. 3. The proposed sign is to be approved by Orchard Properties prior to installation to insure conformance. SPECIFICATIONS FOR ADDRESS NUMBER ON BUILDINGS 1. Height: 8 2. Color: Contrasting to background of building and matching accent trim on building. 3. Location: Viewable from the street upper corner of building. 4. Example: Orchard building at the corner of Brokaw Road and Zanker Road. 5. Composition: Metal 6. Paint: Primer plus two coats of finish paint. 7. Approval: By Orchard Properties in writing prior to installation. EXHIBIT G --------- SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT THIS AGREEMENT is entered into as of the_____day of____________, ______,by and between ______________________________, a _______________ (the Beneficiary),________________, a ______________________ (the Tenant) and ______________, a _________________ (the Landlord). WITNESSETH A. Tenant has entered into a certain lease dated ________, ____,(the "Lease) with Landlord covering certain space (the "Premises") located in and upon the real property described in Schedule 1 attached hereto (the Property); B. Beneficiary is the holder of a mortgage loan (the "Loan") to Landlord in the amount of ___________________Dollars ($__________) which is secured by a ________________________ (the "Deed of Trust) covering the Property; C. The parties hereto desire expressly to confirm the subordination of the Lease to the lien of the Deed of Trust, it being a requirement by Beneficiary that the lien and charge of the Deed of Trust be unconditionally and at all times prior and superior to the leasehold interests and estates created by the Lease; and D. Tenant has requested that Beneficiary agree not to disturb Tenant's possessory rights in the Premises in the event Beneficiary should foreclose the Deed of Trust, provided that Tenant is not in default under the Lease unit provided that Tenant attorns to Beneficiary or the purchaser at any foreclosure or Trustee's sale of the Property. NOW, THEREFORE, in consideration of the mutual covenants contained herein and of other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. Notwithstanding anything to the contrary set forth in the Lease, the Lease and the leasehold estate created thereby and all of Tenant's rights thereunder shall be and shall at all times remain subject, subordinate in the Deed of Trust and the lien thereof and all rights of Beneficiary thereunder and to any and all renewals, modifications, consolidations, replacements and extensions thereof. 2. Tenant hereby declares, agrees and acknowledges that: A. Beneficiary would not have agreed to recognize the Lease without this Agreement; and B. Beneficiary, in making disbursements pursuant to the agreements evidencing and securing the Loan, is under no obligation or duty to oversee or direct the application of the proceeds of such disbursements and such proceeds may be used by Landlord for purposes other than improvement of the Premises. 3. In the event of foreclosure of the Deed of Trust, or upon a sale of the Property pursuant to the Trustee's power of sale contained therein, or upon a transfer of the Property by deed in lieu of foreclosure, then so long as Tenant is not in default under any of the terms, covenants, or conditions of the Lease, the Lease shall continue in full force and effect as a direct lease between the succeeding owner of the Property and Tenant, upon and subject to all of the terms, covenants and conditions of the Lease for the balance of the term of the Lease. Tenant hereby agrees to attorn to and accept any such successor owner as landlord under the Lease, and to be bound by and perform all of the obligations imposed by the Lease, and Beneficiary or any such successor owner of the Property will not disturb the possession of Tenant, and will be bound by all of the obligations imposed by the Lease upon the landlord thereunder; provided, however, that the Beneficiary, or any purchaser at a trustees or sheriffs sale or any successor owner of the Property shall not be: A. liable for any act or omission of a prior landlord (including Landlord), or B. subject to any offsets or defenses which the Tenant might have against any prior landlord (including Landlord); or EXHIBIT G C. bound by any rent or additional rent which the Tenant might have paid in advance to any prior landlord (including Landlord) for a period in excess of one month; or D. bound by any agreement or modification of the Lease made without the written consent of the Beneficiary; or E. liable or responsible for or with respect to the retention, application and/or return to Tenant of any security deposit paid to any prior lessor (including Landlord), whether or not still held by such prior lessor, unless and until Beneficiary or such other purchaser has actually received for its own account as lessor the full amount of such security deposit; or F. bound by or liable under any representations, warranties, covenants or indemnities made to Tenant by any prior landlord (including Landlord) regarding Hazardous Materials (as defined in the Lease); or G. obligated to construct the building in which the Premises are located or any improvements for Tenant's use. 4. Upon the written request of Beneficiary at the time of a foreclosure, Trustee's sale or deed in lieu thereof or at any time thereafter, the parties agree to execute a lease of the Premises upon the same terms and conditions as the Lease between Landlord and Tenant, which lease shall cover any unexpired term of the Lease existing prior to such foreclosure, Trustee's sale or conveyance in lieu of foreclosure. 5. Tenant agrees to give to Beneficiary, by registered mail, a copy of any notice or statement served upon Landlord. Tenant agrees not to exercise any rights of termination available by virtue of a default unless (i) Landlord shall have failed to cure such default, and (ii) following expiration of the applicable period under the Lease for cure by Landlord of such default. Tenant shall have furnished to Beneficiary notice of Landlord's failure to cure such default and afforded Beneficiary an additional thirty (30) days following receipt of such notice within which to cure such default, or if such default cannot be cured within that time, then such additional time as may be necessary if within such thirty (30) days Beneficiary has commenced and is diligently pursuing the remedies necessary to cure such default (including, but not limited to, commencement of foreclosure proceedings if necessary to effect such cure), in which event such right, if any, as Tenant might otherwise have to terminate the Lease shall not be exercised while such remedies are being so diligently pursued. 6. Landlord, as landlord under the Lease and trustor under the Deed of Trust, agrees for itself and its heirs, successors and assigns, that: (i) this Agreement does not constitute a waiver by Beneficiary of any of its rights under the Deed of Trust, or in any way release Landlord from its obligation to comply with the terms, provisions, conditions, covenants, agreements and clauses of the Deed of Trust; and (ii) the provisions of the Deed of Trust remain in full force and effect and must be complied with by Landlord, if Beneficiary so requires. 7. Tenant acknowledges that it has notice that the Lease and the rent and all other sums due thereunder have been assigned or are to be assigned to Beneficiary as security for the Loan secured by the Deed of Trust. In the event that Beneficiary notifies Tenant of a default under the Deed of Trust and demands that Tenant pay its rent and all other sums due under the Lease to Beneficiary, Tenant agrees that it will honor such demand and pay its rent and all other sums due under the Lease directly to the Beneficiary or as otherwise required pursuant to such notice. 8. All notices hereunder shall be deemed to have been duly given if mailed by United States registered or certified mail, with return receipt requested, postage prepaid, to Beneficiary at the following address (or at such other address as shall be given in writing by Beneficiary to the Tenant) and shall be deemed complete upon any such mailing: ____________________________ ____________________________ ____________________________ ____________________________ Attention:__________________ with a copy to:__________________________ __________________________ __________________________ __________________________ 9. This Agreement supersedes any inconsistent provisions of the Lease. -2- 10. This Agreement shall inure to the benefit of the parties hereto, their successors and permitted assigns; provided however, that in the event of the assignment or transfer of the interest of Beneficiary, all obligations and liabilities of Beneficiary under this Agreement shall terminate, and thereupon all such obligations and liabilities shall be the responsibility of the party to whom Beneficiary's interest is assigned or transferred. 11. Tenant agrees that this Agreement satisfies any condition or requirement in the Lease relating to the granting of a non-disturbance agreement. 12. This Agreement shall be governed by and construed in accordance with the laws of the State of California. IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first set forth above. "Beneficiary: Landlord: ____________________________ _______________________ ____________________________a a _______________________ By:_________________________ By:_______________________ Printed Printed Name:_______________________ Name:____________________ Title:______________________ Title:___________________ "Tenant": ____________________________ a __________________________ By:_________________________ Printed Name:_______________________ Title:______________________ Orchard Plaza 2290 North First Street, Suite 300 San Jose, California 95131 (408) 922-0400 FAX (408) 922-0157 [ORCHARD PROPERTIES LETTERHEAD] TO: PROSPECTIVE TENANT FROM: ORCHARD PROPERTIES SUBJECT: HAZARDOUS MATERIALS QUESTIONNAIRE AS IT RELATES CALIFORNIA HEALTH AND SA DE SECTIONS 25503,5 AND 25503.6 California Health and Safety Code Section 25503.5 requires any business which handles Hazardous Materials in excess of certain limits to establish a business plans for emergency response to a release or threatened release of Hazardous Materials. Health and Safety Code Section 25503.6 specifies that any business which is required under Section 25503.5 to establish and implement a business plan and is located on leased property is required to notify the owner in writing that the business is subject to Section 25503.5 and to provide a copy of the business plan to the owner within five working days after receiving a request from the owner or owners agent for a copy. The purpose of this letter is to request that you either verify that not subject to Health and Safety Code Sections 25503.5 and 25503.6 or that you provide the information required to be provided by those Sections by: 1. Completing the attached acknowledgment; 2. Completing the attached questionnaire; 3. If you are a reporting company, attaching a copy of your hazardous materials management plan. If you have questions as to your own specific requirements, please contact the local fire department to assess your use. Sincerely, ORCHARD PROPERTIES /s/ R. Byron Woodworth R. Byron Woodworth Vice President Marketing EXHIBIT H ACKNOWLEDGMENT THE UNDERSIGNED HEREBY ACKNOWLEDGES THAT IT (Mark One): _____ Does not use any hazardous materials other than minor amounts of reproduction and janitorial chemicals consistent with routine office uses. ( No need to fill out the attached Hazardous Materials Questionnaire.) _____ Does not use hazardous materials in a manner or in a quantity requiring the preparation of a hazardous material management plan or any other documents under California Health and Safety Code Section 25503.5. (Please rill out the attached Hazardous Materials Questionnaire.) _____ Uses only those chemicals identified in the attached questionnaire in accordance with the provisions of the attached hazardous materials management plan, which and has been approved by the Fire Department of the City of _________________ and is in full force and effect. (Please fill out the attached Hazardous Materials Questionnaire and attach copy of your Hazardous Materials Management Plan.) THE UNDERSIGNED FURTHER ACKNOWLEDGES THAT IT HAS COMPLIED IN ALL RESPECTS TO THE PROVISIONS OF LOCAL, STATE AND FEDERAL LAW AND THE HAZARDOUS MATERIALS MANAGEMENT PLAN ATTACHED HERETO IN CONNECTION WITH ITS STORAGE, USE AND DISPOSAL OF HAZARDOUS MATERIALS AND THAT IT HAS DISPOSED OF HAZARDOUS MATERIALS ONLY BY (1) DISCHARGE TO APPROPRIATELY TREATED WASTE TO A PUBLICLY OWNED TREATMENT WORK IN ACCORDANCE WITH A VALID AND ENFORCEABLE WASTE DISCHARGE PERMIT AND (2) DELIVERY OF HAZARDOUS WASTES TO A PROPERLY LICENSED WASTE DISPOSAL AGENT. IN WITNESS WHEREOF, the undersigned, an authorized officer of the aforementioned company has executed this acknowledgment as of the date written below. QuickLogic Corporation (Company Name) a California Corporation By: /s/ Anthony S.S. Chan Anthony S.S. Chan, CFO (Print Name and Title) Date 5-16-95 EPA ID # CAL 000162813 QUICKLOGIC Location Address: 2933 BUNKER HILL LN #100 SAME SANTA CLARA, CA 95054 PERMANENT RECORD - DO NOT DESTROY CALIFORNIA EPA IDENTIFICATION NUMBER This is to acknowledge that a permanent California Environmental Protection Agency Identification (EPA ID) Number has been assigned to your place of business. (Please note EPA ID Number above the location address.) - -------------------------------------------------------------------- An EPA ID Number is assigned to a person or business at a specific site. It is only valid for the location and person or business to which it was assigned. If your business has multiple generation sites, each site must have a number. If you stop handling hazardous waste, change the type or amount of waste you handle, move your business, or change ownership you must notify the Department of Toxic Substances Control immediately. If your business has moved, your EPA ED Number must be canceled. A new number must be obtained for your new location if you continue to produce hazardous waste. This EPA ID Number must be used for all manifesting, recordkeeping, and reporting requirements. Please retain this notice in your files. Department of Toxic Substances Control Hazardous Waste Management Program Generator Information Services Section Telephone (916) 324-1781 California Only Toll-free Number: (800) 618-6942 Operator's Initials fk IMPORTANT INFORMATION CONCERNING HAZARDOUS WASTE TAXES AND FEES Persons required to obtain a federal or state Environmental Protection Agency (EPA) hazardous waste identification number may be responsible for certain taxes and fees imposed by the State of California. If you dispose of on-site or submit for disposal off-site more than 500 lbs. of hazardous waste, you should contact the State Board of Equalization to acquire a hazardous waste tax identification number. If you generate or produce five (5) tons or more of hazardous waste, regardless of the final disposition of the waste you should contact the State Board of Equalization to acquire a hazardous waste tax identification number. The telephone number of the State Board of Equalization Environmental Fees Division is (916) 323-9555. Any correspondence should be mailed to: STATE BOARD OF EQUALIZATION ENVIRONMENTAL FEES DIVISION P.O. BOX 942754 SACRAMENTO, CA 94291-2754 Failure to acquire a hazardous waste tax identification number may result in penalties being assessed against you. Utilization of a waste hauler or a hazardous waste contractor to remove your hazardous waste does not relieve you of a liability for the taxes and fees which result from the generation and/or disposal of your hazardous waste. The taxes and fees referenced above are the Hazardous Substances (Superfund) Tax; Section 25345; the Disposal Fee, Section 25174.6; and the Facility and Generator Fees, Section 25205.2 and 25205.5 of the Health and Safety Code. Federal EPA identification numbers are assigned by the U.S. EPA located in San Francisco, California. Each county has been assigned a different CAS number. This number should be used by all agencies (city, county, and state) with a county that respond to emergencies where there is not an identified generator/responsible party. Appropriate uses of a CAS number by a governmental agency would include response to spills and the discovery of clandestine labs and illegally disposed wastes. To obtain a provisional or permanent state ID number, CAH, CAI, or your counts CAS number, contact DTSCs Telephone Information Center at (916) 324-1781 or, for long distance California callers, (800) 618-6942 between 8:15 and 4:45 Monday through Friday. TYPES OF FEDERAL ID NUMBERS Like California, U.S. EPA issues different types of ID numbers as a means of distinguishing between several broad categories of hazardous waste activities. Following is a brief summary of the categories and prefixes currently used by U.S. EPA: CA/CAD/CAT- Permanent number prefixes, assigned to handlers of 100 kg or more per calendar month of a RCRA HW and/or more than 1 kg per calendar month of acute HW, and any amount of non-RCRA HW. An provisional number assigned to generators that will produce, one-time only, 100 kg or more of a RCRA HW and/or more than 1 kg of acute HW, and any amount of non-RCRA HW. A CAP number is valid for 90 days and may be used more than once during that time period. To obtain a provisional or permanent RCRA ID number, an application must be submitted to U.S. EPA. You may contact U.S. EPA. at (415) 495-1895 to acquire Form 8700-12 (EPA Notification of Regulated Waste Activity) and a set of instructions. Completed applications should be sent to the following address: U.S. EPA Region 9 RCRA Notifications 75 Hawthorne St. (H3-4/PRC) San Francisco, CA 94105 U.S. EPA issues Emergency ID numbers (CAP) over the telephone for situations that pose an imminent threat to public health or the environment. These numbers are obtained by calling the Emergency After-Hours-Hotline at (415) 744-2000. SUMMARY OF ID NUMBERS IN STATE/FEDERAL SYSTEM CAL - State permanent number CAC - State provisional or emergency number 4. Contact the State Board of Equalization at (916) 323-9555 to determine if registration is necessary. (Section 43101 Revenue and Taxation Code.) 5. Inform your County Environmental Health Agency that you are a small quantity generator of hazardous waste. 6. Hazardous waste may be accumulated on-site in containers or tanks for no more than 90 days. THE 90 DAYS BEGINS ON THE DATE THAT THE WASTE FIRST BEGINS TO ACCUMULATE, IF -------------------------------------------------- YOU GENERATE MORE THAN 100 KG IN A CALENDAR MONTH. ------------------------------------------------- NOTE:If you generate 100 KG OR LESS IN A CALENDAR MONTH hazardous waste may be ---------------------------------- accumulated on-site in containers or tanks until a total of 100 kg of hazardous waste or 1 kg of extremely hazardous waste (100 kg = 27 gallons and 1 kg = 1 quart, both based on the density of water) has been accumulated. Once the 100 kg or 1 kg limit is reached, the hazardous waste may be kept on-site for no more than 90 calendar days. THE 90 DAYS BEGINS ------------------ ON THE DATE THE 100 KG OR 1 KG LIMIT REACHED. --------------------------------------------- If hazardous waste is accumulated in containers, a generator must comply with Chapter 15, Article 9 as it applies to interim status facilities. If hazardous waste is accumulated in tanks, a generator must comply with Chapter 15, article 10 as it applies to interim status facilities except for Section 66265.197(c) & 66265.200.. (Chapter 12, Section 66262.34(a)(1), Title 22, CCR) a. The date upon which each period of accumulation begins must be clearly marked and visible for inspection on each container and portable tank. The date the 90-day period begins must be clearly marked and visible for inspection on each container and tank. (Chapter 12, Section 66262.34 (f)(1) & (2), Title 22, CCR) b. While being accumulated on site, each container and tank must be labeled or marked clearly with the words, "Hazardous Waste. (Chapter 12, Section 66262.34 (f)(3), Title 22, CCR) A label must be maintained on all non-stationary containers in which hazardous wastes are stored. Labels must include the following information: 1. Composition and physical state of the waste. 2. Statement or statements which call attention to the particular hazardous properties of the waste (e.g. flammable, reactive, etc.) 3. Name and address of person producing the waste. (Chapter 12. Section 66262.34(f) (1), (2), (3), (A), (B) & (C), Title 22, CCR) b. Comply with DOT requirements for packaging, labeling and marking. (Chapter 12, Section 66262.30, 66262.31, 66262.32 and 66262.33, Title 22, CCR) c. Use the California Hazardous Waste Manifest. Contact the Department of General Services at (916) 574-2200 for information on ordering manifests. (Chapter 12, Section 66262.20(a), Title 22, CCR) d. Ship waste only to hazardous waste facilities approved for your waste type. (Chapter 12, Section 66262.20(b) & (c), Tittle 22 CCR) e. Keep the generator copy of each manifest until a completed copy is returned by the designated facility. Keep each completed manifest received from the designated facility for three (3) years. (Chapter 12, Section 66262-40(a), Title 22, CCR) f Submit to DTSC within 30 days of each shipment, a copy of each manifest used (Chapter 12, Section 66262.23, Title 22, CCR) g. File an Exception Report with DTSC if a copy of the manifest signed by the facility operator is not received within 45 days of the date the waste was accepted by the initial transporter. These reports must be retained for a period of three (3) years. (Chapter 12, Section 66262.42(b), Title 22, CCR) NOTE:For generators of less than 100 kg per month there are certain transportation allowances. Please refer to Section 25163(c) of the Health and Safety Code. 9. Submit a Biennial Report of your hazardous waste activities during odd- numbered years. These reports are due March 1st of even numbered years and must be retained for three (3) years. Even though facilities that generate more than 100 kg per month but less the 1,000 kg per month of a RCRA regulated waste are federally regulated, in some cases they may be exempt from the federal requirement to submit a Biennial Report, but not from state requirements. Waste minimization information must be included in each report. (Chapter 12, Section 66262.41 (a), Title 22, CCR), Section 25244.4 Health and Safest Code.) To: Austin, Ong From: Ann Marie Jones @ QuickLogic Subject: List of chemicals Date: 5/05/95 Time: 2:45p Below is the list of all the chemical based products used in house: Flux-off (liquid) Xerox- Yellow toner premix ) Xerox- Versatec clear dispersant ) US EPA # Xerox- Cyan toner premix/premix plus ) CAL000162813 Xerox- Magenta toner premix ) Xerox- Process black type the type V80 toner premix ) Liquid crystal A Liquid crystal B Markem- 6993 Red 611-C Markem- 4481 White Markem- 4461 Black Markem- ZR Thinner Markem- 500 Cleaner Markem- ZY Thinner Markem- 320 Cleaner Tech Spray- Envi-ro-tech freezer 1672 Rite Off - generation 2'000 Flux clean I need to get one or two MSDS; otherwise, what I have is being reviewed by Sue Swenson with Zee Medical. The SB-198 injury protection plan is current, but training and implementation are the key factors that we are lacking. Ann Marie GENERIC MATERIAL SURVEY SK Customer No. 7-178-02-9428 SK Survey No. 681185 NAME OF BUSINESS: Quicklogic NATURE OF BUSINESS: Manufacturer X Conditionally exempt small quantity generator (CESQG) State CA EPA ID # CAL000162813 MANIFEST ADDRESS Quicklogic 2933 Bunker Hill Ln Santa Clara, CA 95054 8H 85301 Toner W/Isoporaffiric Solvent Generation Amount: 16 gallons per year Name: Ann Marie Jones Title Manufacturing Engineer Signature: /s/ Ann Marie Jones Date 5/16/95 PHONE (408) 787-2000 REP NUMBER 1251 BRANCH NUMBER 7-178-02 CERTIFICATION OF HAZARDOUS WASTE DETERMINATION BY GENERATOR OF HAZARDOUS WASTE California Nonrestricted Wastes 213. Hydrocarbon solvents (benzene, hexane, Stoddard, Etc.) 214. Unspecified solvent mixture Business Name: QuickLogic Print Name: ANN MARIE JONES Title: MANUFACTURING ENGINEER Signature: /s/ Ann Marie Jones Date 5-16-95 Phone: 408-987-2000 EXHIBIT I New Window Construction [GRAPHIC IMAGE OMITTED] [ORCHARD PROPERTIES LETTERHEAD OMITTED] December 10, 1996 Mr. Phil Ong Vice President of Operations QuickLogic Corporation 1277 Orleans Drive Sunnyvale, Ca 95122 RE: Paragraphs 2 and 3 of the First Addendum To Lease dated June 17, 1996 to the Lease dated June 17, 1996 By and Between KAIROS, LLC AND MOFFETT ORCHARD INVESTORS ("Landlord"') and QUICKLOGIC CORPORATION ("Tenant") Affecting Certain Real Property Commonly Known as 1277 Orleans Drive, Sunnyvale, California 95122. Dear Phil: As provided by the above-referenced paragraphs, the Base Monthly Rent for Tenant shall be as follows: Months 1 - 30: $46,396.22 Months 31 - 60: $49,806.14 Months 61 - 84: $52,789.82 This is caused by Tenant's expenditure of $213,120.00 ($5.00 per rentable square foot) in excess of the First Level Tenant Improvement Allowance of $7.00 per rentable square foot. Expenditure of the Second Level TI Allowance of $5.00 per rentable square foot: - ------------------------------------------------------------------------------ $5.00 PSF x $0.0177 increase in rent X 42,624 SF = $3,772.22 per TI Allowance increase in rent Dollar over 84 months
Payment Period Original Base plus Monthly equals New Base Monthly Rent Increase = Monthly Rent Months 1 - 30 $42,624.00 + $3,772.22 = $46,396.22 Months 31 - 60 $46,033.92 + $3,772.22 = $49,806.14 Months 61 - 84 $49,017.60 + $3,772.22 = $52,789.82
Page Two Please acknowledge this change in Base Monthly Rent with an authorized signature below and on the attached Acceptance Agreements. Return one copy of this executed letter and all copies of the Acceptance Agreements (to be signed by us) to me as soon as possible. Again, Orchard Properties welcomes you to our family of Tenants! Sincerely, ORCHARD PROPERTIES /s/ R. Byron Woodworth R. Byron Woodworth Vice President Marketing TENANT'S ACCEPTANCE ------------------- ACCEPTED AND APPROVED this 11th day of December, 1996 QUICKLOGIC CORPORATION - TENANT By: /s/ Signature Unreadable Title: V.P., CFO ACCEPTANCE AGREEMENT THIS ACCEPTANCE AGREEMENT is made as of December 10, 1996 by and between the parties hereto with regard to that Lease dated June 17, 1996 by and between KAIROS, LLC, AND ORCHARD MOFFET INVESTORS, , a California general partnership corporation ("Landlord") and QUICKLOGIC CORPORATION, a California corporation ("Tenant"), affecting those Premises commonly known as 1277 Orleans Drive, Sunnyvale, California. The parties hereto agree as follows: 1. All improvements required to be constructed by Landlord by the Lease have been completed in accordance with the terms of the Lease, and are hereby accepted by Tenant, subject to the completion of punchlist items identified on Exhibit "A" attached hereto. 2. Possession of the Premises has been delivered to Tenant and Tenant has accepted and taken possession of the Premises. 3. The Commencement Date of the Lease Term is November 27, 1996 and the Lease Term shall expire on November 31, 2003 unless sooner terminated according to the terms of the Lease or by mutual agreement. 4. The Base Monthly Rent initially due pursuant to the Lease is Forty Six Thousand Three Hundred Ninety Six Dollars and 22/100 ($46,396.22) per month, subject to any subsequent adjustments required by the Lease. 5. Landlord has received a Security Deposit in the amount of Three Hundred and Forty Two Thousand and Six Hundred Twenty Four Dollars/100 ($342,624.00). In addition, Tenant has prepaid rent in the amount of Forty Two Thousand and Six Hundred Twenty Four Dollars/100 ($42,624.00), which shall be applied to the first installment of Base Monthly Rent. 6. The Lease is in full force and effect, neither party is in default of its obligations under the Lease, and Tenant has no setoffs, claims, or defenses to the enforcement of the LeasE. LANDLORD: TENANT: KAIROS, LLC, a California limited liability company QuickLogic Corporation a California Corporation By Orchard Moffett Investors, a California general partnership, Its authorized agent By: /s/ Vincent McCord [Provide Name] By: /s/ __________________ Michael J. Biggar, Title: Vincent McCord Manager CFO, Vice President ORCHARD MOFFETT INVESTORS, a California general partnership Date December 11, 1996 By /s/ _________________ Michael J. Biggar, Manager Date _______________ EX-10.16 15 BUSINESS LOAN AGREEMENT, AS AMENDED EXHIBIT 10.16 BUSINESS LOAN AGREEMENT ================================================================================ Borrower: QUICKLOGIC CORPORATION Lender: Silicon Valley Bank 2933 Bunker Hill Lane 3000 Lakeside Drive Santa Clara, CA 95054 Santa Clara, CA 95054 =============================================================================== THIS BUSINESS LOAN AGREEMENT between QUICKLOGIC CORPORATION ("Borrower") and Silicon Valley Bank ("Lender") is made and executed on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans and other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement. All such loans and financial accommodations, together with all future loans and financial accommodations from Lender to Borrower, are referred to in this Agreement individually as the "Loan" and collectively as the "Loans." Borrower understands and agrees that: (a) in granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations, warranties, and agreements, as set forth in this Agreement; (b) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender's sole judgment and discretion; and (c) all such Loans shall be and shall remain subject to the following terms and conditions of this Agreement. TERM. This Agreement shall be effective as of August 9, 1995, and shall continue thereafter until all Indebtedness of Borrower to Lender has been performed in full and the parties terminate this Agreement in writing. DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America. Agreement. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time. Borrower. The word "Borrower" means QUICKLOGIC CORPORATION. The word "Borrower" also includes, as applicable, all subsidiaries and affiliates of Borrower as provided below in the paragraph titled "Subsidiaries and Affiliates." CERCLA. The word "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended. Cash Flow. The words "Cash Flow" mean net income after taxes, and exclusive of extraordinary gains and income, plus depreciation and amortization. Collateral. The word "Collateral" means and includes without limitation all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. Debt. The word "Debt" means all of Borrower's liabilities excluding Subordinated Debt. Equipment Loans. The words "Equipment Loans" shall mean and refer to those certain loans estabished the the purpose of financing equipment or refinancing equipment leases, evidenced by two Promissory Notes of even date herewith. ERISA. The word "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. Event of Default. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "EVENTS OF DEFAULT." Grantor. The word "Grantor" means and includes without limitation each and all of the persons or entities granting a Security Interest in any Collateral for the Indebtedness, including without limitation all Borrowers granting such a Security Interest. Guarantor. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with any Indebtedness. Indebtedness. The word "Indebtedness" means and includes without limitation all Loans, together with all other obligations, debts and liabilities of Borrower to Lender, or any one or more of them, as well as all claims by Lender against Borrower, or any one or more of them; whether now or hereafter existing, voluntary or involuntary, due or not due, absolute or contingent, liquidated or unliquidated; whether Borrower may be liable individually or jointly with others; whether Borrower may be obligated as a guarantor, surety, or otherwise; whether recovery upon such Indebtedness may be or hereafter may become barred by any statute of limitations; and whether such Indebtedness may be or hereafter may become otherwise unenforceable. Lender. The word "Lender" means Silicon Valley Bank, its successors and assigns. Line of Credit. The words "Line of Credit" shall mean and refer to that certain revolving loan evidenced by a Promissory Note dated August 9, 1995, in the original principal amount of One Million Dollars ($1,000,000.00). Liquid Assets. The words "Liquid Assets" mean Borrower's cash on hand plus Borrower's receivables. Loan. The word "Loan" or "Loans" means and includes without limitation any and all commercial loans and financial accommodations from Lender to Borrower, whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time. Business Loan Agreement Continued --------- Note. The word "Note" means and includes without limitation Borrower's promissory note or notes, if any, evidencing Borrower's Loan obligations in favor of Lender, as well as any substitute, replacement or refinancing note or notes therefor. Permitted Liens. The words "Permitted Liens" mean: (a) liens and security interests securing Indebtedness owed by Borrower to Lender; (b) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (c) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (d) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled "Indebtedness and Liens"; (e) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (f) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets. Related Documents. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness. Security Agreement. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest. Security Interest. The words "Security Interest" mean and include without limitation any type of collateral security, whether in the form of a lien, charge, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act of 1986 as now or hereafter amended. Subordinated Debt. The words "Subordinated Debt" mean indebtedness and liabilities of Borrower which have been subordinated by written agreement to indebtedness owed by Borrower to Lender in form and substance acceptable to Lender. Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's total assets excluding all intangible assets (i.e., goodwill, trademarks, patents, copyrights, organizational expenses, and similar intangible items, but including leaseholds and leasehold improvements) less total Debt. Working Capital. The words "Working Capital" mean Borrower's current assets, excluding prepaid expenses, less Borrower's current liabilities. CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Loan Advance and each subsequent Loan Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents. Loan Documents. Borrower shall provide to Lender in form satisfactory to Lender the following documents for the Loan: (a) the Note, (b) Security Agreements granting to Lender security interests in the Collateral, (c) Financing Statements perfecting Lender's Security Interests; (d) evidence of insurance as required below; and (e) any other documents required under this Agreement or by Lender or its counsel. Borrower's Authorization. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents, and such other authorizations and other documents and instruments as Lender or its counsel, in their sole discretion, may require. Payment of Fees and Expenses. Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document. Representations and Warranties. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct. No Event of Default. There shall not exist at the time of any advance a condition which would constitute an Event of Default under this Agreement. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of Loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists: Organization. Borrower is a corporation which is duly organized, validly existing, and in good standing under the laws of the state of Borrower's incorporation and is validly existing and in good standing in all states in which Borrower is doing business. Borrower has the full power and authority to own its properties and to transact the businesses in which it is presently engaged or presently proposes to engage. Borrower also is duly qualified as a foreign corporation and is in good standing in all states in which the failure to so qualify would have a material adverse effect on its businesses or financial condition. Authorization. The execution, delivery, and performance of this Agreement and all Related Documents by Borrower, to the extent to be executed, delivered or performed by Borrower, have been duly authorized by all necessary action by Borrower; do not require the consent or approval of any other person, regulatory authority or governmental body; and do not conflict with, result in a violation of, or constitute a default under (a) any provision of its articles of incorporation or organization, or bylaws, or any agreement or other instrument binding upon Borrower or (b) any law, governmental regulation, court decree, or order applicable to Borrower. Financial Information. Each financial statement of Borrower supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements. 2 Business Loan Agreement Continued --------- Legal Effect. This Agreement constitutes, and any instrument or agreement required hereunder to be given by Borrower when delivered will constitute, legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms. Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used, or filed a financing statement under, any other name for at least the last five (5) years. Hazardous Substances. The terms "hazardous waste," "hazardous substance," "disposal," "release," and "threatened release," as used in this Agreement, shall have the same meanings as set forth in the "CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 49 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, Section 25100, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (a) During the period of Borrower's ownership of the properties, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any hazardous waste or substance by any person on, under, about or from any of the properties. (b) Borrower has no knowledge of, or reason to believe that there has been (i) any use, generation, manufacture, storage, treatment, disposal, release, or threatened release of any hazardous waste or substance on, under, about or from the properties by any prior owners or occupants of any of the properties, or (ii) any actual or threatened litigation or claims of any kind by any person relating to such matters. (c) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the properties shall use, generate, manufacture, store, treat, dispose of, or release any hazardous waste or substance on, under, about or from any of the properties; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation those laws, regulations and ordinances described above. Borrower authorizes Lender and its agents to enter upon the properties to make such inspections and tests as Lender may deem appropriate to determine compliance of the properties with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the properties for hazardous waste and hazardous substances. Borrower hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release occurring prior to Borrower's ownership or interest in the properties, whether or not the same was or should have been known to Borrower. The provisions of this section of the Agreement, including the obligation to indemnify, shall survive the payment of the Indebtedness and the termination or expiration of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the properties, whether by foreclosure or otherwise. Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing. Taxes. To the best of Borrower's knowledge, all tax returns and reports of Borrower that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided. Lien Priority. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral. Binding Effect. This Agreement, the Note, all Security Agreements directly or indirectly securing repayment of Borrower's Loan and Note and all of the Related Documents are binding upon Borrower as well as upon Borrower's successors, representatives and assigns, and are legally enforceable in accordance with their respective terms. Commercial Purposes. Borrower intends to use the Loan proceeds solely for business or commercial related purposes. Employee Benefit Plans. Each employee benefit plan as to which Borrower may have any liability complies in all material respects with all applicable requirements of law and regulations, and (i) no Reportable Event nor Prohibited Transaction (as defined in ERISA) has occurred with respect to any such plan, (ii) Borrower has not withdrawn from any such plan or initiated steps to do so, and (iii) no steps have been taken to terminate any such plan. Location of Borrower's Offices and Records. Borrower's place of business, or Borrower's Chief executive office, if Borrower has more than one place of business, is located at 2933 Bunker Hill Lane, Santa Clara, CA 95054. Unless Borrower has designated otherwise in writing this location is also the office or offices where Borrower keeps its records concerning the Collateral. Information. All information heretofore or contemporaneously herewith furnished by Borrower to Lender for the purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all information hereafter furnished by or on behalf of Borrower to Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified; and none of such information is or will be incomplete by omitting to state any material fact necessary to make such information not misleading. Survival of Representations and Warranties. Borrower understands and agrees that Lender, without independent investigation, is relying upon the above representations and warranties in extending Loan Advances to Borrower. Borrower further agrees that the foregoing representations and warranties shall be continuing in nature and shall remain in full force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur. AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while this Agreement is in effect, Borrower will: 3 Business Loan Agreement Continued --------- Litigation. Promptly inform Lender in writing of (a) all material adverse changes in Borrower's financial condition, and (b) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor. Financial Records. Maintain its books and records in accordance with generally accepted accounting principles, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times. Financial Statements. Furnish Lender with, as soon as available, but in no event later than ninety (90) days after the end of each fiscal year, Borrower's balance sheet and income statement for the year ended, audited by a certified public accountant satisfactory to Lender, and, as soon as available, but in no event later than thirty (30) days after the end of each month, Borrower's balance sheet and profit and loss statement for the period ended, prepared and certified as correct to the best knowledge and belief by Borrower's chief financial officer or other officer or person acceptable to Lender. All financial reports required to be provided under this Agreement shall be prepared in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct. Additional Information. Furnish such additional information and statements, lists of assets and liabilities, agings of receivables and payables, inventory schedules, budgets, forecasts, tax returns, and other reports with respect to Borrower's financial condition and business operations as Lender may request from time to time. Financial Covenants and Ratios. Borrower shall maintain, on a monthly basis, a minimum quick ratio of 2.50 to 1.00; a minimum tangible net worth of $7,000,000.00; a maximum total debt minus subordinated debt to tangible net worth plus subordinated debt ratio of 1.00 to 1.00; and a minimum liquidity ratio of 2.00 to 1.00 until such time as Borrower achieves two consecutive quarters of a minimum rolling debt service coverage of 1.50 to 1.00. Furthermore, Borrower shall achieve profitability on a quarterly basis; provided, however, Borrower may incur one loss for the quarter ended June 30, 1995, provided such loss shall not have exceeded $1,250,000.00. For purposes of the foregoing, liquidity covenant shall apply to the Equipment Loans only and shall be defined as cash plus cash equivalents plus availability under the Line of Credit. Aditionally, the quick ratio and debt to worth covenants shall exclude deferred revenue. Except as provided above, all computations made to determine compliance with the requirements contained in this paragraph shall be made in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct. Except as provided above, all computations made to determine compliance with the requirements contained in this paragraph shall be made in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct. Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies reasonably acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days' prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such loss payable or other endorsements as Lender may require. Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (a) the name of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the properties insured; (e) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (f) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower. Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements. Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing. Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (a) the legality of the same shall be contested in good faith by appropriate proceedings, and (b) Borrower shall have established on its books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with generally accepted accounting practices. Borrower, upon demand of Lender, will furnish to Lender evidence of payment of the assessments, taxes, charges, levies, liens and claims and will authorize the appropriate governmental official to deliver to Lender at any time a written statement of any assessments, taxes, charges, levies, liens and claims against Borrower's properties, income, or profits. Performance. Perform and comply with all terms, conditions, and provisions set forth in this Agreement and in the Related Documents in a timely manner, and promptly notify Lender if Borrower learns of the occurrence of any event which constitutes an Event of Default under this Agreement or under any of the Related Documents. Operations. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner and in compliance with all applicable federal, state and municipal laws, ordinances, rules and regulations respecting its properties, charters, businesses and operations, including without limitation, compliance with the Americans With Disabilities Act and with all minimum funding standards and other requirements of ERISA and other laws applicable to Borrower's employee benefit plans. 4 Business Loan Agreement Continued --------- Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense. Compliance Certificate. Unless waived in writing by Lender, provide Lender monthly within thirty (30) days and at the time of each disbursement of Loan proceeds with a certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement. Environmental Compliance and Reports. Borrower shall comply in all respects with all environmental protection federal, state and local laws, statutes, regulations and ordinances; not cause or permit to exist, as a result of an intentional or unintentional action or omission on its part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources. Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests. NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender: Indebtedness and Liens. (a) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (b) except as allowed as a Permitted Lien, sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets, or (c) sell with recourse any of Borrower's accounts, except to Lender. Continuity of Operations. (a) Engage in any business activities substantially different than those in which Borrower is presently engaged, (b) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change ownership, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, (c) pay any dividends on Borrower's stock (other than dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of stock of Borrower, or (d) purchase or retire any of Borrower's outstanding shares or alter or amend Borrower's capital structure. Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money or assets, (b) purchase, create or acquire any interest in any other enterprise or entity, or (c) incur any obligation as surety or guarantor other than in the ordinary course of business. CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (a) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (c) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender. LOAN ADVANCES. Lender, in its discretion, will make loans to Borrower, in amounts determined by Lender, up to the amounts as defined and permitted in this Agreement and Related Documents, including but not limited to any Promissory Notes, executed by Borrower (the "Credit Limit"). Borrower is responsible for monitoring the total amount of Loans and Indebtedness outstanding from time to time, and Borrower shall not permit the same, at any time to exceed the Credit Limit. If at any time the total of all outstanding Loans and Indebtedness exceeds the Credit Limit, Borrower shall immediately pay the amount of the excess to Lender, without notice or demand. DEFAULT RATE. Upon default, including failure to pay upon final maturity, Lender, at its option, may do one or both of the following: (a) increase the variable interest rate on this Note to five percentage points (5.000%) over the Interest Rate otherwise payable thereunder, and (b) add any unpaid accrued interest to principal and such sum will bear interest therefrom until paid at the rate provided in the Note. BORROWING BASE FORMULA. Funds shall be advanced under the Line of Credit according to a borrowing base formula, as determined by Lender, defined as follows: the lesser of (i) $1,000,000.00 or (ii) Seventy percent (70%) of eligible accounts receivable. Eligible accounts receivable shall include, but not be limited to, those accounts outstanding less than 90 days from the date of invoice, excluding foreign, government, contra, and intercompany accounts; and exclude accounts wherein 50% or more of the account is outstanding more than 90 days from the date of invoice. Any account which alone exceeds 25% of total accounts will be ineligible to the extent said account exceeds 25% of total accounts. Also exclude any credit balances which are aged past 90 days. Also ineligible are any accounts which Lender in its sole judgement excludes for valid credit reasons. 5 Business Loan Agreement Continued --------- ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE. Provide to Lender not later than fifteen (15) days after and as of the end of each month, with a Borrowing Base Certificate and aged lists of accounts receivable and accounts payable. Initial and semi-annual accounts receivable audits to be performed by Lender's agent. Borrower's deposit account will be debited for the audit expense and a notification will be mailed to Borrower. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: Default on Indebtedness. Failure of Borrower to make any payment when due on the Loans. Other Defaults. Failure of Borrower or any Grantor to comply with or to perform when due any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents, or failure of Borrower to comply with or to perform any other term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. Default in Favor of Third Parties. Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents. False Statements. Any warranty, representation or statement made or furnished to Lender by or on behalf of Borrower or any Grantor under this Agreement or the Related Documents is false or misleading in any material respect at the time made or furnished, or becomes false or misleading at any time thereafter. Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any Security Agreement to create a valid and perfected Security Interest) at any time and for any reason. Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower, any creditor of any Grantor against any collateral securing the Indebtedness, or by any governmental agency. This includes a garnishment, attachment, or levy on or of any of Borrower's deposit accounts with Lender. Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness. Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower. Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make Loan Advances or disbursements), and, at Lender's option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Applicable Law. This Agreement has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Santa Clara County, the State of California. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other. (Initial Here TA ) This ------ Agreement shall be governed by and construed in accordance with the laws of the State of California. Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. Consent to Loan Participation. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loans to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy it may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loans and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loans irrespective of the failure or insolvency of any holder of any interest 6 Business Loan Agreement Continued --------- in the Loans. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender. Costs and Expenses. Borrower agrees to pay upon demand all of Lender's expenses, including without limitation attorneys' fees, incurred in connection with the preparation, execution, enforcement, modification and collection of this Agreement or in connection with the Loans made pursuant to this Agreement. Lender may pay someone else to help collect the Loans and to enforce this Agreement, and Borrower will pay that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including attorneys' fees for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post- judgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. Notices. All notices required to be given under this Agreement shall be given in writing, may be sent by telefacsimile, and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier or deposited in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Borrower, notice to any Borrower will constitute notice to all Borrowers. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower's current address(es). Severability. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable. Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used herein shall include all subsidiaries and affiliates of Borrower. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any subsidiary or affiliate of Borrower. Successors and Assigns. All covenants and agreements contained by or on behalf of Borrower shall bind its successors and assigns and shall inure to the benefit of Lender, its successors and assigns. Borrower shall not, however, have the right to assign its rights under this Agreement or any interest therein, without the prior written consent of Lender. Survival. All warranties, representations, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement shall be considered to have been relied upon by Lender and will survive the making of the Loan and delivery to Lender of the Related Documents, regardless of any investigation made by Lender or on Lender's behalf. Time Is of the Essence. Time is of the essence in the performance of this Agreement. Waiver. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender's rights or of any obligations of Borrower or of any Grantor as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent in subsequent instances where such consent is required, and in all cases such consent may be granted or withheld in the sole discretion of Lender. BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF AUGUST 9, 1995. BORROWER: QUICKLOGIC CORPORATION By: /s/ TESSY ALBIN ------------------------------ Name: TESSY ALBIN ------------------------------ Title: Director of Finance ------------------------------ LENDER: Silicon Valley Bank By: /s/ D. QUON ------------------------------ Name: D. QUON ------------------------------ Title: V.P./Mgr. ------------------------------ 7 LOAN MODIFICATION AGREEMENT This Loan Modification Agreement is entered into as of May 20, 1996, by and between QuickLogic Corporation ("Borrower") whose address is 2933 Bunker Hill Lane, Santa Clara, CA 95054, and Silicon Valley Bank ("Lender') whose address is 3003 Tasman Drive Santa Clara, CA 95054. 1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be ------------------------------------ owing by Borrower to Lender, Borrower is indebted to Lender pursuant to, among other documents, a Promissory Note, dated August 9, 1995, in the original principal amount of One Million and 00/100 Dollars ($1,000,000.00) (the "Note"). The Note, together with other promissory notes from Borrower to Lender, is governed by the terms of a Business Loan Agreement, dated August 9, 1995, as such agreement may be amended from time to time, between Borrower and Lender (the "Loan Agreement"). Defined terms used but not otherwise defined herein shall have the same meanings as in the Loan Agreement Hereinafter, all indebtedness owing by Borrower to Lender shall be referred to as the "Indebtedness". 2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is ---------------------------------------- secured by a Commercial Security Agreement, dated August 9,1995, and a Collateral Assignment, Patent Mortgage and Security Agreement dated August 9,1995, concurrently being released herein. Hereinafter, the above-described security documents and guaranties, together with all other documents securing repayment of the Indebtedness shall be referred to as the "Security Documents". Hereinafter, the Security Documents, together with all other documents evidencing or securing the Indebtedness shall be referred to as the "Existing Loan Documents" 3. DESCRIPTION OF CHANGE IN TERMS. ------------------------------ A. Waiver of Covenant Default. ------ -- ---------------- 1. Lender hereby waives Borrowers existing default under the Loan Agreement by virtue of Borrowers failure to comply with the quick ratio covenant as of the months ended January 31,1996, February 29, 1996 and March 31, 1996. Lenders waiver of Borrowers compliance of this covenant shall apply only to the foregoing period. Accordingly, for the month ended April 30, 1996, Borrower shall be in compliance with this covenant, as amended herein. Lenders agreement to waive the above-described default (1) in no way shall be deemed an agreement by the Lender to waive Borrowers compliance with the above-described covenant as of all other dates and (2) shall not limit or impair the Lenders right to demand strict performance of this covenant as of all other dates and (3) shall not limit or impair the Lenders right to demand strict performance of all other covenants as of any date. B. Modification(s) to Loan Agreement. --------------------------------- 1. The first paragraph of the section entitled "Financial Covenants and Ratios" is hereby amended in its entirety, to read as follows: Borrower shall maintain, on a monthly basis, beginning with the month ended April 30, 1996, a minimum quick ratio of 1.50 to 1.00; a minimum tangible net worth of $7,000,000.00; a maximum total debt minus subordinated debt to tangible net worth plus subordinated debt ratio of 1.00 to 1.00; and a minimum 1 liquidity ratio of 2.00 to 1.00 until such time as Borrower achieves two consecutive quarters of a minimum rolling debt service coverage of 150 to 1.00. Furthermore, Borrower shall achieve profitability on a quarterly basis. 2. Notwithstanding anything to the contrary contained in the paragraph entitled Financial Statements", Borrower may submit its CPA audited balance sheet and income statement for the fiscal year ended December 31, 1995, by May 31, 1996. 4. CONSISTENT CHANGES. The Existing Loan Documents are hereby ------------------ amended wherever necessary to reflect the changes described above. 5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor ----------------------- signing below) agrees that it has no defenses against the obligations to pay any amounts under the Indebtedness. 6. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor ------------------- signing below) understands and agrees that in modifying the existing Indebtedness, Lender is relying upon Borrowers representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect Lenders agreement to modifications to the existing Indebtedness pursuant to this Loan Modification Agreement in no way shall obligate Lender to make any future modifications to the Indebtedness. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Indebtedness. It is the intention of Lender and Borrower to retain as liable parties all makers and endorsers of Existing Loan Documents, unless the party is expressly released by Lender in writing. No maker, endorser, or guarantor will be released by virtue of this Loan Modification Agreement The terms of this paragraph apply not only to this Loan Modification Agreement, but also to all subsequent loan modification agreements. This Loan Modification Agreement is executed as of the date first written above. BORROWER: LENDER: QUICKLOGIC CORPORATION SILICON VALLEY BANK By: /s/ By: /s/ ____________________________ ____________________________ Name: Name: __________________________ __________________________ Title: Title: _________________________ _________________________ 2 LOAN MODIFICATION AGREEMENT This Loan Modification Agreement is entered into as of June 24, 1996, by and between QuickLogic Corporation ("Borrower') whose address is 2933 Bunker Hill Lane, Santa Clara, CA 95054, and Silicon Valley Bank ("Lender") whose address is 3003 Tasman Drive, Santa Clara, CA 95054. 1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be ------------------------------------ owing by Borrower to Lender, Borrower is indebted to Lender pursuant to, among other documents, a Promissory Note, dated August 9, 1995, in the original principal amount of One Million and 00/100 Dollars ($1,000,000.00) (the "Note"). The Note, together with other promissory notes from Borrower to Lender, is governed by the terms of a Business Loan Agreement, dated August 9,1995, as such agreement may be amended from time to time, between Borrower and Lender (the "Loan Agreement'). Defined terms used but not otherwise defined herein shall have the same meanings as in the Loan Agreement. Hereinafter, all indebtedness owing by Borrower to Lender shall be referred to as the "Indebtedness". 2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is -------------- ---------- --- ---------- secured by a Commercial Security Agreement, dated August 9,1995. Hereinafter, the above-described security documents and guaranties, together with all other documents securing repayment of the Indebtedness shall be referred to as the "Security Documents". Hereinafter, The Security' Documents, together with all other documents evidencing or securing the Indebtedness shall be referred to as the "Existing Loan Documents". 3. DESCRIPTION OF CHANGE IN TERMS. ------------------------------ A. Modification(s) to Loan Agreement --------------------------------- 1. The following paragraph is he hereby incorporated into the Loan Agreement Letter of Credit Sublimit Subject to the terms and conditions of ------------------------- this Agreement, as may be amended from time to time, Lender agrees to issue or cause to be issued under the line of credit standby and commercial letters of credit for the account of Borrower in an aggregate face amount not to exceed $1,000,000.00 minus (i) the then outstanding principal balance of the line of credit (including drawn but unreimbursed letters of credit) and (ii) the face amount of outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit). Each such letter of credit shall have an expiry date of no later than ninety (90) days after the maturity date of the line of credit (as described therein); provided that Borrower's letter of credit reimbursement obligation shall be secured by cash on terms acceptable to Lender at any time after the maturity date if the term of this Agreement is not extended by Lender. All such letters of credit shall be, in form and substance, acceptable to Lender in its sole discretion and shall be. subject to the terms and conditions of Lender's form of application and letter of credit agreement 2. Notwithstanding anything to the contrary contained in the paragraph entitled "Financial Statements', Borrower shall be allowed to provide Lender with its audited balance sheet and income statement for the fiscal year ended December 31, 1995, not later than June 30, 1996. 1 3. The paragraph entitled "Accounts Receivable and Accounts Payable" is hereby amended in part, to read as follows: An annual accounts receivable audit to be performed by Lenders agent Borrower's deposit account will be debited for the audit expense and a notification will be mailed to Borrower. 4. The paragraph entitled "Borrowing Base Formula" is hereby amended in its entirety. to read as follows: Funds shall be advanced under me line of credit according to a borrowing base formula, as determined by Lender on a monthly basis, defined as follows: the lesser of (a) $1,000,000.00 minus the face amount of outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) or (b) the sum of (i) seventy percent (70%) of eligible accounts receivable minus (ii) the face amount of outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit). Eligible accounts receivable shall include, but not be limited to, those accounts outstanding less than 90 days from the date of invoice, excluding foreign, government, contra, and intercompany accounts; and exclude accounts wherein 50% or more of the account is outstanding more than 90 days from the date of invoice. My account which alone exceeds 25% of total accounts will be ineligible to the extent said account exceeds 25% of total accounts. Also exclude any credit balances which are aged past 90 days Also ineligible are any accounts which Lender in its sole judgment excludes for valid credit reasons. 4. CONSISTENT CHANGES. The Existing Loan Documents are hereby ------------------ amended wherever necessary to reflect the changes described above. 5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor ----------------------- signing below) agrees that ft has no defenses against the obligations to pay any amounts under the Indebtedness. 6. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor ------------------- signing below) understands and agrees that in modifying the existing Indebtedness, Lender 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 Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect Lender's agreement to modifications to the existing Indebtedness pursuant to this Loan Modification Agreement in no way shall obligate Lender to make any future modifications to the Indebtedness. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Indebtedness. It is the intention of Lender and Borrower to retain as liable parties all makers and endorsers of Existing Loan Documents, unless the party is expressly released by Lender in writing. No maker, endorser, or guarantor will be released by virtue of this Loan Modification Agreement The terms of this paragraph apply not only to this Loan Modification Agreement but also to all subsequent loan modification agreements. 2 This Loan Modification Agreement is executed as of the date first written above. BORROWER: LENDER: QUICKLOGIC CORPORATION SILICON VALLEY BANK By: /s/ By: /s/ ____________________________ ____________________________ Name: Name __________________________ ____________________________ Title: Title: _________________________ __________________________ 3 EX-10.17 16 LOAN AND SECURITY AGREEMENT, AS AMENDED EXHIBIT 10.17 QUICKLOGIC CORPORATION LOAN AND SECURITY AGREEMENT 1 TABLE OF CONTENTS
Page ---- 1. DEFINITIONS AND CONSTRUCTION......................................... 1 1.1 Definitions.................................................... 1 1.2 Accounting Terms............................................... 6 2. LOAN AND TERMS OF PAYMENT............................................ 6 2.1 Advances....................................................... 6 2.2 Overadvances................................................... 8 2.3 Interest Rates, Payments, and Calculations..................... 8 2.4 Crediting Payments............................................. 8 2.5 Fees........................................................... 9 2.6 Additional Costs............................................... 9 2.7 Term........................................................... 9 3. CONDITIONS OF LOANS.................................................. 10 3.1 Conditions Precedent to Initial Advance........................ 10 3.2 Conditions Precedent to all Advances........................... 10 4. CREATION OF SECURITY INTEREST........................................ 10 4.1 Grant of Security Interest..................................... 10 4.2 Delivery of Additional Documentation Required.................. 10 4.3 Right to Inspect............................................... 11 5. REPRESENTATIONS AND WARRANTIES........................................ 11 5.1 Due Organization and Qualification.............................. 11 5.2 Due Authorization; No Conflict.................................. 11 5.3 No Prior Encumbrances........................................... 11 5.4 Bona Fide Eligible Accounts..................................... 11 5.5 Merchantable Inventory.......................................... 11 5.6 Name; Location of Chief Executive Office........................ 11 5.7 Litigation...................................................... 11 5.8 No Material Adverse Change in Financial Statements.............. 11 5.9 Solvency........................................................ 11 5.10 Regulatory Compliance........................................... 12 5.12 Taxes........................................................... 12 5.13 Subsidiaries.................................................... 12 5.14 Government Consents.............................................. 12 5.15 Full Disclosure.................................................. 12 6. AFFIRMATIVE COVENANTS................................................ 12 6.1 Good Standing.................................................. 12 6.2 Government Compliance.......................................... 13 6.3 Financial Statements, Reports, Certificates.................... 13 6.4 Inventory; Returns............................................. 13 6.5 Taxes.......................................................... 13 6.6 Insurance...................................................... 14 6.7 Principal Depository........................................... 14 6.8 Quick Ratio.................................................... 14 6.9 Minimum Liquidity and Debt Service Coverage.................... 14 6.10 Debt-Net Worth Ratio........................................... 14 6.11 Tangible Net Worth............................................. 14 6.12 Profitability.................................................. 15
2 6.13 Further Assurances............................................ 15 7. NEGATIVE COVENANTS................................................... 15 7.1 Dispositions.................................................. 15 7.2 Change in Business............................................ 15 7.3 Mergers or Acquisitions....................................... 15 7.4 Indebtedness.................................................. 15 7.5 Encumbrances.................................................. 15 7.6 Distributions................................................. 15 7.7 Investments................................................... 15 7.8 Transactions with Affiliates.................................. 15 7.9 Subordinated Debt............................................. 15 7.10 Inventory..................................................... 16 7.11 Compliance.................................................... 16 8. EVENTS OF DEFAULT.................................................... 16 8.1 Payment Default............................................... 16 8.2 Covenant Default.............................................. 16 8.3 Material Adverse Change....................................... 16 8.4 Attachment.................................................... 16 8.5 Insolvency.................................................... 17 8.6 Other Agreements.............................................. 17 8.7 Subordinated Debt............................................. 17 8.8 Judgments..................................................... 17 8.9 Misrepresentations............................................ 17 9. BANK'S RIGHTS AND REMEDIES........................................... 17 9.1 Rights and Remedies........................................... 17 9.2 Power of Attorney............................................. 18 9.3 Accounts Collection........................................... 18 9.4 Bank Expenses................................................. 19 9.5 Bank's Liability for Collateral............................... 19 9.6 Remedies Cumulative........................................... 19 9.7 Demand; Protest............................................... 19 10. NOTICES............................................................. 19 11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.......................... 20 12. GENERAL PROVISIONS.................................................. 20 12.1 Successors and Assigns........................................ 20 12.2 Indemnification............................................... 20 12.3 Time of Essence............................................... 20 12.4 Severability of Provisions.................................... 20 12.5 Amendments in Writing, Integration............................ 20 12.6 Counterparts.................................................. 21 12.7 Survival...................................................... 21 12.8 Confidentiality............................................... 21
3 This LOAN AND SECURITY AGREEMENT is entered into as of August 8, 1996, by and between SILICON VALLEY BANK ("Bank") and QUICKLOGIC CORPORATION ("Borrower"). RECITALS -------- Borrower wishes to obtain credit from time to time from Bank, and Bank desires to extend credit to Borrower. This Agreement sets forth the terms on which Bank will advance credit to Borrower, and Borrower will repay the amounts owing to Bank. AGREEMENT --------- The parties agree as follows: 1. DEFINITIONS AND CONSTRUCTION ---------------------------- 1.1 Definitions. As used in this Agreement, the following terms shall ----------- have the following definitions: "Accounts" means all presently existing and hereafter arising accounts, contract rights, and all other forms of obligations owing to Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower's Books relating to any of the foregoing. "Advance" or "Advances" means an advance under the Revolving Facility. "Affiliate" means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person's senior executive officers, directors, and partners. "Bank Expenses" means all: reasonable costs or expenses (including reasonable attorneys' fees and expenses) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents; and Bank's reasonable attorneys' fees and expenses incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of appeal), whether or not suit is brought. "Borrower's Books" means all of Borrower's books and records including: ledgers; records concerning Borrower's assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information. "Borrowing Base" has the meaning set forth in Section 2.1 hereof. "Business Day" means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized or required to close. "Closing Date" means the date of this Agreement. "Code" means the California Uniform Commercial Code. "Collateral" means the property described on Exhibit A attached --------- hereto. "Committed Line" means Five Million Dollars ($5,000,000), except the Committed Line shall be $3,000,000 until Borrower delivers notice to Bank increasing the Committed Line to $5,000,000. Upon the Initial Public Offering, the Committed Line shall be Six Million Dollars ($6,000,000). "Contingent Obligation" means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, 4 without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term "Contingent Obligation" shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement. "Current Liabilities" means, as of any applicable date, all amounts that should, in accordance with GAAP, be included as current liabilities on the consolidated balance sheet of Borrower and its Subsidiaries, as at such date, plus, to the extent not already included therein, all outstanding Advances made under this Agreement, including all Indebtedness that is payable upon demand or within one year from the date of determination thereof unless such Indebtedness is renewable or extendable at the option of Borrower or any Subsidiary to a date more than one year from the date of determination, but excluding Subordinated Debt. "Daily Balance" means the amount of the Obligations owed at the end of a given day. "Eligible Accounts" means those Accounts that arise in the ordinary course of Borrower's business that comply with all of Borrower's representations and warranties to Bank set forth in Section 5.4; provided, that standards of -------- eligibility may be fixed and revised from time to time by Bank in Bank's reasonable judgment and upon fifteen (15) days written notification thereof to Borrower in accordance with the provisions hereof. Unless otherwise agreed to by Bank, Eligible Accounts shall not include the following: (a) Accounts that the account debtor has failed to pay within ninety (90) days of invoice date; (b) Accounts with respect to an account debtor, fifty percent (50%) of whose Accounts the account debtor has failed to pay within ninety (90) days of invoice date; (c) Accounts with respect to which the account debtor is an officer, employee, or agent of Borrower; (d) Accounts with respect to which goods are placed on consignment, guaranteed sale, sale or return, sale on approval, bill and hold, or other terms by reason of which the payment by the account debtor may be conditional; (e) Accounts with respect to which the account debtor is an Affiliate of Borrower; (f) Accounts with respect to which the account debtor does not have its principal place of business in the United States; (g) Accounts with respect to which the account debtor is the United States or any department, agency, or instrumentality of the United States; (h) Accounts with respect to which Borrower is liable to the account debtor for goods sold or services rendered by the account debtor to Borrower, but only to the extent of any amounts owing to the account debtor against amounts owed to Borrower; (i) Accounts with respect to an account debtor, including Subsidiaries and Affiliates, whose total obligations to Borrower exceed twenty- five percent (25%) of all Accounts, to the extent such obligations exceed the aforementioned percentage, except as approved in writing by Bank, it being acknowledged that the concentration limit for Accounts owing by Solectron Corporation shall be forty percent (40%); (j) Accounts with respect to which the account debtor disputes liability or makes any claim with respect thereto as to which Bank believes, in its reasonable judgment, that there may be a reasonable basis for dispute (but only to the extent of the amount subject to such dispute or claim), or is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business; and 5 (k) Accounts the collection of which Bank reasonably determines to be doubtful. "Equipment" means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest. "ERISA" means the Employment Retirement Income Security Act of 1974, as amended, and the regulations thereunder. "GAAP" means generally accepted accounting principles as in effect from time to time. "Indebtedness" means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations and (d) all Contingent Obligations. "Initial Public Offering" means a sale of Borrower of its equity securities pursuant to a registration statement filed under the Securities Act of 1933, as amended, in which Borrower receives net proceeds of not less than Twenty Million Dollars ($20,000,000). "Insolvency Proceeding" means any proceeding commenced by or against any person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief. "Inventory" means all present and future inventory in which Borrower has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or at any time hereafter owned by or in the custody or possession, actual or constructive, of Borrower, including such inventory as is temporarily out of its custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrower's Books relating to any of the foregoing. "Investment" means any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person. "IRC" means the Internal Revenue Code of 1986, as amended, and the regulations thereunder. "Lien" means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance. "Loan Documents" means, collectively, this Agreement, any note or notes executed by Borrower, and any other agreement entered into between Borrower and Bank in connection with this Agreement, all as amended or extended from time to time. "Material Adverse Effect" means a material adverse effect on (i) the business operations or condition (financial or otherwise) of Borrower and its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the Obligations or otherwise perform its obligations under the Loan Documents. "Maturity Date" means May 7, 2000. "Negotiable Collateral" means all of Borrower's present and future letters of credit of which it is a beneficiary, notes, drafts, instruments, securities, documents of title, and chattel paper, and Borrower's Books relating to any of the foregoing. 6 "Obligations" means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from Borrower to others that Bank may have obtained by assignment or otherwise. "Periodic Payments" means all installments or similar recurring payments that Borrower may now or hereafter become obligated to pay to Bank pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between Borrower and Bank. "Permitted Indebtedness" means: (a) Indebtedness of Borrower in favor of Bank arising under this Agreement or any other Loan Document; (b) Indebtedness existing on the Closing Date and disclosed in the Schedule; (c) Subordinated Debt; and (d) Indebtedness to trade creditors incurred in the ordinary course of business. "Permitted Investment" means: (a) Investments existing on the Closing Date disclosed in the Schedule; and (b) (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one (1) year from the date of acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of creation thereof and currently having the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates of deposit maturing no more than one (1) year from the date of investment therein issued by Bank. "Permitted Liens" means the following: (a) Any Liens existing on the Closing Date and disclosed in the Schedule or arising under this Agreement or the other Loan Documents; (b) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings, provided the same have no priority over any of Bank's -------- security interests; (c) Liens (i) upon or in any equipment acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition of such equipment, or (ii) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so -------- acquired and improvements thereon, and the proceeds of such equipment; (d) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (c) above, provided that any extension, renewal or -------- replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase. "Person" means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency. "Prime Rate" means the variable rate of interest, per annum, most recently announced by Bank, as its "prime rate," whether or not such announced rate is the lowest rate available from Bank. 7 "Quick Assets" means, at any date as of which the amount thereof shall be determined, the consolidated cash, cash-equivalents, accounts receivable and investments, with maturities not to exceed 90 days, of Borrower determined in accordance with GAAP. "Responsible Officer" means each of the Chief Executive Officer, the Chief Financial Officer and the Controller of Borrower. "Revolving Facility" means the facility under which Borrower may request Bank to issue cash advances, as specified in Section 2.1 hereof. "Revolving Maturity Date" means August 7, 1997. "Schedule" means the schedule of exceptions attached hereto. "Subordinated Debt" means any debt incurred by Borrower that is subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank (and identified as being such by Borrower and Bank). "Subsidiary" means any corporation or partnership in which (i) any general partnership interest or (ii) more than 50% of the stock of which by the terms thereof ordinary voting power to elect the Board of Directors, managers or trustees of the entity shall, at the time as of which any determination is being made, be owned by Borrower, either directly or through an Affiliate. "Tangible Net Worth" means at any date as of which the amount thereof shall be determined, the consolidated total assets of Borrower and its Subsidiaries minus, without duplication, (i) the sum of any amounts attributable ----- to (a) goodwill, (b) intangible items such as unamortized debt discount and expense, patents, trade and service marks and names, copyrights and research and development expenses except prepaid expenses, and (c) all reserves not already deducted from assets, and (ii) Total Liabilities. "Total Liabilities" means at any date as of which the amount thereof shall be determined, all obligations that should, in accordance with GAAP be classified as liabilities on the consolidated balance sheet of Borrower, including in any event all Indebtedness, but specifically excluding Subordinated Debt. 1.2 Accounting Terms. All accounting terms not specifically defined ---------------- herein shall be construed in accordance with GAAP and all calculations made hereunder shall be made in accordance with GAAP. When used herein, the terms "financial statements" shall include the notes and schedules thereto. 2. LOAN AND TERMS OF PAYMENT ------------------------- 2.1 Advances. Subject to and upon the terms and conditions of this -------- Agreement, Bank agrees to make Advances to Borrower in an aggregate amount not to exceed the lesser of the Committed Line minus the face amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) or the Borrowing Base minus the face amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit). For purposes of this Agreement, "Borrowing Base" shall mean an amount equal to eighty percent (80%) of Eligible Accounts of account debtors who are not distributors plus seventy percent (70%) of account debtors who are distributors. Subject to the terms and conditions of this Agreement, amounts borrowed pursuant to this Section 2.1 may be repaid and reborrowed at any time prior to the Maturity Date. After the Initial Public Offering, Borrower may request Advances in an aggregate amount not to exceed the Committed Line minus the face amount of all outstanding Letters of Credit (including drawn but reimbursed Letters of Credit). Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission or telephone no later than 3:00 p.m. California time, on the Business Day that the Advance is to be made. Each such notification shall be promptly confirmed by a Payment/Advance Form in substantially the form of Exhibit B hereto. Bank is authorized to make Advances under this Agreement, - --------- based upon instructions received from a Responsible Officer, or without instructions if in Bank's discretion such Advances are necessary to meet Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any telephonic notice given by a person who Bank reasonably believes to be a Responsible Officer, and Borrower shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as a result of such reliance. Bank will credit the amount of Advances made under this Section 2.1 to Borrower's deposit account. 8 The Revolving Facility shall terminate on the Revolving Maturity Date, at which time all Advances under this Section 2.1 shall be immediately due and payable. 2.1.1 Letters of Credit. ----------------- (a) Subject to the terms and conditions of this Agreement, Bank agrees to issue or cause to be issued letters of credit for the account of Borrower in an aggregate face amount not to exceed (i) the lesser of the Committed Line or the Borrowing Base minus (ii) the then outstanding principal balance of the Advances. Notwithstanding the foregoing, after the Initial Public Offering, subject to and upon the terms and conditions of this Agreement, Bank agrees to issue or cause to be issued letters of credit for the account of Borrower in an aggregate face amount not to exceed the Committed Line minus the outstanding principal balance of the Advances. Each such letter of credit shall have an expiry date no later than the Revolving Maturity Date, provided that Borrower's letter of credit reimbursement obligation shall be secured by cash on terms acceptable to Bank at any time after the Revolving Maturity Date if the term of the Revolving Facility is not extended by Bank. All such letters of credit shall be, in form and substance, acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank's form of application and letter of credit agreement. All amounts actually paid by Bank in respect of a letter of credit shall, when paid, constitute an Advance under this Agreement. (b) The obligation of Borrower to immediately reimburse Bank for drawings made under Letters of Credit shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement and such Letters of Credit, under all circumstances whatsoever. Borrower shall indemnify, defend and hold Bank harmless from any loss, cost, expense or liability, including, without limitation, reasonable attorneys' fees, arising out of or in connection with any letters of credit. 2.1.2 Letter of Credit Reimbursement; Reserve. --------------------------------------- (a) Borrower may request that Bank issue a letter of credit payable in a currency other than United States Dollars. If a demand for payment is made under any such letter of credit, Bank shall treat such demand as an advance to Borrower of the equivalent of the amount thereof (plus cable charges) in United States currency at the then prevailing rate of exchange in San Francisco, California, for sales of that other currency for cable transfer to the country of which it is the currency. (b) Upon the issuance of any letter of credit payable in a currency other than United States Dollars, Bank shall create a reserve under the Committed Line for letters of credit against fluctuations in currency exchange rates, in an amount equal to twenty percent (20%) of the face amount of such letter of credit. The amount of such reserve may be amended by Bank from time to time to account for fluctuations in the exchange rate. The availability of funds under the Committed Line shall be reduced by the amount of such reserve for so long as such letter of credit remains outstanding. 2.1.3 Equipment Advances. ------------------- (a) At any time from the date hereof through May 8, 1997, Borrower may from time to time request advances (each an "Equipment Advance" and, collectively, the "Equipment Advances") from Bank in an aggregate principal amount of up to One Million Dollars ($1,000,000). The Equipment Advances shall be used to purchase Equipment approved from time to time by Bank and shall not exceed one hundred percent (100%) of the cost of such Equipment, including installation expense, freight discounts, warranty charges and taxes. Not more than thirty percent (30%) of any Equipment Advance shall be used to purchase or finance software, custom equipment and tenant improvements. (b) Interest shall accrue from the date of each Equipment Advance at the rate specified in Section 2.3(a), and shall be payable monthly on the seventh calendar day of each month for each month through May 8, 1997. The Equipment Advance or Equipment Advances that are outstanding on May 8, 1997 will be payable monthly on the seventh calendar day of each month in thirty-six (36) equal installments of principal, plus accrued interest, beginning on June 7, 1997, and continuing through the Maturity Date, when the entire principal amount and all unpaid interest shall be due and payable. (c) When Borrower desires to obtain an Equipment Advance, Borrower shall notify Bank (which notice shall be irrevocable) by facsimile transmission received no later than 3:00 p.m. California time one (1) Business Day before the day on which the Equipment Advance is to be made. Such notice shall be in substantially the form of Exhibit B. The notice shall be signed by a Responsible --------- Officer and include a copy of the invoice for the Equipment to be financed. 9 2.2 Overadvances. If, at any time or for any reason prior to the ------------ Initial Public Offering, the amount of Obligations owed by Borrower to Bank pursuant to Section 2.1 of this Agreement is greater than the lesser of (i) the Committed Line or (ii) the Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of such excess. 2.3 Interest Rates, Payments, and Calculations. ------------------------------------------ (a) Interest Rate. Except as set forth in Section 2.3(b), any ------------- Advances shall bear interest, on the average Daily Balance, at a rate equal to the Prime Rate, and any Equipment Advances shall bear interest at a rate equal to one quarter of one (0.25) percentage point above the Prime Rate; provided that, upon the Initial Public Offering Borrower may request LIBOR Rate Advances pursuant to the terms of the LIBOR Supplement to Agreement. (b) Default Rate. All Obligations shall bear interest, from and ------------ after the occurrence of an Event of Default, at a rate equal to five (5) percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default. (c) Payments. Interest hereunder shall be due and payable on the -------- eleventh calendar day of each month during the term hereof. Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against any of Borrower's deposit accounts or against the Committed Line, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder. (d) Computation. In the event the Prime Rate is changed from time ----------- to time hereafter, the applicable rate of interest hereunder shall be increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate. All interest chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed. 2.4 Crediting Payments. Prior to the occurrence of an Event of Default, ------------------ Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrower specifies. After the occurrence of an Event of Default, the receipt by Bank of any wire transfer of funds, check, or other item of payment shall be immediately applied to conditionally reduce Obligations, but shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 12:00 noon California time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension. 2.5 Fees. Borrower shall pay to Bank the following: ---- (a) Facility Fee. A Facility Fee equal to One-Quarter of One ------------ Percent of the Committed Line, on a prorated basis, which fee shall be due on the Closing Date and shall be fully earned and nonrefundable; provided Borrower shall pay Bank a Facility Fee equal to One Quarter of One Percent (0.25%), on a prorated basis, of the Committed Line upon the Initial Public Offering. (b) Financial Examination and Appraisal Fees. Bank's customary fees ---------------------------------------- and out-of-pocket expenses for Bank's audits of Borrower's Accounts, and for each appraisal of Collateral and financial analysis and examination of Borrower performed from time to time by Bank or its agents; (c) Bank Expenses. Upon the date hereof, all Bank Expenses incurred ------------- through the Closing Date, including reasonable attorneys' fees and expenses, and, after the date hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as and when they become due. 2.6 Additional Costs. In case any change in any law, regulation, treaty ---------------- or official directive or the interpretation or application thereof by any court or any governmental authority charged with the administration thereof or the compliance with any guideline or request of any central bank or other governmental authority (whether or not having the force of law), in each case after the date of this Agreement: 10 (a) subjects Bank to any tax with respect to payments of principal or interest or any other amounts payable hereunder by Borrower or otherwise with respect to the transactions contemplated hereby (except for taxes on the overall net income of Bank imposed by the United States of America or any political subdivision thereof); (b) imposes, modifies or deems applicable any deposit insurance, reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of, or loans by, Bank; or (c) imposes upon Bank any other condition with respect to its performance under this Agreement, and the result of any of the foregoing is to increase the cost to Bank, reduce the income receivable by Bank or impose any expense upon Bank with respect to any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank the amount of such increase in cost, reduction in income or additional expense as and when such cost, reduction or expense is incurred or determined, upon presentation by Bank of a statement of the amount and setting forth Bank's calculation thereof, all in reasonable detail, which statement shall be deemed true and correct absent manifest error. 2.7 Term. This Agreement shall become effective on the Closing Date ---- and, subject to Section 12.7, shall continue in full force and effect for a term ending on the Maturity Date. Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Advances under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default. Notwithstanding termination, Bank's Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding. 3. CONDITIONS OF LOANS ------------------- 3.1 Conditions Precedent to Initial Advance. The obligation of Bank to --------------------------------------- make the initial Advance is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following: (a) this Agreement; (b) a certificate of the Secretary of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement; (c) financing statement (Forms UCC-1); (d) insurance certificate; (e) payment of the fees and Bank Expenses then due specified in Section 2.5 hereof; and (f) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate. 3.2 Conditions Precedent to all Advances. The obligation of Bank to ------------------------------------ make each Advance, including the initial Advance, is further subject to the following conditions: (a) timely receipt by Bank of the Payment/Advance Form as provided in Section 2.1; and (b) the representations and warranties contained in Section 5 shall be true and correct in all material respects on and as of the date of such Payment/Advance Form and on the effective date of each Advance as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would result from such Advance. The making of each Advance shall be deemed to be a representation and warranty by Borrower on the date of such Advance as to the accuracy of the facts referred to in this Section 3.2(b). 11 4. CREATION OF SECURITY INTEREST ----------------------------- 4.1 Grant of Security Interest. Borrower grants and pledges to Bank -------------------------- a continuing security interest in all presently existing and hereafter acquired or arising Collateral in order to secure prompt repayment of any and all Obligations and in order to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. Such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in Collateral acquired after the date hereof; provided that after the Initial Public Offering, Bank shall release all of the Collateral except Equipment financed with the Equipment Advances and the proceeds thereof. 4.2 Delivery of Additional Documentation Required. Borrower shall --------------------------------------------- from time to time execute and deliver to Bank, at the request of Bank, all Negotiable Collateral, all financing statements and other documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue perfected Bank's security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. 4.3 Right to Inspect. Bank (through any of its officers, employees, ---------------- or agents) shall have the right, upon reasonable prior notice, from time to time during Borrower's usual business hours, to inspect Borrower's Books and to make copies thereof and to check, test, and appraise the Collateral in order to verify Borrower's financial condition or the amount, condition of, or any other matter relating to, the Collateral. 5. REPRESENTATIONS AND WARRANTIES ------------------------------ Borrower represents and warrants as follows: 5.1 Due Organization and Qualification. Borrower and each Subsidiary ---------------------------------- is a corporation duly existing and in good standing under the laws of its state of incorporation and qualified and licensed to do business in, and is in good standing in, any state in which the conduct of its business or its ownership of property requires that it be so qualified. 5.2 Due Authorization; No Conflict. The execution, delivery, and ------------------------------ performance of the Loan Documents are within Borrower's powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower's Articles of Incorporation or Bylaws, nor will they constitute an event of default under any material agreement to which Borrower is a party or by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound, which default could have a Material Adverse Effect. 5.3 No Prior Encumbrances. Borrower has good and indefeasible title --------------------- to the Collateral, free and clear of Liens, except for Permitted Liens. 5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide --------------------------- existing obligations. The property giving rise to such Eligible Accounts has been delivered to the account debtor or to the account debtor's agent for immediate shipment to and unconditional acceptance by the account debtor. Borrower has not received notice of actual or imminent Insolvency Proceeding of any account debtor that is included in any Borrowing Base Certificate as an Eligible Account. 5.5 Merchantable Inventory. All Inventory is in all material respects ---------------------- of good and marketable quality, free from all material defects. 5.6 Name; Location of Chief Executive Office. Borrower has not done ---------------------------------------- business under any name other than that specified on the signature page hereof. The chief executive office of Borrower is located at the address indicated in Section 10 hereof. 5.7 Litigation. Except for the pending patent litigation with Actel ---------- Corporation, there are no actions or proceedings pending by or against Borrower or any Subsidiary before any court or administrative agency in which an adverse decision could have a Material Adverse Effect or a material adverse effect on Borrower's interest or Bank's security interest in the Collateral. Borrower does not have knowledge of any such pending or threatened actions or proceedings. 5.8 No Material Adverse Change in Financial Statements. All -------------------------------------------------- consolidated financial statements related to Borrower and any Subsidiary that have been delivered by Borrower to Bank fairly present in all material respects Borrower's consolidated financial condition as of the date thereof and Borrower's consolidated results of operations for the period then ended. 12 There has not been a material adverse change in the consolidated financial condition of Borrower since the date of the most recent of such financial statements submitted to Bank. 5.9 Solvency. Borrower is solvent and able to pay its debts -------- (including trade debts) as they mature. 5.10 Regulatory Compliance. Borrower and each Subsidiary has met the --------------------- minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. No event has occurred resulting from Borrower's failure to comply with ERISA that is reasonably likely to result in Borrower's incurring any liability that could have a Material Adverse Effect. Borrower is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940. Borrower is not engaged principally, or as one of the important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations G, T and U of the Board of Governors of the Federal Reserve System). Borrower has complied with all the provisions of the Federal Fair Labor Standards Act. Borrower has not violated any statutes, laws, ordinances or rules applicable to it, violation of which could have a Material Adverse Effect. 5.11 Environmental Condition. None of Borrower's or any Subsidiary's ----------------------- properties or assets has ever been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge, by previous owners or operators, in the disposal of, or to produce, store, handle, treat, release, or transport, any hazardous waste or hazardous substance other than in accordance with applicable law; to the best of Borrower's knowledge, none of Borrower's properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute; no lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned by Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal, state or other governmental agency concerning any action or omission by Borrower or any Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste or hazardous substances into the environment. 5.12 Taxes. Borrower and each Subsidiary has filed or caused to be ----- filed all tax returns required to be filed, and has paid, or has made adequate provision for the payment of, all taxes reflected therein. 5.13 Subsidiaries. Borrower does not own any stock, partnership ------------ interest or other equity securities of any Person, except for Permitted Investments. 5.14 Government Consents. Borrower and each Subsidiary has obtained ------------------- all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of Borrower's business as currently conducted. 5.15 Full Disclosure. No representation, warranty or other statement --------------- made by Borrower in any certificate or written statement furnished to Bank contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading. 6. AFFIRMATIVE COVENANTS --------------------- Borrower covenants and agrees that, until payment in full of all outstanding Obligations, and for so long as Bank may have any commitment to make an Advance hereunder, Borrower shall do all of the following: 6.1 Good Standing. Borrower shall maintain its and each of its ------------- Subsidiaries' corporate existence and good standing in its jurisdiction of incorporation and maintain qualification in each jurisdiction in which the failure to so qualify could have a Material Adverse Effect. Borrower shall maintain, and shall cause each of its Subsidiaries to maintain, to the extent consistent with prudent management of Borrower's business, in force all licenses, approvals and agreements, the loss of which could have a Material Adverse Effect. 6.2 Government Compliance. Borrower shall meet, and shall cause each --------------------- Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, noncompliance with which could have a Material Adverse Effect or a material adverse effect on the Collateral or the priority of Bank's Lien on the Collateral. 13 6.3 Financial Statements, Reports, Certificates. Borrower shall ------------------------------------------- deliver to Bank: (a) as soon as available, but in any event within thirty (30) days after the end of each month, a company prepared consolidated balance sheet and income statement covering Borrower's consolidated operations during such period, certified by a Responsible Officer; (b) as soon as available, but in any event within one hundred twenty (120) days after the end of Borrower's fiscal year, audited consolidated financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an unqualified opinion on such financial statements of an independent certified public accounting firm reasonably acceptable to Bank; (c) within five (5) days upon becoming available, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and all reports on Form 10-K and 10-Q filed with the Securities and Exchange Commission; (d) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000) or more; and (e) such budgets, sales projections, operating plans or other financial information as Bank may reasonably request from time to time. Through the date of the Initial Public Offering, within twenty (20) days after the last day of each month in which an Advance is outstanding (and as a condition to Borrower requesting and Advance), Borrower shall deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in substantially the form of Exhibit C hereto, together with aged listings of accounts receivable --------- and accounts payable. Borrower shall deliver to Bank with the monthly financial statements a Compliance Certificate signed by a Responsible Officer in substantially the form of Exhibit D hereto. --------- Bank shall have a right from time to time hereafter to audit Borrower's Accounts at Borrower's expense, every twelve (12) months, and at such times as Bank deems appropriate after an Event of Default has occurred and is continuing. 6.4 Inventory; Returns. Borrower shall keep all Inventory in good and ------------------ marketable condition, free from all material defects. Returns and allowances, if any, as between Borrower and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist at the time of the execution and delivery of this Agreement. Borrower shall promptly notify Bank of all returns and recoveries and of all disputes and claims, where the return, recovery, dispute or claim involves more than Fifty Thousand Dollars ($50,000). 6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to ----- make, due and timely payment or deposit of all material federal, state, and local taxes, assessments, or contributions required of it by law, and will execute and deliver to Bank, on demand, appropriate certificates attesting to the payment or deposit thereof; and Borrower will make, and will cause each Subsidiary to make, timely payment or deposit of all material tax payments and withholding taxes required of it by applicable laws, including, but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Bank with proof satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrower. 6.6 Insurance. --------- (a) Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where Borrower's business is conducted on the date hereof. Borrower shall also maintain insurance relating to Borrower's ownership and use of the Collateral in amounts and of a type that are customary to businesses similar to Borrower's. (b) All such policies of insurance shall be in such form, with such companies, and in such amounts as reasonably satisfactory to Bank. All such policies of property insurance shall contain a lender's loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional loss payee thereof and all liability insurance policies shall show the Bank as an additional insured, and shall specify that the insurer must give at least twenty (20) days notice to Bank before canceling its policy for any reason. Upon Bank's request, Borrower shall deliver to Bank certified copies of such policies of insurance and evidence of the payments of all premiums therefor. All proceeds payable under any such policy shall, at the option of Bank, be payable to Bank to be applied on account of the Obligations. 6.7 Principal Depository. Borrower shall maintain its principal -------------------- depository and operating accounts with Bank. 14 6.8 Quick Ratio. Borrower shall maintain, as of the last day of each ----------- calendar month, a ratio of Quick Assets to Current Liabilities, excluding deferred revenue, of at least 1.0 to 1.0, and a ratio of Quick Assets to Current Liabilities of at least 2.0 to 1.0 after the Initial Public Offering. 6.9 Minimum Liquidity and Debt Service Coverage. Subject to the ------------------------------------------- remainder of this Section, Borrower shall maintain, as of the last day of each of Borrower's fiscal quarters, a minimum Liquidity of two (2) times the amount of outstanding Equipment Advances. "Liquidity" means the sum of (i) cash and cash-equivalents plus (ii) the Borrowing Base minus (iii) the aggregate outstanding Advances as of the measurement date. Notwithstanding the foregoing, from and after the time Borrower achieves a rolling 3-month Debt Service Coverage for two consecutive fiscal quarters of at least 1.50 to 1.00, and for so long as Borrower maintains as of the last day of each fiscal quarter thereafter, a Debt Service Coverage of at least 1.50 to 1.00, Borrower shall not be subject to the minimum required Liquidity set forth above. Debt Service Coverage means, as measured quarterly as of the last day of each fiscal quarter of Borrower, on a consolidated basis determined in accordance with GAAP, the ratio of (a) an amount equal to the sum of (i) net income, plus (ii) depreciation, amortization of intangible assets and other non-cash charges to income, plus (iii) interest to (b) an amount equal to the sum of all scheduled repayments for such quarter (or month, as applicable) and mandatory prepayments of principal on account of long-term debt plus interest. 6.10 Debt-Net Worth Ratio. Borrower shall maintain, as of the last day -------------------- of each calendar month, a ratio of Total Liabilities, excluding deferred revenue, less Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more than 1.0 to 1.0, and a ratio of Total Liabilities less Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more than 0.75 to 1.0 after the Initial Public Offering. 6.11 Tangible Net Worth. Borrower shall maintain, as of the last day ------------------ of each calendar month, a Tangible Net Worth of not less than Six Million, Five Hundred Thousand Dollars ($6,500,000) and, after the Initial Public Offering, not less than Twenty Million Dollars ($20,000,000). 6.12 Profitability. Borrower shall have a minimum net profit of One ------------- Dollar ($1.00) for each fiscal quarter, except that, after the Initial Public Offering, Borrower may suffer a loss in one fiscal quarter, not to exceed One Million Dollars ($1,000,000). 6.13 Further Assurances. At any time and from time to time Borrower ------------------ shall execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement. 7. NEGATIVE COVENANTS ------------------ Borrower covenants and agrees that, so long as any credit hereunder shall be available and until payment in full of the outstanding Obligations or for so long as Bank may have any commitment to make any Advances, Borrower will not do any of the following: 7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose ------------- of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, other than: (i) Transfers of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; or (iii) Transfers of worn-out or obsolete Equipment. 7.2 Change in Business. Engage in any business, or permit any of its ------------------ Subsidiaries to engage in any business, other than the businesses currently engaged in by Borrower and any business substantially similar or related thereto (or incidental thereto), or suffer a material change in Borrower's ownership. Borrower will not, without thirty (30) days prior written notification to Bank, relocate its chief executive office. 7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of ----------------------- its Subsidiaries to merge or consolidate, with or into any other business organization, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person. 7.4 Indebtedness. Create, incur, assume or be or remain liable with ------------ respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness. 15 7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien ------------ with respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens. 7.6 Distributions. Pay any dividends or make any other distribution ------------- or payment on account of or in redemption, retirement or purchase of any capital stock. 7.7 Investments. Directly or indirectly acquire or own, or make any ----------- Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments. 7.8 Transactions with Affiliates. Directly or indirectly enter into ---------------------------- or permit to exist any material transaction with any Affiliate of Borrower except for transactions that are in the ordinary course of Borrower's business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm's length transaction with a nonaffiliated Person. 7.9 Subordinated Debt. Make any payment in respect of any ----------------- Subordinated Debt, or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated Debt, or amend any provision contained in any documentation relating to the Subordinated Debt without Bank's prior written consent. 7.10 Inventory. Store the Inventory with a bailee, warehouseman, or --------- similar party unless Bank has received a pledge of the warehouse receipt covering such Inventory. Except for Inventory sold in the ordinary course of business and except for such other locations as Bank may approve in writing, Borrower shall keep the Inventory only at the location set forth in Section 10 hereof and such other locations of which Borrower gives Bank prior written notice and as to which Borrower signs and files a financing statement where needed to perfect Bank's security interest. 7.11 Compliance. Become an "investment company" controlled by an ---------- "investment company," within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Advance for such purpose. Fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the Federal Fair Labor Standards Act or violate any law or regulation, which violation could have a Material Adverse Effect or a material adverse effect on the Collateral or the priority of Bank's Lien on the Collateral, or permit any of its Subsidiaries to do any of the foregoing. 8. EVENTS OF DEFAULT ----------------- Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement: 8.1 Payment Default. If Borrower fails to pay the principal of, or --------------- any interest on, any Advances when due and payable; or fails to pay any portion of any other Obligations not constituting such principal or interest, including without limitation Bank Expenses, within thirty (30) days of receipt by Borrower of an invoice for such other Obligations; 8.2 Covenant Default. If Borrower fails to perform any obligation ---------------- under Sections 6.7, 6.8, 6.9, 6.10, 6.11 or 6.12 or violates any of the covenants contained in Article 7 of this Agreement, or fails or neglects to perform, keep, or observe any other material term, provision, condition, covenant, or agreement contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Bank and as to any default under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure such default within ten (10) days after Borrower receives notice thereof or any officer of Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default (provided that no Advances will be required to be made during such cure period); 8.3 Material Adverse Change. If there occurs a material adverse ----------------------- change in Borrower's business or financial condition, or if there is a material impairment of the prospect of repayment of any portion of the Obligations or a material impairment of the value or priority of Bank's security interests in the Collateral; 16 8.4 Attachment. If any material portion of Borrower's assets is ---------- attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within ten (10) days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower's assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of Borrower's assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within ten (10) days after Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower (provided that no Advances will be required to be made during such cure period); 8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency ---------- Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced against Borrower and is not dismissed or stayed within ten (10) days (provided that no Advances will be made prior to the dismissal of such Insolvency Proceeding); 8.6 Other Agreements. If there is a default in any agreement to which ---------------- Borrower is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of One Hundred Thousand Dollars ($100,000) or that could have a Material Adverse Effect; 8.7 Subordinated Debt. If Borrower makes any payment on account of ----------------- Subordinated Debt, except to the extent such payment is allowed under any subordination agreement entered into with Bank; 8.8 Judgments. If a judgment or judgments for the payment of money --------- in an amount, individually or in the aggregate, of at least One Hundred Fifty Thousand Dollars ($150,000) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days (provided that no Advances will be made prior to the satisfaction or stay of such judgment); or 8.9 Misrepresentations. If any material misrepresentation or material ------------------ misstatement exists now or hereafter in any warranty or representation set forth herein or in any certificate delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement or any other Loan Document. 9. BANK'S RIGHTS AND REMEDIES -------------------------- 9.1 Rights and Remedies. Upon the occurrence and during the ------------------- continuance of an Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower: (a) Declare all Obligations, whether evidenced by this Agreement, by any of the that upon the occurrence of an Event of Default described in Section 8.5 other Loan Documents, or otherwise, immediately due and payable (provided all Obligations shall become immediately due and payable without any action by Bank); (b) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement or under any other agreement between Borrower and Bank; (c) Demand that Borrower (i) deposit cash with Bank in an amount equal to the amount of any Letters of Credit remaining undrawn, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance all Letters of Credit fees scheduled to be paid or payable over the remaining term of the Letters of Credit; (d) Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable; (e) Without notice to or demand upon Borrower, make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or 17 compromise any encumbrance, charge, or lien which in Bank's determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrower's owned premises, Borrower hereby grants Bank a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Bank's rights or remedies provided herein, at law, in equity, or otherwise; (f) Without notice to Borrower set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Bank; (g) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank's exercise of its rights under this Section 9.1, Borrower's rights under all licenses and all franchise agreements shall inure to Bank's benefit; (h) Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower's premises) as Bank determines is commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Bank deems appropriate; (i) Bank may credit bid and purchase at any public sale; and (j) Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower. 9.2 Power of Attorney. Effective only upon the occurrence and during ----------------- the continuance of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of Bank's designated officers, or employees) as Borrower's true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Bank's security interest in the Accounts; (b) endorse Borrower's name on any checks or other forms of payment or security that may come into Bank's possession; (c) sign Borrower's name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) make, settle, and adjust all claims under and decisions with respect to Borrower's policies of insurance; and (e) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; provided Bank may exercise such power of attorney to sign the name of Borrower on any of the documents described in Section 4.2 regardless of whether an Event of Default has occurred. The appointment of Bank as Borrower's attorney in fact, and each and every one of Bank's rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank's obligation to provide advances hereunder is terminated. 9.3 Accounts Collection. At any time from the date of this ------------------- Agreement, Bank may notify any Person owing funds to Borrower of Bank's security interest in such funds and verify the amount of such Account. Borrower shall collect all amounts owing to Borrower for Bank, receive in trust all payments as Bank's trustee, and immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements for deposit. 9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish ------------- any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following: (a) make payment of the same or any part thereof; (b) set up such reserves under the Revolving Facility as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.6 of this Agreement, and take any action with respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement. 9.5 Bank's Liability for Collateral. So long as Bank complies with ------------------------------- reasonable banking practices, Bank shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, 18 warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower. 9.6 Remedies Cumulative. Bank's rights and remedies under this ------------------- Agreement, the Loan Documents, and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given. 9.7 Demand; Protest. Borrower waives demand, protest, notice of --------------- protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Bank on which Borrower may in any way be liable. 10. NOTICES ------- Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery service, certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses set forth below: If to Borrower: QuickLogic Corporation 2933 Bunker Hill Lane 100A Santa Clara, CA 95054 Attn: Chief Financial Officer FAX: (408) 987-2012 If to Bank: Silicon Valley Bank 3003 Tasman Drive Santa Clara, CA 95054 Attn: FAX: The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other. 11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER ------------------------------------------ This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive jurisdiction of the state and Federal courts located in the County of Santa Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. 12. GENERAL PROVISIONS ------------------ 12.1 Successors and Assigns. This Agreement shall bind and ---------------------- inure to the benefit of the respective successors and permitted assigns of each of the parties; provided, however, that neither this Agreement nor any rights -------- ------- hereunder may be assigned by Borrower without Bank's prior written consent, which consent may be granted or withheld in Bank's sole discretion Bank shall 19 have the right without the consent of or notice to Borrower to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank's obligations, rights and benefits hereunder. 12.2 Indemnification. Borrower shall defend, indemnify and hold --------------- harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank as a result of or in any way arising out of, following, or consequential to transactions between Bank and Borrower whether under this Agreement, or otherwise (including without limitation reasonable attorneys fees and expenses), except for losses caused by Bank's gross negligence or willful misconduct. 12.3 Time of Essence. Time is of the essence for the performance --------------- of all obligations set forth in this Agreement. 12.4 Severability of Provisions. Each provision of this Agreement -------------------------- shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 12.5 Amendments in Writing, Integration. This Agreement cannot be ---------------------------------- amended or terminated orally. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement, if any, are merged into this Agreement and the Loan Documents. 12.6 Counterparts. This Agreement may be executed in any number ------------ of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. 12.7 Survival. All covenants, representations and warranties made -------- in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding. The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 12.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run. 12.8 Confidentiality. In handling any confidential information --------------- Bank shall exercise the same degree of care that it exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the subsidiaries or affiliates of Bank in connection with their present or prospective business relations with Borrower, (ii) to prospective transferees or purchasers of any interest in the Loans, provided that they have entered into a comparable confidentiality agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) as may be required in connection with the examination, audit or similar investigation of Bank and (v) as Bank may determine in connection with the enforcement of any remedies hereunder. Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of Bank when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not have actual knowledge that such third party is prohibited from disclosing such information. 20 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. QUICKLOGIC CORPORATION By: /s/ ---------------------------------- Title: ------------------------------- SILICON VALLEY BANK By: /s/ ---------------------------------- Title: ------------------------------- 21 EXHIBIT A --------- The Collateral shall consist of all right, title and interest of Borrower in and to the following: 13. All goods and equipment now owned or hereafter acquired, including, without limitation, all machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located; 14. All inventory, now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products including such inventory as is temporarily out of Borrower's custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrower's Books relating to any of the foregoing; 15. All contract rights and general intangibles now owned or hereafter acquired; 16. All now existing and hereafter arising accounts, contract rights, royalties, license rights and all other forms of obligations owing to Borrower arising out of the sale or lease of goods, the licensing of technology or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower's Books relating to any of the foregoing; 17. All documents, cash, deposit accounts, securities, letters of credit, certificates of deposit, instruments and chattel paper now owned or hereafter acquired and Borrower's Books relating to the foregoing; and 18. Any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof. Notwithstanding the foregoing, the Collateral shall not include trademarks, servicemarks, trade styles, trade names, patents, patent applications, leases, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, computer programs, computer discs, computer tapes, copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished, now owned or hereafter acquired; all trade secret rights, including all rights to unpatented inventions, know- how, operating manuals, license rights and agreements and confidential information, now owned or hereafter acquired; all mask work or similar rights available for the protection of semiconductor chips, now owned or hereafter acquired; all claims for damages by way of any past, present and future infringement of any of the foregoing. 22 EXHIBIT B --------- LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T. TO: CENTRAL CLIENT SERVICE DIVISION DATE: FAX#: (408) 496-2426 TIME: - -------------------------------------------------------------------------------- FROM: ________________________________________________________________________ CLIENT NAME (BORROWER) REQUESTED BY: ________________________________________________________________ AUTHORIZED SIGNER'S NAME AUTHORIZED SIGNATURE: ________________________________________________________ PHONE NUMBER: ________________________________________________________________ FROM ACCOUNT # TO ACCOUNT # ____________________ ____________________________ REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT - -------------------------- --------------------- PRINCIPAL INCREASE (ADVANCE) $____________________ PRINCIPAL PAYMENT (ONLY) $____________________ INTEREST PAYMENT (ONLY) $____________________ PRINCIPAL AND INTEREST (PAYMENT) $____________________ OTHER INSTRUCTIONS: __________________________________________________________ _____________________________________________________________________________ All representations and warranties of Borrower stated in the Loan Agreement are true, correct and complete in all material respects as of the date of the telephone request for and Advance confirmed by this Borrowing Certificate; provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date. - -------------------------------------------------------------------------------- BANK USE ONLY TELEPHONE REQUEST: - ------------------ The following person is authorized to request the loan payment transfer/loan advance on the advance designated account and is known to me. ___________________________ ____________________________ Authorized Requester Phone # ____________________________ ____________________________ Received By (Bank) Phone # _____________________________________ Authorized Signature (Bank) - -------------------------------------------------------------------------------- 23 EXHIBIT C BORROWING BASE CERTIFICATE (Pre-Initial Public Offering) Borrower: QuickLogic Corporation Lender: Silicon Valley Bank Commitment Amount: $5,000,000 (capped at $3,000,000 pending notice) ACCOUNTS RECEIVABLE 1. Accounts Receivable Book Value as of ____ $___________ 2. Additions (please explain on reverse) $___________ 3. TOTAL ACCOUNTS RECEIVABLE $___________ ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication) 4. Amounts over 90 days due $_____________ 5. Balance of 50% over 90 day accounts $___________ 6. Concentration Limits $___________ 7. Foreign Accounts $_____________ 8. Governmental Accounts $_____________ 9. Contra Accounts $_____________ 10. Promotion or Demo Accounts $___________ 11. Intercompany/Employee Accounts $_____________ 12. Other (please explain on reverse) $_____________ 13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $___________ 14. Eligible Accounts (#3 minus #13) $___________ 15. LOAN VALUE OF NON-DISTRIBUTOR ACCOUNTS (80% of #14) $___________ 16. Eligible Distributor Accounts $___________ 17. LOAN VALUE OF DISTRIBUTOR ACCOUNTS (70% of #16) $___________ 18. LOAN VALUE OF ACCOUNTS (#15 plus #17) $___________ BALANCES 19. Maximum Loan Amount $__________ 20. Total Funds Available [Lesser of #18 or #19)] $___________ 21. Present balance owing on Line of Credit $___________ 22. Outstanding under Sublimits ( ) $__________ 23. RESERVE POSITION (#20 minus #21 and #22) $___________
The undersigned represents and warrants that the foregoing is true, complete and correct, and that the information reflected in this Borrowing Base Certificate complies with the representations and warranties set forth in the Loan and Security Agreement between the undersigned and Silicon Valley Bank. COMMENTS: QuickLogic Corporation By: Authorized Signer 24 EXHIBIT D COMPLIANCE CERTIFICATE TO: SILICON VALLEY BANK FROM: QUICKLOGIC CORPORATION The undersigned authorized officer of QuickLogic Corporation hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for the period ending with all required ----------- covenants except as noted below and (ii) all representations and warranties of Borrower stated in the Agreement are true and correct in all material respects as of the date hereof. Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes. Please indicate compliance status by circling Yes/No under "Complies" column.
Reporting Covenant Required Complies - ------------------ -------- -------- Monthly financial statements Monthly within 30 days Yes No Annual (CPA Audited) FYE within 120 days Yes No A/R & A/P Agings Monthly within 20 days when borrowing Yes No A/R Audit Initial and Annual Yes No Financial Covenant Required Actual Complies - ------------------ -------- ------ -------- Maintain on a Monthly Basis: Minimum Quick Ratio 1.0:1.0/2.0:1.01/1/ _____:1.0 Yes No Minimum Tangible Net Worth $6,500,000/$20,000,000/1/ $________ Yes No Maximum Debt/Tangible Net Worth 1:0:1.0/0:75:1.0/1/ _____:1.0 Yes No Minimum Liquidity 2.0:1.0/2/ _____:1.0 Yes No Minimum Debt Service Coverage 1.5:1.0/3/ _____:1.0 Yes No Profitability: Quarterly $1.00/4/ $________ Yes No
/1/ After IPO (does not exclude deferred revenue) /2/ Applies until 2 consecutive DSC quarters of 1.5:1.0 /3/ Effective upon termination of liquidity covenant /4/ One loss quarter less than $1,000,000 permitted after IPO Comments Regarding Exceptions: See Attached BANK USE ONLY Received by: ------------------ AUTHORIZED SIGNER Sincerely, Date: ------------------------- SIGNATURE Verified: --------------------- AUTHORIZED SIGNER TITLE Date: ------------------------- DATE Compliance Status: Yes No 25 DISBURSEMENT REQUEST AND AUTHORIZATION Borrower: QuickLogic Corporation Bank: Silicon Valley Bank LOAN TYPE. This is a Variable Rate, Revolving Line of Credit of a principal amount up to $3,000,000, a Variable Rate, EXIM Revolving Line of Credit of a principal amount up to $1,000,000, and a Variable Rate Equipment Term Loan of a principal amount of up to $1,000,000. PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business. SPECIFIC PURPOSE. The specific purpose of this loan is: Short Term Working Capital and Equipment Acquisition. DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be disbursed until all of Bank's conditions for making the loan have been satisfied. Please disburse the loan proceeds as follows:
Revolving Line Equipment Line -------------- -------------- Amount paid to Borrower directly: $_____ $____ Undisbursed Funds $____ _____ Principal $3,000,000 $1,000,000
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the following charges: Prepaid Finance Charges Paid in Cash: $12,500 Loan Fee $100 UCC Search Fees $15,000 Exim Fee $___ Outside Counsel Fees and Expenses (Estimate) Total Charges Paid in Cash $____ AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct from Borrower's account numbered the amount of any loan payment. ---------- If the funds in the account are insufficient to cover any payment, Bank shall not be obligated to advance funds to cover the payment. FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS AUTHORIZATION IS DATED AS OF , 19 . ------------------ --- BORROWER: QuickLogic Corporation Authorized Officer AGREEMENT TO PROVIDE INSURANCE Grantor: QuickLogic Corporation Bank: Silicon Valley Bank 26 INSURANCE REQUIREMENTS. QuickLogic Corporation ("Grantor") understands that insurance coverage is required in connection with the extending of a loan or the providing of other financial accommodations to Grantor by Bank. These requirements are set forth in the Loan Documents. The following minimum insurance coverages must be provided on the following described collateral (the "Collateral"): Collateral: All Inventory, Equipment and Fixtures. Type: All risks, including fire, theft and liability. Amount: Full insurable value. Basis: Replacement value. Endorsements: Loss payable clause to Bank with stipulation that coverage will not be cancelled or diminished without a minimum of twenty (20) days' prior written notice to Bank. INSURANCE COMPANY. Grantor may obtain insurance from any insurance company Grantor may choose that is reasonably acceptable to Bank. Grantor understands that credit may not be denied solely because insurance was not purchased through Bank. FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Bank, on or before closing, evidence of the required insurance as provided above, with an effective date of August 8, 1996, or earlier. Grantor acknowledges and agrees that if Grantor fails to provide any required insurance or fails to continue such insurance in force, Bank may do so at Grantor's expense as provided in the Loan and Security Agreement. The cost of such insurance, at the option of Bank, shall be payable on demand or shall be added to the indebtedness as provided in the security document. GRANTOR ACKNOWLEDGES THAT IF BANK SO PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN; HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL RESPONSIBILITY LAWS. AUTHORIZATION. For purposes of insurance coverage on the Collateral, Grantor authorizes Bank to provide to any person (including any insurance agent or company) all information Bank deems appropriate, whether regarding the Collateral, the loan or other financial accommodations, or both. GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AUGUST 8, 1996. GRANTOR: QuickLogic Corporation x Authorized Officer ============================================================================ FOR BANK USE ONLY INSURANCE VERIFICATION DATE: PHONE: AGENT'S NAME: INSURANCE COMPANY: POLICY NUMBER: EFFECTIVE DATES: COMMENTS: ============================================================================ 27 CORPORATE RESOLUTIONS TO BORROW Borrower: QuickLogic Corporation I, the undersigned Secretary or Assistant Secretary of QuickLogic Corporation (the "Corporation"), HEREBY CERTIFY that the Corporation is organized and existing under and by virtue of the laws of the State of California. I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true and complete copies of the Articles of Incorporation and Bylaws of the Corporation, each of which is in full force and effect on the date hereof. I FURTHER CERTIFY that at a meeting of the Directors of the Corporation, duly called and held, at which a quorum was present and voting (or by other duly authorized corporate action in lieu of a meeting), the following resolutions were adopted. BE IT RESOLVED, that any one (1) of the following named officers, employees, or agents of this Corporation, whose actual signatures are shown below:
NAMES POSITIONS ACTUAL SIGNATURES ----- --------- -----------------
acting for an on behalf of this Corporation and as its act and deed be, and they hereby are, authorized and empowered: Borrow Money. To borrow from time to time from Silicon Valley Bank ("Bank"), on such terms as may be agreed upon between the officers, employees, or agents and Bank, such sum or sums of money as in their judgment should be borrowed, without limitation, including such sums as are specified in that certain Loan and Security Agreement dated as of August 8, 1996 (the "Loan Agreement"). Execute Notes. To execute and deliver to Bank the promissory note or notes of the Corporation, on Lender's forms, at such rates of interest and on such terms as may be agreed upon, evidencing the sums of money so borrowed or any indebtedness of the Corporation to Bank, and also to execute and deliver to Lender one or more renewals, extensions, modifications, refinancings, consolidations, or substitutions for one or more of the notes, or any portion of the notes. Grant Security. To grant a security interest to Bank in the Collateral described in the Loan Agreement, which security interest shall secure all of the Corporation's Obligations, as described in the Loan Agreement. Negotiate Items. To draw, endorse, and discount with Bank all drafts, trade acceptances, promissory notes, or other evidences of indebtedness payable to or belonging to the Corporation or in which the Corporation may have an interest, and either to receive cash for the same or to cause such proceeds to be credited to the account of the Corporation with Bank, or to cause such other disposition of the proceeds derived therefrom as they may deem advisable. 28 Letters of Credit; Foreign Exchange. To execute letters of credit applications, foreign exchange agreements and other related documents pertaining to Bank's issuance of letters of credit and foreign exchange contracts. Further Acts. In the case of lines of credit, to designate additional or alternate individuals as being authorized to request advances thereunder, and in all cases, to do and perform such other acts and things, to pay any and all fees and costs, and to execute and deliver such other documents and agreements as they may in their discretion deem reasonably necessary or proper in order to carry into effect the provisions of these Resolutions. BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these resolutions and performed prior to the passage of these resolutions are hereby ratified and approved, that these Resolutions shall remain in full force and effect and Bank may rely on these Resolutions until written notice of their revocation shall have been delivered to and received by Bank. Any such notice shall not affect any of the Corporation's agreements or commitments in effect at the time notice is given. I FURTHER CERTIFY that the officers, employees, and agents named above are duly elected, appointed, or employed by or for the Corporation, as the case may be, and occupy the positions set forth opposite their respective names; that the foregoing Resolutions now stand of record on the books of the Corporation; and that the Resolutions are in full force and effect and have not been modified or revoked in any manner whatsoever. IN WITNESS WHEREOF, I have hereunto set my hand on _______________, 19___ and attest that the signatures set opposite the names listed above are their genuine signatures. CERTIFIED TO AND ATTESTED BY: X 29 LOAN MODIFICATION AGREEMENT This Loan Modification Agreement is entered into as of October 8, 1996, by and between QuickLogic Corporation ("Borrower") whose address is 2933 Bunker Hilt Lane 100A, Santa Clara, CA 95054, and Silicon Valley Bark ("Bank and sometimes referred to as "Lender") whose address is 3003 Tasman Drive, Santa Clara, CA 95054. 1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which may be ------------------------------------ owing by Borrower to Lender, Borrower is indebted to Lender pursuant to, among other documents, a Loan and Security Agreement, dated August 8,1996, together with all schedules thereto (the "Loan Agreement"), as amended. The Loan Agreement provided for, among other things, an Equipment Advance Facility in the original principal amount of One Million and 00/100 Dollars ($1,000,000.00) (the "Equipment Advance Facility"). In addition, Borrower is indebted to Lender, pursuant to, among other documents, a Promissory Note dated August 9, 1995, in the original principal amount of Five Hundred Thousand and 00/100 Dollars ($500,000.00) (the "Term Note 1") and a Promissory Note dated October 6,1995, in the original principal amount of Two Hundred Twenty Five Thousand Forty Eight and 00/100 Dollars ($225,048.00) (the "Term Note 2") (collectively, referred to herein as the "Notes"). The Notes, together with other promissory' notes from Borrower to Lender, are governed by the terms of a Business Loan Agreement, dated August 9, 1995, as such agreement may be amended from time to time, between Borrower and Lender (the "Business Loan Agreement'). Defined terms used but not otherwise defined herein shall have the same meanings as in the Loan Agreement and the Business Loan Agreement. Hereinafter, all indebtedness owing by Borrower to Lender shall be referred to as the "Indebtedness" 2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is ---------------------------------------- secured by the Collateral as defined in the Loan Agreement and Commercial Security Agreement dated August 9, 1995. Hereinafter, the above-described security documents and guaranties, together with all other documents securing repayment of the Indebtedness shall be referred to as The "Security Documents". Hereinafter, the Security Documents, together with all other documents evidencing or securing the Indebtedness shall be referred to as the "Existing Loan Documents". 3. DESCRIPTION OF CHANGE IN TERMS. ------------------------ ----- A. Modification(s) to the Notes. ---------------------------- 1. The interest rate to be applied to the unpaid principal balance of each Note, effective as of August 8, 1996, will be at a rate equal to one-quarter of one percentage point (.250%) over Lender's current Index (as defined therein). B. Modification(s) to Loan Agreement --------------------------------- 1. Notwithstanding anything to the contrary contained in Section 2.1.3 entitled "Equipment Advances" Borrower shall now be allowed to use up to Five Hundred thousand and 001100 Dollars ($500,000.00) (rather than 30% of any Equipment Advance) to purchase or finance software, custom equipment and fixtures. 4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended ------------------ wherever necessary to reflect the changes described above. 1 5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing ----------------------- below) agrees that it has no defenses against the obligations to pay any amounts under the Indebtedness. 6. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing ------------------- below) understands and agrees that in modifying the existing Indebtedness, Lender 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 Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Lender's agreement to modifications to the existing Indebtedness pursuant to this Loan Modification Agreement in no way shall obligate Lender to make any future modifications to the Indebtedness. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Indebtedness. It is the intention of Lender and Borrower to retain as liable parties all makers and endorsers of Existing Loan Documents, unless the party is expressly released by Lender in writing. No maker, endorser, or guarantor will be released by virtue of this Loan Modification Agreement. The terms of this paragraph apply not only to this Loan Modification Agreement, but also to all subsequent loan modification agreements. This Loan Modification Agreement is executed as of the date first written above. BORROWER: LENDER: QUICKLOGIC CORPORATION SILICON VALLEY BANK By: /s/ By: /s/ __________________________ ____________________________ Name: Name ________________________ ____________________________ Title: Title: _______________________ __________________________ 2 LOAN MODIFICATION AGREEMENT This Loan Modification Agreement is entered into as of November 13, 1996, by and between QuickLogic Corporation ("Borrower") whose address is 2933 Bunker Hill Lane 100A, Santa Clara, CA 95054, and Silicon Valley Bank ("Bank" and sometimes referred to as "Lender") whose address is 3003 Tasman Drive, Santa Clara, CA 95054. 1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may ------------------------------------- be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other documents, a Loan and Security Agreement, dated August 8, 1996, together with all schedules thereto (the "Loan Agreement"), as amended. The Loan Agreement provided for, among other things, an Equipment Advance Facility in the original principal amount of One Million and 00/100 Dollars ($1,000,000.00) (the "Equipment Advance Facility"). In addition, Borrower is indebted to Bank, pursuant to, among other documents, a Promissory Note dated August 9, 1995, in the original principal amount of Five Hundred Thousand and 00/100 Dollars ($500,000.00) (the "Term Note 1") and a Promissory Note dated October 6, 1995, in the original principal amount of Two Hundred Twenty Five Thousand Forty Eight and 00/100 Dollars ($225,048.00) (the "Term Note 2") (collectively, referred to herein as the "Notes"), as such Notes may be amended from time to time. The Notes, together with other promissory notes from Borrower to Bank, are governed by the terms of a Business Loan Agreement, dated August 9, 1995, as such agreement may be amended from time to time, between Borrower and Bank (the "Business Loan Agreement"). Defined terms used but not otherwise defined herein shall have the same meanings as in the Loan Agreement and the Business Loan Agreement. Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as the "Indebtedness". 2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is ---------------------------------------- secured by the Collateral as defined in the Loan Agreement and a Commercial Security Agreement dated August 9, 1995. Hereinafter, the above-described security documents and guaranties, together with all other documents securing repayment of the Indebtedness shall be referred to as the "Security Documents". Hereinafter, the Security Documents, together with all other documents evidencing or securing the Indebtedness shall be referred to as the "Existing Loan Documents". 3. DESCRIPTION OF CHANGE IN TERMS. ------------------------------- A. Modification(s) to Loan Agreement. ---------------------------------- 1. Paragraphs (a) and (b) of Section 2.1.3 entitled "Equipment Advances" are hereby amended in their entirety, to read as follows: (a) At any time from the date hereof through June 30, 1997, Borrower may from time to time request advances (each an "Equipment Advance" and, collectively, the "Equipment Advances") from Bank in an aggregate principal amount of up to Two Million and 00/100 Dollars ($2,000,000.00), however capped at One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) (the "Cap Amount"). Any Equipment Advance in excess of the Cap Amount shall be subject to Borrower's payment of the Increase Fee, as described herein. 1 The Equipment Advances shall be used to purchase Equipment only, approved from time to time by Bank, and shall not exceed (i) one hundred percent (100%) of the cost of new Equipment and (ii) the lesser of seventy-five percent (75%) of the cost of used Equipment or (iii) Six Hundred Thousand and 00/100 Dollars ($600,000.00), including installation expense, freight discounts, warranty charges and taxes. Not more than One Million and 00/100 Dollars ($1,000,000.00) of any Equipment Advance shall be used to purchase or finance software, custom equipment and tenant improvements. (b) Interest shall accrue from the date of each Equipment Advance at the rate specified in Section 2.3(a), and shall be payable monthly on the last day of each calendar month for each month through June 30, 1997. The Equipment Advance or Equipment Advances that are outstanding on June 30, 1997 will be payable monthly on the last calendar day of each month in thirty-six (36) equal installments of principal, plus accrued, unpaid interest, beginning on July 31, 1997, and continuing through the Maturity Date, when the entire principal amount and all accrued, unpaid interest shall be due and payable. 2. The defined term "Maturity Date" means June 30, 2000. 4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended ------------------- wherever necessary to reflect the changes described above. 5. PAYMENT OF LOAN FEE AND INCREASE FEE. Borrower shall pay to Bank a fee in the amount of Two Thousand Five Hundred and 00/100 Dollars ($2,500.00) (the "Loan Fee") plus all out-of-pocket expenses. Additionally, upon Borrower's election to advance under the Equipment Advance Facility in excess of the Cap Amount, Borrower shall pay to Bank a fee in the amount of Two Thousand Five Hundred and 00/100 Dollars ($2,500.00) (the "Increase Fee"). 6. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has no ------------------------ defenses against the obligations to pay any amounts under the Indebtedness. 7. CONTINUING VALIDITY. Borrower 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 Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Bank's agreement to modifications to the existing Indebtedness pursuant to this Loan Modification Agreement in no way shall obligate Bank to make any future modifications to the Indebtedness. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Indebtedness. 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. No maker, endorser, or guarantor will be released by virtue of this Loan Modification Agreement. The terms of this Paragraph apply not only to this Loan Modification Agreement, but also to all subsequent loan modification agreements. 8. JURISDICTION/VENUE. Borrower accepts for itself and in connection with its ------------------- properties, unconditionally, the non-exclusive jurisdiction of any state or federal court of competent jurisdiction in the Commonwealth of Massachusetts in any action, suit, or proceeding of any kind against it which arises out of or by reason of this Loan Modification Agreement; provided, however, that if for any reason Bank cannot avail itself of the courts of the Commonwealth of Massachusetts, then venue shall lie in Santa Clara County, California. 2 9. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective ----------------- only when it shall have been executed by Borrower and Bank (provided, however, in no event shall this Loan Modification Agreement become effective until signed by an officer of Bank in California). 10. CONDITIONS. The effectiveness of this Loan Modification Agreement is ----------- conditioned upon payment of the Loan Fee. This Loan Modification Agreement is executed as of the date first written above. BORROWER: BANK: QUICKLOGIC CORPORATION SILICON VALLEY BANK By: /s/ VINCENT A. MCCORD By: /s/ ELLEN CHAO --------------------------- ------------------------ Name: Vincent A. McCord Name: ELLEN CHAO --------------------------- ------------------------ Title: V.P., CFO Title: VP --------------------------- ------------------------ LOAN MODIFICATION AGREEMENT This Loan Modification Agreement is entered into as of May 27, 1997, by and between QuickLogic Corporation, a California corporation ("Borrower") whose address is 1277 Orleans Drive, Sunnyvale, CA 94089, and Silicon Valley Bank ("Bank" and sometimes referred to as "Lender") whose address is 3003 Tasman Drive, Santa Clara, CA 95054. 1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may ------------------------------------- be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other documents, a Loan and Security Agreement, dated August 8, 1996, together with all schedules thereto (the "Domestic Loan Agreement"), as amended. The Domestic Loan Agreement provided for, among other things, a Committed Line in the original principal amount of Five Million and 00/100 Dollars ($5,000,000.00) (however, limited to $3,000,000.00 until Borrower delivers notice to Bank increasing the Committed Line to $5,000,000.00) (the "Revolving Facility"), an Equipment Advance Facility in the original principal amount of One Million and 00/100 Dollars ($1,000,000.00) (the "Equipment Advance Facility"). The Domestic Loan Agreement has been modified pursuant to, among other documents, a Loan Modification Agreement dated November 13, 1996, pursuant to which, among other things, the principal amount of the Equipment Advance Facility was increased to Two Million and 00/100 Dollars ($2,000,000.00). In addition, Borrower is indebted to Bank, pursuant to, among other documents, a Promissory Note dated August 9, 1995, in the original principal amount of Five Hundred Thousand and 00/100 Dollars ($500,000.00) (the "Term Note 1"), a Promissory Note dated October 6, 1995, in the original principal amount of Two Hundred Twenty Five Thousand Forty Eight and 00/100 Dollars ($225,048.00) (the "Term Note 2") (collectively, referred to herein as the "Notes"), as such Notes may be amended from time to time. The Notes, together with other promissory notes from Borrower to Bank, are governed by the terms of the Business Loan Agreement dated August 9, 1995, as amended (the "Business Loan Agreement"). Furthermore, Borrower is indebted to Bank, pursuant to, among other documents, an Export- Import Bank Loan and Security Agreement, dated August 8, 1996, as amended (the "EXIM Loan Agreement"), which provided for, among other things, an Exim Committed Line in the original principal amount of One Million and 00/100 Dollars ($1,000,000.00) (the "EXIM Revolving Promissory Note"). Hereinafter, the Domestic Loan Agreement, the Business Loan Agreement and the EXIM Loan Agreement shall be referred to collectively as the "Loan Agreement". Defined terms used but not otherwise defined herein shall have the same meanings as in the Loan Agreement. Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as the "Indebtedness". 2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is ----------------------------------------- secured by the Collateral as defined in the Domestic Loan Agreement and a Commercial Security Agreement dated August 9, 1995. Additionally, repayment of the Export Committed Line is guaranteed by the Export-Import Bank of the United States (the "Guarantor") pursuant to a Guarantee Agreement (the "Guaranty"). Hereinafter, the above-described security documents and guaranties, together with all other documents securing repayment of the Indebtedness shall be referred to as the "Security Documents". Hereinafter, the Security Documents, together with all other documents evidencing or securing the Indebtedness shall be referred to as the "Existing Loan Documents". 3. DESCRIPTION OF CHANGE IN TERMS. ------------------------------- A. Waiver of Financial Covenant Default. ------------------------------------- Lender hereby waives Borrower's existing default under the Domestic Loan Agreement by virtue of Borrower's failure to comply with the Debt Service Coverage ratio as of quarter ended March 31, 1997. Lender's waiver of Borrower's compliance of this covenant shall apply only to the foregoing period. 1 Lender's agreement to waive the above-described default shall not limit or impair the Lender's right to demand strict performance of all other covenants as of any date. B. Governing Loan Agreement. ------------------------- The Notes shall now be governed by the terms of the Existing Loan Documents. C. Modification(s) to Existing Loan Documents. ------------------------------------------- 1. "Permitted Indebtedness", as defined in section 1.1 entitled "Definitions" is hereby amended to include the following: (e) Capital lease obligations to Borrower's landlord. 2. "Permitted Investment", as defined in section 1.1 entitled "Definitions" is hereby amended to include the following: (c) Acquisition of Cypress Semiconductor's FPGA business and a to-be-formed international subsidiary. 3. Section 6.3 entitled "Financial Statements, Reports, Certificates" is hereby amended in its entirety to read as follows: Borrower shall deliver to Bank: (a) as soon as available, but in any event within thirty (30) days after the end of each month (except for month ended February, 1997 and any and all months after Borrower's Initial Public Offering), a company prepared consolidated balance sheet and income statement covering Borrower's consolidated operations during such period, certified by an officer of Borrower reasonably acceptable to Bank; (b) as soon as available, but in any event within one hundred twenty (120) days after the end of Borrowers' fiscal year (except for fiscal year end 1996 which shall be due no later than July 15, 1997), audited consolidated financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an unqualified opinion on such financial statements of an independent certified public accounting firm reasonably acceptable to Bank; (c) within five (5) days upon becoming available, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and all reports on Form 10-K and 10-Q filed with the Securities and Exchange Commission; (d) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000.00) or more; and (e) such budgets, sales projections, operating plans or other financial information as Bank may reasonably request from time to time. Through the date of Borrower's Initial Public Offering, within twenty (20) days after the last day of each month in which an Advance is outstanding (and as a condition to Borrower requesting an Advance), Borrower shall deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer, together with aged listings of accounts receivable and accounts payable. Following the Initial Public Offering, such agings and Borrowing Base Certificate are not required. 2 Borrower shall deliver to Bank with the monthly financial statements (or with Borrower's Form 10-K and 10-Q after Borrower's Initial Public Offering) a Compliance Certificate signed by a Responsible Officer. Bank shall have a right from time to time hereafter to audit Borrower's Accounts at Borrower's expense, provided that such audits will be conducted no more often than every twelve (12) months unless an Event of Default has occurred and is continuing. After Borrower's Initial Public Offering, such audits shall not be required. 4. Section 6.8 entitled "Quick Ratio" is hereby amended in its entirety to read as follows: Prior to the Initial Public Offering, Borrower shall maintain, as of the last day of each calendar month, a ratio of Quick Assets to Current Liabilities, excluding deferred revenue, of at least 1.00 to 1.00; and after the Initial Public Offering, as of the last day of each fiscal quarter, a ratio of Quick Assets to Current Liabilities of at least 2.00 to 1.00. 5. The minimum Liquidity ratio, as described in section 6.9 entitled "Minimum Liquidity and Debt Service Coverage" is hereby re- instated as of quarter ended March 31, 1997 and shall be replaced by the Debt Service Coverage ratio subject to the terms and conditions as described in said section. 6. Section 6.10 entitled "Debt-Net Worth Ratio" is hereby amended in its entirety to read as follows: Prior to the Initial Public Offering, Borrower shall maintain, as of the last day of each calendar month, beginning with month ended March 31, 1997, a ratio of Total Liabilities, excluding deferred revenue, less Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more than 1.25 to 1.00, and, after the Initial Public Offering, as of the last day of each fiscal quarter, a ratio of Total Liabilities less Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more than 0.75 to 1.00. 7. Section 6.11 entitled "Tangible Net Worth" is hereby amended in its entirety to read as follows: Prior to the Initial Public Offering, Borrower shall maintain, as of the last day of each calendar month, beginning with month ended March 31, 1997, a Tangible Net Worth of not less than Nine Million and 00/100 Dollars ($9,000,000.00), and, after the Initial Public Offering, as of the last day of each fiscal quarter, not less than Twenty Million and 00/100 Dollars ($20,000,000.00). 8. Section 6.12 entitled "Profitability" is hereby amended in its entirety to read as follows: Borrower shall have a minimum net profit of One and 00/100 Dollar ($1.00) for each fiscal quarter, except that, Borrower may suffer a maximum net loss, excluding contract termination expense, of Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000.00) for quarter ended March 31, 1997, and One Million and 00/100 Dollars ($1,000,000.00) for quarter ending June 30, 1997. 3 9. Section 7.3 entitled "Mergers or Acquisitions" is hereby amended to allow Borrower, a California C-corporation, to merge with and into a new entity, which such entity shall be a Delaware C- corporation, provided that, upon such merger, Borrower agrees to execute any and all documents required by Bank in order for Bank to acknowledge such merger and to maintain its security interests in Borrower's assets, including, without limitation, an assumption agreement. 4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended ------------------- wherever necessary to reflect the changes described above. 5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing ------------------------ below) agrees that it has no defenses against the obligations to pay any amounts under the Indebtedness. 6. 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 Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Bank's agreement to modifications to the existing Indebtedness pursuant to this Loan Modification Agreement in no way shall obligate Bank to make any future modifications to the Indebtedness. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Indebtedness. 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. No maker, endorser, or guarantor will be released by virtue of this Loan Modification Agreement. The terms of this paragraph apply not only to this Loan Modification Agreement, but also to all subsequent loan modification agreements. This Loan Modification Agreement is executed as of the date first written above. BORROWER: BANK: QUICKLOGIC CORPORATION SILICON VALLEY BANK By: VINCENT A. MCCORD By: ELLEN CHAO ---------------------- ---------------------- Name: VINCENT A. MCCORD Name: ELLEN CHAO ---------------------- ---------------------- Title: V.P., CFO Title: VP ---------------------- ---------------------- 4 LIBOR SUPPLEMENT TO AGREEMENT This LIBOR Supplement to Agreement (the "Supplement") is a supplement to the Loan and Security Agreement (the "Agreement") dated as of August 8, 1996, between Silicon Valley Bank ("Bank") and Quicklogic Corporation ("Borrower"), and forms a part of and is incorporated into the Agreement. Except as otherwise defined in this Supplement, capitalized terms shall have the meanings assigned in the Agreement. 1. Definitions. ------------ "Business Day" means a day of the year (a) that is not a Saturday, Sunday or other day on which banks in the State of California or the City of London are authorized or required to close and (b) on which dealings are carried on in the interbank market in which Bank customarily participates. "Interest Period" means for each LIBOR Rate Advance, a period of approximately one, two or three months as the Borrower may elect, provided that -------- the last day of an Interest Period for a LIBOR Rate Advance shall be determined in accordance with the practices of the LIBOR interbank market as from time to time in effect, provided, further, in all cases such period shall --------- -------- expire not later than the applicable Maturity Date. "Interest Rate" shall mean as to: (a) Prime Rate Advances, a rate equal to the Prime Rate; and (b) LIBOR Rate Advances, a rate of 2.5% per annum in excess of the LIBOR Rate (based on the LIBOR Rate applicable for the Interest Period selected by the Borrower). "LIBOR Base Rate" means, for any Interest Period for a LIBOR Rate Advance, the rate of interest per annum determined by Bank to be the per annum rate of interest at which deposits in United States Dollars are offered to Bank in the London interbank market in which Bank customarily participates at 11:00 A.M. (local time in such interbank market) two (2) Business Days before the first day of such Interest Period for a period approximately equal to such Interest Period and in an amount approximately equal to the amount of such Advance. "LIBOR Rate" shall mean, for any Interest Period for a LIBOR Rate Advance, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) equal to (i) the LIBOR Base Rate for such Interest Period divided by (ii) 1 minus the Reserve Requirement for such Interest Period. "LIBOR Rate Advances" means any Advances made or a portion thereof on which interest is payable based on the LIBOR Rate in accordance with the terms hereof. "Prime Rate Advances" means any Advances made or a portion thereof on which interest is payable based on the Prime Rate in accordance with the terms hereof. "Regulatory Change" means, with respect to Bank, any change on or after the date of this Agreement in United States federal, state or foreign laws or regulations, including Regulation D, or the adoption or making on or after such date of any interpretations, directives or requests applying to a class of lenders including Bank of or under any United States federal or state, or any foreign, laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Reserve Requirement" means, for any Interest Period, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under Regulation D against "Eurocurrency liabilities" (as such term is used in Regulation D) by member banks of the Federal Reserve System. Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by Bank by reason of any Regulatory Change against (i) any category of liabilities which includes deposits by reference to which the LIBOR Rate is to be determined as provided in the definition of "LIBOR Base Rate" or (ii) any category of extensions of credit or other assets which include Advances. 2. Requests for Advances; Confirmation of Initial Advances. Each LIBOR -------------------------------------------------------- Rate Advance shall be made upon the irrevocable written request of Borrower by Bank not later than 11:00 a.m. (Santa Clara, 1 California time) on the Business "Business Day" means a day of the year (a) that is not a Saturday, Sunday or Day three (3) Business Days prior to the date such Advance is to be made. Each such notice shall specify the date such Advance is to be made, which day shall be a Business Day; the amount of such Advance, the Interest Period for such Advance, and comply with such other requirements as Bank determines are reasonable or desirable in connection therewith. Each written request for a LIBOR Rate Advance shall be in the form of a LIBOR Rate Advance Form as set forth on Exhibit A, which shall be duly executed by a Responsible Officer. 3. Conversion/Continuation of Advances. ------------------------------------ (a) Borrower may from time to time submit in writing a request that Prime Rate Advances be converted to LIBOR Rate Advances or that any existing LIBOR Rate Advances continue for an additional Interest Period. Such request shall specify the amount of the Prime Rate Advances which will constitute LIBOR Rate Advances (subject to the limits set forth below) and the Interest Period to be applicable to such LIBOR Rate Advances. Each written request for a conversion to a LIBOR Rate Advance or a continuation of a LIBOR Rate Advance shall be substantially in the form of a LIBOR Rate Conversion/Continuation Certificate as set forth on Exhibit B, which shall be duly executed by a Responsible Officer. Subject to the terms and conditions contained herein, three (3) Business Days after Bank's receipt of such a request from Borrower, such Prime Rate Advances shall be converted to LIBOR Rate Advances or such LIBOR Rate Advances shall continue, as the case may be provided that: (i) no Event of Default or event which with notice or passage of time or both would constitute an Event of Default exists; (ii) no party hereto shall have sent any notice of termination of this Supplement or of the Agreement. (iii) Borrower shall have complied with such customary procedures as Bank has established from time to time for Borrower's requests for LIBOR Rate Advances; (iv) the amount of a LIBOR Rate Advance shall be $500,000 or such greater amount which is an integral multiple of $50,000; and (v) Bank shall have determined that the Interest Period or LIBOR Rate is available to Bank which can be readily determined as of the date of the request for such LIBOR Rate Advance . Any request by Borrower to convert Prime Rate Advances to LIBOR Rate Advances or continue any existing LIBOR Rate Advances shall be irrevocable. Notwithstanding anything to the contrary contained herein, Bank shall not be required to purchase United States Dollar deposits in the London interbank market or other applicable LIBOR Rate market to fund any LIBOR Rate Advances, but the provisions hereof shall be deemed to apply as if Bank had purchased such deposits to fund the LIBOR Rate Advances. (b) Any LIBOR Rate Advances shall automatically convert to Prime Rate Advances upon the last day of the applicable Interest Period, unless Bank has received and approved a complete and proper request to continue such LIBOR Rate Advance at least three (3) Business Days prior to such last day in accordance with the terms hereof. Any LIBOR Rate Advances shall, at Bank's option, convert to Prime Rate Advances in the event that (i) an Event of Default, or event which with the notice or passage of time or both would constitute an Event of Default, shall exist, (ii) this Supplement or the Agreement shall terminate, or (iii) the aggregate principal amount of the Prime Rate Advances which have previously been converted to LIBOR Rate Advances, or the aggregate principal amount of existing LIBOR Rate Advances continued, as the case may be, at the beginning of an Interest Period shall at any time during such Interest Period exceeds the Committed Line. Borrower agrees to pay to Bank, upon demand by Bank (or Bank may, at its option, charge Borrower's deposit account) any amounts required to compensate Bank for any loss (including loss of anticipated profits), cost or expense incurred by such person, as a result of the conversion of LIBOR Rate Advances to Prime Rate Advances pursuant to any of the foregoing. 2 (c) On all Advances, Interest shall be payable by Borrower to Bank monthly in arrears not later than the seventh (7th) day of each calendar month at the applicable Interest Rate. 4. Additional Requirements/Provisions Regarding LIBOR Rate Advances; ----------------------------------------------------------------- Etc. - ---- (a) If for any reason (including voluntary or mandatory prepayment or acceleration), Bank receives all or part of the principal amount of a LIBOR Rate Advance prior to the last day of the Interest Period for such Advance, Borrower shall immediately notify Borrower's account officer at Bank and, on demand by Bank, pay Bank the amount (if any) by which (i) the additional interest which would have been payable on the amount so received had it not been received until the last day of such Interest Period exceeds (ii) the interest which would have been recoverable by Bank by placing the amount so received on deposit in the certificate of deposit markets or the offshore currency interbank markets or United States Treasury investment products, as the case may be, for a period starting on the date on which it was so received and ending on the last day of such Interest Period at the interest rate determined by Bank in its reasonable discretion. Bank's determination as to such amount shall be conclusive absent manifest error. (b) Borrower shall pay to Bank, upon demand by Bank, from time to time such amounts as Bank may determine to be necessary to compensate it for any costs incurred by Bank that Bank determines are attributable to its making or maintaining of any amount receivable by Bank hereunder in respect of any Advances relating thereto (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), in each case resulting from any Regulatory Change which: (i) changes the basis of taxation of any amounts payable to Bank under this Supplement in respect of any Advances (other than changes which affect taxes measured by or imposed on the overall net income of Bank by the jurisdiction in which such Bank has its principal office); or (ii) imposes or modifies any reserve, special deposit or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of Bank (including any Advances or any deposits referred to in the definition of "LIBOR Base Rate"); or (iii) imposes any other condition affecting this Supplement (or any of such extensions of credit or liabilities). Bank will notify Borrower of any event occurring after the date of the Agreement which will entitle Bank to compensation pursuant to this section as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. Bank will furnish Borrower with a statement setting forth the basis and amount of each request by Bank for compensation under this Section 4. Determinations and allocations by Bank for purposes of this Section 4 of the effect of any Regulatory Change on its costs of maintaining its obligations to make Advances or of making or maintaining Advances or on amounts receivable by it in respect of Advances, and of the additional amounts required to compensate Bank in respect of any Additional Costs, shall be conclusive absent manifest error. (c) Borrower shall pay to Bank, upon the request of Bank, such amount or amounts as shall be sufficient (in the sole good faith opinion of such Bank) to compensate it for any loss, costs or expense incurred by it as a result of any failure by Borrower to borrow a LIBOR Rate Advance on the date for such borrowing specified in the relevant notice of borrowing hereunder. (d) If Bank shall determine that the adoption or implementation of any applicable law, rule, regulation or treaty regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by Bank (or its applicable lending office) with any respect or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of Bank or any person or entity controlling Bank (a "Parent") as a consequence of its obligations hereunder to a level below that which Bank (or its Parent) could have achieved but for such adoption, change or compliance (taking into consideration its policies with respect to capital adequacy) by an amount deemed by Bank to be material, then from time to time, 3 within 15 days after demand by Bank, Borrower shall pay to Bank such additional amount or amounts as will compensate Bank for such reduction. A statement of Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive absent manifest error. (e) If at any time Bank, in its sole and absolute discretion, determines that: (i) the amount of the LIBOR Rate Advances for periods equal to the corresponding Interest Periods are not available to Bank in the offshore currency interbank markets, or (ii) the LIBOR Rate does not accurately reflect the cost to Bank of lending the LIBOR Rate Advance, then Bank shall promptly give notice thereof to Borrower, and upon the giving of such notice Bank's obligation to make the LIBOR Rate Advances shall terminate, unless Bank and the Borrower agree in writing to a different interest rate Advances shall terminate, unless Bank and the Borrower agree in writing to a different interest rate applicable to LIBOR Rate Advances. If it shall become unlawful for Bank to continue to fund or maintain any Advances, or to perform its obligations hereunder, upon demand by Bank, Borrower shall prepay the Advances in full with accrued interest thereon and all other amounts payable by Borrower hereunder (including, without limitation, any amount payable in connection with such prepayment pursuant to Section 4(a)). IN WITNESS WHEREOF, the undersigned have executed this LIBOR Supplement to Agreement as of the first date above written. QUICKLOGIC CORPORATION By: /s/ ----------------------------------- Title: -------------------------------- SILICON VALLEY BANK By: /s/ ----------------------------------- Title: -------------------------------- 4 EXHIBIT A --------- LIBOR RATE ADVANCE FORM The undersigned hereby certifies as follows: I, , am the duly elected and acting ---------------------------- of Quicklogic Corporation ("Borrower"). - ----------------------- This certificate is delivered pursuant to Section 2 of that certain LIBOR Supplement to Agreement together with the Loan and Security Agreement by and between Borrower and Silicon Valley Bank ("Bank") (the "Agreement"). The terms used in this Borrowing Certificate which are defined in the Agreement have the same meaning herein as ascribed to them therein. Borrower hereby requests on , 19 a LIBOR Rate Advance (the "Advance") ----- -- as follows: (a) The date on which the Advance is to be made is , 19 . ------------- -- (b) The amount of the Advance is to be ($ ), for ---------------------------- an Interest Period of month(s). All representations and warranties of Borrower stated in the Agreement are true, correct and complete in all material respects as of the date of this request for a loan; provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date. IN WITNESS WHEREOF, this LIBOR Rate Advance Form is executed by the undersigned as of this day of , 19 . --------------- ------------------------- --- QUICKLOGIC CORPORATION By: --------------------------------- Title: ------------------------------ For Internal Bank Use Only
LIBOR Pricing Date LIBOR Rate LIBOR Rate Variance Maturity Date - ------------------------------------------------------------------------- % --- =========================================================================
5 EXHIBIT B --------- LIBOR RATE CONVERSION/CONTINUATION CERTIFICATE The undersigned hereby certifies as follows: I, , am the duly elected and acting ---------------------------- ----------- of Quicklogic Corporation ("Borrower"). This certificate is delivered pursuant to Section 2 of that certain LIBOR Supplement to Agreement together with the Loan Agreement by and between Borrower and Silicon Valley Bank ("Bank") (the "Agreement"). The terms used in this LIBOR Rate Conversion/Continuation Certificate which are defined in the Agreement have the same meaning herein as ascribed to them therein. Borrower hereby requests on , 19 a LIBOR Rate Advance ---------------- -- as follows: (a) (i) A rate conversion of an existing Prime Rate Advance ---- to a LIBOR Rate Advance; or (ii) A continuation of an existing LIBOR Rate Advance as a ---- LIBOR Rate Advance; [Check (i) or (ii) above] (b) The date on which the Advance is to be made is , 19 . ---------------- -- (c) The amount of the Advance is to be ($ ) ----------------------- -------, for an Interest Period of month(s) -------- All representations and warranties of Borrower stated in the Agreement are true, correct and complete in all material respects as of the date of this request for a loan; provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date. IN WITNESS WHEREOF, this LIBOR Rate Conversion/Continuation Certificate is executed by the undersigned as of this day of , 19 . ------- ----------------- -- QUICKLOGIC CORPORATION By: ________________________________________ Title: ______________________________________ For Internal Bank Use Only
LIBOR Pricing Date LIBOR Rate LIBOR Rate Variance Maturity Date - ------------------------------------------------------------------------- % ---- =========================================================================
6 EX-10.18 17 EXPORT-IMPORT BANK LOAN AND SECURITY AGREEMENT EXHIBIT 10.18 QUICKLOGIC CORPORATION EXPORT-IMPORT BANK LOAN AND SECURITY AGREEMENT 1 TABLE OF CONTENTS
Page 1. DEFINITIONS AND CONSTRUCTION................................... 1 1.1 Definitions............................................... 1 2. LOAN AND TERMS OF PAYMENT...................................... 3 2.1 Revolving Advances........................................ 3 2.2 Overadvances.............................................. 3 2.3 Interest Rates, Payments, and Calculations................ 3 2.4 Crediting Payments........................................ 4 2.5 Fees...................................................... 4 2.6 Increased Costs........................................... 4 2.7 Term...................................................... 5 2.8 Use of Proceeds........................................... 5 3. CONDITIONS OF LOANS............................................ 5 3.1 Conditions Precedent to Initial Advance................... 5 3.2 Conditions Precedent to all Advances...................... 5 4. CREATION OF SECURITY INTEREST.................................. 6 4.1 Grant of Security Interest................................ 6 4.2 Delivery of Additional Documentation Required............. 6 4.3 Power of Attorney......................................... 6 4.4 Right to Inspect.......................................... 6 5. REPRESENTATIONS AND WARRANTIES................................. 6 5.1 Domestic Loan Documents................................... 7 6. AFFIRMATIVE COVENANTS.......................................... 7 6.1 Domestic Loan Documents................................... 7 6.2 Terms of Sale............................................. 7 6.3 Borrower Agreement........................................ 7 6.4 Notice in Event of Filing of Action for Debtor's Relief... 7 6.5 Payment in Dollars........................................ 7 6.6 Further Assurances........................................ 7 7. NEGATIVE COVENANTS............................................. 7 7.1 Domestic Loan Documents................................... 7 7.2 Loans to Shareholders or Affiliates....................... 8 7.3 Borrower Agreement........................................ 8 7.4 Exim Guarantee............................................ 8 8. EVENTS OF DEFAULT.............................................. 8 8.1 Payment Default........................................... 8 8.2 Covenant Default; Cross Default........................... 8 8.3 Exim Guarantee............................................ 8 9. BANK'S RIGHTS AND REMEDIES..................................... 8 9.1 Rights and Remedies....................................... 8 9.2 Exim Direction............................................ 9 9.3 Exim Notification......................................... 9 9.4 Remedies Cumulative....................................... 9 10. WAIVERS; INDEMNIFICATION....................................... 10 10.1 Demand; Protest......................................... 10
2 10.2 Bank's Liability for Inventory............... 10 10.3 Indemnification.............................. 10 11. NOTICES............................................. 10 12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.......... 10 13. GENERAL PROVISIONS.................................. 10 13.1 Successors and Assigns....................... 10 13.2 Time of Essence.............................. 11 13.3 Severability of Provisions................... 11 13.4 Amendments in Writing........................ 11 13.5 Counterparts................................. 11 13.6 Survival..................................... 11
3 This EXPORT-IMPORT BANK LOAN AND SECURITY AGREEMENT (the "Exim Agreement") is entered into as of August 8, 1996, by and between SILICON VALLEY BANK ("Bank") and QuickLogic Corporation ("Borrower"). RECITALS A. Borrower and Bank are parties to that certain Loan and Security Agreement of even date herewith (the "Domestic Agreement"), together with related documents. B. Borrower and Bank desire in this Exim Agreement to set forth their agreement with respect to a working capital sub-facility to be guaranteed by Export-Import Bank of the United States. AGREEMENT The parties agree as follows: 1. DEFINITIONS AND CONSTRUCTION ---------------------------- 1.1 Definitions. Except as otherwise defined, terms that are ----------- capitalized in this Exim Agreement shall have the meaning assigned in the Domestic Loan Documents. As used in this Exim Agreement, the following terms shall have the following definitions: "Borrower Agreement" means the Export-Import Bank of the United States Working Capital Guarantee Program Borrower Agreement between Borrower and Bank. "Borrowing Base" has the meaning set forth in Section 2.1 hereof. "Domestic Agreement" has the meaning set forth in recital paragraph A. "Domestic Loan Documents" means the Domestic Agreement and the instruments and documents executed in connection with that Agreement. "Exim Bank" means Export-Import Bank of the United States. "Exim Bank Expenses" means all: reasonable costs or expenses (including reasonable attorneys' fees and expenses) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents, including any costs incurred in relation to opposing or seeking to obtain relief from any stay or restructuring order prohibiting Bank from exercising its rights as a secured creditor, foreclosing upon or disposing of Collateral, or such related matters; fees that Bank pays to Exim Bank in consideration of the issuance of the Exim Guarantee; and Bank's reasonable attorneys' fees and expenses incurred in amending, enforcing or defending the Loan Documents, whether or not suit is brought. "Exim Committed Line" means One Million Dollars ($1,000,000). "Exim Eligible Foreign Accounts" means those Accounts payable in United States Dollars that arise in the ordinary course of Borrower's business from Borrower's sale of Eligible Foreign Inventory (i) with respect to which the account debtor is not a resident of the United States; and (ii) that have been validly assigned and comply with all of Borrower's representations and warranties to Bank; standards of eligibility may be fixed and revised from time to time by Bank in Bank's reasonable judgment and upon notification thereof to the Borrower in accordance with the provisions hereof. Exim Eligible Foreign Accounts shall not include the following: (a) Accounts with a term in excess of ninety (90) days, except for Accounts of up to 120 days as approved by Bank in writing; (b) Accounts that the account debtor has failed to pay within sixty (60) calendar days of the original due date of the invoice unless such Accounts are insured through Exim Bank export credit insurance for comprehensive commercial 4 and political risk, or through Exim Bank approved private insurers for comparable coverage, in which case ninety (90) calendar days shall apply; (c) Accounts with respect to an account debtor, fifty percent (50%) of whose Accounts the account debtor has failed to pay within ninety (90) days of the original date of invoice; (d) Accounts evidenced by a letter of credit until the date of shipment of the items covered by the subject letter of credit; (e) Accounts with respect to which the account debtor is an Affiliate of Borrower; (f) Accounts with respect to which the account debtor is located in a country in which Exim Bank is legally prohibited from doing business; (g) Accounts with respect to which the account debtor is located in a country in which Exim Bank coverage is not available for commercial reasons; (h) Accounts with respect to which Borrower is liable to the account debtor for goods sold or services rendered by the account debtor to Borrower, but only to the extent of Borrower's liability to such account debtor; (i) Accounts with respect to which the account debtor disputes liability or makes any claim with respect thereto (but only to the extent of the amount subject to such dispute or claim), or is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business; (j) Accounts with respect to an account debtor, including Subsidiaries and Affiliates, whose total obligations to Borrower exceed twenty-five percent (25%) of all Accounts, to the extent such obligations exceed such percentage, except as approved in writing by Bank; (k) Accounts generated by the sale of products purchased for military purposes; (l) Accounts generated by sales of Inventory which constitutes defense articles or defense services; (m) Accounts payable in currency other than Dollars; (n) Accounts which are due and owing and the collection of which must be made outside the United States; (o) Accounts the collection of which Bank or Exim Bank determines in its reasonable judgment to be doubtful; and (p) Accounts that are excluded from the Borrowing Base under the Borrower Agreement. "Exim Eligible Foreign Inventory" means Inventory purchased or manufactured by Borrower for resale located in the United States, other than Inventory that is excluded under the Borrower Agreement and this Exim Agreement. Eligible Foreign Inventory shall not include the following: (a) any Inventory which is not located in the United States; (b) any demonstration Inventory or Inventory sold on consignment; (c) any Inventory consisting of proprietary software; (d) any Inventory which is damaged, obsolete, returned, defective, recalled or unfit for further processing; 5 (e) any Inventory which has been previously exported from the United States; (f) any Inventory which constitutes defense articles or defense services; (g) any Inventory which is to be incorporated into items destined for shipment to a country in which Exim Bank is legally prohibited from doing business; (h) any Inventory which is to be incorporated into items destined for shipment to a country in which Exim Bank coverage is not available for commercial reasons, except to the extent such items are sold to such country on terms of a letter of credit confirmed by a bank acceptable to Exim Bank; and (i) any Inventory which is to be incorporated into items whose sale would result in an ineligible Account Receivable. "Exim Guarantee" means that certain Master Guarantee Agreement or other agreement, as amended from time to time, the terms of which are incorporated by reference into this Exim Agreement, pursuant to which Exim Bank guarantees Borrower's obligations under this Exim Agreement. "Exim Loan Documents" means, collectively, this Exim Agreement, the Domestic Loan Documents, any note or notes executed by Borrower, and any other agreement entered into between Borrower and Bank in connection with this Exim Agreement, all as amended or extended from time to time. "Exim Maturity Date" means the earliest of (i) the Maturity Date under the Domestic Loan Documents, (ii) August 7, 1997 or (iii) the Initial Public Offering. 2. LOAN AND TERMS OF PAYMENT ------------------------- 2.1 Revolving Advances. Subject to the terms and conditions of this Exim ------------------ Agreement, Bank agrees to make Advances to Borrower in an amount not to exceed the lesser of the Exim Committed Line or the Borrowing Base. For purposes of this Exim Agreement "Borrowing Base" shall mean an amount equal to the sum of (i) eighty percent (80%) of the Exim Eligible Foreign Accounts plus (ii) forty percent (40%) of the Exim Eligible Foreign Inventory. To evidence the Advances, Borrower shall execute and deliver to Bank on the date hereof a promissory note (the "Note") in substantially the form attached hereto as Exhibit B. Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission or telephone no later than 3:00 p.m. California time, on the Business Day that the Advance is to be made. Each such notification shall be promptly confirmed by a Payment/Advance Form in substantially the form of Exhibit C hereto. In addition to the procedure set forth in the preceding sentence, Bank is authorized to make Advances under this Exim Agreement, based upon written instructions received from a Responsible Officer or without instructions if in Bank's discretion such Advances are necessary to meet Obligations which have become due and remain unpaid. Bank will credit the amount of Advances made under this Section 2.1 to Borrower's deposit account. Amounts borrowed pursuant to this Section 2.1 may be repaid and re-borrowed at any time during the term of this Exim Agreement so long as no Event of Default has occurred and is continuing. 2.2 Overadvances. If, at any time or for any reason, the amount of ------------ Obligations pursuant to this Exim Agreement owed by Borrower to Bank pursuant to Section 2.1 of this Exim Agreement is greater than the lesser of (i) the Borrowing Base or (ii) the Exim Committed Line, at the option of Bank, Borrower shall immediately pay to Bank, in cash, the amount of such excess. 2.3 Interest Rates, Payments, and Calculations. ------------------------------------------ (a) Interest Rate. Except as specified to the contrary in any Loan ------------- Document, any Advances under this Exim Agreement shall bear interest, on the average Daily Balance, at a rate equal to the Prime Rate. 6 (b) Default Rate. All Obligations shall bear interest, from and after ------------ the occurrence of an Event of Default, at a rate equal to five (5) percentage points above the rate that applied immediately prior to the occurrence of the Event of Default. (c) Payments. Interest hereunder shall be due and payable on the -------- seventh calendar day of each calendar month during the term hereof. Bank shall, at its option, charge such interest, all Exim Bank Expenses, and all Periodic Payments against Borrower's deposit account or against the Exim Committed Line, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder. (d) Computation. In the event the Prime Rate is changed from time to ----------- time hereafter, the applicable rate of interest hereunder shall be increased or decreased contemporaneously with such change by an amount equal to such change in the Prime Rate. All interest chargeable under the Exim Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed. 2.4 Crediting Payments. The receipt by Bank of any wire transfer of ------------------ funds, check, or other item of payment shall be immediately applied to conditionally reduce Obligations, but shall not be considered a payment on account unless such wire transfer is of immediately available federal funds and is made to the appropriate deposit account of Bank or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any payment (other than a wire transfer of immediately available funds) received by Bank after 12:00 noon California time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. 2.5 Fees. Borrower shall pay to Bank the following fees: ---- (a) Financial Examination and Appraisal Fees. Bank's reasonable ---------------------------------------- fees and reasonable out-of-pocket expenses for Bank's initial audit of Borrower's Accounts and Inventory, and for each subsequent appraisal of Collateral and financial analysis and examination of Borrower performed from time to time by Bank or its agents; (b) Exim Fee. A facility fee equal to Fifteen Thousand Dollars -------- ($15,000), which fee shall be due and fully earned upon the Closing Date; and (c) Exim Bank Expenses. On the Closing Date, Exim Bank Expenses ------------------ incurred through the Closing Date and, after the Closing Date, all Exim Bank Expenses as they become due. 2.6 Increased Costs. In case any law, regulation, treaty or official --------------- directive or the interpretation or application thereof by any court or any governmental authority charged with the administration thereof or the compliance with any guideline or request of any central bank or other governmental authority (whether or not having the force of law): (a) subjects Bank to any tax with respect to payments of principal or interest or any other amounts payable hereunder by Borrower or otherwise with respect to the transactions contemplated hereby (except for taxes on the overall net income of Bank imposed by the United States of America or any political subdivision thereof); or (b) imposes, modifies or deems applicable any deposit insurance, reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of, or loans by, Bank; or (c) imposes upon Bank any other condition with respect to their performance under this Exim Agreement, and the result of any of the foregoing is to increase the cost to Bank, reduce the income receivable by Bank or impose any expense upon Bank with respect to any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank the amount of such increase in cost, reduction in income or additional expense as and when such cost, reduction or expense is incurred or determined, upon presentation all in reasonable detail by Bank of a statement in the amount and setting forth Bank's calculation thereof, which statement shall be deemed true and correct absent manifest error. 2.7 Term. This Exim Agreement shall become effective once duly executed ---- and authorized by Borrower and Bank and shall continue in full force and effect for a term ending on the Exim Maturity Date, on which date all Obligations shall 7 become immediately due and payable. Notwithstanding the foregoing, Bank shall have the right to terminate this Exim Agreement immediately and without notice upon the occurrence of an Event of Default and Borrower shall have the right to terminate this Exim Agreement immediately upon payment in full of its Obligations then outstanding hereunder. Notwithstanding any termination of this Exim Agreement, all of Bank's security interest in all of the Collateral and all of the terms and provisions of this Exim Agreement shall continue in full force and effect until all Obligations have been paid and performed in full, and no termination shall impair any right or remedy of Bank, nor shall any such termination relieve Borrower of any Obligation to Bank until all of the Obligations have been paid and performed in full. 2.8 Use of Proceeds. Borrower will use the proceeds of Advances only for --------------- the purposes specified in the Borrower Agreement. Borrower shall not use the proceeds of the Advances for any purpose prohibited by the Borrower Agreement. 3. CONDITIONS OF LOANS ------------------- 3.1 Conditions Precedent to Initial Advance. The obligation of Bank to --------------------------------------- make the initial Advance is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following: (a) this Exim Agreement, the Borrower Agreement and the Note, each duly executed by Borrower; (b) a certificate of the secretary of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Exim Agreement; (c) the Exim Guarantee; (d) payment of the fees and Exim Bank Expenses then due and specified in Section 2.5 hereof; (e) documents and agreements as specified in Section 3.1 of the Domestic Agreement; and (f) such other documents, and completion of such other matters, as Bank may deem reasonably necessary or appropriate. 3.2 Conditions Precedent to all Advances. The obligation of Bank to ------------------------------------ make each Advance, including the initial Advance, is further subject to the following conditions: (a) timely receipt by Bank of the Payment/Advance Form as provided in Section 2.1; (b) timely receipt by Bank of a copy of the executed firm written export purchase order relating to the requested Advance, the payment terms of which shall be acceptable to Bank; (c) timely receipt by Bank of an Export Order and Borrowing Base Certificate as defined in the Borrower Agreement; (d) the Exim Guarantee shall be in full force and effect; and (e) the representations and warranties contained in Section 5 hereof shall be true and accurate in all material respects on and as of the date of such Payment/Advance Form and on the effective date of each Advance as though made at and as of each such date (except to the extent they relate specifically to an earlier date, in which case such representations and warranties shall continue to have been true and accurate as of such date), and no Potential Event of Default or Event of Default shall have occurred and be continuing, or would result from such Advance. The making of each Advance shall be deemed to be a representation and warranty by Borrower on the date of such Advance as to the accuracy of the facts referred to in subsection (e) of this Section 3.2. 4. CREATION OF SECURITY INTEREST ----------------------------- 4.1 Grant of Security Interest. Borrower hereby grants to Bank a -------------------------- continuing security interest in all presently existing and hereafter acquired or arising Collateral in order to secure prompt repayment of any and all Obligations and in order to secure prompt performance by Borrower of each of its covenants and duties under the Exim Loan Documents. 8 4.2 Delivery of Additional Documentation Required. Borrower shall --------------------------------------------- from time to time execute and deliver to Bank, at the request of Bank, all financing statements and other documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue perfected Bank's security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Exim Loan Documents. 4.3 Power of Attorney. Effective only upon the occurrence and ----------------- during the continuance of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of Bank's designated officers, or employees) as Borrower's true and lawful attorney, with power to: (a) send requests for verification of Accounts; (b) endorse Borrower's name on any checks or other forms of payment or security that may come into Bank's possession; (c) sign the name of Borrower on any of the documents described in Section 4.2 (regardless of whether an Event of Default has occurred); (d) sign Borrower's name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (e) make, settle, and adjust all claims under and decisions with respect to Borrower's policies of insurance; and (f) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable. The appointment of Bank as Borrower's attorney-in-fact, and each of Bank's rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and Bank's obligation to provide Advances hereunder is terminated. 4.4 Right to Inspect. Each of Bank and Exim Bank (through any of ---------------- their respective officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrower's usual business hours, to inspect Borrower's Books, facilities and activities, and to check, test, and appraise the Collateral in order to verify Borrower's financial condition or the amount, condition of, or any other matter relating to, the Collateral. Bank shall conduct semi-annual accounts receivable audits and physical inspections of the Inventory, the results of which audits shall be satisfactory to Bank. Borrower will cause its officers and employees to give their full cooperation and assistance in connection therewith. 5. REPRESENTATIONS AND WARRANTIES ------------------------------ Borrower represents, warrants and covenants as follows: 5.1 Domestic Loan Documents. The representations and warranties ----------------------- contained in the Domestic Loan Documents, which are incorporated into this Exim Agreement, are true and correct. 6. AFFIRMATIVE COVENANTS --------------------- Borrower covenants and agrees that, until payment in full of the Obligations, Borrower shall do all of the following: 6.1 Domestic Loan Documents. Borrower shall comply in all respects ----------------------- with the provisions of the Domestic Loan Documents, which provisions are incorporated into this Exim Agreement. 6.2 Terms of Sale. Borrower shall cause all sales of products upon ------------- which Advances are based either to be (i) supported by one or more irrevocable letters of credit in an amount and of a tenor, naming a beneficiary and issued by a financial institution acceptable to Bank or (ii) on open account to creditworthy buyers that have been preapproved in writing by Bank and Exim Bank. 6.3 Borrower Agreement. Borrower shall comply with all of the terms ------------------ of the Borrower Agreement. In the event of any conflict or inconsistency between any provision contained in the Borrower Agreement with any provision contained in this Exim Agreement, the more strict provision, with respect to Borrower, shall control. 6.4 Notice in Event of Filing of Action for Debtor's Relief. ------------------------------------------------------- Borrower shall notify Bank in writing within five (5) days of the occurrence of any of the following: (1) Borrower begins or consents in any manner to any proceeding or arrangement for its liquidation in whole or in part or to any other proceeding or arrangement whereby any of its assets are subject generally to the payment of its liabilities or whereby any receiver, trustee, liquidator or the like is appointed for it or any substantial part of its assets (including without limitation the filing by Borrower of a petition for appointment as a debtor-in-possession under Title 11 of the U.S. Code); (2) Borrower fails to obtain the dismissal or stay on appeal within thirty (30) calendar days of the commencement of any proceeding arrangement referred to in (1) above; (3) Borrower begins any other procedure for the relief of financially distressed or insolvent debtors, or such procedure has been commenced against it, whether voluntarily or involuntarily, and such procedure has not 9 been effectively terminated, dismissed or stayed within thirty (30) calendar days after the commencement thereof, or (4) Borrower begins any procedure for its dissolution, or a procedure therefor has been commenced against it. 6.5 Payment in Dollars. Borrower shall require payment in United States ------------------ Dollars for the products, unless Exim Bank otherwise agrees in writing. 6.6 Further Assurances. At any time and from time to time Borrower shall ------------------ execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Exim Agreement. 7. NEGATIVE COVENANTS ------------------ Borrower covenants and agrees that so long as any credit hereunder shall be available and until payment in full of the Obligations, Borrower will not do any of the following, or enter into any agreement to do any of the following: 7.1 Domestic Loan Documents. Violate or otherwise fail to comply with any ----------------------- provisions of the Domestic Loan Documents, which provisions are incorporated into this Exim Agreement. 7.2 Loans to Shareholders or Affiliates. Without Exim Bank's prior written ----------------------------------- consent, make any loans to any shareholder or entity affiliated with Borrower. As used in this Section 7.2, the term "loan" does not include salary, rent paid to an affiliated entity owned by the shareholders, or to other expenses incurred in the ordinary course of Borrower's business. 7.3 Borrower Agreement. Violate or otherwise fail to comply with any ------------------ provision of the Borrower Agreement. 7.4 Exim Guarantee. Take any action, or permit any action to be taken, -------------- that causes or, with the passage of time, could reasonably be expected to cause, the Exim Guarantee to cease to be in full force and effect. 8. EVENTS OF DEFAULT ----------------- Any one or more of the following events shall constitute an Event of Default by Borrower under this Exim Agreement: 8.1 Payment Default. If Borrower fails to pay the principal of, or any --------------- interest on, any Advances when due and payable; or fails to pay any portion of any other Obligations not constituting such principal or interest, including without limitation Exim Bank Expenses (or any interest but for the provisions of the United States Bankruptcy Code, would have occurred on any accounts), within thirty (30) days of receipt by Borrower of an invoice therefor; 8.2 Covenant Default; Cross Default. If Borrower fails or neglects to ------------------------------- perform, keep, or observe any material term, provision, condition, covenant, or agreement contained in this Exim Agreement, in any of the Domestic Loan Documents, the Borrower Agreement or the Exim Loan Documents, or an Event of Default occurs under any of the Domestic Loan Documents or the Borrower Agreement; or 8.3 Exim Guarantee. If the Exim Guarantee ceases for any reason to be in -------------- full force and effect, or if the Exim Bank declares the Exim Guarantee void or revokes or purports to revoke any obligations under the Exim Guarantee. 9. BANK'S RIGHTS AND REMEDIES -------------------------- 9.1 Rights and Remedies. Upon the occurrence of an Event of Default, Bank ------------------- may, at is election, without notice and without demand, do any one or more of the following: (a) Declare all Obligations, whether evidenced by this Exim Agreement, by any of the other Exim Loan Documents, or otherwise, immediately due and payable; (b) Cease advancing money or extending credit to or for the benefit of Borrower under this Exim Agreement or under any other agreement between Borrower and Bank; 10 (c) Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable; (d) Notify customers of Borrower or other third parties to pay any amounts owing to Borrower directly to Bank; (e) Without notice to or demand upon Borrower, make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Bank's determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrower's owned premises, Borrower hereby grants Bank a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Bank's rights or remedies provided herein, at law, in equity, or otherwise; (f) Set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Bank; (g) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a license or other right, solely pursuant to the provisions of this section 9.1, to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank's exercise of its rights under this section 9.1, Borrower's rights under all licenses and all franchise agreements shall inure to Bank's benefit; (h) Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower's premises) as Bank determines is commercially reasonable; (i) Bank may credit bid and purchase at any public sale; and (j) Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower. 9.2 Exim Direction. Upon the occurrence of an Event of Default, Exim Bank -------------- shall have a right to: (i) direct Bank to exercise the remedies specified in section 9.1 and (ii) request that Bank accelerate the maturity of any other loans to Borrower as to which Bank has a right to accelerate. 9.3 Exim Notification. Bank shall have the right to immediately notify ----------------- Exim Bank in writing if it has knowledge of the occurrence of any of the following events: (1) any failure to pay any amount due under this Loan Exim Agreement or the Note; (2) the Borrowing Base is less than the sum of outstanding Advances hereunder; (3) any failure to pay when due any amount payable to Bank by the Borrower under any loan(s) extended by Bank to Borrower; (4) the filing of an action for debtor's relief by, against, or on behalf of Borrower; or (5) any threatened or pending material litigation against Borrower, or any material dispute involving Borrower. In the event that it sends such a notification to Exim Bank, Bank shall have the right to thereafter send Exim Bank a written report on the status of the events covered by said notification on each Business Day which occurs every thirty (30) calendar days after the date of said notification, until such time as Bank files a claim with Exim Bank or said default or other events have been cured. Bank shall not have any obligation to make any Advances following said notification to Exim Bank, unless Exim Bank gives its written approval thereto. If directed to do so by Exim Bank, Bank shall have a right promptly to exercise any rights it may have against Borrower to demand the immediate repayment of all amounts outstanding under the Exim Loan Documents. 9.4 Remedies Cumulative. Bank's rights and remedies under this Exim ------------------- Agreement, the Exim Loan Documents, the Domestic Loan Documents and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one right or remedy 11 shall be deemed an election, and no waiver by Bank of any Event of Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. 10. WAIVERS; INDEMNIFICATION ------------------------ 10.1 Demand; Protest. Borrower waives demand, protest, notice of --------------- protest, notice of dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Bank on which Borrower may in any way be liable. 10.2 Bank's Liability for Inventory. Bank shall not in any way or ------------------------------ manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower. 10.3 Indemnification. Borrower agrees to defend, indemnify and hold --------------- harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Exim Agreement, and (b) all losses or Exim Bank Expenses in any way suffered, incurred, or paid by Bank as a result of or in any way arising out of, following, or consequential to transactions between Bank and Borrower whether under this Exim Agreement, or otherwise (including without limitation reasonable attorneys fees and expenses), except for losses caused by Bank's gross negligence or willful misconduct. 11. NOTICES ------- Unless otherwise provided in this Exim Agreement, all notices or demands by any party relating to this Exim Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower or to Bank, as the case may be, at the address set forth in the Domestic Loan Documents. The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other. 12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER ------------------------------------------ This Exim Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive jurisdiction of the state and Federal courts located in the County of Santa Clara, State of California. BORROWER AND BANK HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE EXIM LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. 13. GENERAL PROVISIONS ------------------ 13.1 Successors and Assigns. This Exim Agreement shall bind and inure ---------------------- to the benefit of the respective successors and permitted assigns of each of the parties; provided, however, that neither this Exim Agreement nor any rights hereunder may be assigned by Borrower without Bank's prior written consent, which consent may be granted or withheld in Bank's sole discretion. Bank shall have the right without the consent of or notice to Borrower to sell, transfer, negotiate, or grant participations in all or any part of, or any interest in Bank's rights and benefits hereunder. 13.2 Time of Essence. Time is of the essence for the performance of all --------------- obligations set forth in this Exim Agreement. 13.3 Severability of Provisions. Each provision of this Exim Agreement -------------------------- shall be severable from every other provision of this Exim Agreement for the purpose of determining the legal enforceability of any specific provision. 12 13.4 Amendments in Writing. This Exim Agreement cannot be changed or --------------------- terminated orally. Without the prior written consent of Exim Bank, no material amendment of or deviation from the terms of this Exim Agreement or the Note shall be made that would adversely affect the interests of Exim Bank under the Exim Guarantee, including without limitation the rescheduling of any payment terms provided for in this Exim Agreement. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Exim Agreement, if any, are merged into this Exim Agreement. 13.5 Counterparts. This Exim Agreement may be executed in any number of ------------ counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Exim Agreement. 13.6 Survival. All covenants, representations and warranties made in -------- this Exim Agreement shall continue in full force and effect so long as any Obligations remain outstanding. The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 10.3 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run. IN WITNESS WHEREOF, the parties hereto have caused this Exim Agreement to be executed as of the date first above written . QUICKLOGIC CORPORATION By: /s/ ------------------------------------ Title: --------------------------------- SILICON VALLEY BANK By: /s/ ------------------------------------ Title: --------------------------------- 13 EXHIBIT A The Collateral shall consist of all right, title and interest of Borrower in and to the following: 14. All goods and equipment now owned or hereafter acquired, including, without limitation, all machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located; 15. All inventory, now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products including such inventory as is temporarily out of Borrower's custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrower's Books relating to any of the foregoing; 16. All contract rights and general intangibles now owned or hereafter acquired; 17. All now existing and hereafter arising accounts, contract rights, royalties, license rights and all other forms of obligations owing to Borrower arising out of the sale or lease of goods, the licensing of technology or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower's Books relating to any of the foregoing; 18. All documents, cash, deposit accounts, securities, letters of credit, certificates of deposit, instruments and chattel paper now owned or hereafter acquired and Borrower's Books relating to the foregoing; and 19. Any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof. Notwithstanding the foregoing, the Collateral shall not include trademarks, servicemarks, trade styles, trade names, patents, patent applications, leases, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, computer programs, computer discs, computer tapes, copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished, now owned or hereafter acquired; all trade secret rights, including all rights to unpatented inventions, know- how, operating manuals, license rights and agreements and confidential information, now owned or hereafter acquired; all mask work or similar rights available for the protection of semiconductor chips, now owned or hereafter acquired; all claims for damages by way of any past, present and future infringement of any of the foregoing. 14 EXHIBIT B Revolving Promissory Note (Export-Import Line) $1,000,000 Santa Clara, California August 8, 1996 FOR VALUE RECEIVED, the undersigned, QuickLogic Corporation (the "Borrower"), promises to pay to the order of Silicon Valley Bank ("Bank"), at such place as the holder hereof may designate, in lawful money of the United States of America, the aggregate unpaid principal amount of all advances ("Advances") made by Bank to Borrower under the terms of this Note, up to a maximum principal amount of One Million Dollars ($1,000,000). Borrower shall also pay interest on the aggregate unpaid principal amount of such Advances at the rates and in accordance with the terms of the Export-Import Bank Loan and Security Agreement between Borrower and Bank of even date herewith, as amended from time to time (the "Loan Agreement") on the seventh calendar day of each month after an Advance has been made. The entire principal amount and all accrued interest shall be due and payable on August 7, 1997, or on such earlier date, as provided for in the Loan Agreement. Borrower irrevocably waives the right to direct the application of any and all payments at any time hereafter received by Bank from or on behalf of Borrower, and Borrower irrevocably agrees that Bank shall have the continuing exclusive right to apply any and all such payments against the then due and owing obligations of Borrower as Bank may deem advisable. In the absence of a specific determination by Bank with respect thereto, all payments shall be applied in the following order: (a) then due and payable fees and expenses; (b) then due and payable interest payments and mandatory prepayments; and (c) then due and payable principal payments and optional prepayments. Bank is hereby authorized by Borrower to endorse on Bank's books and records each Advance made by Bank under this Note and the amount of each payment or prepayment of principal of each such Advance received by Bank; it being understood, however, that failure to make any such endorsement (or any errors in notation) shall not affect the obligations of Borrower with respect to Advances made hereunder, and payments of principal by Borrower shall be credited to Borrower notwithstanding the failure to make a notation (or any errors in notation) thereof on such books and records. Borrower promises to pay Bank all reasonable costs and reasonable expenses of collection of this Note and to pay all reasonable attorneys' fees incurred in such collection or in any suit or action to collect this Note or in any appeal thereof. Borrower waives presentment, demand, protest, notice of protest, notice of dishonor, notice of nonpayment, and any and all other notices and demands in connection with the delivery, acceptance, performance, default or enforcement of this Note, as well as any applicable statute of limitations. No delay by Bank in exercising any power or right hereunder shall operate as a waiver of any power or right. Time is of the essence as to all obligations hereunder. This Note is issued pursuant to the Loan Agreement, which shall govern the rights and obligations of Borrower with respect to all obligations hereunder. This Note shall be deemed to be made under, and shall be construed in accordance with and governed by, the laws of the State of California, excluding conflicts of laws principles. QUICKLOGIC CORPORATION By: Title: 15 EXHIBIT C LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T. TO: CENTRAL CLIENT SERVICE DIVISION DATE: FAX#: (408) 432-3249 TIME: FROM: QuickLogic, Inc. -------------------------------------------------------------------- CLIENT NAME (BORROWER) REQUESTED BY: -------------------------------------------------------------- AUTHORIZED SIGNER'S NAME AUTHORIZED SIGNATURE: ------------------------------------------------------ PHONE NUMBER: -------------------------------------------------------------- FROM ACCOUNT # TO ACCOUNT # --------------------------------- ------------ REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT - -------------------------- --------------------- PRINCIPAL INCREASE (ADVANCE) $----------------------------------------- PRINCIPAL PAYMENT (ONLY) $----------------------------------------- INTEREST PAYMENT (ONLY) $----------------------------------------- PRINCIPAL AND INTEREST (PAYMENT) $----------------------------------------- OTHER INSTRUCTIONS: ----------------------------------------------------------- - ------------------------------------------------------------------------------ All representations and warranties of Borrower stated in the Loan Agreement are true, correct and complete in all material respects as of the date of the telephone request for and Advance confirmed by this Borrowing Certificate; provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date. BANK USE ONLY TELEPHONE REQUEST: - ----------------- The following person is authorized to request the loan payment transfer/loan advance on the advance designated account and is known to me. - ----------------------------- ------------------ Authorized Requester Phone # - ----------------------------- ------------------ Received By (Bank) Phone # --------------------------------- Authorized Signature (Bank) 16 Exhibit D BORROWING BASE CERTIFICATE COLLATERAL SCHEDULE (FOREIGN A/R LINE OF CREDIT) Borrower: QuickLogic Corporation Lender: Silicon Valley Bank 2933 Bunker Hill Lane 100A 3003 Tasman Drive Santa Clara, CA 95054 Santa Clara, CA 95054 Commitment Amount: $1,000,000 FOREIGN ACCOUNTS RECEIVABLE FROM EXPORT ACTIVITIES 1. Foreign Accounts Receivable Book Value as of_____ $_________ 2. Additions (please explain on reverse) $_________ 3. TOTAL FOREIGN ACCOUNTS RECEIVABLE $_________ ACCOUNTS RECEIVABLE DEDUCTIONS 20. Term in excess of 90 days $________ 21. Amounts over 90 days (unless insured, then 90 days) $_________ _6. Balance of 50% over 90 day accounts $_________ 1. Excess 25% concentration $________ 2. Credit Balances over 120 days _9. Accounts not payable in the U.S. Dollars or payable in other than U.S. Dollars $_______ 3. Government and Military Accounts $_______ _11. Contra Accounts $_______ _12. Promotion, Demo or Consignment Accounts $_________ _13. Intercompany/Employee and Affiliate Accounts $_________ _14. Accounts in the form of L/Cs, if subject items have not yet been shipped by Borrower $_________ _15. Accounts arising from Inventory not originally located in and shipped from the U.S. $_________ _16. Accounts arising from the sale of defense articles or items $_________ 4. Accounts of buyers located in or from countries in which shipment is prohibited or no coverage available $_________ 5. Amounts due and collectable outside U.S. $_________ 6. Other exclusions $_________ 7. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_________ 8. Eligible Accounts (No. 3 - No. 20) 9. Loan Value of Accounts (80%-Advance) $_________ FOREIGN INVENTORY 1. Foreign Inventory Value as of _________ $_________ 2. Additions (please explain on reverse) $_________ 3. TOTAL FOREIGN INVENTORY $_________ FOREIGN INVENTORY DEDUCTIONS
17 1. Outside U.S. $______ 2. Consignment $______ 3. Proprietary Software $______ 4. Damaged/Defective $______ 5. Previously Exported $______ 6. Defense Articles/Services $_______ 7. Prohibited County $______ 8. No Coverage County $______ 9. Ineligible A/R $______ 10. TOTAL DEDUCTIONS $_______ 11. Eligible Inventory (No. 23 - No. 35) $______ 12. Loan Value of Inventory (40% - No. 35) $______ BALANCES 13. Maximum Loan Amount $_______ 14. Total Available (Lesser of (No. 22 plus No. 37) $______ 15. Present balance owing on Line of Credit $______ 16. Outstanding under Sublimits $______ 17. RESERVE POSITION (No. 39 - (No. 40 + No. 41)) $______
The undersigned represents and warrants that the foregoing is true, complete and correct, and that the information reflected in this Collateral Schedule complies with the representations and warranties set forth in the Borrower Agreement, executed by Borrower and acknowledged by Lender, and the Export-Import Bank Loan and Security Agreement, executed by Borrower and acknowledged by Lender dated August 9, 1996, as may be amended from time to time, as if all representations and warranties were made as of the date hereof, and that Borrower is, and shall remain, in full compliance with its agreements, covenants, and obligations under such agreement. Such representations and warranties include, without limitation, the following: Borrower is using disbursements only for the purpose of enabling Borrower to finance the cost of manufacturing, producing, purchasing or selling items intended for export. Borrower is not using disbursements for the purpose of: (a) servicing any of Borrower's unrelated pre-existing or future indebtedness; (b) acquiring fixed assets or capital goods for the use of Borrower's business; (c) acquiring, equipping, equipping or renting commercial space outside the United States; (d) supporting research and development, (e) paying salaries of non-U.S. citizens or non-U.S. permanent residents who are located in the offices of the United States, or (f) serving as a retainage or warranty bond. Additionally, disbursements are not being used to finance the manufacture, purchase or sale of any of the following: (a) Items to be sold to a buyer located in a country in which the Export Import Bank of the United States is legally prohibited from doing business; (b) that part of the cost of the items which is not U.S. Content unless such part is not greater than fifty percent (50%) of the cost of the items and is incorporated into the items in the United States; (c) defense articles or defense services or items directly or indirectly destined for use by military organizations designed primarily for military use (regardless of the nature or actual use of the items); or (d) any items to be used in the construction, alteration, operation or maintenance of nuclear power, enrichment, reprocessing, research or heavy water production facilities. Sincerely, QuickLogic Corporation By: --------------------------- Name: ------------------------- Chief Financial Officer Date: ------------------------- 18 EX-11.1 18 CALCULATION OF EARNINGS EXHIBIT 11.1 QUICKLOGIC CORPORATION SCHEDULE OF COMPUTATION OF PRO FORMA EARNINGS (LOSS) PER SHARE (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED YEAR ENDED ----------------------------- DECEMBER 31, 1996 MARCH 31, 1996 MARCH 31, 1997 ----------------- -------------- -------------- Net income (loss).............. $(3,597) $ 21 $(23,103) ------- ------- -------- Weighted average common shares outstanding................... 3,388 3,156 3,388 Weighted average common equivalent shares relating to convertible preferred stock (using the as if-converted method)....................... 8,496 8,496 8,496 Common equivalent shares relating to stock options and warrants (using the treasury stock method)................. 728 786 728 Common shares and common equivalent shares relating to stock options issued subsequent to May 1996........ -- -- -- ------- ------- -------- Shares used in pro forma net income (loss) per share calculation................... 12,612 12,438 12,612 Pro Forma net income (loss) per share......................... $ (0.29) $ -- $ (1.83)
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