-----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, TDIv42bJoQkRDAk9ZRvu9xW20DRtn2PfFnWHxMKN1jQuGMniFkN+C9ueQBeAXPvZ 17ipoYhiNydXY02VWwZg0Q== 0001012870-97-001180.txt : 19970619 0001012870-97-001180.hdr.sgml : 19970619 ACCESSION NUMBER: 0001012870-97-001180 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19970618 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUICKLOGIC CORPORATION CENTRAL INDEX KEY: 0000882508 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 770188504 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-28833 FILM NUMBER: 97625958 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/A 1 FORM S-1/A AMENDMENT #1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1997 REGISTRATION NO. 333-28833 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- QUICKLOGIC CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 3674 77-0188504 (Prior to reincorporation) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER DELAWARE CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER) (After reincorporation) (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
1277 ORLEANS DRIVE SUNNYVALE, CALIFORNIA 94089 (408) 990-4000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) --------------- E. THOMAS HART CHIEF EXECUTIVE OFFICER QUICKLOGIC CORPORATION 1277 ORLEANS DRIVE SUNNYVALE, CALIFORNIA 94089 (408) 990-4000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: LARRY W. SONSINI JOSHUA L. GREEN AARON J. ALTER JEFFREY Y. SUTO WILSON SONSINI GOODRICH & ROSATI VENTURE LAW GROUP PROFESSIONAL CORPORATION 2800 SAND HILL ROAD 650 PAGE MILL ROAD MENLO PARK, CALIFORNIA 94025 PALO ALTO, CALIFORNIA 94304 (415) 854-4488 (415) 493-9300 --------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [_] __________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [_] ________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS + +OF ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED JUNE 18, 1997 [LOGO OF QUICKLOGIC] - -------------------------------------------------------------------------------- 3,000,000 SHARES COMMON STOCK - -------------------------------------------------------------------------------- Of the 3,000,000 shares of Common Stock, par value $.001 per share ("Common Stock"), of QuickLogic Corporation ("QuickLogic" or the "Company") offered hereby, 1,800,000 shares are being offered by the Company and 1,200,000 shares are being offered by a stockholder of the Company (the "Selling Stockholder"). The Company will not receive any proceeds from the sale of shares by the Selling Stockholder. See "Principal and Selling Stockholders." Prior to this offering, there has been no public market for the Common Stock. It is currently estimated that the initial public offering price will be between $11.00 and $13.00 per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The Company has applied to have the Common Stock approved for listing on the Nasdaq National Market under the trading symbol "QWIK." FOR INFORMATION CONCERNING CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS" COMMENCING ON PAGE 5. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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) 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 $28,780 Total assets............................ 21,476 39,890 Long-term obligations................... 1,658 1,658 Stockholders' equity.................... 8,059 26,473
- ------- (1) Assumes no exercise of the Underwriters' over-allotment option to purchase up to an additional 450,000 shares of Common Stock. (2) Based on Common Stock outstanding at May 31, 1997. Excludes 1,604,750 shares of Common Stock issuable upon exercise of outstanding options under the Company's 1989 Stock Option Plan (the "Option Plan") and 714,478 shares reserved for future grant under the 1989 Plan as of May 31, 1997. See "Management--Benefit Plans" and Note 7 of Notes to Financial Statements. (3) See Notes 8 and 11 of Notes to Financial Statements, "Risk Factors--Actel Litigation" and "Business--Cypress Transaction." (4) See Note 1 of Notes to Financial Statements. (5) As adjusted to reflect the sale of 1,800,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $12.00 per share and receipt of the estimated proceeds therefrom (after deducting underwriting discount and offering expenses payable by the Company) of $18,330,000 and to reflect the exercise of a warrant to purchase 18,750 shares of Common Stock at $4.48 per share. See "Use of Proceeds" and "Capitalization." 3 THE COMPANY QuickLogic develops, markets and supports advanced FPGA semiconductors and software design tools. QuickLogic products enable designers of complex electronic systems to achieve rapid time to market by optimizing design speed, design flexibility and cost. The Company's products target complex, high- performance electronic systems in rapidly changing markets including video, graphics and imaging, telecommunications and data communications, instrumentation and test, high-performance computers and military systems. The key components of the QuickLogic solution are the Company's proprietary ViaLink antifuse technology and pASIC architectures, and its software design tools. QuickLogic's proprietary ViaLink antifuse technology places logic interconnects between the metal layers of an FPGA device instead of on the silicon substrate, thereby minimizing die size and cost. The ViaLink antifuse technology offers lower resistance and lower capacitance than competing interconnect technologies, thereby optimizing a device's performance. The Company's pASIC architectures facilitate full routability and utilization of a device's logic cells, enabling a high degree of design flexibility. QuickLogic's QuickTools software design tools place and route logic cells on an FPGA device, and the QuickWorks design software suite incorporates QuickTools and industry-leading design tools for hardware description language ("HDL")/schematic entry, synthesis and simulation. In addition, QuickWorks incorporates Institute of Electrical and Electronic Engineers ("IEEE") standard design languages Verilog HDL and VHDL. QuickLogic's fabless manufacturing strategy allows the Company to focus its resources on product design, development and marketing rather than on manufacturing expenditures. The Company has a foundry relationship with Cypress for its existing products and has entered into a memorandum of understanding with TSMC for the production of its anticipated 0.35^ CMOS products. QuickLogic sells its products through independent sales representatives, distributors and a direct sales force in North America, Europe and Asia. The Company's customers include Alcatel Alsthom, Compaq Computer Corporation, Honeywell, Inc., International Business Machines Corporation, McDonnell Douglas Corp., NEC Corporation, Northern Telecom Ltd., Rockwell International Corp., Saab Automobile AB, Silicon Graphics, Inc., Sony Corp., Texas Instruments Incorporated, 3Com Corporation and Toshiba Corporation. In March 1997, the Company became the exclusive supplier of all of its products worldwide, which affords significant advantages in supply, pricing, and quality control. From October 1992 to March 1997, the Company had granted to Cypress certain technology development, manufacturing and marketing rights to the Company's products, making it a second source of such products. In exchange for the termination of this arrangement in March 1997, the Company paid Cypress $4.5 million in cash and agreed to issue 2,603,817 shares of Common Stock to Cypress, increasing the aggregate number of shares of Common Stock of the Company held by Cypress to 3,339,783, prior to the sale of any shares by Cypress in this offering. In addition, the Company granted Cypress certain contractual rights as to the shares of the Company's stock, including the right to sell shares in this offering. The parties also entered into a new foundry agreement and a cross-license agreement. See "Business--Cypress Transaction" and "Principal and Selling Stockholders." The Company was incorporated in California in April 1988 as Peer Semiconductor, Inc., and changed its name in May 1988 to Peer Research, Inc. and in February 1991 to QuickLogic Corporation. The Company intends to reincorporate in Delaware prior to the date of this offering. Unless the context requires otherwise, references in this Prospectus to the "Company" or "QuickLogic" refer to the Delaware corporation and its California predecessor corporation. The address of the Company's corporate headquarters is 1277 Orleans Drive, Sunnyvale, California 94089. The Company's telephone number is (408) 990-4000. The Company's Web site is located at http://www.quicklogic.com. Neither the information contained in the Company's Web site nor Web sites linked to the Company's Web site shall be deemed to be a part of this Prospectus. 4 RISK FACTORS This Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements may be found in this section and under the sections entitled "Prospectus Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business--Industry Background," "--Strategy," "-- Sales, Support and Marketing," "--Research and Development," "--Manufacturing" and "--Actel Litigation." Actual events or results could differ materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, the risk factors set forth below and elsewhere in the Prospectus. The following risk factors should be considered carefully before purchasing the Common Stock offered hereby. LIMITED OPERATING HISTORY; NO ASSURANCE OF FUTURE PROFITABILITY. The Company was incorporated in 1988 and did not begin shipping products in volume until 1992. Accordingly, the Company has a limited operating history upon which investors may evaluate the Company and its prospects. The Company had an accumulated deficit of $50.9 million as of March 31, 1997. Although the Company has experienced revenue growth in each of the past five fiscal years, and first achieved profitability in the fourth quarter of 1995, this growth rate should not be considered to be indicative of future revenue growth, if any, nor is there any assurance that the Company will be profitable in any future period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." FLUCTUATIONS IN OPERATING RESULTS. Fluctuations in the Company's operating results have occurred in the past and may occur in the future due to a variety of factors, any of which may have a material adverse effect on the Company's operating results. In particular, the Company's quarterly results of operations may vary significantly due to general business conditions in the semiconductor industry, fluctuations in manufacturing yields at the Company's wafer suppliers, the availability of foundry capacity, cancellations or delays of deliveries of products to the Company, new product introductions by the Company or its competitors, product obsolescence, price erosion for maturing products, competition, changes in the mix of products sold, seasonal fluctuations in demand, changes in distributor inventory levels, availability of wafer supply, increases in the costs of materials, cancellations or delays of product orders, developments in the Company's litigation with Actel Corporation ("Actel"), the ability to safeguard intellectual property in a rapidly evolving market, changing customer product requirements, changes in demand for customers' products and fluctuations in foreign currency exchange rates. A large portion of the Company's operating expenses is fixed and difficult to reduce or modify. If revenue does not meet the Company's expectations, the adverse effect of any such revenue shortfall will be magnified by the fixed nature of these operating expenses. In addition, the Company's quarterly operating results can vary due to the volume and timing of product orders received and delivered during a quarter, the ability of the Company and its key suppliers to respond to changes made in customer orders, and the timing of new product introductions by the Company and its competitors. All of the above factors are difficult for the Company to forecast, and these and other factors could have a material adverse effect on the Company's business, financial condition and results of operations. As a result, the Company believes that period-to-period comparisons are not necessarily meaningful and should not be relied upon as indicative of future operating results. See "--Actel Litigation" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." ACTEL LITIGATION. On January 20, 1994, Actel, a competitor of the Company, filed a lawsuit against the Company entitled Actel Corporation v. QuickLogic Corporation in the United States District Court for the Northern District of California (the "Court"), Case No. C-94 20050JW (PVT). The original complaint alleged infringement by the Company of four U.S. patents held by Actel: U.S. Patent 4,873,459 (the "'459 Patent") issued October 10, 1989 and entitled "Programmable Interconnect 5 Architecture;" U.S. Patent 4,758,745 (the "'745 Patent") issued July 19, 1988 and entitled "User Programmable Integrated Circuit Interconnect Architecture and Test Method;" U.S. Patent 5,055,718 (the "'718 Patent") issued October 8, 1991 and entitled "Logic Module With Configurable Combinational and Sequential Blocks;" and U.S. Patent 5,198,705 (the "'705 Patent") issued March 30, 1993 and entitled "Logic Modular and Configurable Combinational and Sequential Blocks." In each of March 1995 and March 1996, Actel added a claim that an additional Actel patent was infringed: U.S. Patent 5,367,208 (the "'208 Patent") issued November 22, 1994 and entitled "Reconfigurable Programmable Interconnect Architecture" and U.S. Patent 5,479,113 (the "'113 Patent") issued December 26, 1995 and entitled "User Configurable Logic Circuits Comprising Antifuses and Multiplexer-Based Logic Modules." The '459, '745, '208 and '113 Patents all relate to user programmable interconnect architectures and are based upon the same application. Actel's '705 and '718 Patents relate to logic modules for use in FPGAs. As to the '745 and '459 Patents, Actel asserts that QuickLogic's programmable interconnect circuits and architecture found in its pASIC 1 and pASIC 2 product families infringe one or more claims of these patents. As to the '705 and '718 Patents, Actel asserts that QuickLogic's programmable logic module used in its pASIC1 and pASIC2 product families infringes one or more claims of each patent. As to Actel's '113 patent, Actel asserts that QuickLogic's control circuit controlling the program voltage within QuickLogic's user programmable interconnect architecture infringes one or more claims. As to each patent-in- suit, Actel seeks an injunction preventing QuickLogic from further use of the claimed inventions, damages for past infringement of the inventions, Actel's attorneys' fees and treble damages for willful infringement. Sales of the Company's pASIC products have accounted for substantially all of the Company's revenue to date and are expected to account for substantially all of the Company's revenue for the foreseeable future. Fees from licenses of the QuickWorks and QuickTools software design tools have accounted for substantially all of the remainder of the Company's revenue. The Company has filed answers to each of these complaints and counter-claims seeking declarations that the Actel patents at issue are not infringed by the Company, are invalid, and are unenforceable. On April 19, 1994, QuickLogic moved to stay proceedings pending reexamination by the United States Patent and Trademark Office (the "USPTO") of two of the patents involved in the litigation, the '745 Patent and the '459 Patent. The Court granted this stay on July 21, 1994. The USPTO confirmed the patentability of these two patents on November 15, 1994 and January 10, 1995, respectively, which Actel may argue will increase the burden upon QuickLogic to prove the invalidity of the two reexamined patents. The Court lifted the stay on November 8, 1994. On November 15, 1994, Actel filed a motion for summary judgment with respect to the Company's infringement of claim 1 of the '705 Patent. Actel's '705 Patent relates to an interconnect structure, programming structures, and logic circuits wherein a multiplicity of logic circuits are arranged in a regular pattern on the semiconductor substrate. The logic circuits (logic modules) contain circuitry which ultimately determines the function that the FPGA could perform. The '705 Patent covers a logic module, and its structure and its connections to the interconnect structure. Actel has referred to this technology as its "nested three multiplexer" architecture, which involves three dual input, single output multiplexers. The logic module, as claimed in the '705 Patent, includes two multiplexers wherein each output is coupled to one of the pair of inputs of a third multiplexer. The first and second multiplexers have four inputs which are "connected to" four respective "data nodes." The output of the third multiplexer may be connected to a sequential logic circuit. First and second multiplexers are controlled by a "single level logic gate" at their select inputs as is the third multiplexer which is similarly controlled by a second "single level logic gate." The Court appointed a Special Master to assist in determining certain issues related to this litigation, and the Special Master recommended on October 4, 1996 that the Court find that the Company's pASIC 1 products infringe claim 1 of the '705 Patent. On April 14, 1997, the Court adopted the recommendation of the Special Master and granted Actel's motion for summary judgment that the Company's pASIC 1 products infringe claim 1 of the '705 Patent. Any appeal of the summary judgment motion on infringement of the '705 Patent cannot be made until after there is a final judgment. If the '705 Patent is finally 6 adjudicated to be valid and enforceable, and the summary judgment motion is upheld on appeal, then Actel would be entitled to damages for past infringement and potentially would be entitled to an injunction on future infringement. Such an injunction and/or the payment of damages would have a material adverse effect on the Company's business, financial condition and results of operations, and could potentially render it insolvent and unable to sell its products. On April 12, 1995, QuickLogic filed a counterclaim alleging that Actel has infringed two U.S. patents held by the Company, U.S. Patent Nos. 5,220,213 (the "'213 Patent") and 5,396,127 (the "'127 Patent"). The '127 Patent recites a logic module having three multiplexers wherein each output of two of the multiplexers is connected to one of the pair of inputs of the third. The output of the third multiplexer is connected to a flip flop. The '213 Patent recites logic gates coupled to the data inputs of the first two multiplexers. As to each patent-in-suit in the counterclaim, the Company alleges infringement of one or more claims and seeks an injunction preventing Actel from further infringement of the claimed inventions. The Company also seeks damages for past infringement of the inventions and the Company's attorneys' fees based on the alleged infringement and increased damages for willful infringement. On January 18, 1996, Actel filed a motion for summary judgment declaring the '213 and '127 Patents to be invalid. Actel's motion is based on an "on-sale bar" defense, i.e. that the Actel products which the Company claims infringe these patents were offered for sale more than one year before the filing dates of the '213 and '127 Patents which, if proven under patent law, would invalidate these patents. Discovery is currently in progress to allow QuickLogic to file its opposition to this motion, which the Company believes will be filed in 1997, with the hearing on this motion to be scheduled thereafter. On February 5, 1996, QuickLogic filed a motion for summary judgment of infringement by Actel of claim 1 of the '213 Patent. Actel has opposed this motion, and discovery is currently in progress. Actel also requested a separate trial on the "on-sale bar" defense, which request was denied by the Special Master on June 4, 1997 in a Notice of Intention to Rule. After the issuance of a formal recommendation by the Special Master, the Court must then decide whether to adopt this recommendation. On January 14, 1997, an additional U.S. patent was issued to the Company, U.S. Patent No. 5,594,364 (the "'364 Patent"). On February 28, 1997, the Company filed a motion to add a counterclaim for Actel's infringement of this patent. A hearing on this motion was held on May 19, 1997 before the Special Master, who granted the Company's motion on June 4, 1997 in a Notice of Intention to Rule. After the issuance of a formal recommendation by the Special Master, the Court must then decide whether to adopt this recommendation. On June 4, 1997, the Special Master also notified the parties of his intent to accept the parties' stipulation that Actel be allowed to amend its complaint to add a claim alleging QuickLogic's infringement of an additional patent, U.S. Patent No. 5,610,534 (the "'534 Patent"), issued March 11, 1997 and entitled "Logic Module For A Programmable Logic Device." Actel alleges that the Company has infringed one or more claims of this patent and is likely to seek both monetary and injunctive relief, but has not yet filed or served an amended complaint. After the issuance of a formal recommendation by the Special Master, the Court must then decide whether to adopt this recommendation. In addition to the patent infringement actions, Actel amended its claims against the Company to include a claim against the Company and one of its employees on June 14, 1995 alleging misappropriation of trade secrets, breach of contract, breach of confidential relationship, and unfair competition. Actel has sought assignment of certain issued and future patents of the Company, two of which are part of this lawsuit, unspecified money damages, a doubling of the damages for willful and malicious misappropriation, attorneys' fees and other remedies. These claims are based on allegations that this employee, who had once been a consultant to Actel and is a named inventor of some of QuickLogic's patents, had misappropriated confidential information from Actel related to logic 7 cells, which the Company then incorporated into its pASIC products. The employee and the Company have filed answers denying each of these claims. Discovery is ongoing at this time and no dispositive motions have been filed or heard. Trial on the patent infringement and trade misappropriation claims is currently scheduled for September 1998. However, there can be no assurance that the trial will occur at such time and may be delayed significantly. As the outcome of any litigation is inherently uncertain, the Company is unable to predict the outcome of this litigation. Therefore, there can be no assurance that the Company will prevail in the trial on its defenses to the patent infringement claims and its counter-claims, the trial on the alleged misappropriation of intellectual property, or hearings on any motions related to such proceedings or any appeals. The timing of the filing of any motions by Actel, hearings on motions by either Actel or the Company, the issuance of rulings on such motions, the issuance of recommendations by the Special Master and the adoption or rejection of such recommendations by the Court are not within the Company's control and could occur at any time. The announcement of any rulings or recommendations, or the adoption or rejection of recommendations, that are adverse to the Company, will likely have a material adverse effect upon the market price for the Company's stock. The semiconductor industry is characterized by frequent litigation regarding patent and other intellectual property rights, which involve highly technical and subjective analysis. Discovery and litigation of such issues are time- consuming and costly, and Actel possesses more personnel and greater financial resources than the Company and is able to conduct extensive and protracted litigation at less of a relative detriment to its current business. While patent infringement litigation in the semiconductor industry has at times resulted in voluntary settlements by the parties, often involving cross- licensing of the patents involved, there can be no assurance that such a result will be reached in this case. In addition, the terms of any settlement may require the Company to stop selling all or certain of its products, pay damages or royalties or other forms of consideration or grant licenses to all or a portion of its intellectual property portfolio, any or all of which could have a material adverse effect on the Company's business, financial condition and results of operations. Patent infringement litigation in the semiconductor industry has also resulted in court orders to pay significant damages and/or injunctions preventing a party from making, using or offering to sell, selling or importing any products that incorporate technology covered by such patents. As referenced above, sales of the allegedly infringing products by the Company have accounted for substantially all of the Company's past revenue and are expected to account for substantially all of the Company's revenue for the foreseeable future. This litigation could result in the Company being required to cease selling its products and/or could also result in the Company paying significant damages, including treble damages for willful infringement, either of which would have a material adverse effect on the Company's business, financial condition and results of operations and could potentially render it insolvent. There can be no assurance that the Company will prevail in its claims or defenses or that it would be able to obtain a license under any Actel patents that are found to be infringed, or if such a license were obtained, that it would be on terms that would not have an adverse effect on the Company's business, financial condition and results of operations. The current litigation and any future litigation, whether or not determined in the Company's favor or settled by the Company, has been and will continue to be costly and will divert the efforts and attention of the Company's management and technical personnel from normal business operations, which could have a material adverse effect on the Company's business, financial condition and results of operations. It is expected that legal fees and other litigation- related expenses will continue to adversely affect the Company's operating results for the foreseeable future. Any adverse determinations in this litigation or a settlement could result in 8 the loss of the Company's proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from or to grant licenses to third parties, prevent the Company from licensing its technology or enjoin the Company from sale of its products, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. INDUSTRY PRESSURES. The semiconductor industry in general and the programmable logic device ("PLD") segment of this industry, in particular, are characterized by rapid technological change, intense competitive pressure and fluctuating demand. The semiconductor industry has historically been cyclical and subject to significant downturns at various times, characterized by diminished product demand, accelerated erosion of average selling prices ("ASPs") and production over-capacity. to general semiconductor industry conditions. ASPs typically decrease rapidly over the first three to six months following product introduction and continue to decline thereafter. Therefore, the Company must develop and introduce new products which incorporate features that can be sold at higher ASPs on a timely basis. In addition, the Company's ability to maintain desired gross margins depends upon its ability to achieve manufacturing efficiencies and material cost reductions, such as manufacturing its products in smaller product geometries on larger wafers. Failure to achieve any or all of the foregoing could cause the Company's revenue and gross margins to decline, which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion of Financial Condition and Results of Operations." DEPENDENCE ON INDEPENDENT WAFER MANUFACTURERS. The Company does not manufacture the wafers used to produce its products. In the past, wafer foundry capacity in the semiconductor industry has been very limited and may become limited in the future. To date, wafers have been manufactured for the Company principally by Cypress and in limited quantities by TSMC. In the future, the Company expects its wafers to be manufactured principally by TSMC. The Company depends on these suppliers to produce wafers at acceptable yields and prices and to deliver them to the Company in a timely manner. The process used to manufacture the Company's semiconductors can be performed in only a limited number of foundries, increasing the Company's dependence on Cypress and TSMC. Although the Company has a supply contract with Cypress and is negotiating a new supply contract for its future products with TSMC, either Cypress or TSMC could allocate capacity to the manufacture of other products and reduce deliveries to the Company on short notice. Under its wafer supply arrangements, the Company is obligated to provide rolling forecasts of anticipated purchases and place binding purchase orders months prior to shipment. Forecasts for monthly purchases may not increase or decrease by more than a certain percentage from the previous month's forecast without the supplier's consent. Thus, the Company must make forecasts and place purchase orders for wafers before it receives purchase orders from its own customers. This limits the Company's ability to react to fluctuations in demand for its products, which could cause the Company to have an excess or a shortage of wafers for a particular product. Any delays in obtaining an adequate supply of wafers at acceptable yields and prices would have a material adverse effect on the Company's business, financial condition and results of operations. The Company's long-term growth will depend substantially on the Company's ability to obtain increased wafer fabrication capacity at acceptable prices from Cypress, TSMC and other suppliers. The Company's current supply contract with Cypress expires in 2001. The inability of the Company to obtain increased wafer fabrication capacity at acceptable prices, or any delay or interruption in supply, could reduce the Company's supply of wafers or increase the Company's cost of such wafers and could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business-- Manufacturing." DEPENDENCE ON CUSTOMIZED MANUFACTURING PROCESSES. The Company's products are manufactured using customized steps which are added to the standard manufacturing processes of 9 its wafer suppliers. There is considerably less operating history for the Company's customized process steps than for the foundries' standard manufacturing processes. The Company's dependence on customized processing steps means that, in contrast to competitors using only a standard manufacturing process, the Company has more difficulty establishing relationships with suppliers, takes longer to qualify a new supplier, must pay more for wafers and may not obtain access as early as competitors to state-of- the-art processes. Any of the above could be a material disadvantage for the Company versus a competitor using a standard manufacturing process without customized steps and could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the planned future products that the Company anticipates will be supplied by TSMC will involve production of new products utilizing 0.35^ CMOS technology and on 8-inch wafers, which is a manufacturing process that has not previously been used by the Company. Accordingly, the development of this manufacturing process is subject to the risks and uncertainties inherent in the technology and equipment necessary for such manufacturing. This manufacturing process may not be able to be implemented for any of the Company's products by TSMC, or by any other wafer manufacturer, or may be delayed substantially due to development or implementation difficulties. Even if this manufacturing process is successfully implemented by TSMC for the Company's products, the Company will continue to be subject to unforeseen problems or delays as this new process is developed. See "Business--Manufacturing." PRODUCTION YIELD FLUCTUATIONS. The manufacture of semiconductor products is a highly complex and precise process. Defects in masks, impurities in the materials used, contamination of the manufacturing environment, equipment failure and other difficulties in the fabrication process can cause a substantial percentage of wafers to be rejected or numerous die on each wafer to be nonfunctional. Yields can decline without warning, resulting in substantially higher product costs and inventory shortages. Yield problems may take substantial time to analyze and correct, particularly for the Company because it utilizes independent facilities for all of its manufacturing. The Company has from time to time experienced lower than anticipated production yields, and there can be no assurance that the Company will not experience production yield problems in the future, or that any such problem will not have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Manufacturing." NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE. The market for the Company's products is characterized by rapidly changing technology. Accordingly, the Company's future performance depends on a number of factors, including its ability to identify emerging technological trends in its target markets, to develop and maintain competitive products, to enhance its products by adding innovative features that differentiate its products from those of competitors, to introduce products to market on a timely basis at competitive prices, to properly identify target markets and to respond effectively to new technological changes or new product announcements by others. The Company recently introduced new products within its pASIC family of FPGAs and currently is in the process of introducing new versions of its software design tool suites. No assurance can be given that the Company's design and introduction schedules for its pASIC families of products or any other new products will be met, that these products will achieve market acceptance, or that these products will be able to be sold at ASPs that are acceptable to the Company. In evaluating new product decisions, the Company must anticipate well in advance both the future demand and the technology that will be available to supply such demand. The Company must also continue to make significant investments in research and development in order to develop new products and achieve market acceptance for such products. The failure of the Company to accomplish any or all of the foregoing could have a material adverse effect on its business, financial condition and results of operations. See "Business-- Products." COMPETITION. The semiconductor industry is intensely competitive and is characterized by constant technological change, rapid rates of product obsolescence and price erosion. The Company's existing competitors include suppliers of conventional gate arrays, complex programmable logic 10 devices ("CPLDs") and FPGAs, particularly Xilinx, Inc. ("Xilinx"), a supplier of static random access memory ("SRAM")-based FPGAs, Actel, an antifuse FPGA supplier, and Altera Corporation ("Altera"), a supplier of CPLDs. The Company also faces competition from companies that offer standard gate arrays, which can be obtained at a lower cost for high volumes and may have gate densities and performance equal or superior to the Company's products. In addition, the Company expects significant competition in the future from major domestic and international semiconductor suppliers, and the Company's patents may not bar competitors from manufacturing similar products. The Company also may face competition from suppliers of products based on new or emerging technologies. The PLD market is dominated by Xilinx and Altera, which together control over 55% of the market, according to Pace Technologies, a semiconductor market research firm. The Xilinx products dominate the FPGA segment of the market while Altera dominates the CPLD segment of the market. In addition, the Company expects significant competition in the future from major domestic and international suppliers which have entered or are considering entering the PLD market. Such suppliers include Lucent Technologies, Vantis Corporation/Advanced Micro Devices, Inc., Motorola, Inc. and Atmel Corporation. Most of the Company's current and prospective competitors offer broader product lines and have significantly greater financial, technical, manufacturing and marketing resources than the Company. In particular, companies such as Lucent Technologies, Motorola, Inc. and others have proprietary wafer manufacturing ability, preferred vendor status with many of the Company's customers, extensive marketing power and name recognition, greater financial resources than the Company, and other significant advantages over the Company. Certain of the current and prospective competitors of the Company are or may become customers as well. There can be no assurance that such customers will continue to buy the Company's products if they are offering their own competing products, which could have a material adverse effect on the Company's business, financial condition and results of operations. The Company believes that important competitive factors in its market are length of development cycle, price, performance, installed base of development systems, adaptability of products to specific applications, ease of use and functionality of development system software, reliability and technical service and support, wafer fabrication capacity and sources of raw materials, and protection of products by effective utilization of intellectual property laws. Failure of the Company to compete successfully in any of these or other areas could have a material adverse effect on its operating results. In addition, the Company's competitive position is substantially dependent upon industry competition for effective sales and distribution channels. There can be no assurance that the Company's products will be competitive. The failure of the Company to develop and market products that compete successfully with those of other companies in the market would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Competition." DEPENDENCE UPON DESIGN WINS. The Company's success depends upon its ability to convince a customer to incorporate the Company's FPGA into the customer's circuit board during the design phase of a product. Accordingly, the Company devotes substantial resources, which it may not recover through product sales, in support of potential customer design efforts and in persuading potential customers to incorporate the Company's FPGAs into new or updated products. The typical engineer designing a circuit board will make an FPGA decision only three or four times during the year. Accordingly, the Company's sales force has limited windows of opportunity within which to successfully sell the Company's products to design engineers. Sales efforts may be targeted at a particular customer or market segment for several months and may not be successful or, if successful, may not generate revenue for a year or longer after the initial design win until the customer's products using the Company's devices are being produced in volume. In addition, the Company may achieve a design win with a customer, but the designed product may not ever be produced and therefore not generate revenue. The value of any design win depends in large part upon the ultimate success of the customer's product. No assurance can be given that the Company will 11 win sufficient designs or that any design win will result in significant revenue. The failure of the Company to achieve design wins in sufficient number or the failure of a substantial number of such products to be produced would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Sales, Support and Marketing." PROTECTION OF INTELLECTUAL PROPERTY. Since its inception, the Company has devoted significant resources to research and development. The Company relies primarily on a combination of nondisclosure agreements, mask work rights and other contractual provisions and patent, trademark, trade secret, and copyright law to protect its proprietary rights. Failure of the Company to enforce its patents, trademarks, mask work rights or copyrights or to protect its trade secrets could have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that such intellectual property rights can be successfully asserted in the future or will not be invalidated, circumvented or challenged. From time to time, third parties, including competitors of the Company, may assert patent, copyright and other intellectual property rights to technologies that are important to the Company. There can be no assurance that third parties will not assert infringement claims against the Company in the future, that assertions by third parties will not result in costly litigation or that the Company would prevail in any such litigation or be able to license any valid and infringed patents from third parties on commercially reasonable terms. Litigation, regardless of the outcome, could result in substantial cost and diversion of resources of the Company. Any infringement claim or other litigation against or by the Company could materially adversely affect the Company's business, financial condition and results of operations. See "-- Actel Litigation." In addition, there can be no assurance that competitors of the Company, many of which have substantial resources and have made substantial investments in competing technologies, do not have, or will not seek to apply for and obtain, patents that will prevent, limit or interfere with the Company's ability to make, use or sell its products either in the United States or in international markets. There can be no assurance that the Company will not in the future become subject to patent infringement claims and litigation or interference proceedings declared by the USPTO to determine the priority of inventions. The defense and prosecution of intellectual property suits, USPTO interference proceedings and related legal and administrative proceedings are both costly and time consuming. Any such suit or proceeding involving the Company could have a material adverse effect on the Company's business, financial condition and results of operations. See "--Actel Litigation." ORDER AND SHIPMENT UNCERTAINTIES. The Company's sales are generally made pursuant to individual purchase orders that may be canceled or deferred by customers on short notice without significant penalty. Cancellation or deferral of product orders could result in excess inventory to the Company, which could have a material adverse effect on the Company's profit margins and restrict its ability to fund its operations. The Company sells to domestic distributors under agreements which allow certain rights of return and price adjustments on unsold inventory. The Company recognizes revenue from such sales to domestic distributors upon shipment of products to the end-user. Revenue from all other products is recognized at the time of shipment by the Company. Delays or difficulties in collecting receivable accounts could result in significant charges against income, which could have a material adverse effect on the Company's business, financial condition and results of operations. RISKS OF GROWTH AND EXPANSION. The Company has recently experienced and expects to continue to experience growth in the number of its employees and the scope of its operations, resulting in increased responsibilities for management personnel. To manage recent and potential future growth effectively, the Company will need to continue to hire, train, motivate and manage a growing number of employees. The future success of the Company will also depend on its ability to attract and retain qualified technical, marketing, and management personnel. In particular, the current availability of qualified design, process, and test engineers is limited, and competition among 12 companies for skilled experienced engineering personnel is very intense. The Company has been attempting to hire a number of engineering personnel and has experienced delays in filling such positions. During strong business cycles, the Company expects to experience continued difficulty in filling its needs for qualified engineers and other personnel. No assurance can be given that the Company will be able to achieve or manage effectively any growth, and the failure to do so could delay product development and introductions and otherwise have a material adverse effect on the Company's business, financial condition and results of operations. RELIANCE ON DISTRIBUTORS. Approximately 53.3% and 68.8%, respectively, of the Company's worldwide sales were made through independent distributors in 1996 and the first quarter of 1997, respectively. In these periods, most of the Company's sales outside the United States were made through independent distributors. No assurance can be given that future sales by these or other distributors will continue at current levels or that the Company will be able to retain its current distributors on terms that are acceptable to the Company. The Company's distributors generally offer products of several different companies, including products that are competitive with the Company's products. Accordingly, there is a risk that these distributors may give higher priority to products of other suppliers, thus reducing their efforts to sell the Company's products. In addition, the Company's agreements with its distributors are generally terminable at the distributor's option. The Company recently terminated its distribution relationships with Seymour Electronics and Reptron Electronics Inc. The failure of the Company to successfully transition from the termination of these relationships, a reduction in sales efforts by one or more of the Company's current distributors, or a termination of any other distributor relationship with the Company could have a material adverse effect on the Company's business, financial condition and results of operations. The Company's distributors have on occasion increased inventories in anticipation of substantial growth in sales and, when such growth did not occur as rapidly as anticipated, substantially decreased the amount of products ordered from the Company in subsequent periods. Such a slowdown in sales would adversely affect the Company's future revenue. No assurance can be given that one or more of the Company's distributors will not experience financial difficulties. The failure of one or more of the Company's distributors to pay for products ordered from the Company or to continue operations because of financial difficulties or for other reasons could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Sales, Support and Marketing." RISKS ASSOCIATED WITH INTERNATIONAL BUSINESS ACTIVITIES. Sales to customers located outside the United States accounted for approximately 29.6% and 46.7% of revenue in 1996 and the first quarter of 1997, respectively. The Company expects that revenue derived from international sales will continue to represent a significant portion of its total revenue. International sales are subject to a variety of risks, including those arising from currency exchange fluctuations, taxes, export license requirements, reduced protection for intellectual property rights in some countries, the difficulty in enforcing contractual rights, the impact of general business conditions of economies outside the United States and generally longer periods for receivables collection. Because all of the Company's foreign sales are denominated in U.S. dollars, the Company's products become less price competitive in countries whose currencies are declining in value against the dollar. The Company's business is also subject to the risks associated with the imposition of legislation and regulations relating to the import or export of semiconductor products. In order to expand international sales and service capabilities, the Company must maintain and expand existing foreign operations or establish new foreign operations. Significant management attention and financial resources of the Company will be necessary to hire additional personnel and maintain or expand existing relationships with international distributors and sales representatives. There can be no assurance that the Company will be able to maintain or expand existing foreign operations, establish new foreign operations or preserve and develop its relationships with international distributors or sales representatives. The failure to take any of such measures could have a material adverse effect on the Company's business, financial condition and results of operations. 13 The Company has entered into a memorandum of understanding with TSMC to manufacture its products at TSMC's foundries in the Republic of China (Taiwan), and TSMC is currently producing research and development wafers for the Company. The research and development of the technology that is planned to be used at the TSMC foundry, negotiation of a manufacturing agreement with TSMC, and any production by TSMC, are subject to the risk of political instability in Taiwan, including but not limited to the potential for conflict between Taiwan and the People's Republic of China. In addition, the United States has had disputes with China relating to trade and human rights issues and has also considered trade sanctions against Japan. If trade sanctions were imposed, Japan or China could enact trade sanctions in response. Because the Company plans to manufacture the majority of its products at the TSMC facility in the future, and because a number of the Company's current and prospective customers and suppliers are located in Japan and China, trade sanctions, if imposed, could have a material adverse effect on the Company's business, financial condition and results of operations. Similarly, protectionist trade legislation in either the United States or foreign countries could have a material adverse effect on the Company's ability to manufacture or to sell its products in foreign markets. See "Business--Manufacturing." KEY PERSONNEL; RECENT MANAGEMENT ADDITIONS. The Company's future success depends substantially on the continued service of its key management, engineering, marketing, and sales and support employees, many of whom have worked together for only a short period of time. In particular, two of the Company's executive officers joined the Company in late 1996, and two of the Company's executive officers joined the Company in early 1997. Competition for qualified personnel is intense in the semiconductor industry, and the loss of any of the Company's current key employees, or the inability of the Company to attract and retain other qualified personnel, could have a material adverse effect on the Company's business, financial condition and results of operations. The Company has not entered into any employment agreements with any of its employees, nor does it have "key person" insurance on any of its employees. POSSIBLE VOLATILITY OF STOCK PRICE. The Company believes that factors such as announcements of developments related to the Company's business, including the Actel litigation, announcements by competitors, quarterly fluctuations in the Company's financial results and general conditions in the semiconductor industry or the national and international economies in which the Company conducts business, and release of reports by securities analysts, among other factors, could cause the price of the Company's Common Stock to fluctuate, perhaps substantially. In addition, in recent years the stock market in general, and the market for shares of technology stocks in particular, have experienced extreme price fluctuations, which have often been unrelated to the operating performance of affected companies. Such fluctuations could have a material adverse effect on the price of the Company's Common Stock. DISCRETIONARY USE OF PROCEEDS OF THIS OFFERING. The Company has no current specific plans for the use of the net proceeds of this offering. As a consequence, the Company's management will retain broad discretion in the allocation of the net proceeds of this offering. The Company ultimately expects to use the net proceeds from this offering for general corporate purposes, including working capital and capital expenditures. There can be no assurance that the proceeds will be utilized in a manner that the stockholders deem optimal or that the proceeds can or will be invested to yield a significant return upon the completion of this offering. Substantially all of the net proceeds to the Company from the sale of the 1,800,000 shares of Common Stock offered by the Company hereby which are estimated to be $18,330,000, assuming an initial public offering price of $12.00 per share and after deducting the underwriting discount and estimated offering expenses payable by the Company, will be invested in U.S. short-term or medium-term, investment-grade, interest-bearing securities for an indefinite period. See "Use of Proceeds." FUTURE CAPITAL NEEDS. In order to secure additional foundry capacity, finance ongoing litigation, finance research and development, acquire new technologies or businesses, satisfy personnel needs, 14 or for other general corporate purposes, the Company has considered and will continue to consider various possible transactions, which could include, without limitation, equity investments in, prepayments to, non-refundable deposits with, or loans to, foundries in exchange for guaranteed capacity, "take or pay" contracts that commit the Company to purchase specified quantities of wafers over extended periods, joint ventures or other partnership relationships with foundries, private or public financings or borrowings, or licenses of the Company's technology. There can be no assurance that the Company will be able to make any such arrangement in a timely fashion or at all, that the Company will not require additional issuances of equity or debt in order to raise capital for any such arrangements or that any such financing would be available to the Company on acceptable terms or at all. The failure to obtain additional capital when necessary, could have a material adverse effect on the Company's business, financial condition and results of operations. EFFECT OF ANTITAKEOVER PROVISIONS. Certain provisions of the Company's Restated Certificate of Incorporation and Bylaws and of Delaware law could discourage potential acquisition proposals and could delay or prevent a change in control of the Company. Such provisions could diminish the opportunities for a stockholder to participate in tender offers, including tender offers at a price above the then current market value of the Common Stock. Such provisions may also inhibit fluctuations in the market price of the Common Stock that could result from takeover attempts. In addition, the Restated Certificate of Incorporation authorizes 10,000,000 shares of undesignated preferred stock. The Board of Directors of the Company, without further stockholder approval, may issue this preferred stock with such terms as the Board of Directors may determine, which could have the effect of delaying or preventing a change in control of the Company. The issuance of preferred stock could also adversely affect the voting power of the holders of Common Stock, including the loss of voting control to others. Such preferred stock could be utilized to implement, without stockholder approval, a stockholders' rights plan that could be triggered by certain change in control transactions, which could delay or prevent a change in control of the Company or could impede a merger, consolidation, takeover or other business combination involving the Company, or discourage a potential acquiror from making a tender offer or otherwise attempting to obtain control of the Company. The Company's charter documents also provide that one-third of the directors will be elected each year which could prevent or delay an attempt to change the composition of the Board. See "Description of Capital Stock." RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS. An important element of the Company's strategy is to review acquisition prospects that would complement its existing product offerings, augment its market coverage or enhance its technological capabilities or that may otherwise offer growth opportunities. While the Company has no current agreements or negotiations underway with respect to any such acquisitions, the Company may make acquisitions of businesses, products or technologies in the future. Future acquisitions by the Company could result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and amortization expenses related to goodwill and other intangible assets, any of which could materially adversely affect the Company's operating results and/or the price of the Company's Common Stock. Acquisitions entail numerous risks, including difficulties in the assimilation of acquired operations, technologies and products, diversion of management's attention to other business concerns, risks of entering markets in which the Company has no or limited prior experience and potential loss of key employees of acquired organizations. No assurance can be given as to the ability of the Company to successfully integrate any businesses, products, technologies or personnel that might be acquired in the future, and the failure of the Company to do so could have a material adverse effect on the business, financial condition and results of operations of the Company. See "Use of Proceeds." CONTROL BY PRINCIPAL STOCKHOLDERS. A substantial majority of the Company's capital stock is held by a limited number of stockholders. At the completion of this offering, Cypress and the Company's seven largest stockholders (including Cypress) will own approximately 15.5% and 60.7%, 15 respectively, of the shares of Common Stock outstanding or issuable upon conversion of convertible securities. Accordingly, such stockholders are likely, for the foreseeable future, to continue to be able to control major decisions of corporate policy and determine the outcome of any major transaction or other matter submitted to the Company's stockholders or Board of Directors, including potential mergers or acquisitions involving the Company, amendments to the Company's Certificate of Incorporation or Bylaws, and the like. Stockholders other than such principal stockholders are therefore likely to have little or no influence on decisions regarding such matters. See "Principal and Selling Stockholders." DILUTION. Investors participating in this offering will incur immediate and substantial dilution in the net tangible book value of their shares of Common Stock in the amount of approximately $10.01 per share, at an assumed initial public offering price of $12.00 per share, after deducting the underwriting discount and commissions and estimated offering expenses payable by the Company. Additional dilution will occur upon the exercise of outstanding stock options. See "Dilution." ABSENCE OF DIVIDENDS. The Company has not declared or paid cash dividends on its capital stock to date. The Company presently intends to retain future earnings, if any, for use in the operation and expansion of its business and does not anticipate paying cash dividends with respect to the Common Stock in the foreseeable future. See "Dividend Policy." SHARES ELIGIBLE FOR FUTURE SALE. Sales of the Company's Common Stock in the public market after this offering could adversely affect the market price of the Company's Common Stock. Upon completion of this offering, the Company will have approximately 13,817,422 shares of Common Stock outstanding, of which approximately 3,000,000 shares (approximately 3,450,000 if the Underwriters' over-allotment option is exercised in full) will be freely transferable without restriction or registration under the Securities Act of 1933, as amended (the "Securities Act"), unless such shares are held by "affiliates" of the Company, as that term is defined in Rule 144 under the Securities Act. Upon completion of this offering, Cypress will continue to hold approximately 2,139,783 shares (1,689,783 shares if the Underwriters' over-allotment option is exercised in full), and will be eligible to sell these shares in the public market pursuant to Rule 144, subject to certain contractual restrictions on resale, including lock-up agreements under which the Company, officers and directors of the Company and Cypress have agreed, subject to certain exceptions, not to sell or otherwise dispose of any of their shares for a period of 180 days after the date of this offering (the "Lock Up Period"), provided, however, that in the event that the Lock Up Period would expire in a period where the Company's directors and officers are prevented from trading because of the set "blackout" period between earnings releases provided in the Company's insider trading policy, then, notwithstanding the 180-day limit set forth above, the Lock Up Period shall not expire until the date that trading can commence under the Company's insider trading policy. However, Deutsche Morgan Grenfell may, in its sole discretion, at any time without notice, release all or any portion of the shares subject to lock-up agreements. In addition, Cypress will have certain rights with respect to registration of such shares of Common Stock for sale to the public. Sales of Common Stock by Cypress in the public market, or the availability of such shares for sale, could adversely affect the market price of the Common Stock. In addition, approximately 1,604,750 shares are issuable upon exercise of outstanding options granted under the Company's stock option plans as of May 31, 1997. See "Management--Benefit Plans," "Description of Capital Stock--Registration Rights" and "Shares Eligible for Future Sale." 16 USE OF PROCEEDS The net proceeds to the Company from the sale of the 1,800,000 shares of Common Stock offered by the Company hereby are estimated to be $18,330,000, assuming an initial public offering price of $12.00 per share and after deducting the underwriting discount and estimated offering expenses payable by the Company. The principal purposes of this offering are to obtain additional capital, to create a public market for the Company's Common Stock, to enhance the Company's ability to use its Common Stock as consideration for acquisitions and as a means of attracting and retaining key employees, to provide increased visibility and credibility in a marketplace where many of the Company's current and potential competitors are or will be publicly held companies, and to facilitate future access by the Company to public equity markets. As of the date of this Prospectus, the Company has no specific plans as to the use of the net proceeds of this offering. However, the Company ultimately expects to use the net proceeds from this offering for general corporate purposes, including working capital and capital expenditures, including at least $2.0 million of capital expenditures in 1997. A portion of the proceeds may also be used to make strategic acquisitions of complementary businesses, technologies or products. Although the Company evaluates such potential acquisitions from time to time, the Company currently has no understanding, commitment or agreement with respect to any such acquisitions. Pending such uses, the Company intends to invest the net proceeds of this offering in U.S. short-term or medium-term, investment grade, interest-bearing securities. The Company will not receive any proceeds from the sale of the shares of Common Stock offered by Cypress hereby. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." DIVIDEND POLICY The Company has not and does not intend to pay any cash dividends on its capital stock. The Company presently intends to retain future earnings, if any, for use in the operation and expansion of its business and does not anticipate paying cash dividends in the foreseeable future. 17 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 80,347 Common stock to be issued: 2,603,817 shares actual; and no shares, as adjusted......................... 18,409 -- Stockholder note receivable......................... (119) (119) Deferred compensation............................... (2,897) (2,897) Accumulated deficit................................. (50,872) (50,872) ----------- ----------- Total stockholders' equity........................ 8,059 26,473 ----------- ----------- Total capitalization.......................... $ 9,717 $ 28,131 =========== ===========
- -------- (1) As of March 31, 1997, excludes 1,657,592 shares of Common Stock subject to outstanding options under the Option Plan and 714,289 shares reserved for future issuance thereunder. See "Management--Benefit Plans" and Note 7 of Notes to Financial Statements. 18 DILUTION The pro forma net tangible book value of the Company as of March 31, 1997, was approximately $8.1 million, or $0.67 per share of Common Stock. Pro forma net tangible book value per share represents the amount of total tangible assets of the Company reduced by the amount of its total liabilities and divided by the total number of shares of Common Stock outstanding after giving effect to the conversion of all outstanding shares of preferred stock into Common Stock and the issuance of 2,603,817 shares of Common Stock to Cypress. After giving effect to the sale by the Company of 1,800,000 shares of Common Stock offered hereby at an assumed initial public offering price of $12.00 per share, after deducting the underwriting discount and estimated offering expenses payable by the Company, and after giving effect to the exercise of a warrant to purchase 18,750 shares of Common Stock, the pro forma net tangible book value of the Company as of March 31, 1997, would have been $26,473,000, or $1.92 per share. This amount represents an immediate increase in such net tangible book value of $1.25 per share to existing stockholders and an immediate dilution of $10.08 per share to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share.............. $12.00 Pro forma net tangible book value per share as of March 31, 1997...................................................... $ 0.67 Increase per share attributable to new investors........... 1.25 ------ Pro forma net tangible book value per share after the offering.................................................... 1.92 ------ Dilution per share to new investors.......................... $10.08 ======
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% $62,031,000 74.2% $ 5.18 New investors(1).............. 1,800,000 13.1 21,600,000 25.8 12.00 ---------- ----- ----------- ----- Total....................... 13,779,236 100.0% $83,631,000 100.0% ========== ===== =========== =====
- -------- (1) The sale of shares of Common Stock by Cypress in the offering will reduce the number of shares held by existing stockholders to 10,779,236 or 78.2% of the total number of shares of Common Stock outstanding after the offering, and will increase the number of shares to be purchased by the new public investors to 3,000,000 or 21.8% of the total number of shares of Common Stock outstanding after the offering. See "Principal and Selling Stockholders." The above computations assume that (i) no part of the Underwriters' over- allotment option is exercised and (ii) no options are exercised after March 31, 1997. As of March 31, 1997, there were outstanding options to purchase an aggregate of 1,657,592 shares of Common Stock at a weighted average exercise price of $1.94 per share. To the extent the above options have been or are exercised, there will be further dilution to new investors. See "Management-- Benefit Plans," "Description of Capital Stock" and Notes 5 and 7 of Notes to Financial Statements. 19 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(1).......... -- -- -- 2,700 4,125 -- 23,009 ------- ------- ------- ------- ------- ------ -------- Total operating expenses.............. 4,621 5,387 7,580 12,069 16,497 2,727 26,655 ------- ------- ------- ------- ------- ------ -------- Loss from operations.... (4,487) (4,135) (5,609) (4,660) (3,897) (136) (23,200) Interest expense........ -- (223) (240) (200) (60) (7) (21) Interest income and other, net............. 30 60 21 153 360 164 118 ------- ------- ------- ------- ------- ------ -------- Net income (loss)(2)... $(4,457) $(4,298) $(5,828) $(4,707) $(3,597) $ 21 $(23,103) ======= ======= ======= ======= ======= ====== ======== Pro forma net income (loss) per share (unaudited)(2)... $ (0.29) $ -- $ (1.83) ======= ====== ======== Shares used in pro forma net income (loss) per share calculation (unaudited)............ 12,612 12,438 12,612 ======= ====== ========
- -------- (1) Includes a charge of $23.0 million in the quarter ended March 31, 1997 for termination of the Existing Agreement (as defined herein) and charges of $2.7 million and $4.1 million in the years ended December 31, 1995 and 1996, respectively, for expected costs of litigation. See "Risk Factors-- Actel Litigation" and Notes 8 and 11 of Notes to Financial Statements. (2) Excluding the contract termination expense and charge for legal reserves, net income (loss) and pro forma net income (loss) per share would have been $(94,000) and $(0.01), respectively, for the quarter ended March 31, 1997 and $528,000 and $0.04, respectively, for the year ended December 31, 1996.
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 $38,000 attributable to deferred compensation charges in the first quarter of 1997 associated with the grant of incentive stock options to employees. R&D expense increased as a percentage of revenue from 20.2% in the first quarter of 1996 to 21.3% in the first quarter of 1997. Selling, General and Administrative Expense. SG&A expense was $1.7 million and $2.3 million for the first quarter of 1996 and 1997, respectively. SG&A expense increased as a percentage of revenue from 32.7% in the first quarter of 1996 to 36.9% in the first quarter of 1997 due to hiring of additional sales, marketing, finance and human resources personnel. In addition, SG&A expense includes $38,000 attributable to deferred compensation charges in the first quarter of 1997 associated with the grant of incentive stock options to employees. 24 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............. -- -- 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............. -- -- 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 $2.5 million from cash and short-term investments held at December 31, 1995. This increase was primarily attributable to the issuance of $8.9 million in preferred stock in December 1996 and January 1997, offset in part by the payment of $4.5 million to Cypress and increased cash used in operating activities. As of March 31, 1997, the Company had an accumulated deficit of $50.9 million. See "Business--Cypress Transaction" and Note 8 of Notes to Financial Statements. The Company currently has a $5.0 million bank facility which will increase to $6.0 million upon the closing of this offering. Under this facility, the Company has a $2.0 million domestic accounts receivable revolving line of credit, a $2.0 million equipment term loan facility, and a $1.0 million foreign accounts receivable and inventory revolving line of credit. The domestic and foreign revolving lines of credit are available for general working capital purposes, bear interest at the bank's prime rate and expire August 7, 1997. The Company expects to renew these lines of credit. At March 31, 1997, the Company had utilized $1.8 million of the equipment term loan facility, and has not drawn down under the other lines as of such time or to date. The equipment term loan facility is available for drawdown through June 30, 1997, bears interest at prime plus 0.25% and is payable in equal monthly installments from July 1997 through June 2000. See Note 4 of Notes to Financial Statements. Through March 31, 1997, the Company has purchased approximately $4.9 million in capital assets, $1.9 million of which were purchased through bank financing during 1996 and the first quarter of 1997. The Company intends to purchase approximately $2.0 million of additional capital assets during the remainder of 1997 but currently has no other significant commitments to acquire capital equipment. Net cash used in operations was $3.5 million, $5.0 million, $4.6 million and $1.4 million in 1994, 1995, 1996 and the first quarter of 1997, respectively. The increase in cash used in 1995 as compared to 1994 was primarily attributable to a $2.6 million increase in accounts receivable, partially offset by a $2.0 million increase in liabilities in 1995 and $122,000 reduction in accounts payable in 1995 compared to a $1.5 million increase in accounts payable in 1994, partially offset by a $1.1 million decrease in net loss in 1995 compared to 1994. The decline in cash used for operations (excluding the increase in the charge for legal reserves) in 1996 as compared to 1995 was due to net income of $528,000 in 1996 compared to a net loss of $2.0 million in 1995, and a substantial increase in accounts payable in 1996, offset in part by the $4.5 million payment to Cypress and a substantial increase in inventory in 1996. Net cash used in operations during the first quarter of 1997 resulted primarily from increases in accounts receivable and inventory. Net cash provided by (used for) investing activities was $(259,000), $(4.1) million, $2.5 million and $(915,000) in 1994, 1995, 1996 and the first quarter of 1997, respectively. In 1995, the Company invested $4.0 million in short- term investments which were sold in 1996. The Company acquired $1.5 million and $915,000 in property and equipment in 1996 and the first quarter of 1997, respectively, primarily furniture, leasehold improvements and computer and networking equipment as a result of its move to its new facility in December of that year. The majority of these acquisitions were financed under the Company's equipment term loan facility. Net cash provided from financing activities was $1.4 million, $12.5 million, $8.5 million and $2.3 million in 1994, 1995, 1996 and the first quarter of 1997, respectively, and resulted primarily from the issuance of $11.8 million of preferred stock in 1995 and $8.1 million of preferred stock in 1996, and 27 $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(mu). In addition, the ViaLink's programming algorithm produces a link filament that tolerates operating voltage and current overloads, reducing the likelihood of device malfunction. 32 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 Technology 1991/1.0(mu)* 1992/1.0(mu)* 1994/0.65(mu) 1995/0.65(mu) 1994/0.65(mu) 1994/0.65(mu) pASIC 2 3K 5K 7K 9K Product Release/Process Technology 1997+/0.65(mu) 1997/0.65(mu) 1996/0.65(mu) 1997/0.65(mu)
- -------- * 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 "The Lion King" and other movies) Dome Imaging Medical imaging products Fujitsu Stadium display controls Hitachi DVD, MPEG image compression Miro Computer Image editing PC hardware Silicon Graphics Flat panel display controller Texas Instruments Video display projectors TV/Com Satellite TV signal encryption & compression Telecommunications AG Communications Telephone networking equipment Alcatel Alsthom Microwave communication systems NEC PBX electronics Northern Telecom Satellite-based telephone systems Uniden Internet telephone
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 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 original complaint alleged infringement by the Company of four U.S. patents held by Actel: U.S. Patent 4,873,459 (the "'459 Patent") issued October 10, 1989 and entitled "Programmable Interconnect Architecture;" U.S. Patent 4,758,745 (the "'745 Patent") issued July 19, 1988 and entitled "User Programmable Integrated Circuit Interconnect Architecture and Test Method;" U.S. Patent 5,055,718 (the "'718 Patent") issued October 8, 1991 and entitled "Logic Module With Configurable Combinational and Sequential Blocks;" and U.S. Patent 5,198,705 (the "'705 Patent") issued March 30, 1993 and entitled "Logic Modular and Configurable Combinational and Sequential Blocks." In each of March 1995 and March 1996, Actel added a claim that an additional Actel patent was infringed: U.S. Patent 5,367,208 (the "'208 Patent") issued November 22, 1994 and entitled "Reconfigurable Programmable Interconnect Architecture" and U.S. Patent 5,479,113 (the "'113 Patent") issued December 26, 1995 and entitled "User Configurable Logic Circuits Comprising Antifuses and Multiplexer-Based Logic Modules." The '459, '745, '208 and '113 Patents all relate to user programmable interconnect architectures and are based upon the same application. Actel's '705 and '718 Patents relate to logic modules for use in FPGAs. As to the '745 and '459 Patents, Actel asserts that QuickLogic's programmable interconnect circuits and architecture found in its pASIC 1 and pASIC 2 product families infringe one or more claims of these patents. As to the '705 and '718 Patents, Actel asserts that QuickLogic's programmable logic module used in its pASIC1 and pASIC2 product families infringes one or more claims of each patent. As to Actel's '113 patent, Actel asserts that QuickLogic's control circuit controlling the program voltage within QuickLogic's user programmable interconnect architecture infringes one or more claims. As to each patent-in-suit, Actel seeks an injunction preventing QuickLogic from further use of the claimed inventions, damages for past infringement of the inventions, Actel's attorneys' fees and treble damages for willful infringement. Sales of the Company's pASIC products have accounted for substantially all of the Company's revenue to date and are expected to account for substantially all of the Company's revenue for the foreseeable future. Fees from licenses of the QuickWorks and QuickTools software design tools have accounted for substantially all of the remainder of the Company's revenue. The Company has filed answers to each 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 '705 Patent relates to an interconnect structure, programming structures, and logic circuits wherein a multiplicity of logic circuits are arranged in a regular pattern on the semiconductor substrate. The logic circuits (logic modules) contain circuitry which ultimately determines the function that the FPGA could perform. The '705 Patent covers a logic module, and its structure and its connections to the interconnect structure. Actel has referred to this technology as its "nested three multiplexer" architecture, which involves three dual input, single output multiplexers. The logic module, as claimed in the '705 Patent, includes two multiplexers wherein each output is coupled to one of the pair of inputs of a third multiplexer. The first and second multiplexers have four inputs which are "connected to" four respective "data nodes." The output of the third multiplexer may be connected to a sequential logic circuit. First and second multiplexers are controlled by a "single level logic gate" at their select inputs as is the third multiplexer which is similarly controlled by a second "single level logic gate." The Court appointed a Special Master to assist in determining certain issues related to this litigation, and the Special Master recommended on October 4, 1996 that the Court find that the Company's pASIC 1 products infringe claim 1 of the '705 Patent. On April 14, 1997, the Court adopted the recommendation of the Special Master and granted Actel's motion for summary judgment that the Company's pASIC 1 products infringe claim 1 of the '705 Patent. Any appeal of the summary judgment motion on infringement of the '705 Patent cannot be made until after there is a final judgment. If the '705 Patent is finally adjudicated to be valid and enforceable, and the summary judgment motion is upheld on appeal, then Actel would be entitled to damages for past infringement and potentially would be entitled to an injunction on future infringement. Such an injunction and/or the payment of damages would have a material adverse effect on the Company's business, financial condition and results of operations, and could potentially render it insolvent and unable to sell its products. On April 12, 1995, QuickLogic filed a counterclaim alleging that Actel has infringed two U.S. patents held by the Company, U.S. Patent Nos. 5,220,213 (the "'213 Patent") and 5,396,127 (the "'127 Patent"). The '127 Patent recites a logic module having three multiplexers wherein each output of two of the multiplexers is connected to one of the pair of inputs of the third. The output of the third multiplexer is connected to a flip flop. The '213 Patent recites logic gates coupled to the data inputs of the first two multiplexers. As to each patent-in-suit in the counterclaim, the Company alleges infringement of one or more claims and seeks an injunction preventing Actel from further infringement of the claimed inventions. The Company also seeks damages for past infringement of the inventions and the Company's attorneys' fees based on the alleged infringement and increased damages for willful infringement. On January 18, 1996, Actel filed a motion for summary judgment declaring the '213 and '127 Patents to be invalid. Actel's motion is based on an "on-sale bar" defense, i.e. that the Actel products which the Company claims infringe these patents were offered for sale more than one year before the filing dates of the '213 and '127 Patents which, if proven under patent law, would invalidate these patents. Discovery is currently in progress to allow QuickLogic to file its opposition to this motion, which the Company believes will be filed in 1997, with the hearing on this motion to be scheduled thereafter. On February 5, 1996, QuickLogic filed a motion for summary judgment of infringement by Actel of claim 1 of the '213 Patent. Actel has opposed this motion, and discovery is currently in progress. Actel also requested a separate trial on the "on-sale bar" defense, which 43 request was denied by the Special Master on June 4, 1997 in a Notice of Intention to Rule. After the issuance of a formal recommendation by the Special Master, the Court must then decide whether to adopt this recommendation. On January 14, 1997, an additional U.S. patent was issued to the Company, U.S. Patent No. 5,594,364 (the "'364 Patent"). On February 28, 1997, the Company filed a motion to add a counterclaim for Actel's infringement of this patent. A hearing on this motion was held on May 19, 1997 before the Special Master, who granted the Company's motion on June 4, 1997 in a Notice of Intention to Rule. After the issuance of a formal recommendation by the Special Master, the Court must then decide whether to adopt this recommendation. On June 4, 1997, the Special Master also notified the parties of his intent to accept the parties' stipulation that Actel be allowed to amend its complaint to add a claim alleging QuickLogic's infringement of an additional patent, U.S. Patent No. 5,610,534 (the "'534 Patent"), issued March 11, 1997 and entitled "Logic Module For A Programmable Logic Device." Actel alleges that the Company has infringed one or more claims of this patent and is likely to seek both monetary and injunctive relief, but has not yet filed or served an amended complaint. After the issuance of a formal recommendation by the Special Master, the Court must then decide whether to adopt this recommendation. In addition to the patent infringement actions, Actel amended its claims against the Company to include a claim against the Company and one of its employees on June 14, 1995 alleging misappropriation of trade secrets, breach of contract, breach of confidential relationship, and unfair competition. Actel has sought assignment of certain issued and future patents of the Company, two of which are part of this lawsuit, unspecified money damages, a doubling of the damages for willful and malicious misappropriation, attorneys' fees and other remedies. These claims are based on allegations that this employee, who had once been a consultant to Actel and is a named inventor of some of QuickLogic's patents, had misappropriated confidential information from Actel related to logic cells, which the Company then incorporated into its pASIC products. The employee and the Company have filed answers denying each of these claims. Discovery is ongoing at this time and no dispositive motions have been filed or heard. Trial on the patent infringement and trade misappropriation claims is currently scheduled for September 1998. However, there can be no assurance that the trial will occur at such time and may be delayed significantly. As the outcome of any litigation is inherently uncertain, the Company is unable to predict the outcome of this litigation. Therefore, there can be no assurance that the Company will prevail in the trial on its defenses to the patent infringement claims and its counter-claims, the trial on the alleged misappropriation of intellectual property, or hearings on any motions related to such proceedings or any appeals. The timing of the filing of any motions by Actel, hearings on motions by either Actel or the Company, the issuance of rulings on such motions, the issuance of recommendations by the Special Master and the adoption or rejection of such recommendations by the Court are not within the Company's control and could occur at any time. The announcement of any rulings or recommendations, or the adoption or rejection of recommendations, that are adverse to the Company, will likely have a material adverse effect upon the market price for the Company's stock. The semiconductor industry is characterized by frequent litigation regarding patent and other intellectual property rights, which involve highly technical and subjective analysis. Discovery and litigation of such issues are time- consuming and costly, and Actel possesses more personnel and greater financial resources than the Company and is able to conduct extensive and protracted litigation at less of a relative detriment to its current business. While patent infringement litigation in the 44 semiconductor industry has at times resulted in voluntary settlements by the parties, often involving cross-licensing of the patents involved, there can be no assurance that such a result will be reached in this case. In addition, the terms of any settlement may require the Company to stop selling all or certain of its products, pay damages or royalties or other forms of consideration or grant licenses to all or a portion of its intellectual property portfolio, any or all of which could have a material adverse effect on the Company's business, financial condition and results of operations. Patent infringement litigation in the semiconductor industry has also resulted in court orders to pay significant damages and/or injunctions preventing a party from making, using or offering to sell, selling or importing any products that incorporate technology covered by such patents. As referenced above, sales of the allegedly infringing products by the Company have accounted for substantially all of the Company's past revenue and are expected to account for substantially all of the Company's revenue for the foreseeable future. This litigation could result in the Company being required to cease selling its products and/or could also result in the Company paying significant damages, including treble damages for willful infringement, either of which would have a material adverse effect on the Company's business, financial condition and results of operations and could potentially render it insolvent. There can be no assurance that the Company will prevail in its claims or defenses or that it would be able to obtain a license under any Actel patents that are found to be infringed, or if such a license were obtained, that it would be on terms that would not have an adverse effect on the Company's business, financial condition and results of operations. The current litigation and any future litigation, whether or not determined in the Company's favor or settled by the Company, has been and will continue to be costly and will divert the efforts and attention of the Company's management and technical personnel from normal business operations, which could have a material adverse effect on the Company's business, financial condition and results of operations. It is expected that legal fees and other litigation-related expenses will continue to adversely affect the Company's operating results for the foreseeable future. Any adverse determinations in this litigation or a settlement could result in the loss of the Company's proprietary rights, subject the Company to significant liabilities, require the Company to seek licenses from or to grant licenses to third parties, prevent the Company from licensing its technology or enjoin the Company from sale of its products, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Risk Factors--Actel Litigation." EMPLOYEES As of May 31, 1997, the Company had a total of 144 employees worldwide, with 45 people in operations, 47 people in research and development, 18 people in sales, 14 people in marketing, 18 people in general and administrative and two people in management information systems. The Company believes that its future success will depend in part on its continued ability to attract, hire and retain qualified personnel. Competition for such personnel is intense, and there can be no assurance that the Company will be able to identify, attract and retain such personnel in the future. None of the Company's employees is represented by a labor union, and management believes its employee relations are good. FACILITIES The Company's principal administrative, sales, marketing, research and development and final testing facility is located in a building of approximately 42,624 square feet in Sunnyvale, California. This facility is leased through the 2003 with an option to renew through 2006. In addition, the Company leases sales offices in London, England. The London offices are leased through December 1997. The Company believes that its existing facilities are adequate for its current needs. 45 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 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 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 and $25,000 in a sign-on bonus in 1996. On an annualized basis, his salary for 1996 would have been $130,000. 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. BENEFIT PLANS Option Plan The Option Plan was adopted by the Board of Directors and approved by its stockholders in October 1989. In February 1996, the Board of Directors amended the Option Plan to increase the number of shares of Common Stock reserved for issuance thereunder from 1,385,714 shares to 2,100,000 shares, which increase was approved by the Company's stockholders in March 1996. In July 1996, the Board of Directors amended the Option Plan to allow employees to exercise unvested stock options (prior to vesting), and to have those exercised unvested shares deposited with an escrow agent until the shares are fully vested and the Company's repurchase option lapses. In March 1997, the Board of Directors amended the Option Plan to increase the number of shares of Common Stock reserved for issuance thereunder to a total of 2,814,286 shares. The amendment will be submitted to the stockholders for approval in June 1997. As of May 31, 1997, options to purchase a total of 1,604,750 shares at a weighted average exercise price of $2.00 per share were outstanding, and 714,478 shares remained available for future option grants. 51 The Option Plan provides for the grant to employees (including officers and employee-directors) of "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and for the grant to employees, consultants and directors of nonstatutory stock options. The Option Plan may be administered by the Board of Directors or a committee of the Board (as applicable, the "Administrator") and is currently administered by the Compensation Committee. The Administrator determines the terms of options granted under the Option Plan, including the number of shares subject to option, the exercise price and the exercisability of the option. The exercise price of all incentive stock options granted under the Option Plan must be at least equal to the fair market value of the Common Stock of the Company on the date of grant. The exercise price of all nonstatutory stock options must equal at least 85% of the fair market value of the Common Stock on the date of grant. The exercise price of any incentive stock option granted to an optionee who owns stock representing more than 10% of the voting power of the Company's outstanding capital stock must equal at least 110% of the fair market value of the Common Stock on the date of grant. Payment of the exercise price may be made in cash, check, certain other shares of the Company's stock, promissory notes or other consideration determined by the Administrator. The Administrator determines the term of options. The term of an incentive stock option may not exceed ten years; provided, however, that the term of an incentive stock option granted to an optionee who, at the time of grant, owns stock representing more than 10% of the voting power of the Company's outstanding capital stock may not exceed five years. No options may be transferred by the optionee other than by will or the laws of descent or distribution. Each option may be exercised during the lifetime of the optionee only by such optionee. Options granted to each employee under the Option Plan generally become exercisable cumulatively as to 12.5% of the shares subject to the option six months after the vesting start date, and as to 6.25% of the shares subject to the option at the end of each succeeding three-month period. As of July 16, 1996, options granted to employees under the Option Plan became immediately exercisable, subject to the provisions of the Exercise Notice and Restricted Stock Agreement for Unvested Shares signed by optionees at the time of exercise pursuant to which any unvested shares are subject to repurchase by the Company at the original exercise price. In the event the Company merges with or into another corporation, all outstanding options shall be assumed or an equivalent option substituted by the successor corporation. In the event that such successor corporation does not agree to assume such options or to substitute an equivalent option, options granted prior to February 1996 may be exercised in full, including shares as to which would not otherwise be exercisable. Options granted subsequent to February 1996 may be exercised for a period of 15 days to the extent vested upon the expiration of such period, after which any such options not exercised will terminate immediately. The Administrator has the authority to amend or terminate the Option Plan as long as such action does not adversely affect any outstanding option, and provided that stockholder approval shall be required for an amendment to increase the number of shares subject to the Option Plan, to change the designation of the class of persons eligible to be granted options, or to materially increase benefits accruing to participants under the Option Plan if the Company is registered under Section 12 of the Exchange Act. Unless terminated earlier, the Option Plan will terminate in October 1999. 1997 Stock Plan The Company's 1997 Stock Plan (the "1997 Plan") was approved by the Board of Directors in May 1997 and will be submitted to the stockholders for approval in June 1997. The 1997 Plan is intended to be a successor to the Option Plan. Upon stockholder approval of the 1997 Plan, the remaining shares reserved for issuance pursuant to the Option Plan will roll over and be reserved for issuance pursuant to the 1997 Plan. The 1997 Plan provides for the grant of incentive stock options 52 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 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. 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 Bank of Boston, N.A. LISTING The Company has applied to designate its Common Stock for quotation on the Nasdaq National Market System under the trading symbol "QWIK." The Company has not applied to list its Common Stock on any other exchange or quotation system. REGISTRATION RIGHTS Following the closing of this offering, the holders of approximately 9,899,413 shares of Common Stock (the "Registrable Securities") will be entitled to certain rights with respect to the registration of such shares under the Securities Act. In the event that the Company proposes to register any of its securities under the Securities Act, either for its own account or for the account of other security holders, the holders of Registrable Securities are entitled to notice of such registration and are entitled to include their Registrable Securities in such registration, subject to certain marketing and other limitations. Beginning six months after the closing of this offering, the holders of at least 30% of the Registrable Securities have the right to require the Company, on not more than two occasions, to file a registration statement under the Securities Act in order to register all or any part of their Registrable Securities. The Company may in certain circumstances defer such registrations and the underwriters have the right, subject to certain limitations, to limit the number of shares included in such registrations. Further, holders of Registrable Securities may require the Company to register all or a portion of their shares on Form S-3, when such form becomes available to the Company, subject to certain conditions and limitations. In connection with the Company's transaction with Cypress, Cypress was granted registration rights in addition to those held by other stockholders of the Company. First, Cypress may sell a minimum of one-third of the shares of Common Stock offered hereby, and in any subsequent public offerings of the Company's stock. Second, the Company is obligated to file a registration statement with respect to all shares of Common Stock held by Cypress and not sold in this offering, with such registration statement being effective upon the expiration of the lockup period imposed by the underwriters in connection with this offering. The Company must keep this registration statement effective until the earlier of (i) the date all of such shares held by Cypress are sold; (ii) three years from the closing of this offering; or (iii) the date all such shares are able to be sold in a three-month period pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended. Notwithstanding the foregoing, the Company has the right to suspend Cypress's ability to sell under such registration statement under certain circumstances. Finally, Cypress has the right to require registration of its shares that is separate from a similar right held by the other holders of registration rights. The other stockholders of the Company do not have the right to require inclusion of their shares in these separate Cypress registrations. DELAWARE ANTITAKEOVER LAW AND CERTAIN CHARTER PROVISIONS Certain provisions of the Company's Certificate of Incorporation and Bylaws could discourage potential acquisition proposals and could delay or prevent a change in control of the Company. Such provisions could diminish the opportunities for a stockholder to participate in tender offers, including tender offer at a price above the then current market value of the Common Stock. Such provisions may also inhibit fluctuations in the market price of the Common Stock that could result from takeover 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 9,394,856 Restricted Shares, including all officers and directors of the Company, are subject to "lock up" agreements with the Representatives of the Underwriters and/or the Company providing that they will not offer, sell, contract to sell or grant any option to purchase or otherwise dispose of the shares of Common Stock owned by them or that could be purchased by them through the exercise of options to purchase Common Stock of the Company for a period of at least 180 days after the effective date of this offering (the "Lock Up Period") without the prior written consent of Deutsche Morgan Grenfell, UBS Securities LLC, Cowen & Company and/or the Company, as applicable. The lock up agreements provide that the Lock Up Period will be extended in the event that the Lock Up Period would expire in a period where the Company's directors and officers are prevented from trading because of the set "blackout" period between earnings releases provided in the Company's insider trading policy, until the date that trading will commence under the Company's insider trading policy. The Company has agreed with Representatives of the Underwriters not to release any holders from such agreements without the prior written consent of Deutsche Morgan Grenfell. Such lock up agreements may be released at any time as to all or any portion of the shares subject to such agreements at the sole discretion of Deutsche Morgan Grenfell. Of the 10,817,422 Restricted Shares that first become eligible for sale in the public market 180 days after the date of this Prospectus (depending upon the duration of the lock-up), 2,312,780 shares will be immediately eligible for sale without restriction under Rule 144(k) or Rule 701, and 6,896,873 shares will be immediately eligible for sale subject to certain volume and other restrictions pursuant to Rule 144. All 10,817,422 shares will be eligible for sale pursuant to Rule 144 upon the expiration of one-year holding periods, all of which will expire on or before March 31, 1998, subject in some cases to Rule 144's volume and other restrictions. In general, under Rule 144, beginning 90 days after the date of this Prospectus, a person (or persons whose shares are aggregated) who has beneficially owned Restricted Shares for at least one year, including persons who may be deemed to be "affiliates" of the Company, would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: (i) one percent of the number of shares of Common Stock then outstanding (which will equal approximately 138,174 shares immediately after this offering); or (ii) the average weekly trading volume of the Common Stock as reported through the Nasdaq National Market during the four calendar weeks preceding the filing of a Form 144 with respect to such sale. Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about the Company. Under Rule 144(k), a person who is not deemed to have been an 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 1997 Purchase Plan or upon the exercise of an option or warrant, or the conversion of a security outstanding on the date hereof, the Company hereby agrees that, without the prior written consent of Deutsche Morgan Grenfell Inc., it will not, during the Lock Up Period (and any extension thereof), (x) offer, pledge, sell, contract to sell, sell any option, or contract to purchase, purchase any option or contract to sell, grant any option, right, or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for such Common Stock or (y) enter into any swap or similar agreement that transfers, in whole or in part, the economic risk of ownership of the Common Stock, whether any such transaction described in (x) or (y) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing prohibitions shall not prevent the Company from granting options and other rights under its existing equity compensation plans. The Company intends to file a registration statement under the Securities Act covering approximately 1,000,000 shares of Common Stock subject to outstanding options or reserved for issuance under the 1997 Plan and 750,000 shares of Common Stock reserved for issuance under the 1997 Purchase Plan. See "Management--Benefit Plans." Such registration statement is expected to be filed simultaneously with the effectiveness of the registration statement covering the shares of Common Stock offered in this offering and will automatically become effective upon filing. Accordingly, shares registered under such registration statement will, subject to Rule 144 volume limitations applicable to affiliates and the lapsing of the Company's repurchase options, be available for sale in the open market, except to the extent that such shares are subject to vesting restrictions with the Company or the contractual restrictions described above. In addition, the Company granted registration rights to Cypress that are in addition to those held by other stockholders of the Company. See "Description of Capital Stock--Registration Rights." First, Cypress may sell a minimum of one-third of the shares of Common Stock offered hereby, and any subsequent public offerings of the Company's stock. Second, the Company is obligated to file a registration statement with respect to all of the shares of Common Stock held by Cypress and not sold in this offering, with such registration statement being effective upon the expiration of the lockup period imposed by the underwriters in connection with this offering. The Company must keep this 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 December 28, 1995, Deloitte and Touche LLP ("Deloitte & Touche") had been the Company's independent accountants. The decision to change independent accountants was approved by the Company's Board of Directors. In the period from January 1994 through December 28, 1995, there were no disagreements with Deloitte & Touche on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures which disagreements if not resolved to the satisfaction of Deloitte & Touche would have caused them to make reference thereto in their report on the financial statements. The report of Deloitte & Touche on the financial statements of the Company as of and for the year ended December 31, 1994, the most recent financial statements audited by such firm, contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principle. Prior to January 23, 1996, the Company had not consulted with Price Waterhouse LLP on either the application of accounting principles to a specified transaction, either complete or proposed, or on the type of opinion that might be rendered on the Company's financial statements. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission a Registration Statement on Form S-1, including amendments thereto, under the Securities Act with respect to the Common Stock offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits and schedules filed therewith. For further information with respect to the Company and the Common Stock offered hereby, reference is hereby made to such Registration Statement and to the exhibits and schedules filed therewith. Statements contained in this Prospectus regarding the contents of any contract or other document referred to are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. The Registration Statement, including the exhibits and schedules thereto, may be inspected without charge at the principal office of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part thereof may be obtained from such office upon the payment of the prescribed fees. Such materials may also be obtained from the Commission's web site at http://www.sec.gov. Information concerning the Company is also available for inspection at the offices of the Nasdaq National Market, Reports Section, 1735 K Street, N.W., Washington, D.C. 20006. The Company intends to furnish its stockholders with annual reports containing consolidated financial statements audited by its independent auditors and quarterly reports containing unaudited consolidated financial information. 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 Quarters Ended March 31, 1996 (unaudited) and 1997 (unaudited)............................................................. F-4 Statement of Stockholders' Equity (Deficit) for the Years Ended December 31, 1994, 1995 and 1996 and for the Quarter Ended March 31, 1997 (unaudited)............................................................. F-5 Statement of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996 and for the Quarters Ended March 31, 1996 (unaudited) and 1997 (unaudited)............................................................. F-6 Notes to Financial Statements............................................ F-7
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........................ -- 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 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 and other non-cash charges....................... 562 320 235 60 121 Provision for doubtful accounts...................... 34 912 1,102 372 200 Amortization of deferred compensation.................. -- -- 43 -- 76 Contract termination and other......................... -- 2,700 4,125 -- 23,009 Changes in assets and liabilities: Accounts receivable........... (602) (2,567) (1,031) (1) (1,244) Inventory..................... 185 (880) (1,924) 145 (1,419) Other assets.................. 5 -- (4,555) (214) (212) Accounts payable.............. 1,472 (122) 1,434 469 115 Accrued and other liabilities.................. 674 (673) (409) (378) 1,066 ------- ------- -------- ------ -------- Net cash provided by (used in) operating activities.... (3,498) (5,017) (4,577) 474 (1,391) ------- ------- -------- ------ -------- Cash flows from investing activities: Capital expenditures for property and equipment......... (259) (85) (1,478) (192) (915) Proceeds on sale of investments.................... -- -- 4,000 -- -- Investments in short-term instruments.................... -- (4,000) -- -- -- ------- ------- -------- ------ -------- Net cash provided by (used in) investing activities.... (259) (4,085) 2,522 (192) (915) ------- ------- -------- ------ -------- Cash flows from financing activities: Repayment of debt and capital leases......................... (148) (770) (124) (21) (38) Proceeds from issuance of common stock, net..................... 31 17 99 -- 110 Proceeds from issuance of preferred stock, net........... -- 11,811 8,090 -- 768 Borrowings on notes payable to stockholders................... 1,526 1,198 -- -- -- Borrowings from bank............ -- 214 470 100 1,496 ------- ------- -------- ------ -------- Net cash provided by financing activities........ 1,409 12,470 8,535 79 2,336 ------- ------- -------- ------ -------- Net increase (decrease) in cash.. (2,348) 3,368 6,480 361 30 Cash at beginning of period...... 2,836 488 3,856 3,856 10,336 ------- ------- -------- ------ -------- Cash at end of period............ $ 488 $ 3,856 $10,336 $4,217 $ 10,366 ======= ======= ======== ====== ======== Supplemental information: Conversion of notes payable to stockholder into Series E preferred stock................. $ -- $ 4,850 $ -- $ -- $ -- ======= ======= ======== ====== ========
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 quarter ended March 31, 1996 and 1997 and the statement of stockholders' equity (deficit) for the quarter ended March 31, 1997 are unaudited. In the opinion of management, these statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the results of the interim periods. The data disclosed in these financial statements, including notes to the financial statements, at such date and for such periods are unaudited. Operating results for the quarter ended March 31, 1997 are not necessarily indicative of the results that may be expected for the full year. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES: Short Term Investments All short term investments are classified as available for sale and are accounted for at fair value with unrealized gains and losses, if any, reported as a separate component of stockholders' equity. Management determines the appropriate classification of investments at the time of purchase and reassesses the classification at each reporting date. Short-term investments represent high grade marketable corporate debt securities and one government agency security at December 31, 1995. F-7 QUICKLOGIC CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Fair Value of Financial Instruments The estimated fair values of financial instruments are determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret and analyze the available data and to develop estimates. Accordingly, estimates could differ significantly from the amounts the Company would realize in a current market exchange. The estimated fair values of all financial instruments at December 31, 1995 and 1996, approximate the amounts presented in the balance sheet. Inventory Inventory is stated at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over the assets estimated useful life of three to seven years. Amortization of leasehold improvements is computed on a straight-line basis over the shorter of the facility lease term or the estimated useful lives of the improvements. Revenue Recognition The Company sells to certain domestic distributors under agreements which allow certain rights of return and price adjustments on unsold inventory. Such sales are not recognized until the inventory is sold by the distributor. Amounts billed to such distributors for shipments are included as accounts receivable, inventory is relieved and the related gross profit is deferred and recorded as a current liability until the inventory is resold by the distributor. Revenue from all other products is recognized upon shipment. Software revenue is recognized upon shipment by the Company, provided that no significant Company obligations remain and collection of the resulting receivables is probable. Stock-Based Compensation In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which establishes a fair value method of accounting for stock-based compensation plans and requires additional disclosures for those companies who elect not to adopt the new method of accounting. The Company has elected to continue to measure compensation costs using the intrinsic value method prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees" and to comply with the pro forma disclosure requirements of SFAS 123. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash, short-term investments and accounts receivable. Cash and short-term investments are maintained with high quality institutions. The Company's accounts receivable are derived primarily from sales to customers located in North America, Europe, Japan and Korea. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. F-8 QUICKLOGIC CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) At December 31, 1996, accounts receivable from four customers represented 24%, 12%, 11% and 10%, respectively, of the Company's accounts receivable. At December 31, 1995, accounts receivables from three customers represented 12%, 10% and 10%, respectively, of the Company's accounts receivable. Software Development Costs Software development costs incurred prior to the establishment of technological feasibility are included in research and development and are expensed as incurred. Development costs incurred subsequent to the establishment of technological feasibility through the period of general market availability are capitalized, if material. To date, all software development costs have been expensed as incurred due to their immateriality. Pro Forma Stockholders' Equity (Unaudited) If the offering contemplated by this Prospectus is consummated, unaudited pro forma stockholders' equity would be adjusted for the conversion of 8,496,000 shares of preferred stock outstanding into 8,496,000 shares of common stock. The pro forma effect of this transaction has been reflected in the accompanying unaudited pro forma stockholders' equity as of March 31, 1997. Pro Forma Net Income (Loss) Per Share (Unaudited) Pro forma net income (loss) per share is computed using the weighted average number of common and common equivalent shares outstanding during the periods. Common equivalent shares consist of preferred stock (using the "as if converted" method) and stock options and warrants (using the "treasury stock" method). Common equivalent shares are excluded from the computation if their effect is antidilutive. Pursuant to a Securities and Exchange Commission Staff Accounting Bulletin, preferred stock (using the "as if converted" method) and common and common equivalent shares (using the "treasury stock" method and the assumed initial public offering price) issued subsequent to May 1996 have been included in the computation as if they were outstanding for all periods presented. Prior period loss per share data have not been presented since such amounts are not deemed to be meaningful. F-9 QUICKLOGIC CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Recent Accounting Pronouncements (Unaudited) In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share." This statement is effective for the Company's fiscal year ending December 31, 1997. The Statement defines the calculation of earnings per share under generally accepted accounting principles. Under the new standard, primary earnings per share is replaced by basic earnings per share and fully diluted earnings per share is replaced by diluted earnings per share. If the Company had adopted this Statement for the year ended December 31, 1996 and for the quarters ended March 31, 1996 and 1997, the Company's pro forma earnings (loss) per share would have been as follows:
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 ------- ------- ------- $ 6,929 $ 3,228 $ 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 quarter ended March 31, 1997, the Company drew down an additional $1.5 million under the equipment term loan. In conjunction with the bank facility, the Company must comply with certain financial covenants related to profitability, tangible net worth, working capital, debt leverage and liquidity. The Company was in breach of certain financial covenants as of March 31, 1997, for which it has obtained a waiver from the bank. The Company paid $126,000, $103,000, $56,000 and $24,000 in interest during 1994, 1995, 1996, and the quarter ended March 31, 1997, respectively. F-11 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, 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, 1994, 1995 and 1996 and the quarter 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 5.0 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 income (loss) per share would have been as follows for the years ended December 31, 1995 and 1996 (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...................... -- (.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 quarter ended March 31, 1997, the Company granted options and recorded related deferred compensation of $851,000 and $2,165,000, respectively. Such deferred compensation will be amortized ratably over the vesting period of the options. NOTE 8. RELATED PARTY TRANSACTIONS: Technology Development and Foundry Supply Agreement In October 1992, in conjunction with the issuance of Series D preferred stock, the Company entered into a Technical Transfer, Joint Development License and Foundry Supply Agreement (the Existing Agreement) with Cypress Semiconductor Corporation ("Cypress"). Cypress owns 100% of the Company's Series D preferred stock. The agreement provides that the Company and Cypress share processing technologies and licenses to market developed FPGA products and that Cypress guarantees the Company a certain wafer start capacity. The Company purchased all of its wafer requirements under this agreement during 1995 and 1996. In March 1997, the Company and Cypress terminated the Existing Agreement, and replaced it with a new arrangement whereby the Company's FPGA products will no longer be second sourced by Cypress. In exchange for the termination of the Existing Agreement and the reversion of the rights to the intellectual property developed thereunder to the Company, the Company paid $4.5 million in cash and agreed to issue 2,603,817 shares of Common Stock to Cypress, resulting in a charge of approximately $23 million in the first quarter of 1997. In addition, the Company granted Cypress certain contractual rights as to the shares of the Company's stock held by Cypress, including the right to sell shares in this offering. The parties also entered into a new foundry agreement and a cross-license agreement. Notes Receivable From Stockholder As of December 31, 1996, the Company has $119,000 of demand promissory notes from a stockholder. The notes bear interest at rates ranging from 6.7% to 8.02% per annum, and are secured by shares of the Company's common stock held by the stockholder. NOTE 9. GEOGRAPHIC REPORTING AND CUSTOMER CONCENTRATION:
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 the parties will enter into a three year "take or pay" wafer manufacturing agreement. NOTE 11. CONTINGENCIES: During 1994, Actel Corporation ("Actel"), a competitor of the Company, filed a lawsuit seeking unspecified damages and alleging that the Company's products infringe upon its patents. During 1995 and 1996, the suit was amended to include a trade misappropriation claim and additional patent infringement claims. The Company has filed answers to each of these complaints seeking that the Actel patents are invalid, void, not enforceable and are not infringed and denying the trade misappropriation. Additionally, the Company has filed counterclaims against Actel claiming that Actel has infringed upon the Company's patents. In April 1997, the court adopted the recommendation of the Special Master and granted Actel's motion for summary judgment that the Company's products infringe on one claim of one of the patents. If the patent is finally found to be valid and enforceable, and the summary judgment motion is upheld on appeal, then Actel would be entitled to significant damages and an injunction preventing the sale of products incorporating the infringing patent. Such an injunction and/or the payment of damages could have a material adverse effect on the Company's business, financial condition and results of operations and could potentially render it insolvent. F-17 QUICKLOGIC CORPORATION NOTES TO FINANCIAL STATEMENTS--(CONCLUDED) Trial on the patent infringement and trade misappropriation claims is currently scheduled for September 1998. However, there can be no assurance that the trial will occur at such time and may be delayed significantly. As the outcome of any litigation is inherently uncertain, the Company is unable to predict the outcome of this litigation. Therefore, there can be no assurance that the Company will prevail in the trial on the patent infringement claims and counter-claims, the trial on the alleged trade misappropriation, or hearings on any motions related to such proceedings. The timing of the filing of any motions by Actel, hearings on motions by either Actel or the Company, the issuance of rulings on such motions, the issuance of recommendations by the Special Master and the adoption or rejection of such recommendations by the Court are not within the Company's control and could occur at any time. The announcement of any rulings or recommendations, or the adoption or rejection of recommendations, that are adverse to the Company, will likely have a material adverse effect upon the market price for the Company's stock. Due to the inherent uncertainty of litigation, management cannot estimate the possible loss, if any, that may ultimately be incurred in connection with the allegations. Any adverse determinations in this litigation or a settlement could result in the loss of the Company's proprietary rights, subject the Company to significant liabilities, require the Company to seek or to grant licenses with third parties, require the Company to cease selling its products or prevent the Company from licensing its technology, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. Management intends to vigorously defend itself against the allegations that the Company's products infringe upon Actel's patents as well as pursue its claims that Actel's products infringe upon the Company's patents. Accordingly, the Company recorded charges of $2.7 million and $4.1 million in the years ended December 31, 1995 and 1996, respectively, in conjunction with the Actel litigation. As of March 31, 1997, the Company has accrued $4.6 million for this litigation. NOTE 12. SUBSEQUENT EVENTS: In May 1997, the Board of Directors authorized the reincorporation of the Company in Delaware and, in conjunction with such reincorporation a 7-for-1 reverse stock split (the "Stock Split") of the Company's preferred stock and common stock. All references to the number of shares of preferred stock, common stock and per share amounts have been retroactively restated in the accompanying financial statements to reflect the effect of the Stock Split. The Board of Directors also approved a recapitalization that would increase the total of authorized shares of common stock to one hundred million and authorized ten million shares of undesignated stock. In addition the Board of Directors approved the adoption of the 1997 Employee Stock Purchase Plan, the 1997 Stock Plan and the 1997 Director Option Plan. Adoption of these plans is subject to stockholder approval. All of the above items will be effected prior to the date of the offering. F-18 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............................................................... 29 Management............................................................. 46 Certain Transactions................................................... 57 Principal and Selling Stockholders..................................... 59 Description of Capital Stock........................................... 61 Shares Eligible for Future Sale........................................ 64 Underwriting........................................................... 67 Legal Matters.......................................................... 68 Experts................................................................ 68 Change in Independent Accountants...................................... 69 Additional Information................................................. 69 Index to Financial Statements.......................................... F-1
UNTIL , 1997 (25 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL DEALERS EF- FECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICI- PATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------------------------------- [LOGO OF QUICKLOGIC CORP.] 3,000,000 SHARES COMMON STOCK DEUTSCHE MORGAN GRENFELL UBS SECURITIES COWEN & COMPANY PROSPECTUS , 1997 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.
II-2 10.9+ Termination Agreement dated March 29, 1997 between the Registrant and Cypress Semiconductor Corporation ("Cypress"). 10.10 Cross License Agreement dated March 29, 1997 between the Registrant and Cypress. 10.11+ Wafer Fabrication Agreement March 29, 1997 between the Registrant and Cypress. 10.12** Sixth Amended and Restated Shareholders Rights Agreement dated March 29, 1997 by and among the Registrant, Cypress and certain stockholders. 10.13** Sixth Amended and Restated Registration Rights Agreement dated March 29, 1997 by and among the Registrant, Cypress and certain stockholders. 10.14 Technical Transfer, Joint Development License and Foundry Supply Agreement, dated October 2, 1992, between the Registrant and Cypress. 10.15** Lease dated June 17, 1995, as amended, between Kairos, LLC and Moffet Orchard Investors as Landlord and the Registrant for the Registrant's facility located in Sunnyvale, California. 10.16** Business Loan Agreement dated August 9, 1995 between the Registrant and Silicon Valley Bank, as amended. 10.17** Loan and Security Agreement dated August 8, 1996 between the Registrant and Silicon Valley Bank, as amended. 10.18** Export-Import Bank Loan and Security Agreement dated August 8, 1996 between the Registrant and Silicon Valley Bank. 10.19+ Memorandum of Understanding dated October 28, 1996, between the Registrant and TSMC, Ltd. 10.20 First Amended and Restated Common Stock Purchase Agreement dated June 13, 1997 between the Registrant and Cypress. 11.1 Statement regarding calculation of earnings per share. 16.1 Letter of Deloitte & Touche LLP, independent accountants, dated June 9, 1997 regarding change in certifying accountant. 23.1 Consent of Price Waterhouse LLP, independent accountants (see page II- 6). 23.2** Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (See Exhibit 5.1). 24.1** Power of Attorney (see page II-4). 27.1 Financial Data Schedule (EDGAR filed version only).
- -------- * Documents to be filed by amendment. ** Previously filed. + Certain information in these exhibits has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and 230.406. b. FINANCIAL STATEMENT SCHEDULES. All schedules are omitted because they are inapplicable or the requested information is shown in the financial statements of the Registrant or notes thereto. II-3 ITEM 17. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 14, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective; and (2) for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. II-4 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SUNNYVALE, STATE OF CALIFORNIA, ON THE 18TH DAY OF JUNE 1997. QuickLogic Corporation By: /s/ Vincent A. McCord ------------------------------ VINCENT A. MCCORD, VICE PRESIDENT, FINANCE, CHIEF FINANCIAL OFFICER AND SECRETARY PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE --------- ----- ---- President, Chief June 18, 1997 * Executive Officer - ------------------------------------- and Director E. THOMAS HART (Principal Executive Officer) /s/ Vincent A. McCord Vice President, - ------------------------------------- Finance, Chief June 18, 1997 VINCENT A. MCCORD Financial Officer and Secretary (Principal Financial and Accounting Officer) Director June , 1997 - ------------------------------------- IRWIN FEDERMAN Director * June 18, 1997 - ------------------------------------- HUA-THYE CHUA Vincent A. McCord *By: /s/ ---------------------------------- VINCENT A. MCCORD ATTORNEY-IN-FACT
II-5 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our report dated June 9, 1997, relating to the financial statements of QuickLogic Corporation, which appears in such Prospectus. We also consent to the references to us under the headings "Experts" in such Prospectus. Price Waterhouse LLP San Jose, California June 17, 1997 II-6 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. 10.19+ Memorandum of Understanding dated October 28, 1996 between the Registrant and TSMC, Ltd. 10.20 First Amended and Restated Common Stock Purchase Agreement dated June 13, 1997 between the Registrant and Cypress. 11.1 Statement regarding calculation of earnings per share. 16.1 Letter of Deloitte & Touche LLP, independent accountants, dated June 9, 1997 regarding change in certifying accountant. 23.1 Consent of Price Waterhouse LLP, independent accountants (see page II-6). 23.2** Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (See Exhibit 5.1). 24.1** Power of Attorney (see page II-4). 27.1 Financial Data Schedule (EDGAR filed version only).
- ------- * Documents to be filed by amendment. ** Previously filed. + Certain information in these exhibits has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and 230.406. EX-10.1 2 FORM OF INDEMNIFICATION EXHIBIT 10.1 QUICKLOGIC CORPORATION INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is effective as of __________, 1997 by and between QuickLogic Corporation, a Delaware corporation (the "Company"), and _______________ ("Indemnitee"). WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and its related entities; WHEREAS, in order to induce Indemnitee to continue to provide services to the Company, the Company wishes to provide for the indemnification of, and the advancement of expenses to, Indemnitee to the maximum extent permitted by law; WHEREAS, the Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for the Company's directors, officers, employees, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance; WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited; and WHEREAS, in view of the considerations set forth above, the Company desires that Indemnitee shall be indemnified and advanced expenses by the Company as set forth herein; NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below. 1. Certain Definitions. ------------------- (a) "Change in Control" shall mean, and shall be deemed to have occurred if, on or after the date of this Agreement, (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company acting in such capacity or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the Company's then outstanding Voting Securities, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of related transactions) all or substantially all of the Company's assets. (b) "Claim" shall mean with respect to a Covered Event: any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any hearing, inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, investigative or other. (c) References to the "Company" shall include, in addition to QuickLogic Corporation any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which QuickLogic Corporation (or any of its wholly owned subsidiaries) is a party which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees, agents or fiduciaries, so that if Indemnitee is or was a director, officer, employee, agent or fiduciary of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (d) "Covered Event" shall mean any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any action or inaction on the part of Indemnitee while serving in such capacity. (e) "Expenses" shall mean any and all expenses (including attorneys' fees and all other costs, expenses and obligations incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, to be a witness in or to participate in, any action, suit, proceeding, alternative dispute resolution mechanism, hearing, inquiry or investigation), judgments, fines, penalties and amounts paid in settlement (if such -2- settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) of any Claim and any federal, state, local or foreign taxes imposed on the Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement. (f) "Expense Advance" shall mean a payment to Indemnitee pursuant to Section 3 of Expenses in advance of the settlement of or final judgement in any action, suit, proceeding or alternative dispute resolution mechanism, hearing, inquiry or investigation which constitutes a Claim. (g) "Independent Legal Counsel" shall mean an attorney or firm of attorneys, selected in accordance with the provisions of Section 2(d) hereof, who shall not have otherwise performed services for the Company or Indemnitee within the last three years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other Indemnitees under similar indemnity agreements). (h) References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or its beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. (i) "Reviewing Party" shall mean, subject to the provisions of Section 2(d), any person or body appointed by the Board of Directors in accordance with applicable law to review the Company's obligations hereunder and under applicable law, which may include a member or members of the Company's Board of Directors, Independent Legal Counsel or any other person or body not a party to the particular Claim for which Indemnitee is seeking indemnification. (j) "Section" refers to a section of this Agreement unless otherwise indicated. (k) "Voting Securities" shall mean any securities of the Company that vote generally in the election of directors. 2. Indemnification. --------------- (a) Indemnification of Expenses. Subject to the provisions of Section --------------------------- 2(b) below, the Company shall indemnify Indemnitee for Expenses to the fullest extent permitted by law if Indemnitee was or is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, any Claim (whether by reason of or arising in part out of a Covered Event), including all interest, assessments and other charges paid or payable in -3- connection with or in respect of such Expenses. (b) Review of Indemnification Obligations. Notwithstanding the ------------------------------------- foregoing, in the event any Reviewing Party shall have determined (in a written opinion, in any case in which Independent Legal Counsel is the Reviewing Party) that Indemnitee is not entitled to be indemnified hereunder under applicable law, (i) the Company shall have no further obligation under Section 2(a) to make any payments to Indemnitee not made prior to such determination by such Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all Expenses theretofore paid to Indemnitee to which Indemnitee is not entitled hereunder under applicable law; provided, however, that if Indemnitee has commenced or -------- ------- thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee is entitled to be indemnified hereunder under applicable law, any determination made by any Reviewing Party that Indemnitee is not entitled to be indemnified hereunder under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expenses theretofore paid in indemnifying Indemnitee until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any Expenses shall be unsecured and no interest shall be charged thereon. (c) Indemnitee Rights on Unfavorable Determination; Binding Effect. -------------------------------------------------------------- If any Reviewing Party determines that Indemnitee substantively is not entitled to be indemnified hereunder in whole or in part under applicable law, Indemnitee shall have the right to commence litigation seeking an initial determination by the court or challenging any such determination by such Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and, subject to the provisions of Section 15, the Company hereby consents to service of process and to appear in any such proceeding. Absent such litigation, any determination by any Reviewing Party shall be conclusive and binding on the Company and Indemnitee. (d) Selection of Reviewing Party; Change in Control. If there has not ----------------------------------------------- been a Change in Control, any Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), any Reviewing Party with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnification of Expenses under this Agreement or any other agreement or under the Company's Certificate of Incorporation or Bylaws as now or hereafter in effect, or under any other applicable law, if desired by Indemnitee, shall be Independent Legal Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be entitled to be indemnified hereunder under applicable law and the Company agrees to abide by such opinion. The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. Notwithstanding any -4- other provision of this Agreement, the Company shall not be required to pay Expenses of more than one Independent Legal Counsel in connection with all matters concerning a single Indemnitee, and such Independent Legal Counsel shall be the Independent Legal Counsel for any or all other Indemnitees unless (i) the Company otherwise determines or (ii) any Indemnitee shall provide a written statement setting forth in detail a reasonable objection to such Independent Legal Counsel representing other Indemnitees. (e) Mandatory Payment of Expenses. Notwithstanding any other ----------------------------- provision of this Agreement other than Section 10 hereof, to the extent that Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any Claim, Indemnitee shall be indemnified against all Expenses incurred by Indemnitee in connection therewith. 3. Expense Advances. ---------------- (a) Obligation to Make Expense Advances. Upon receipt of a written ----------------------------------- undertaking by or on behalf of the Indemnitee to repay such amounts if it shall ultimately be determined that the Indemnitee is not entitled to be indemnified therefore by the Company hereunder under applicable law, the Company shall make Expense Advances to Indemnitee. (b) Form of Undertaking. Any obligation to repay any Expense Advances ------------------- hereunder pursuant to a written undertaking by the Indemnitee shall be unsecured and no interest shall be charged thereon. (c) Determination of Reasonable Expense Advances. The parties agree -------------------------------------------- that for the purposes of any Expense Advance for which Indemnitee has made written demand to the Company in accordance with this Agreement, all Expenses included in such Expense Advance that are certified by affidavit of Indemnitee's counsel as being reasonable shall be presumed conclusively to be reasonable. 4. Procedures for Indemnification and Expense Advances. --------------------------------------------------- (a) Timing of Payments. All payments of Expenses (including without ------------------ limitation Expense Advances) by the Company to the Indemnitee pursuant to this Agreement shall be made to the fullest extent permitted by law as soon as practicable after written demand by Indemnitee therefor is presented to the Company, but in no event later than thirty (30) business days after such written demand by Indemnitee is presented to the Company, except in the case of Expense Advances, which shall be made no later than ten (10) business days after such written demand by Indemnitee is presented to the Company. (b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a -------------------------------- condition precedent to Indemnitee's right to be indemnified or Indemnitee's right to receive Expense Advances under this Agreement, give the Company notice in writing as soon as practicable of any Claim made against -5- Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) No Presumptions; Burden of Proof. For purposes of this Agreement, -------------------------------- the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its --------------- equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by this Agreement or applicable law. In addition, neither the failure of any Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by any Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under this Agreement under applicable law, shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. In connection with any determination by any Reviewing Party or otherwise as to whether the Indemnitee is entitled to be indemnified hereunder under applicable law, the burden of proof shall be on the Company to establish that Indemnitee is not so entitled. (d) Notice to Insurers. If, at the time of the receipt by the Company ------------------ of a notice of a Claim pursuant to Section 4(b) hereof, the Company has liability insurance in effect which may cover such Claim, the Company shall give prompt notice of the commencement of such Claim to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Claim in accordance with the terms of such policies. (e) Selection of Counsel. In the event the Company shall be obligated -------------------- hereunder to provide indemnification for or make any Expense Advances with respect to the Expenses of any Claim, the Company, if appropriate, shall be entitled to assume the defense of such Claim with counsel approved by Indemnitee (which approval shall not be unreasonably withheld) upon the delivery to Indemnitee of written notice of the Company's election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel subsequently retained by or on behalf of Indemnitee with respect to the same Claim; provided that, (i) Indemnitee shall have the right to employ Indemnitee's separate counsel in any such Claim at Indemnitee's expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not continue to retain such counsel to defend -6- such Claim, then the fees and expenses of Indemnitee's separate counsel shall be Expenses for which Indemnitee may receive indemnification or Expense Advances hereunder. 5. Additional Indemnification Rights; Nonexclusivity. ------------------------------------------------- (a) Scope. The Company hereby agrees to indemnify the Indemnitee to ----- the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or by statute. In the event of any change after the date of this Agreement in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits afforded by such change. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, employee, agent or fiduciary, such change, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder except as set forth in Section 10(a) hereof. (b) Nonexclusivity. The indemnification and the payment of Expense -------------- Advances provided by this Agreement shall be in addition to any rights to which Indemnitee may be entitled under the Company's Certificate of Incorporation, its Bylaws, any other agreement, any vote of stockholders or disinterested directors, the General Corporation Law of the State of Delaware, or otherwise. The indemnification and the payment of Expense Advances provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though subsequent thereto Indemnitee may have ceased to serve in such capacity. 6. No Duplication of Payments. The Company shall not be liable under this -------------------------- Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, provision of the Company's Certificate of Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder. 7. Partial Indemnification. If Indemnitee is entitled under any provision ----------------------- of this Agreement to indemnification by the Company for some or a portion of Expenses incurred in connection with any Claim, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses to which Indemnitee is entitled. 8. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge --------------------- that in certain instances, federal law or applicable public policy may prohibit the Company from indemnifying its directors, officers, employees, agents or fiduciaries under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of -7- indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 9. Liability Insurance. To the extent the Company maintains liability ------------------- insurance applicable to directors, officers, employees, agents or fiduciaries, Indemnitee shall be covered by such policies in such a manner as to provide Indemnitee the same rights and benefits as are provided to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee is not an officer or director but is a key employee, agent or fiduciary. 10. Exceptions. Notwithstanding any other provision of this Agreement, ---------- the Company shall not be obligated pursuant to the terms of this Agreement: (a) Excluded Action or Omissions. To indemnify or make Expense ---------------------------- Advances to Indemnitee with respect to Claims arising out of acts, omissions or transactions for which Indemnitee is prohibited from receiving indemnification under applicable law. (b) Claims Initiated by Indemnitee. To indemnify or make Expense ------------------------------ Advances to Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee and not by way of defense, counterclaim or crossclaim, except (i) with respect to actions or proceedings brought to establish or enforce a right to indemnification under this Agreement or any other agreement or insurance policy or under the Company's Certificate of Incorporation or Bylaws now or hereafter in effect relating to Claims for Covered Events, (ii) in specific cases if the Board of Directors has approved the initiation or bringing of such Claim, or (iii) as otherwise required under Section 145 of the Delaware General Corporation Law, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, Expense Advances, or insurance recovery, as the case may be. (c) Lack of Good Faith. To indemnify Indemnitee for any Expenses ------------------ incurred by the Indemnitee with respect to any action instituted (i) by Indemnitee to enforce or interpret this Agreement, if a court having jurisdiction over such action determines as provided in Section 13 that each of the material assertions made by the Indemnitee as a basis for such action was not made in good faith or was frivolous, or (ii) by or in the name of the Company to enforce or interpret this Agreement, if a court having jurisdiction over such action determines as provided in Section 13 that each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous. (d) Claims Under Section 16(b). To indemnify Indemnitee for Expenses -------------------------- and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 11. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall constitute an original. -8- 12. Binding Effect; Successors and Assigns. This Agreement shall be -------------------------------------- binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), spouses, heirs and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect, and whether by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director, officer, employee, agent or fiduciary (as applicable) of the Company or of any other enterprise at the Company's request. 13. Expenses Incurred in Action Relating to Enforcement or Interpretation. --------------------------------------------------------------------- In the event that any action is instituted by Indemnitee under this Agreement or under any liability insurance policies maintained by the Company to enforce or interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee with respect to such action (including, without limitation, attorneys' fees), regardless of whether Indemnitee is ultimately successful in such action, unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous; provided, however, that until such final judicial determination is made, Indemnitee shall be entitled under Section 3 to receive payment of Expense Advances hereunder with respect to such action. In the event of an action instituted by or in the name of the Company under this Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be indemnified for all Expenses incurred by Indemnitee in defense of such action (including without limitation costs and expenses incurred with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action a court having jurisdiction over such action makes a final judicial determination (as to which all rights of appeal therefrom have been exhausted or lapsed) that each of the material defenses asserted by Indemnitee in such action was made in bad faith or was frivolous; provided, however, that until such final judicial -------- ------- determination is made, Indemnitee shall be entitled under Section 3 to receive payment of Expense Advances hereunder with respect to such action. 14. Period of Limitations. No legal action shall be brought and no cause --------------------- of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two year period; provided, however, that if any shorter -------- ------- period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern. -9- 15. Notice. All notices, requests, demands and other communications under ------ this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and signed for by the party addressed, on the date of such delivery, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 16. Consent to Jurisdiction. The Company and Indemnitee each hereby ----------------------- irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be commenced, prosecuted and continued only in the Court of Chancery of the State of Delaware in and for New Castle County, which shall be the exclusive and only proper forum for adjudicating such a claim. 17. Severability. The provisions of this Agreement shall be severable in ------------ the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including without limitation each portion of this Agreement containing any provision held to be invalid, void or otherwise unenforceable, that is not itself invalid, void or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 18. Choice of Law. This Agreement, and all rights, remedies, liabilities, ------------- powers and duties of the parties to this Agreement, shall be governed by and construed in accordance with the laws of the State of Delaware as applied to contracts between Delaware residents entered into and to be performed entirely in the State of Delaware without regard to principles of conflicts of laws. 19. Subrogation. In the event of payment under this Agreement, the ----------- Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights. 20. Amendment and Termination. No amendment, modification, termination or ------------------------- cancellation of this Agreement shall be effective unless it is in writing signed by both the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed to be or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. 21. Integration and Entire Agreement. This Agreement sets forth the -------------------------------- entire understanding between the parties hereto and supersedes and merges all previous written and oral negotiations, commitments, understandings and agreements relating to the subject matter hereof between the parties hereto. -10- 22. No Construction as Employment Agreement. Nothing contained in this --------------------------------------- Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Company or any of its subsidiaries or affiliated entities. IN WITNESS WHEREOF, the parties hereto have executed this Indemnification Agreement as of the date first above written. QuickLogic Corporation By: _______________________________ Name: _____________________________ Title: ____________________________ Address: 1277 Orleans Drive Sunnyvale, California 94089 AGREED TO AND ACCEPTED INDEMNITEE: ___________________________________ (signature) Name: _____________________________ Address: __________________________ -11- EX-10.9 3 TERMINATION AGREEMENT EXHIBIT 10.9 TERMINATION AGREEMENT This Termination Agreement (the "Agreement") is made as of March 29, 1997, --------- by and between Cypress Semiconductor Corporation, a Delaware corporation ("Cypress"), and QuickLogic Corporation, a California corporation ------- ("QuickLogic"). ---------- A. Cypress and QuickLogic are parties to that certain Technical Transfer, Joint Development License and Foundry Supply Agreement dated October 2, 1992 (the "Existing Agreement"). ------------------ B. The parties desire to terminate the Existing Agreement in its entirety and enter into this Agreement, a new wafer fabrication and license agreements, and certain other arrangements. C. Under the Existing Agreement, Cypress holds certain tangible and intangible rights and intellectual property rights, including, without limitation, patents, patent applications, mask work rights and trade secrets (collectively, the "Rights") to antifuse field cell programmable gate array ------ ("FPGA") technology (the "FPGA Technology"). ---- --------------- D. In connection with the termination of the Existing Agreement and subject to the License Agreement (as defined in Section 3.4 below), Cypress will relinquish to QuickLogic all of the Rights to the FPGA Technology, and QuickLogic will acquire from Cypress all inventories of products incorporating the FPGA Technology (the "FPGA Products") and certain other assets. QuickLogic ------------- will also assume certain specified obligations of Cypress. E. Cypress and QuickLogic have entered into a binding Letter of Intent dated February 7, 1997 (the "Letter of Intent") reflecting their mutual ---------------- understanding regarding the transactions contemplated by this Agreement (collectively, the "Transactions). ------------ F. This Agreement, and the other agreements referenced herein (with the exception of the Existing Agreement, supersede the Letter of Intent in its entirety, and the Letter of Intent shall be of no further force or effect. NOW, THEREFORE, in consideration of the mutual agreements, representations and warranties contained in this Agreement, the parties agree as follows: ARTICLE I TERMINATION OF PRIOR AGREEMENT AND TRANSFER OF ASSETS 1.1. Termination of Existing Agreement. Effective as of the Closing Date --------------------------------- (as defined below), the Existing Agreement is terminated in its entirety and shall have no further force or effect. - -------------- * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 1.2. Transfer. Subject to the terms and conditions contained in this -------- Agreement, at the Closing (as defined below) or as provided in Article XI, Cypress shall assign, grant, transfer and convey to QuickLogic, free and clear of all liens, claims, interests and encumbrances, and QuickLogic agrees to acquire from Cypress, all of Cypress's rights, title and interest in and to the assets listed on Exhibit A (the "Transferred Assets"), and Cypress shall deliver --------- ------------------ good, clear and marketable title to each and every Transferred Asset, together with such bills of sale, assignments and other instruments of conveyance as may be reasonably requested by QuickLogic to permit such delivery. Without limiting the foregoing, the Transferred Assets shall be deemed to include only the following: (a) All right, title and interest in the Equipment and Inventory (each as defined in Exhibit A), and all claims and rights of Cypress with respect --------- thereto, including, without limitation, all rights against suppliers thereof under warranties listed and described in Schedule 1.1(a) hereto (to the extent --------------- transferable by Cypress), including, without limitation, all of Cypress's rights under manufacturers' warranties and guarantees (to the extent transferable by Cypress) relating to the Equipment and all benefits and proceeds with respect to the Equipment as of and after the Closing under any policy of insurance; (b) All books and records, whether originals or copies, whether financial or otherwise, relating to the Transferred Assets and which do not primarily relate to areas of Cypress's business other than the Transferred Assets; provided that Cypress shall be entitled, at Cypress's expense, to make and retain photocopies of such records for the purpose of accounting and tax compliance; (c) All licenses, permits, authorizations and other approvals from any federal, state, local or foreign governmental, public or self-regulatory body or authority relating to the Transferred Assets or the Assumed Obligations (as defined below), all of which are listed in Exhibit A (collectively, the --------- "Permits"); ------- (d) The computer software and hardware specifically used in connection with the Equipment, including all documentation and source code, to the extent they are legally transferable by Cypress; (e) All rights of indemnification, claims or causes of action in favor of Cypress, to the extent they arise out of or relate to the Transferred Assets after the Closing Date including, without limitation, those against any person under any purchase or other agreement pursuant to which Cypress acquired any portion of the Transferred Assets or those arising by operation of law or equity or otherwise; and (f) Those other assets that relate to the Transferred Assets and are listed in Exhibit A. --------- Except as otherwise expressly stated in this Section 1.2, no other assets are transferred to QuickLogic pursuant to this Agreement. -2- 1.3. FPGA Technology. Subject to the terms and conditions contained in this --------------- Agreement, at the Closing (as defined below) Cypress shall assign, transfer and convey to QuickLogic all of Cypress's rights, title and interest in and to the FPGA Technology, a descriptive (but not necessarily comprehensive) list of which is set forth in Exhibit A-1 and which are part of the Transferred Assets, and ----------- Cypress shall deliver such assignments and other instruments of conveyance as may be reasonably requested by QuickLogic to permit such transfer. 1.4. Obligations. Except as expressly provided herein, QuickLogic shall ----------- not assume, or take title to the Transferred Assets subject to, or in any way be liable or responsible for, any liabilities or obligations of any kind of Cypress and Cypress shall continue to remain responsible for the same. Those liabilities and obligations that QuickLogic expressly assumes are set forth in Exhibit B (the "Assumed Obligations"). Without limiting the generality of the - --------- ------------------- foregoing, QuickLogic shall not assume or take title to the Transferred Assets subject to any of the following: (a) Any obligations of Cypress arising or created prior to the Closing Date (as defined below) or outstanding on the Closing Date or arising after the Closing Date. (b) Any liability or obligation of Cypress arising from claims for personal injury (including death) or damage to property, including (without limitation) in respect of any negligence or other wrongful action in connection therewith; (c) Any liability or obligation of Cypress based upon or arising under any contract or agreement existing prior to or at the time of Closing; (d) Except as specifically included in the Assumed Obligations, any lien, encumbrance, security interest or charge of any nature whatsoever; (e) Any liability or obligation of Cypress, or any of its employees, for any federal, state, local or foreign income tax; or (f) Any liabilities or obligations arising from litigation to which Cypress is or would be a party that is pending, threatened or based upon facts that arise prior to the Closing. 1.5. Closing and Closing Date. Unless otherwise agreed by the parties, the ------------------------ consummation of the transactions contemplated by this Agreement shall take place at a closing (the "Closing") to be held at the offices of Venture Law Group, ------- counsel to QuickLogic, located at 2800 Sand Hill Road, Menlo Park, CA 94025, on March 29, 1997, or such other time or date as Cypress and QuickLogic shall mutually agree, such time and date being referred to herein as the "Closing ------- Date." -3- 1.6. Actions at the Closing. At the Closing, Cypress and QuickLogic shall ---------------------- take such actions and execute and deliver such agreements, bills of sale and other instruments and documents as necessary or appropriate to effect the transactions contemplated by this Agreement in accordance with its terms, including without limitation the following: (a) Bill of Sale. Cypress shall deliver to QuickLogic a general bill ------------ of sale in substantially the form attached as Exhibit C (the "Bill of Sale") --------- ------------ with respect to the Transferred Assets, duly executed by Cypress, assigning to QuickLogic all of Cypress's right, title and interest in and to the Transferred Assets. (b) Consideration. QuickLogic shall deliver the Consideration to ------------- Cypress in accordance with the provisions of Article II. (c) Title. Subject to Section 3.2 herein, Cypress shall deliver to ----- QuickLogic evidence of valid title to such of the Transferred Assets and the FPGA Technology as QuickLogic may reasonably request prior to the Closing and assignments of the Transferred Assets and FPGA Technology in form and substance reasonably satisfactory to QuickLogic (including, but not limited to, assignments of patents, patent applications, copyrights and mask work rights). (d) Third Party Consents and Assignments. Cypress shall deliver to ------------------------------------ QuickLogic all assignments and required consents to assignment that it has obtained in respect of the assignment of the Transferred Assets, duly executed by the appropriate parties having the authority so to assign or consent to assign, in form and substance as QuickLogic shall reasonably request. (e) Transaction Agreements. The Transaction Agreements (as defined ---------------------- below) shall have been executed by QuickLogic, Cypress and any other parties to such Transaction Agreements and delivered to QuickLogic and Cypress. (f) Post Closing Actions. Subsequent to the Closing Date, Cypress -------------------- shall from time to time use reasonable efforts to execute and deliver, upon the request of QuickLogic, all such other and further materials and documents and instruments of conveyance, transfer or assignment as may be requested by QuickLogic to effect, record or verify the transfer to, and vesting in QuickLogic, of Cypress's right, title and interest in and to the Transferred Assets, free and clear of all liens and encumbrances, in accordance with the terms of this Agreement. 1.7. Delivery of Transferred Assets. Title to the Transferred Assets shall ------------------------------ pass to QuickLogic as of the Closing, or at such other transfer dates provided herein, at Cypress's place of business. Following the Closing, Cypress will put QuickLogic in control of the Transferred Assets pursuant to the Transition Plan (as defined in Article XI). All tangible assets constituting a part of the Transferred Assets will be delivered to QuickLogic's place of business in Sunnyvale, California at Cypress's cost and by means of delivery reasonably determined by -4- Cypress. All other assets constituting a part of the Transferred Assets will be made available to QuickLogic at the business location of Cypress, provided that, if requested by QuickLogic, Cypress, to the extent practicable, will arrange for the electronic transmission of any software or electronic data related to the Transferred Assets to QuickLogic. ARTICLE II CONSIDERATION; TERMS OF PAYMENT 2.1. Consideration. The consideration for the Transactions (the ------------- "Consideration") shall consist of the following: - -------------- (a) $4.5 million in cash, which is currently in the possession of Cypress. (b) An aggregate of 18,226,716 (the "Original Share Number") shares of unregistered Common Stock of QuickLogic (the "Shares") shall be issued to ------ Cypress, subject to potential additional issuances pursuant to Section 2.5 below. The Shares shall be delivered to Cypress by QuickLogic in accordance with that certain Common Stock Purchase Agreement between Cypress and QuickLogic in substantially the form attached hereto as Exhibit D (the "Stock Purchase --------- Agreement"). (c) The assumption of the Assumed Obligations by QuickLogic. 2.2. Allocation of Consideration. The Consideration shall be allocated as --------------------------- provided in Schedule 2.2 hereto for purposes of complying with the requirements ------------ of Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"). Each party hereto agrees to prepare its federal and state income tax returns for all current and future tax reporting periods and file Form 8594 (and corresponding state forms) with respect to this transaction in a manner consistent with the allocations set forth in said Schedule 2.2. If any state or ------------ federal taxing authority challenges such allocation, the party receiving notice of such challenge shall give the other prompt written notice of such challenge, and the parties shall cooperate in good faith in responding to it in order to preserve the effectiveness of such allocation, and shall take no position in any tax proceeding inconsistent therewith. 2.3. Acquisition of Transferred Assets. In addition to the Consideration, --------------------------------- QuickLogic shall also pay to Cypress the following amounts for its acquisition of the Transferred Assets: (a) A promissory note payable to Cypress by QuickLogic, in the form attached hereto as Exhibit E (the "Note"). The Note shall be issued in --------- ---- consideration for the Inventory, where the eventual aggregate principal amount of the Note will represent QuickLogic's standard cost of such finished and work- in-progress inventory, discounted by $1,000,000. Such amount (prior to the $1,000,000 discount) as of February 28, 1997 is estimated by Cypress to be [ * ]. The Inventory will be transferred to QuickLogic in accordance with Article XI below. Upon the initial shipment of Inventory, the Note will be issued to - ---------- * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. -5- Cypress, in a principal amount representing QuickLogic's standard cost of such finished and work-in-progress inventory being shipped, discounted by $1,000,000. Upon subsequent transfers of Inventory pursuant to Article XI, the principal amount of the Note will be increased by an amount equal to QuickLogic's standard cost of such finished and work-in-progress inventory being shipped. (b) The Equipment shall be purchased from Cypress [*] for the Hewlett-Packard Tester and at the prices listed on Exhibit A for all other Equipment items. Payment for the Equipment will be made by QuickLogic within thirty (30) days after delivery of all the Equipment. 2.4. Taxes Arising from Transfer. [ * ] shall pay any sales, use, --------------------------- recordation, transfer, excise or other similar taxes, if any, arising out of the transfer of the Transferred Assets, or otherwise as a consequence of the transactions contemplated by this Agreement. 2.5. Potential Additional Issuance of Common Stock upon Certain Dilutive ------------------------------------------------------------------- Issuances. If, after the Closing, there is an adjustment to the Conversion Price - --------- (as defined in the Amended Articles) for any series of QuickLogic's Preferred Stock pursuant to Article III.C.(4)(d)(iv) of the Amended Articles, then QuickLogic shall issue to Cypress, without payment of any additional consideration and pursuant to the delivery provisions of the Stock Purchase Agreement, that additional number of fully paid and nonassessable shares of QuickLogic Common Stock (the "Additional Shares"), as calculated as follows (mathematical operations in listed order): a) $1.16 divided by b) The new Conversion Price for the Series F Preferred Stock (or, if the adjustment to the Series F Preferred Stock Conversion Price has been waived by the holders of Series F Preferred Stock, what such Conversion Price would have been had the adjustment not been waived) minus c) 1 multiplied by 4) the Original Share Number rounded to the nearest whole number The Original Share Number shall be increased by the Additional Shares for purposes for future calculations pursuant to this Section 2.5. - --------- * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. -6- ARTICLE III REPRESENTATIONS AND WARRANTIES OF CYPRESS Except as set forth on the Cypress Disclosure Schedule attached hereto as Schedule 3, Cypress represents and warrants to QuickLogic that: - ---------- 3.1. Organization. Cypress is a corporation duly organized, validly ------------ existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to own, lease and operate its properties and to transact its business as it is now being conducted and to carry out this Agreement and the transactions contemplated herein. Cypress is duly qualified or licensed to do business and is in good standing in each place and jurisdiction where the nature of the business conducted by it with respect to the Transferred Assets makes such qualification necessary except where the failure to so qualify does not in the aggregate have a material adverse effect on Cypress's business as a whole. 3.2. Title to Transferred Assets. Cypress has and will convey on the --------------------------- Closing Date (or on any other transfer dates provided herein) full, absolute, good and marketable title to the Transferred Assets, free and clear of all security interests, mortgages, liens (including, but not limited to, liens with respect to taxes), attachments, orders of court, rights of redemption, debts, claims, indebtedness, liabilities, charges, or other encumbrances of any kind whatsoever and not subject to any continuing commission, profit or revenue sharing or other compensation contract or obligation that could apply to QuickLogic or the Transferred Assets. No liens affecting any of the Transferred Assets or the FPGA Technology will arise or would, with notice or lapse of time or both, arise as a result of the transactions contemplated by this Agreement or by any agreement contemplated by this Agreement. No other person has any direct or indirect interest in the Transferred Assets or the FPGA Technology, other than QuickLogic or pursuant to the License Agreement (as defined below), except to the extent of existing non-exclusive license agreements. No restrictions created by Cypress or known by Cypress exist on QuickLogic's right to sell or resell products using any of the Transferred Assets, nor will any restrictions be imposed as a consequence of the transactions contemplated by this Agreement. 3.3. Contracts with Respect to the Transferred Assets. No Transferred ------------------------------------------------ Asset is subject to any contract, license or agreement, and no person other than Cypress owns any right, title or interest in or to any such Transferred Assets, except as expressly set forth in the Cypress Disclosure Statement. 3.4. Due Authority; Valid and Binding Agreements. Cypress has the power ------------------------------------------- and authority to enter into and be bound by the terms and conditions of this Agreement, the Stock Purchase Agreement, the Sixth Amended and Restated Registration Rights Agreement attached hereto as Exhibit F (the "Registration --------- ------------ Rights Agreement"), the Sixth Amended and Restated Shareholders Agreement - ---------------- attached hereto as Exhibit G (the "Shareholders Agreement"), the Wafer --------- ---------------------- Fabrication Agreement attached hereto as Exhibit H, (the "Wafer Fabrication --------- ----------------- Agreement") and the Cross-License Agreement attached hereto as Exhibit I (the - --------- --------- "License Agreement" and collectively with the Stock Purchase Agreement, the - ------------------ Registration Rights Agreement, the -7- Shareholders Agreement and the Wafer Fabrication Agreement, the "Transaction ----------- Agreements"), and to carry out its obligations pursuant hereto and thereto. The - ---------- consummation by Cypress of the transactions contemplated by this Agreement and by the Transaction Agreements has been duly authorized by all necessary corporate action by of Cypress, and no other act or proceeding on the part of or on behalf of Cypress is necessary to approve the execution of this Agreement and the Transaction Agreements. Each of this Agreement and the Transaction Agreements is a legal, valid and binding obligation of Cypress enforceable against Cypress in accordance with its terms, subject to limitations imposed by general principles of equity upon the availability of equitable remedies and the enforcement of such provisions, and, with respect to the Registration Rights Agreement , except as the enforceability of Section 7 thereof may be limited by public policy. 3.5. No Conflicts or Violations. Neither the execution and delivery of -------------------------- this Agreement and the Transaction Agreements nor the consummation of the transactions contemplated hereby and thereby will (i) conflict with or result in any violation of or constitute a default under any agreement, mortgage, bond, indenture, franchise or other instrument or obligation to which Cypress is a party or by which it is bound, where such conflict, violation or default would have a material adverse effect upon the Transferred Assets or the FPGA Technology, (ii) conflict with, violate or result in any breach of the material terms, conditions or provisions of the certificate of incorporation or bylaws of Cypress, (iii) result in the creation of any lien or other encumbrance upon any Transferred Asset or the FPGA Technology pursuant to the terms of any such mortgage, bond, indenture, franchise or other instrument or obligation, (iv) violate any judgment, order, injunction, decree or award of any court, administrative agency or governmental body against, or binding upon, either Cypress or upon any of the Transferred Assets or the FPGA Technology, (v) constitute a violation by Cypress of any law or regulation of any jurisdiction in which Cypress conducts its business, where such violation would have a material adverse effect upon the Transferred Assets or the FPGA Technology, or (vi) result in the breach of any of the terms or conditions of, or constitute a default under, or otherwise cause any impairment of, any permit or license or other governmental authorization held by Cypress, where such breach, default or impairment would have a material adverse effect upon the Transferred Assets or the FPGA Technology. 3.6. Equipment. The list of the Equipment set forth in Exhibit A is a --------- --------- complete and accurate list of all such Equipment as agreed to by Cypress and QuickLogic. The Equipment is being sold "as is", and Cypress makes no warranty whatsoever with respect thereto, except as set forth in the previous sentence. CYPRESS EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE EQUIPMENT. 3.7. Inventory. The Inventory set forth in Exhibit A is of a type and --------- --------- quality useable and saleable in the ordinary course of business; provided, that Cypress expressly makes no representation or warranty as to the resulting yield of the Inventory. -8- 3.8. No Violation of Law. Cypress has conducted its business as it relates ------------------- to the Transferred Assets in compliance with all applicable laws and regulations of federal, state, local and foreign governmental authorities, except where any such violation would not have a material adverse effect upon the Transferred Assets or the FPGA Technology. Cypress possesses, and is in compliance with, all licenses, permits, approvals and other governmental authorizations that are material to and necessary to the conduct of its business as it relates to the Transferred Assets and the FPGA Technology. 3.9. Litigation, etc. There are no suits, actions or administrative, --------------- arbitration, unfair labor practice, worker's compensation or other proceedings, pending or, to Cypress's knowledge, threatened, nor, to Cypress's knowledge, is there any governmental investigation against or relating, directly or indirectly, to the Transferred Assets, or the FPGA Technology, which could result in a lien on or impair QuickLogic's ownership of the Transferred Assets or the FPGA Technology and none which questions the validity of this Agreement or the Transaction Agreements, and there are no judgments, orders, injunctions, decrees, stipulations or awards (whether rendered by a court, administrative agency or by arbitration, pursuant to a grievance or other procedure) against or relating to either Cypress or the Transferred Assets that could result in a material adverse effect, or any lien or other encumbrance, on the Transferred Assets or the FPGA Technology. 3.10. No Brokers. Cypress is not obligated nor has Cypress obligated ---------- QuickLogic for the payment of fees or expenses of any broker or finder in connection with the origin, negotiation or execution of this Agreement or in connection with any transaction contemplated hereby. 3.11. Taxes. All sales and use taxes, real and personal property taxes, ----- gross receipts taxes, documentary transfer taxes, employment taxes, withholding taxes, unemployment insurance contributions and other taxes or governmental charges of any kind, however denominated, for which QuickLogic could become liable as a result of acquiring the Transferred Assets or the FPGA Technology or which could result in a lien on or charge against the Transferred Assets or the FPGA Technology (collectively, "Taxes") have been or will be paid for all ----- periods prior to and including the Closing Date. Cypress has duly and timely filed (or will file prior to the Closing Date) all returns and reports of Taxes required to be filed prior to such date. To Cypress's knowledge, there are not, and as of the Closing will not be, any liens for Taxes on any of the Transferred Assets or the FPGA Technology (other than liens for Taxes not yet due and payable). To Cypress's knowledge, there are no pending or threatened proceedings with respect to Taxes. 3.12. Environmental Matters. To the extent that the failure to do so or --------------------- be so would have a material adverse effect upon the Transferred Assets, Cypress is in compliance with all federal, state, local and foreign laws related to environment and hazardous materials practices that are applicable to Cypress or its business related to the Transferred Assets, and Cypress has conducted its business relating to the Transferred Assets in compliance with the foregoing laws. -9- 3.13. Fair Consideration; No Fraudulent Conveyance; Bulk Sales. After due -------------------------------------------------------- inquiry and negotiation, the sale and purchase of the Transferred Assets pursuant to this Agreement is made in exchange for fair and equivalent consideration. Cypress is not entering into this Agreement with the intent to defraud, delay or hinder its creditors and the consummation of the transactions contemplated by this Agreement will not have any such effect. The transactions contemplated in this Agreement will not constitute a fraudulent conveyance or any act with similar consequences or potential consequences, or otherwise give rise to any right of any creditor of Cypress whatsoever to lodge any claim against any of the Transferred Assets in the hands of Cypress after the Closing. The transfer of the Transferred Assets is not a "bulk transfer," as defined in Division 6 of the Uniform Commercial Code of the State of California. 3.14. Full Disclosure. Cypress is not aware of any infringement by the --------------- FPGA Technology on the rights of third parties or any infringement by third parties of the FPGA Technology. Cypress is not aware of any facts pertaining to the Transferred Assets that it believes materially affect, or are likely in the future to materially affect, the Transferred Assets in a material adverse manner. Neither this Agreement, nor any representation or warranty contained in this Agreement, nor any other agreement (including the Transaction Agreements), exhibit, schedule, or certificate being entered into or delivered pursuant hereto, when read as a whole, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements contained herein or therein not misleading, provided that except as expressly provided in other Sections of this Article III, Cypress makes no representation and warranty as to the value of the Transferred Assets or the FPGA Technology to QuickLogic. 3.15. Knowledge. As used in this Article III, the terms "to Cypress's --------- knowledge" or "to the knowledge of Cypress" shall mean the actual knowledge of all Cypress personnel at the director level or above, and Fred Bialek. 3.16. Reliance. The representations and warranties of QuickLogic -------- contained in Article V and in the Stock Purchase Agreement constitute the sole and exclusive representations and warranties of QuickLogic to Cypress in connection with this Agreement and the transactions contemplated hereby, and Cypress acknowledges that all other representations and warranties are specifically disclaimed and may not be relied upon or serve as a basis for a claim against QuickLogic. 3.17. Governmental Approvals. Except for compliance with Hart-Scott- ---------------------- Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or as disclosed in the Cypress Disclosure Schedule, no governmental authorization, consent, approval, license, exemption of or filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, under any applicable laws, rules or regulations currently in effect, is or will be necessary for, or in connection with, the execution or delivery by Cypress of this Agreement. -10- ARTICLE IV REPRESENTATIONS AND WARRANTIES OF QUICKLOGIC Except as set forth on the QuickLogic Disclosure Schedule attached hereto as Schedule 4 (the "QuickLogic Disclosure Schedule"), QuickLogic hereby ---------- represents and warrants to Cypress that: 4.1. Due Authority; Valid and Binding Agreements. QuickLogic has the power ------------------------------------------- and authority to enter into and be bound by the terms and conditions of this Agreement and the Transaction Agreements, and to carry out its obligations pursuant hereto and thereto. The consummation by QuickLogic of the transactions contemplated by this Agreement and by the Transaction Agreements has been duly authorized by all necessary corporate action by of QuickLogic, and no other act or proceeding on the part of or on behalf of QuickLogic is necessary to approve the execution of this Agreement and the Transaction Agreements. Each of this Agreement and the Transaction Agreements is a legal, valid and binding obligation of QuickLogic enforceable against QuickLogic in accordance with its terms, subject to limitations imposed by general principles of equity upon the availability of equitable remedies and the enforcement of such provisions, and, with respect to the Registration Rights Agreement, except as the enforceability of Section 7 thereof may be limited by public policy. 4.2. No Conflicts or Violations. Neither the execution and delivery of -------------------------- this Agreement and the Transaction Agreements nor the consummation of the transactions contemplated hereby and thereby will (i) conflict with or result in any violation of or constitute a default under any agreement, mortgage, bond, indenture, franchise or other instrument or obligation to which QuickLogic is a party or by which it is bound, where such conflict, violation or default would have a material adverse effect upon the business of QuickLogic, taken as a whole, (ii) conflict with, violate or result in any breach of the material terms, conditions or provisions of the articles of incorporation or bylaws of QuickLogic, (iii) violate any judgment, order, injunction, decree or award of any court, administrative agency or governmental body against, or binding upon, QuickLogic, where such violation would have a material adverse effect upon the business of QuickLogic, taken as a whole, (iv) constitute a violation by QuickLogic of any law or regulation of any jurisdiction in which QuickLogic conducts its business, where such violation would have a material adverse effect upon the business of QuickLogic, taken as a whole, or (v) result in the breach of any of the terms or conditions of, or constitute a default under, or otherwise cause any impairment of, any permit or license or other governmental authorization held by QuickLogic, where such breach, default or impairment would have a material adverse effect upon the business of QuickLogic, taken as a whole. 4.3. No Brokers. QuickLogic is not obligated nor has QuickLogic obligated ---------- Cypress for the payment of fees or expenses of any broker or finder in connection with the origin, negotiation or execution of this Agreement or in connection with any transaction contemplated hereby. -11- 4.4. Governmental Approvals. Except for compliance with Hart-Scott-Rodino ---------------------- Antitrust Improvements Act of 1976, as amended (the "HSR Act"), or as referenced in the Stock Purchase Agreement or disclosed in the QuickLogic Disclosure Schedule, no governmental authorization, consent, approval, license, exemption of or filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, under any applicable laws, rules or regulations currently in effect, is or will be necessary for, or in connection with, the execution or delivery by QuickLogic of this Agreement. 4.5 Reliance. The representations and warranties of Cypress contained in -------- Article III, in the Stock Purchase Agreement, and in the Wafer Fabrication Agreement constitute the sole and exclusive representations and warranties of Cypress to QuickLogic in connection with this Agreement and the transactions contemplated hereby, and QuickLogic acknowledges that all other representations and warranties are specifically disclaimed and may not be relied upon or serve as a basis for a claim against Cypress. QUICKLOGIC ACKNOWLEDGES THAT CYPRESS DISCLAIMS ALL WARRANTIES OTHER THAN THOSE EXPRESSLY CONTAINED IN THIS AGREEMENT AS TO THE TRANSFERRED ASSETS, OR ANY OF THEM, EITHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. ARTICLE V INTERIM AGREEMENTS 5.1. Access; Confidentiality. Prior to the Closing at the reasonable ----------------------- request of QuickLogic, Cypress agrees to promptly make available all books, records, facilities, employees and information necessary for QuickLogic to evaluate the Transferred Assets, and verify the FPGA Technology, and QuickLogic agrees prior to the Closing at the reasonable request of Cypress to make promptly available all books, records, facilities, employees and information necessary for Cypress to fulfill its obligations hereunder. Except as provided below, each party hereto shall keep confidential and shall not make use of any information treated by the other party as confidential (including, without limitation, the terms and conditions of this Agreement and the Transaction Agreements), obtained from the other party concerning the assets, properties, business or operations of the other party other than to legal counsel, auditors, board members, consultants, financial advisers, key employees, lenders and investment bankers where such disclosure is related to the performance of obligations under this Agreement or the consummation of the transactions contemplated under this Agreement (all of whom shall be similarly bound by the provisions of this Section 5.1), except as may be required to be disclosed by applicable law, and except as provided for in the Transaction Agreements. Notwithstanding the foregoing, the foregoing confidentiality restrictions shall not apply to (i) information that was in the receiving party's possession prior to receipt from the disclosing party, (ii) information that becomes generally available to the public other than as a result of the receiving party's fault or action, (iii) information that becomes available to the receiving party from some source other than the disclosing party, provided that such source is under no non-disclosure obligation, or -12- (iv) information that is developed independently by the receiving party without reference to the disclosing party's information. Neither party will use any information provided pursuant to this Section 5.1 to compete with the other party as their businesses are constituted after the Transactions have been consummated. In the event the Transactions are not consummated, each party will return to the other any materials containing information provided pursuant to this Section 5.1, or will certify in writing that all such materials or copies of such materials have been destroyed. 5.2. Public Announcements. The parties hereto agree that all disclosures -------------------- and public announcements with respect to this Agreement and the Transaction Agreements or any of the transactions contemplated hereby and thereby shall be mutually agreed to between Cypress and QuickLogic and that no such disclosure or announcement shall be made by any party without the prior written consent of the other; provided, however, that nothing herein contained shall restrict Cypress or QuickLogic from making any public announcement of the transactions contemplated by this Agreement and the Transaction Agreements to the extent that it, in its sole discretion reasonably exercised, is of the view that such announcement is required or deemed advisable in order to meet its obligations under the securities laws or stock exchange requirements in the United States; provided further that prior to making such announcement, the party making it shall provide particulars thereof to the other party and use reasonable efforts to seek confidential treatment from disclosure if reasonably requested by the other party. Notwithstanding the foregoing, either party may disclose this Agreement and the Transaction Agreements and the transactions contemplated hereby, to the extent reasonably necessary, in connection with (a) a private or public offering of securities, and (b) any filing and disclosure obligations under the Securities Act or the Exchange Act, including without limitation the filing of this Agreement and all exhibits with the Securities and Exchange Commission. 5.3. Occurrence of Conditions. Each party hereto shall use its reasonable ------------------------ best efforts, or where appropriate cooperate in the efforts of the other party, to cause the occurrence of the conditions specified in Section 7 and Section 8 of this Agreement. 5.4. Other Negotiations. ------------------ (a) Between the date of this Agreement and the Closing Date or such earlier date as QuickLogic and Cypress mutually agree to discontinue discussions of the Transaction, Cypress will not (and it will use its reasonable best efforts to assure that its officers, directors, employees, stockholders, its and each of their affiliates and legal, accounting and financial advisors do not on its behalf) take any action to solicit, initiate, seek, encourage or support any inquiry, proposal or offer from, furnish any information to, or participate in any negotiations with, any corporation, partnership, person or other entity or group (other than negotiations with QuickLogic) regarding any acquisition of the Transferred Assets. (b) Cypress agrees that any such negotiations (other than negotiations with QuickLogic) in progress as of the date of this Agreement will be suspended between the date of this Agreement and the Closing Date and that, in no event, will Cypress accept or enter into an agreement concerning any such third party acquisition transaction during such period. Cypress -13- represents and warrants that it has the legal right to terminate or suspend any such pending negotiations with third parties and agrees to indemnify QuickLogic, its officers, directors, employees, stockholders and its and their affiliates and advisors from and against any claims by any party to such negotiations based upon or arising out of the discussion or any consummation of the Transaction as contemplated by this Agreement. 5.5. Update to Disclosure. Without limiting either party's right to rely -------------------- on the representations and warranties as set forth herein, each of Cypress and QuickLogic shall provide the other party with updates to the disclosures provided or made available to the other party as to material facts which arises between the date of this Agreement and the Closing Date and which, if they had occurred and been known prior to the date of this Agreement, would have been required to have been disclosed in order to make the representations and warranties contained in Articles III and IV true and correct as of the date of this Agreement. In addition (i) Cypress shall provide QuickLogic with updates if, between the date hereof and the Closing Date, there is a change in the condition of the Transferred Assets or the FPGA Technology which may be reasonably expected to have a materially adverse effect on the condition of the Transferred Assets or the FPGA Technology and (ii) QuickLogic shall provide Cypress with updates if, between the date hereof and the Closing Date, there is a change in the condition (financial or otherwise) of the business, prospects, employees, operations, obligations or liabilities of QuickLogic which, in the aggregate, have or may be reasonably expected to have a materially adverse effect on the condition (financial or otherwise) of the business, operations, obligations or liabilities of QuickLogic. 5.6. Government Approvals. As soon as practicable but no later than -------------------- promptly following the execution of this Agreement, Cypress and QuickLogic shall each file a Premerger Notification and Report Form and all documentary attachments thereto to be filed with the United States Federal Trade Commission (the "FTC") and the Antitrust Division of the United States Department of Justice (the "DOJ") pursuant to the HSR Act. Each party shall pay its own filing fees required by the HSR Act in connection with the transactions contemplated by this Agreement. Cypress and QuickLogic shall file any additional information requested by the FTC or the DOJ in connection with this Agreement or the transactions contemplated hereby as soon as practicable after receipt of any request for such information. Neither Cypress nor QuickLogic shall unreasonably take or fail to take any action which reasonably could be expected to have the effect of delaying, impairing or impeding the receipt of approval under the HSR Act as contemplated by this Section 5.9, provided, however, that this sentence shall not be construed to require either party to transfer or assign rights or other assets to a third party. -14- ARTICLE VI CONDUCT OF BUSINESS During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Closing Date, the parties acknowledge and agree that Cypress will be transitioning the business relating to the Transferred Assets, and the relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it regarding such business. Notwithstanding the foregoing, Cypress agrees (except to the extent expressly contemplated by this Agreement or as consented to in writing by QuickLogic), to carry on its business with regard to the Transferred Assets in the usual, regular and ordinary course in substantially the same manner as heretofore, but conducted in a manner consistent with and giving due regard to the transitioning of such business, to pay debts and Taxes when due subject to good faith disputes over such debts or Taxes and to pay or perform other obligations when due, and to use all reasonable efforts consistent with past practice and policies to keep available the services of its officers and key employees with respect to such business. Cypress agrees to promptly notify QuickLogic of any material event or occurrence not in the ordinary course of its business regarding the Transferred Assets, and of any event which could have a material effect on the FPGA Technology or the Transferred Assets. Without limiting the foregoing, except as expressly contemplated by this Agreement, Cypress shall not do, cause or permit any of the following, or allow, cause or permit any of its subsidiaries to do, cause or permit any of the following, without the prior written consent of QuickLogic: (a) Contracts. Enter into any new contract or commitment regarding --------- the FPGA Technology or the Transferred Assets, or violate, amend or otherwise modify or waive any of the terms of any existing contracts or commitments regarding the FPGA Technology or the Transferred Assets, other than in the ordinary course of business consistent with past practice; (b) Intellectual Property. Transfer to any person or entity any of --------------------- the Rights other than in the ordinary course of business consistent with past practice; (c) Rights. Enter into or amend any agreements pursuant to which any ------ other party is granted marketing or other rights of any type or scope with respect to any of its products or technology relating to the FPGA Technology or the Transferred Assets; (d) Indebtedness. Incur any indebtedness for borrowed money or ------------ guarantee any such indebtedness or issue or sell any debt securities or guarantee any debt securities of others in such a way that would affect the FPGA Technology or the Transferred Assets; (e) Insurance. Materially reduce the amount of any material insurance --------- coverage provided by existing insurance policies that materially affects the FPGA Technology or the Transferred Assets; -15- (f) Termination or Waiver. Terminate or waive any right of --------------------- substantial value regarding the FPGA Technology or the Transferred Assets, other than in the ordinary course of business; (g) Lawsuits. Commence a lawsuit regarding the FPGA Technology or the -------- Transferred Assets other than (i) for the routine collection of bills, (ii) in such cases where it in good faith determines that failure to commence suit would result in the material impairment of a valuable aspect of the FPGA Technology or the Transferred Assets, provided that it consults with QuickLogic prior to the filing of such a suit, or (iii) for a breach of this Agreement; (h) Other. Take or agree in writing or otherwise to take, any of the ----- actions described in Sections 10.1(a) through (i) above, or any action which would make any of its representations or warranties contained in this Agreement untrue or incorrect or prevent it from performing or cause it not to perform its covenants hereunder. Cypress also agrees in good faith to use its reasonable best efforts to maintain intact all of its current business relationships relating to the FPGA Technology, including, without limitation, all customer relationships prior to the Closing. ARTICLE VII CONDITIONS TO OBLIGATIONS OF QUICKLOGIC Absent a waiver in writing, all obligations of QuickLogic under this Agreement, except the obligations set forth in Sections 5, 9, 10 and 12 hereof, are subject to the satisfaction of the following conditions, to QuickLogic's reasonable satisfaction, on or before the completion of the Closing on the Closing Date: 7.1. Representations, Warranties and Performance. The representations and ------------------------------------------- warranties of Cypress contained herein shall be deemed to have been made again at and as of the Closing Date and shall then be true and correct with the same force and effect as if such representations and warranties have been made at and as of the Closing Date; Cypress shall have performed and complied with all agreements, conditions and covenants required by this Agreement and the Stock Purchase Agreement to be performed or complied with by Cypress prior to or at the Closing Date; and Cypress shall have furnished to QuickLogic an officer's certificate dated the Closing Date, verifying, in such detail as QuickLogic may reasonably request, the fulfillment of the foregoing conditions. 7.2. Absence of Adverse Changes. There shall not have been any material -------------------------- adverse change in or to the Transferred Assets. -16- 7.3. Litigation. There shall not be pending any litigation before any ---------- court or governmental agency (i) the outcome of which could reasonably be expected to have a material adverse effect on the Transferred Assets, or (ii) to restrain or prohibit or to obtain damages or other relief in connection with, or which is related to or arises out of, this Agreement, the Transaction Agreements or the transactions contemplated hereby or thereby. 7.4 Amended and Restated Articles. The Amended and Restated Articles of ------------------------------ QuickLogic in the form attached hereto as Exhibit J (the "Amended Articles") --------- ---------------- shall have been filed and approved by the California Secretary of State. 7.5. Transaction Agreements. Cypress shall have executed and delivered ---------------------- each of the Transaction Agreements to which it is a party. 7.6. Approvals. All consents, approvals and filings required under any --------- applicable law, rule or regulation to be completed or obtained prior to the transactions contemplated by this Agreement and the Transaction Agreements shall have been so completed or obtained, as the case may be, including without limitation compliance with the HSR Act. All necessary consents of the Board of Directors and the shareholders of both Cypress and QuickLogic shall have been obtained. 7.7. No Injunctions. No temporary restraining order, preliminary or -------------- permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Transaction or limiting or restricting QuickLogic's conduct or operation of the business of QuickLogic after the Transaction shall have been issued, nor shall any proceeding brought by a domestic administrative agency or commission or other domestic governmental entity, seeking any of the foregoing be pending; nor shall there be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Transaction which makes the consummation of the Transaction illegal. 7.8. Consummation of Acquisition. The Closing of the Transaction shall ---------------------------- occur no later than April 30, 1997 unless mutually agreed to by QuickLogic and Cypress. 7.9. Legal Opinion. QuickLogic shall have received a legal opinion from ------------- Wilson Sonsini Goodrich & Rosati, counsel to Cypress, substantially in the form attached hereto as Exhibit K. --------- ARTICLE VIII CONDITIONS TO OBLIGATIONS OF CYPRESS Absent a waiver in writing, all obligations of Cypress under this Agreement, except the obligations set forth in Sections 5, 9, 10 and 12 hereof, are subject to the satisfaction of the following conditions, to Cypress's reasonable satisfaction, on or before the completion of the Closing on the Closing Date: -17- 8.1. Representations, Warranties and Performance The representations and ------------------------------------------- warranties of QuickLogic shall be deemed to have been made again at and as of the Closing Date and shall then be true and correct with the same force and effect as if such representations and warranties had been made at and as of the Closing Date; QuickLogic shall have performed and complied with all agreements, conditions and covenants required by this Agreement and the Stock Purchase Agreement to be performed or complied with by it prior to or at the Closing Date, and QuickLogic shall have furnished to Cypress an officer's certificate dated the Closing Date, verifying, in such detail as Cypress may reasonably request, to the fulfillment of the foregoing conditions. 8.2. Absence of Adverse Changes. There shall not have been any material -------------------------- adverse change in or to the business of QuickLogic. 8.3. Litigation. There shall not be pending any litigation before any ---------- court or government agency that has not been previously set forth in the QuickLogic Disclosure Schedule (i) the outcome of which could be reasonably be expected to have a material adverse effect on the business of QuickLogic, or (ii) to restrain or prohibit or to obtain damages or other relief in connection with, or which is related to or arises out of, this Agreement, the Transaction Agreements or the transactions contemplated hereby or thereby. 8.4. Transaction Agreements. QuickLogic shall have executed and delivered ---------------------- each of the Transaction Agreements to which it is a party. 8.5. Approvals. All consents, approvals and filings required under any --------- applicable law, rule or regulation to be completed or obtained prior to the transactions contemplated by this Agreement and the Transaction Agreements shall have been so completed or obtained, as the case may be, including without limitation compliance with the HSR Act and the Exchange Act. All necessary consents of the Board of Directors and the shareholders of both QuickLogic and Cypress shall have been obtained. 8.6. No Injunctions. No temporary restraining order, preliminary or -------------- permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Transaction or limiting or restricting QuickLogic's conduct or operation of the business of QuickLogic after the Transaction shall have been issued, nor shall any proceeding brought by a domestic administrative agency or commission or other domestic governmental entity, seeking any of the foregoing be pending; nor shall there be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Transaction which makes the consummation of the Transaction illegal. 8.7. Consummation of Acquisition. The Closing of the Transaction shall ---------------------------- occur no later than April 30, 1997 unless mutually agreed to by QuickLogic and Cypress. -18- 8.8. Legal Opinion. Cypress shall have received a legal opinion from ------------- Venture Law Group, special counsel to QuickLogic, substantially in the form attached hereto as Exhibit L. --------- ARTICLE IX TERMINATION AND SURVIVAL 9.1. Termination. Anything contained herein to the contrary ----------- notwithstanding, this Agreement may be terminated and the transactions contemplated hereby abandoned at any time prior to the Closing Date: (a) By mutual consent of QuickLogic and Cypress; (b) By notice in writing by QuickLogic, if any of the conditions set forth in Section 7 shall have become incapable of fulfillment prior to April 30, 1997, through no fault of QuickLogic and shall not have been waived by QuickLogic; (c) By notice in writing by Cypress, if any of the conditions set forth in Section 8 shall have become incapable of fulfillment prior to April 30, 1997, through no fault of Cypress and shall not have been waived by Cypress; or (d) By notice in writing by either QuickLogic, on one hand, or Cypress, on the other hand, if (i) the other has breached this Agreement in any material respect, (ii) any of the representations and warranties made by the other in Section 3 or Section 4 of this Agreement (as the case may be) is false or inaccurate in any material respect, or (iii) the Closing does not occur on or before April 30, 1997 (unless such date is extended by mutual agreement), but only if the failure to consummate such transaction on or before such date did not result from the failure by the party seeking such termination to fulfill any condition set forth in Section 5.4, Section 7 or Section 8, as the case may be, which is a condition precedent to the obligation of the other under this Agreement to consummate the transactions contemplated hereby. To the extent a party fails to act in good faith and consummate the Transactions, the non- breaching party shall be entitled to obtain injunctive relief to enforce the terms of this Agreement and the Transaction Agreements. 9.2. Effect of Termination. If this Agreement is terminated prior to --------------------- Closing and the transactions contemplated hereby are not consummated at said time as described above, this Agreement shall become void and of no further force and effect, except for the provisions of Section 5.1 (relating to the obligations of confidentiality); Section 5.2 (relating to disclosure); Section 9 (relating to termination); Section 12.1 (relating to arbitration); and Section 15 (relating to certain miscellaneous provisions) and there shall be no liability or obligation on the part of QuickLogic or Cypress or their respective officers, directors or stockholders; provided, however, that such termination shall not limit any rights or obligations of any party hereto for willful breach of this Agreement or any Transaction Agreement. -19- ARTICLE X INDEMNIFICATION 10.1 Cypress's Indemnification. Cypress will indemnify and hold harmless ------------------------- QuickLogic and each of its directors, officers, employees, advisors, affiliates, agents and shareholders from and against any and all losses, damages, liabilities, costs, claims and expenses, including but not limited to attorney's fees, arising out of, based upon or resulting from: (a) any claims against, or liabilities or obligations of, Cypress or against the Transferred Assets the circumstances of which arose prior to the Closing Date other than the Assumed Obligations; (b) any inaccuracy of any representation or warranty or schedule of Cypress which is contained in or made pursuant to this Agreement; (c) the non-compliance by Cypress with the provisions of any applicable bulk sales act governing the purchase and sale of the Transferred Assets; (d) any tax liability of Cypress including other than any sales or use taxes resulting from the Transactions; or (e) any breach by Cypress of any of its agreements, covenants, warranties or obligations contained in or made pursuant to this Agreement. Cypress shall have no obligation to indemnify QuickLogic under this Section 10.1 for any breach of Cypress's representations and warranties made in or pursuant to this Agreement, until such time, if any, as the aggregate amount of the liabilities, losses, damages, claims costs and expenses arising out of such breach exceeds [ * ] and then only to the extent of such excess. 10.2 QuickLogic's Indemnification. QuickLogic will indemnify and hold ---------------------------- harmless Cypress and each of its directors, officers, employees, advisors, affiliates, agents and stockholders from and against any and all losses, damages, liabilities, costs, claims and expenses including but not limited to attorney's fees arising out of, based upon or resulting from: (a) any inaccuracy of any representation or warranty of QuickLogic which is contained in or made pursuant to this Agreement; (b) any breach by QuickLogic of any of its agreements, covenants, warranties or obligations contained in or made pursuant to this Agreement; or (c) any of the Assumed Obligations. - ------------ * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. -20- QuickLogic shall have no obligation to indemnify Cypress under this Section 10.2 for any breach of QuickLogic's representations and warranties made in or pursuant to this Agreement, until such time, if any, as the aggregate amount of the liabilities, losses, damages, claims costs and expenses arising out of such breach exceeds [ * ] and then only to the extent of such excess. 10.3 Claims Procedures. ----------------- (a) Promptly after the receipt by any party hereto of notice or upon any party becoming otherwise aware of (x) any claim or (y) the commencement of any action or proceeding, such party (the "Aggrieved Party") will, if a claim with respect thereto is to be made against any party obligated to provide indemnification (the "Indemnifying Party") pursuant to this Article X, give such Indemnifying Party written notice of such claim or the commencement of such action or proceeding and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting from such claim. Failure by the Indemnifying Party to notify the Aggrieved Party of its election to defend any such action within a reasonable time, but in no event more than thirty days after notice thereof shall have been given to the Indemnifying Party, shall be deemed a waiver by the Indemnifying Party of its right to defend such action. (b) If the Indemnifying Party assumes the defense of any such claim or litigation resulting therefrom, (i) the obligations of the Indemnifying Party as to such claim shall be limited to taking all steps necessary in the defense or settlement of such claim or litigation resulting therefrom and to holding the Aggrieved Party harmless from and against any and all losses, damages and liabilities caused by or arising out of any settlement approved by the Indemnifying Party or any judgment in connection with such claim or litigation resulting therefrom and (ii) the Aggrieved Party shall not be entitled to indemnification as to fees and expenses of any counsel retained by the Aggrieved Party after the time at which the Indemnifying Party has so assumed such defense. The Aggrieved Party may participate, at its expense, in the defense of such claim or litigation provided that the Indemnifying Party shall direct and control the defense of such claim or litigation. The Indemnifying Party shall not, in the defense of such claim or any litigation resulting therefrom, consent to entry of any judgment, except with the written consent of the Aggrieved Party, such consent to not be unreasonably withheld, or enter into any settlement, except with the written consent of the Aggrieved Party, which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Aggrieved Party of a release from all liability in respect of such claim or litigation. (c) If the Indemnifying Party shall not assume the defense of any such claim or litigation resulting therefrom, the Aggrieved Party may defend against such claim or litigation in such manner as it may deem appropriate and, unless the Indemnifying Party shall deposit with the Aggrieved Party a sum equivalent to the total amount demanded in such claim or litigation, or shall deliver to the Aggrieved Party a surety bond or an irrevocable letter of credit in form and substance reasonably satisfactory to the Aggrieved Party, the Aggrieved Party may settle such claim or litigation on such terms as it may deem appropriate, and the Indemnifying Party shall promptly reimburse the Aggrieved Party for the amount of all reasonable expenses, including, - ---------------- * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. -21- without limitation, attorneys' fees, incurred by the Aggrieved Party in connection with the defense against or settlement of such claims or litigation. If no settlement of such claim or litigation is made, the Indemnifying Party shall promptly reimburse the Aggrieved Party for the amount of any judgment rendered with respect to such claim or in such litigation and of all expenses, including, without limitation, attorneys' fees, incurred by the Aggrieved Party in the defense against such claim or litigation. 10.4. Insurance; Tax Benefits. The amount of any liability for which an ----------------------- Aggrieved Party shall be entitled to indemnification shall take into consideration (i) the amount of insurance or other third party proceeds, if any, actually received by the Aggrieved Party in respect of such liability and (ii) any tax benefits actually realized by the Aggrieved Party in respect of such liability. Upon making any indemnity payment, the Indemnifying Party will, to the extent of such indemnity payment, be subrogated to all rights of the Aggrieved Party against any third party in respect of the loss to which the payment relates. Without limiting the generality or the effect of any other provision hereof, the Aggrieved Party and the Indemnifying Party will duly execute upon request all instruments reasonably necessary to evidence and perfect the above-described subrogation and subordination rights. 10.5. Exclusive Remedy. Cypress and QuickLogic agree that, to the fullest ----------------- extent permitted by law, the sole and exclusive legal remedy of Cypress and QuickLogic after the Closing with respect to any claim or cause of action asserted by either party related to or arising from breaches of the representations, warranties or covenants of the other party contained in this Agreement or any document, list, schedule, exhibit, certificate or other instrument furnished or to be furnished by or on behalf of such other party or any of its representatives in connection with the transactions contemplated by this Agreement shall be limited to the rights, terms and conditions of this Article X; provided, however, that nothing contained in this Section 10.5 shall preclude either party from seeking or obtaining equitable relief to enforce or protect its rights under this Agreement and the Transaction Agreements, including without limitation the ability to seek equitable relief under Article XIII below and the rights to arbitration and injunctive relief provided in the Wafer Fabrication Agreement with respect to Cypress's obligations as to wafer starts. 10.6. Nature of Survival of Representations, etc. All representations and ------------------------------------------- warranties and agreements made by the parties hereto shall survive the Time of Closing and any investigation at any time made by or on behalf of either party, provided, however, that no suit or action may be commenced in respect of a representation or warranty after [ * ] months from the Time of Closing. 10.7. Maximum Level of Indemnification. Neither party shall have any --------------------------------- obligation to indemnify the other under this Article X after such time, if any, as the aggregate amount of all indemnification payments paid by such party to the other exceeds [ * ]. - -------------- * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. -22- ARTICLE XI TRANSITIONAL ISSUES 11.1. Purchase Orders. Cypress will promptly contact all its customers --------------- with outstanding purchase orders for FPGA Products and will use its reasonable best efforts to encourage such customers to cancel all purchase orders for FPGA Products and to enter into new purchase orders with QuickLogic for FPGA Products as expeditiously as possible, pursuant to the plan to effect such transition attached hereto as Exhibit J (the "Transition Plan"). --------- 11.2. Sale of Products. QuickLogic will sell to Cypress FPGA Products to ---------------- the extent needed by Cypress to fill purchase orders received by Cypress and which cannot be transferred to QuickLogic pursuant to the Transition Plan in a timely manner because of customer demands. For such sales, QuickLogic will sell such FPGA Products to Cypress during the six-month period following the Closing Date at a price equal to: (i) 77.5% of Cypress's actual sales price of such products, for the first three months after the Closing Date and (ii) 90.0% of Cypress's actual sales price of such products for the second three months after the Closing Date. In addition, QuickLogic will reimburse Cypress for any test and finish costs reasonably incurred by Cypress and supported by appropriate documentation submitted in writing to QuickLogic. 11.3. Transfer of Inventory. The Inventory (as defined on Exhibit A) will --------------------- be transferred, at Cypress's expense, to QuickLogic's offices in Sunnyvale, California in accordance with the Transition Plan, and in any event within fourteen (14) days after the Closing Date. Cypress may retain a portion of the Inventory to the extent reasonably necessary to fulfill purchase orders that pursuant to Section 11.2 cannot be transferred to QuickLogic. Any remaining Inventory shall be transferred, at Cypress's expense, to QuickLogic's offices in Sunnyvale, California 90 and 180 days after the Closing Date. 11.4. Warranties and Returns. Cypress shall bear the cost of all returns, ---------------------- warranties and chargebacks for FPGA Products shipped to customers by Cypress, regardless of the date of sale, in each case in accordance with Cypress' then- current practices. QuickLogic will not take any action to encourage any returns of such goods to Cypress. QuickLogic shall be responsible for all warranties and chargebacks for FPGA Products shipped to customers by QuickLogic, regardless of the date of sale, and shall be responsible for returns of FPGA Products from the trade in accordance with QuickLogic's return policy. The parties hereto agree that should QuickLogic accept returns or pay chargebacks for FPGA Products shipped to customers by Cypress, Cypress shall reimburse QuickLogic upon presentation of proper evidence by QuickLogic of such acceptance or payment. -23- ARTICLE XII COVENANTS FOLLOWING CLOSING 12.1. Arbitration. Any dispute arising between the parties with respect ----------- to this Agreement (including, without limitation, in regard to any claim under Section 12.1 hereof) or any Transaction Agreement (except as provided in the Wafer Fabrication Agreement), shall be settled by arbitration conducted in Santa Clara County. If either party wishes to commence an arbitration hereunder, it shall serve written notice to such effect on the other party and, within 45 days thereafter, the parties shall mutually select a single arbitrator to conduct such arbitration from among a list of retired federal and state trial court judges eligible to serve in such capacity furnished to the parties by the American Arbitration Association. If the parties are unable to select an arbitrator by mutual agreement within such period, the arbitrator shall be selected by the American Arbitration Association in accordance with its procedures. In conducting the arbitration, the arbitrator shall apply the Commercial Arbitration Rules of the American Arbitration Association as modified by any other instructions that the parties may agree upon at the time, except that each party shall have the right to conduct discovery in any manner and to any extent authorized by the Federal Rules of Civil Procedure as interpreted by the federal courts. Costs and expenses, including reasonable attorneys' fees incurred with respect to the arbitration, shall be borne by the losing party, unless otherwise determined by the arbitrator based on a showing of good cause to vary from the usual rule expressed in this sentence. The arbitrator's award shall be final and unappealable. A judgment upon the award may be entered in any court having jurisdiction of the parties. 12.2. Support. ------- (a) Cypress will cooperate in good faith and use reasonable efforts to assist QuickLogic in achieving the orderly transition of the Transferred Assets to QuickLogic in order that QuickLogic may incorporate the Transferred Assets into its existing operations with no diminution in the value of the Transferred Assets. (b) Cypress shall observe faithfully the terms of all Assigned Contracts until assignments or transfers thereof have been obtained. QuickLogic agrees promptly to reimburse Cypress for any out-of-pocket expenses reasonably incurred (and documented) by Cypress in carrying out the obligations under such Assigned Contracts following the Closing Date and through the date of such assignment, other than any outstanding liabilities under such Assigned Contracts, which are sole responsibility of Cypress. (c) Cypress and QuickLogic shall provide each other with such information and access to books and records as may reasonably be requested by the other in connection with any Claim or the preparation of any returns of Taxes and audits or other proceedings relating to Taxes. -24- (d) At the Time of Closing, Cypress will deliver to QuickLogic electronic copies of any Transaction Agreement for which the first draft was prepared by Cypress or counsel to Cypress, for the purpose of assisting any future obligations of Cypress to comply with EDGAR disclosure requirements under the Securities Act or the Exchange Act. ARTICLE XIII NON-COMPETITION AND NON-SOLICITATION 13.1 Covenant Not to Compete. Cypress agrees and acknowledges that ----------------------- QuickLogic has spent significant time and resources on the development of the FPGA Technology. In addition, Cypress agrees and acknowledges that the FPGA Technology is highly confidential and proprietary to QuickLogic and has significant commercial value to QuickLogic. Cypress also acknowledges that Cypress's former ownership of the Rights and the Transferred Assets could provide Cypress with the immediate and commercially valuable ability to compete with QuickLogic in the field of antifuse FPGA products. Therefore, in consideration of the Consideration and the other rights granted to Cypress under this Agreement and the Transaction Agreements, Cypress agrees to the following covenant not to compete: (a) Non-Compete. During the ten (10) year period following the ------------ Closing Date, Cypress (including its subsidiaries) will not, directly or indirectly, develop, manufacture, market, sell or otherwise distribute any antifuse FPGAs or products which provide the same or similar capability to the user and which are predominately user configurable that are pin-compatible with existing PASIC 1 or PASIC 2 products (specifically, 1K, 2K, 3K, 4K, 5K, 7K, 8K and 9K) (the "Field") anywhere in the world. The foregoing specifically ----- includes any activities performed by third parties on behalf of, or in conjunction with, Cypress (or its subsidiaries) during this ten-year term. For purposes of this paragraph, a "subsidiary" shall mean any corporation or other entity of which Cypress beneficially owns fifty percent (50%) or more of the voting stock of such corporation or a fifty percent (50%) or greater interest in the decision-making authority of such other entity. (b) Transition Period. Notwithstanding Section 13.1(a), Cypress may ----------------- continue to sell antifuse FPGA Products to certain customers of Cypress (i) that required QuickLogic to be qualified until QuickLogic has been qualified to manufacture and sell products to such customers and (ii) under existing contracts or other binding commitments until such customers agree to release Cypress from such obligations. (c) Reformation. In the event that the provisions of this Section ----------- 13.1 should ever be deemed to exceed the scope, time or geographic limitations of applicable law regarding covenants not to compete or are otherwise declared unenforceable under applicable law, then such provisions shall be reformed to the maximum scope, time or geographic limitations, as the case may be, permitted under applicable law. -25- 13.2. Representations of Cypress. Cypress represents that: (i) it is -------------------------- familiar with the covenant not to compete set forth in Section 13.1, (ii) it is fully aware of its obligations thereunder, including, without limitation, the length of time, scope and geographic coverage of those covenants, (iii) it finds the length of time, scope and geographic coverage of these covenants to be reasonable, and (iv) it is receiving specific, bargained-for consideration for its covenant not to compete. 13.3. Non-Solicitation. For a period of twelve (12) months from the ---------------- Closing Date (or, if the Closing does not occur, twelve months from the termination of negotiations with regard to the Transaction), neither Cypress nor QuickLogic shall engage or participate in any effort or act to solicit the other party's employees to cease their association or employment with that party. 13.4. Breach by Cypress. Cypress acknowledges that in the event of a ----------------- material breach of any of the provisions of Section 13.1 by Cypress, QuickLogic would sustain irreparable harm, and, therefore, Cypress agrees that in addition to any other remedies which QuickLogic may have under this Agreement or otherwise, QuickLogic shall be entitled to obtain equitable relief, including specific performance and injunctions restraining Cypress from committing or continuing any such violation of this Agreement. 13.5. Breach by QuickLogic. QuickLogic acknowledges that in the event of -------------------- a material breach of any of the provisions of Section 13.3 by QuickLogic, Cypress would sustain irreparable harm, and, therefore, QuickLogic agrees that in addition to any other remedies which Cypress may have under this Agreement or otherwise, Cypress shall be entitled to obtain equitable relief, including specific performance and injunctions restraining QuickLogic from committing or continuing any such violation of this Agreement. ARTICLE XIV MISCELLANEOUS 14.1. Fees and Expenses. Each of the parties hereto shall bear its own ----------------- fees and expenses, including fees of counsel and accountants, incurred in connection with the negotiation of this Agreement and the Transaction Agreements and the consummation of the transactions contemplated hereby and thereby or otherwise arising out of, or by reason of, this Agreement or any Transaction Agreement. 14.2. Entire Agreement; Conflicts; Third Party Beneficiaries. This ------------------------------------------------------ Agreement and the Transaction Agreements (including the exhibits and schedules hereto and thereto) constitute the entire agreement between the parties hereto and thereto with respect to the subject matter hereof -26- and thereof and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties with respect thereto, including the Letter of Intent. The parties hereto acknowledge and agree that no third party is intended to be a third-party beneficiary of this Agreement or any Transaction Agreement. 14.4. Amendments. No amendment, modification or rescission of this ---------- Agreement shall be effective unless set forth in writing executed by the party sought to be bound thereby. 14.5. Notices. Any notice given hereunder or under any Transaction ------- Agreement (except as otherwise provided therein) shall be in writing and shall be deemed effective upon the earlier of personal delivery (including personal delivery by facsimile or other means), the day of delivery by commercial courier to a responsible individual or the third day after mailing by certified or registered mail, postage prepaid, as follows: (1) If to QuickLogic: QuickLogic Corporation 1277 Orleans Drive Sunnyvale, CA 94089-1138 Attention: E. Thomas Hart, President and Chief Executive Officer Telephone: (408) 990-4000 Fax: (408) 990-4153 With a copy to: Joshua L. Green Jeffrey Y. Suto Venture Law Group 2800 Sand Hill Road Menlo Park, CA 94025 Telephone: (415) 854-4488 Fax: (415) 854-1121 -27- (2) If to Cypress: Cypress Semiconductor Corporation 3901 North First Street San Jose, CA 95134-1599 Attention: T.J. Rodgers Telephone: (408) 729-3031 Fax: (408) 943-2796 With a copy to: Barry Taylor Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94306 Telephone: (415) 493-9300 Fax: (415) 493-6811 or to such other address as any party may have furnished in writing to the other party in the manner provided above. 14.6. Assignment. Except with respect to an assignment to a successor of ---------- all or substantially all of a party's stock, business or assets (for which no consent shall be required), no party may assign this Agreement or any Transaction Agreement, nor may any of its rights hereunder be assignable or transferable, in any manner by a party, without the prior written consent of the other party. Any proposed assignment in violation of this Section 14.6 shall be void. Subject to the foregoing, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective transferees, successors, assigns and legal representatives. 14.7. Incorporation by Reference. All Schedules and Exhibits referred to -------------------------- in this Agreement are by this reference incorporated herein as an integral part hereof. 14.8. Governing Law. This Agreement and the Transaction Agreements and ------------- the respective rights and obligations of the parties hereto and thereto shall be construed under and by the laws of the State of California, without reference to conflicts of laws principles. 14.9. Captions. The title to the Sections and subsections of this -------- Agreement and the Transaction Agreements are included herein solely for convenience, are not a part of this Agreement or any Transaction Agreement and do not in any way limit or amplify the terms of this Agreement or any Transaction Agreement. -28- 14.10. No Waiver. It is understood and agreed that no failure or delay by --------- any party in exercising any right, power, or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege be deemed to operate as a waiver of any other right, power or privilege hereunder. 14.11. Counterparts. This Agreement and any Transaction Agreement may be ------------ executed in any number of counterparts, each of which shall be considered to be an original, but all of which together shall constitute one and the same instrument. [SIGNATURE PAGE FOLLOWS] -29- IN WITNESS WHEREOF, the undersigned have duly executed this Termination Agreement as of the date first set forth above. QUICKLOGIC: QUICKLOGIC CORPORATION a California corporation By: /s/ E. Thomas Hart ----------------------------------------- Title: President & CEO -------------------------------------- CYPRESS: CYPRESS SEMICONDUCTOR CORPORATION a Delaware corporation By: /s/ Emmanuel Hernandez ----------------------------------------- Title: CFO -------------------------------------- EXHIBIT A TO TERMINATION AGREEMENT ---------------------------------- TRANSFERRED ASSETS All inventory of the FPGA Products, including work in process and finished goods but excluding wafers in process, 1K PCI bus devises, and 1K and 2K VLSI devises (the "Inventory"). Attached is a complete listing of such Inventory as of the date of this Agreement, which will be updated as of the Closing. Equipment utilized for the FPGA Products (the "Equipment") as attached. Permits: None Other Assets: None Exhibit A Equipment Units Amount Reticles 7C382 [*] [*] 7C384 [*] [*] 7C386 [*] [*] 7C3803 [*] [*] 7C3805 [*] [*] 7C3807 [*] [*] 7C3809 [*] [*] Sort H/W [*] [*] Scrambler Board [*] [*] 382 Probe Card [*] [*] 384 Probe Card [*] [*] 386 Probe Card [*] [*] 388 Probe Card [*] [*] 3807 Probe Card [*] [*] 3809 Probe Card [*] [*] 3805 Probe Card [*] [*] HP H/W [*] [*] HP Tester [*] [*] 8K Mother Board [*] [*] 387 TQFP OUT Card [*] [*] 388 PQFP OUT Card [*] [*] 4K Mother Board [*] [*] 385 TQFP OUT Card [*] [*] 386 TQFP OUT Card [*] [*] 388 Blank TQFP OUT Card [*] [*] 2K Mother Board [*] [*] 384 TQFP OUT Card [*] [*] 384 CPGA OUT Card [*] [*] 1K Mother Board [*] [*] 382 TQFP OUT Card [*] [*] Blank Mother Board [*] [*] Blank Component Card [*] [*] Blank 8K Mother Board [*] [*] VT H/W [*] [*] Load Boards [*] [*] 44-PLCC Hand Test Board [*] [*] 68-PLCC Hand Test Board [*] [*] 84-PLCC Hand Test Board [*] [*] 100-TQFP Hand Test Board [*] [*] 144-TQFP Hand Test Board [*] [*] Cable Sets [*] [*] - ----------------- * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. Page 1 Exhibit A Equipment B/I Boards [ * ] 160-COFP [ * ] SpDE [ * ] Programmers [ * ] DeskFab [ * ] Programmers [ * ] 84-PLCC Adapters [ * ] 208-PQFP Adapters [ * ] Other [ * ] Bench Boards [ * ] TOTAL [ * ] - ------------- * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. EXHIBIT A-1 TO TERMINATION AGREEMENT ------------------------------------ FPGA TECHNOLOGY PATENTS AND PATENT APPLICATIONS (SEE ATTACHED) MASK WORK RIGHTS: NONE EXHIBIT A CONFIDENTIAL - SUBJECT TO ATTORNEY-CLIENT PRIVILEGE CYPRESS U.S. PATENTS AND PATENT APPLICATIONS THAT EITHER COVER OR MAY COVER ANTIFUSE TECHNOLOGY AND/OR CIRCUITS THAT ARE OR MAY BE USED IN FPGA'S ---------------------
- --------------------------------------------------------------------------------------------------------------- Patent/Serial No. Original Filing Date Title Status - --------------------------------------------------------------------------------------------------------------- [*] [*] [*] [*] - --------------------------------------------------------------------------------------------------------------- [*] [*] [*] [*] - --------------------------------------------------------------------------------------------------------------- [*] [*] [*] [*] - --------------------------------------------------------------------------------------------------------------- [*] [*] [*] [*] - --------------------------------------------------------------------------------------------------------------- [*] [*] [*] [*] - --------------------------------------------------------------------------------------------------------------- [*] [*] [*] [*] - --------------------------------------------------------------------------------------------------------------- [*] [*] [*] [*] - --------------------------------------------------------------------------------------------------------------- [*] [*] [*] [*] - --------------------------------------------------------------------------------------------------------------- [*] [*] [*] [*] - --------------------------------------------------------------------------------------------------------------- U.S. Pat. No. December 29, 1995 Planner Antifuse and Method Issued 5,573,971 of Fabrication - ---------------------------------------------------------------------------------------------------------------
- ------------- * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities and Exchange Act of 1933, as amended. EXHIBIT B TO TERMINATION AGREEMENT ---------------------------------- ASSUMED OBLIGATIONS 1. Obligations of Cypress under purchase orders to sell FPGA Products to Cypress' customers that are unfilled as of the Closing to the extent transferable and attached hereto. 2. Obligations of Cypress that arise after the Closing Date in connection with the performance by QuickLogic of such transferred purchase orders; provided that all such orders shall not include any responsibility of QuickLogic for any returns of product shipped by Cypress, and provided further, if Cypress has received payment for the obligations, it shall remit such payments to QuickLogic. EXHIBIT C TO ------------ TERMINATION ----------- AGREEMENT --------- BILL OF SALE This Bill of Sale ("Agreement") is made as of March 29, 1997 by and between Cypress Semiconductor Corporation, a corporation organized under the laws of Delaware ("Seller"), and, QuickLogic Corporation, a corporation organized under the laws of California (the "Buyer"). 1. Definitions. Unless specifically designated otherwise, capitalized ----------- terms used in this Agreement shall have the meanings given them in the Termination Agreement between Seller and Buyer dated as of March 29, 1997 (the "Termination Agreement"). 2. Transfer. Subject to the terms and conditions of the Termination -------- Agreement and Transition Plan, Seller shall assign, grant, transfer and convey to Buyer, free and clear of all liens, claims, interests and encumbrances, and Buyer agrees to acquire from Seller, all of Seller's rights, title and interest in and to the assets listed on Exhibit A (the "Transferred Assets"), and Seller shall deliver good, clear and marketable title to each and every Transferred Asset, together with such bills of sale, assignments and other instruments of conveyance as may be reasonably requested by Buyer to permit such delivery. Without limiting the foregoing, the Transferred Assets shall be deemed to include only the following: (a) All right, title and interest in the Equipment and Inventory (each as defined in Exhibit A), and all claims and rights of Seller with respect thereto, including, without limitation, all rights against suppliers thereof under warranties listed and described in Schedule 1.1(a) of the Termination Agreement (to the extent transferable by Seller), including, without limitation, all of Seller's rights under manufacturers' warranties and guarantees (to the extent transferable by Seller) relating to the Equipment and all benefits and proceeds with respect to the Equipment as of and after the Closing under any policy of insurance; (b) All books and records, whether originals or copies, whether financial or otherwise, relating to the Transferred Assets and which do not primarily relate to areas of Seller's business other than the Transferred Assets; provided that Seller shall be entitled, at Seller's expense, to make and retain photocopies of such records for the purpose of accounting and tax compliance; (c) All licenses, permits, authorizations and other approvals from any federal, state, local or foreign governmental, public or self-regulatory body or authority relating to the Transferred Assets or the Assumed Obligations, all of which are listed in Exhibit A (collectively, the "Permits"); (d) The computer software and hardware specifically used in connection with the Equipment, including all documentation and source code, to the extent they are legally transferable by Seller; (e) All rights of indemnification, claims or causes of action in favor of Seller, to the extent they arise out of or relate to the Transferred Assets after the Closing Date including, without limitation, those against any person under any purchase or other agreement pursuant to which Seller acquired any portion of the Transferred Assets or those arising by operation of law or equity or otherwise; and (f) Those other assets that relate to the Transferred Assets and are listed in Exhibit A. 3. Miscellaneous. ------------- (a) Seller and Buyer hereby agree that they will, from time to time, execute and deliver such further instruments of conveyance and transfer as may be reasonably required to implement and effectuate the transfer of the Transferred Assets pursuant to the Termination Agreement. (b) This Agreement has been executed to implement the Termination Agreement and nothing contained herein shall be deemed or construed to impair or alter any of the provisions of the Termination Agreement. (c) This Agreement is executed and delivered in, and shall be construed and enforced in accordance with the domestic laws of the State of California, and shall be binding upon and shall inure to the benefit of the respective successors and assigns of the parties to this Agreement. (d) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. (e) Seller hereby covenants and agrees to warrant and defend the title to the above-described Transferred Assets hereby conveyed, against the just and lawful claims and demands of all persons whomsoever. (f) The terms of this Agreement may only be modified by a written agreement duly signed by persons authorized to sign agreements on behalf of the parties hereto. Signature page follows -2- IN WITNESS WHEREOF, the parties have executed this Bill of Sale on the date first above written. "BUYER" QUICKLOGIC CORPORATION By: --------------------------------------- Title: ------------------------------------ "SELLER" CYPRESS SEMICONDUCTOR CORPORATION By: --------------------------------------- Title: ------------------------------------ -3- EXHIBIT D TO TERMINATION AGREEMENT ---------------------------------- (See Exhibit 10.20 to the Registrant's Registration Statement on Form S-1). EXHIBIT E TO TERMINATION AGREEMENT NON-CONVERTIBLE PROMISSORY NOTE ------------------------------- $_________________ ______________, 1997 Sunnyvale, California For value received, QuickLogic Corporation, a California corporation (the "Company"), promises to pay to the order of Cypress Semiconductor Corporation (the "Holder"), the principal sum of ____________ Dollars ($______). Such principal sum may be increased from time to time pursuant to Paragraph 10 below. No interest shall accrue on the unpaid principal amount of this Note, except as provided under Paragraph 9 below. This Note is subject to the following terms and conditions. 1. MATURITY. This Note will automatically mature and be due and payable -------- on the date nine months after the later of (i) the date hereof or (ii) the date of any increase in principal pursuant to Paragraph 10 below (the "Maturity -------- Date") in nine (9) equal monthly installments, with the first such installment - ----- due on the Maturity Date. The last such installment shall include any amounts oustanding but unpaid, such that it may not equal the preceding eight (8) installments. The entire unpaid principal sum of this Note, shall become immediately due and payable upon the insolvency of the Company, the commission of any act of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of creditors, the filing by or against the Company of a petition in bankruptcy or any petition for relief under the federal bankruptcy act or the continuation of such petition without dismissal for a period of ninety (90) days or more, or the appointment of a receiver, trustee, liquidator, assignee or similar official to take possession of the property or assets of the Company or to administer the winding up or liquidation of its affairs. 2. PAYMENT. All payments shall be made in lawful money of the United ------- States of America at such place as the Holder hereof may from time to time designate in writing to the Company. Prepayment of this Note may be made at any time without penalty. 3. TRANSFER: SUCCESSORS AND ASSIGNS. The terms and conditions of this -------------------------------- Note shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. This Note may be transferred only upon surrender of the original Note for registration of transfer, duly endorsed, or accompanied by a duly executed written instrument of transfer in form satisfactory to the Holder. Thereupon, a new note for the same principal amount will be issued to, and registered in the name of, the transferee. Principal is payable only to the registered holder of this Note. 4. GOVERNING LAW. This Note and all acts and transactions pursuant ------------- hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. 5. NOTICES. Any notice required or permitted by this Note shall be in ------- writing and shall be deemed sufficient upon delivery, when delivered personally or by a nationally-recognized delivery service (such as Federal Express or UPS), or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, addressed to the party to be notified at such party's address as set forth below or as subsequently modified by written notice. 6. AMENDMENTS AND WAIVERS. Any term of this Note may be amended with ---------------------- the written consent of the Company and the Holder. Any amendment or waiver effected in accordance with this Section 7 shall be binding upon the Company and the Holder. 7. SHAREHOLDERS, OFFICERS AND DIRECTORS NOT LIABLE. In no event shall ----------------------------------------------- any shareholder, officer or director of the Company be liable for any amounts due or payable pursuant to this Note. 8. ACTION TO COLLECT FEES. If action is instituted to collect this ---------------------- Note, the Company promises to pay all costs and expenses, including reasonable attorney's fees, incurred in connection with such action. 9. DEFAULT. In the event the Company does not pay within ten (10) ------- business days any installment payment required to be paid under Paragraph 1, such unpaid installment shall accrue simple interest at 5.83% per year from the original due date to the date such installment is paid in full. 10. INCREASE OF PRINCIPAL UPON SUBSEQUENT TRANSFERS OF INVENTORY. Upon ------------------------------------------------------------ subsequent transfers of inventory by Holder to the Company pursuant to Article XI of that certain Termination Agreement dated March __, 1997 between the Company and Holder, the principal sum due under this Note shall be increased by an amount equal to QuickLogic's standard cost of such finished and work-in-progress inventory being shipped. 11. OTHER. The Company expressly waives any presentment, demand, ----- protest, notice of dishonor or any other notice of any kind in connection with this Note now or hereafter required by applicable law. -2- COMPANY: QUICKLOGIC CORPORATION By: _________________________ Name: _______________________ (print) Title: ______________________ Address: 1277 Orleans Drive Sunnyvale, CA 94089-1138 AGREED TO AND ACCEPTED: HOLDER: CYPRESS SEMICONDUCTOR CORPORATION By: _____________________________ Name: ___________________________ (print) Title: __________________________ Address: 3901 North First Street San Jose, CA 95134 EXHIBIT F TO TERMINATION AGREEMENT ---------------------------------- (See Exhibit 10.13 to the Registrant's Registration Statement on Form S-1). EXHIBIT G TO TERMINATION AGREEMENT ---------------------------------- (See Exhibit 10.12 to the Registrant's Registration Statement on Form S-1). EXHIBIT H TO TERMINATION AGREEMENT ---------------------------------- (See Exhibit 10.11 to the Registrant's Registration Statement on Form S-1). EXHIBIT I TO TERMINATION AGREEMENT ---------------------------------- (See Exhibit 10.10 to the Registrant's Registration Statement on Form S-1). EXHIBIT J TO TERMINATION AGREEMENT ---------------------------------- TRANSITION PLAN [LETTERHEAD OF QUICKLOGIC] CY Transition Agreement Revision Date: March 20, 1997 Definitions: - ----------- Closing Date - execution date of the Transaction Agreement. Products - pASIC1, pASIC2, programmers, adapters, development tools Exceptions to Transition Agreement - in writing and signed by D. McCranie and R. Johnson Transfer Plan - inventory transfer agreement executed on March 10, 1997. Terms and Conditions: - -------------------- Backlog - No new orders, or increases to existing orders, will be accepted by Cypress as of the Closing Date, unless otherwise agreed to in writing by both parties. Continued Shipments by Cypress - It is the intent and expectation of both parties to transition all backlog requirements to QuickLogic by the Closing Date. Any accounts which are not expected to transition to QuickLogic by the Closing Date must be identified and agreed to in writing by both parties. New Orders - all new orders for Products will be referred to QuickLogic's sales representative in the respective geographic territory. Inventory - Inventory will transfer to QuickLogic in accordance with the terms outlined in the Transfer Plan. Inventory and test hardware purchases will include a one million dollar ($1,000,000) discount. This discount will be realized by applying forty percent (40%), rounded to the nearest $100,000 for each purchase order. Each purchase order should include a single line for the discounted dollar amount. page two Transition Agreement Documentation - the Parties agree to transfer the following documents: a) Shipments - by the Closing Date. Q1'97 quarter to date shipments by Product by customer (identifying location of end customers); monthly shipments by Product by customer for each month after the Closing Date until no further shipments of Products are made by Cypress. b) POS - Q1'97 quarter to date resale data by distributor by end customer by Product by the Closing Date; complete Q1'97 resale data by distributor by end customer by product within one month from the Closing Date. c) CY Backlog - weekly backlog status in the format identified as "End Customer Backlog Report," until no further backlog is in place at Cypress on the Products. d) DeskFab Programmers - list of customers which DeskFab programmers were shipped to by Cypress by the Closing Date. Cypress Semiconductor Corporation: /s/ J. Daniel McCranie - ---------------------------------- J. Daniel McCranie Vice President Sales and Marketing QuickLogic Corporation: /s/ Richard Johnson - ---------------------------------- Richard Johnson Vice President Sales TRANSFER PLAN FOR CYPRESS FPGA INVENTORY TO QUICKLOGIC March 10, 1997 All Cypress (CY) FPGA inventory will be transferred to QuickLogic (QL) within fourteen (14) days after the closing date except for a reasonable portion necessary to fulfill purchase orders that have not yet been transferred to QL. Any remaining inventory shall be transferred to QL 90 days and 180 days after the closing date. All CY FPGA inventory will be transferred to QL at one of four WIP (Work In Progress) positions: 1. Die Bank 2. Packaged Units (assembled but untested) 3. Bin (packaged, tested but unmarked) 4. Finished Goods (packaged, tested, marked, and finished) The transfer pricing is as follows:
- ---------------------------------------------------------------------------------------------- Prime In-house CY Part CY Pack. OL Part OL Pack. Die Bank Packaged Bin Proc. Bin FG - ---------------------------------------------------------------------------------------------- 381 ic.ii 1K 44 plcc [ * ] [ * ] [ * ] [ * ] [ * ] - ---------------------------------------------------------------------------------------------- 382 ic.ii 1K 68 plcc [ * ] [ * ] [ * ] [ * ] [ * ] - ---------------------------------------------------------------------------------------------- 382 ac.ai 1K 100 taFo [ * ] [ * ] [ * ] [ * ] [ * ] - ---------------------------------------------------------------------------------------------- 383 ic.ii 2K 68 plcc [ * ] [ * ] [ * ] [ * ] [ * ] - ---------------------------------------------------------------------------------------------- 384 ic.ii 2K 84 plcc [ * ] [ * ] [ * ] [ * ] [ * ] - ---------------------------------------------------------------------------------------------- 384 ac.ai 2K 100 taFo [ * ] [ * ] [ * ] [ * ] [ * ] - ---------------------------------------------------------------------------------------------- 384 gc 2K 84 pga [ * ] [ * ] [ * ] [ * ] [ * ] - ---------------------------------------------------------------------------------------------- 384 gm 2K 84 pga [ * ] [ * ] [ * ] [ * ] [ * ] - ---------------------------------------------------------------------------------------------- 385 ic.ii 4K 84 plcc [ * ] [ * ] [ * ] [ * ] [ * ] - ---------------------------------------------------------------------------------------------- 385 ac.ai 4K 100 taFo [ * ] [ * ] [ * ] [ * ] [ * ] - ---------------------------------------------------------------------------------------------- 386 ac.ai 4K 144 taFo [ * ] [ * ] [ * ] [ * ] [ * ] - ---------------------------------------------------------------------------------------------- 386 um 4K 160 caFo [ * ] [ * ] [ * ] [ * ] [ * ] - ---------------------------------------------------------------------------------------------- 385P ic.ii 4K PCI 84 plcc [ * ] [ * ] [ * ] [ * ] [ * ] - ---------------------------------------------------------------------------------------------- 385P ac.ii 4K PCI 100 taFo [ * ] [ * ] [ * ] [ * ] [ * ] - ---------------------------------------------------------------------------------------------- 386P ac.ii 4K PCI 144 taFo [ * ] [ * ] [ * ] [ * ] [ * ] - ---------------------------------------------------------------------------------------------- 3807 ac.ai 7K 144 taFo [ * ] [ * ] [ * ] [ * ] [ * ] - ---------------------------------------------------------------------------------------------- 3807 nc.ni 7K 208 paFo [ * ] [ * ] [ * ] [ * ] [ * ] - ---------------------------------------------------------------------------------------------- 387 ac.ai 8K 144 taFo [ * ] [ * ] [ * ] [ * ] [ * ] - ---------------------------------------------------------------------------------------------- 388 nc.ni 8K 208 paFo [ * ] [ * ] [ * ] [ * ] [ * ] - ----------------------------------------------------------------------------------------------
The transfer price for finished goods is the prime bin transfer price minus the cost for stripping the mark: [ * ] for 44 plcc. 68 plcc. 84plcc. and all others, respectively. The transfer price for the in-house programming bin is [ * ]. - ------------ * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. Until fourteen days after the closing date the logistics of transferring inventory will be as follows: On Tuesday of each week CY will provide a list of all CY inventory available to QL. The device package (if applicable) WIP position, lot information, geographical location, and number of units will be detailed for all available inventory. QL will respond to this by providing a purchase order (PO) to CY which will include the same information as above, the price, and the shipping requirements, including location and date. CY will respond within one business day of receipt of the PO from QL with a confirmation of the WIP material to be shipped, the price, and the expired delivery date to the specified location. CY will ship the WIP material and invoice QL accordingly. For 90 days and 180 days after the closing date, the logistics of transferring inventory will be as follows: Fifteen (15) days prior to the inventory transfer date, CY will provide a list of all CY inventory available for transfer to QL. The device package (if applicable), WIP position, lot information, geographical location, and number of units will be detailed for all available inventory. QL will respond to this by providing a purchase order (PO) to CY which will include the same information as above, the price, and the shipping requirements including location and date. CY will respond within one business day of receipt of the PO from QL with a confirmation of the WIP material to be shipped, the price, and the expected delivery date to the specified location. CY will ship the WIP material and invoice QL accordingly. CYPRESS SEMICONDUCTOR CORPORATION /s/ Christopher W. Jones 03/10/97 - ------------------------------------------ Christopher W. Jones FPGA Product Engineering Director QUICKLOGIC CORPORATION /s/ Philip Ong 3/10/97 - ------------------------------------------ Philip Ong Vice President Operations TRANSITION PLAN FOR CYPRESS TO SUPPORT EXISTING CUSTOMER DEMAND March 20, 1997 Cypress (CY) may continue to sell FPGA products to satisfy existing CY backlog. Products will be supplied to customers from existing CY inventory. The customers, devices, and quantities are limited to the following:
- --------------------------------------------------------------------- Manufacturing Marketing End Number of Part Number Part Number Customer Units - --------------------------------------------------------------------- 7C384A-OAC CY7C384A-OAC [ * ] [ * ] - --------------------------------------------------------------------- 7C384A-1JI CY7C384A-1JI [ * ] [ * ] - --------------------------------------------------------------------- 7C385A-2JI CY7C385A-2JI [ * ] [ * ] - --------------------------------------------------------------------- 7C384A-2JI CP4515AM [ * ] [ * ] - --------------------------------------------------------------------- 7C382A-XA1 CP4805AM [ * ] [ * ] - --------------------------------------------------------------------- 7C386A-IUMB CY7C386A-IUMB [ * ] [ * ] - --------------------------------------------------------------------- 7C386A-OUMB CP4580BM [ * ] [ * ] - --------------------------------------------------------------------- 7C386A-OUMB CP4581AM [ * ] [ * ] - --------------------------------------------------------------------- 7C384A-2JC CY7C384A-2JC [ * ] [ * ] - ---------------------------------------------------------------------
QL will provide CY with testing services for the 7C382A-XAI (1K industrial in 100-pin TQFP) and the 7C386A-IUMB and 7C386A-OUMB (4K military 883 in 160-pin CQFP) as follows: 1. QL will provide up to [ * ] of testing capacity each week. 2. All [ * ] of testing are at any temperature required. 3. The price for each tested unit out is given in the table below.
- ------------------------------------------------------------------------------------ Device FT @ 25C FT @ 85C FT @ 135C FT @ -60C QA @ 25C - ------------------------------------------------------------------------------------ 7C382 [ * ] [ * ] [ * ] [ * ] [ * ] - ------------------------------------------------------------------------------------ 7C386 [ * ] [ * ] [ * ] [ * ] [ * ] - ------------------------------------------------------------------------------------
CYPRESS SEMICONDUCTOR CORPORATION /s/ J. Daniel McCranie 3/20/97 /s/ Christopher W. Jones 03/20/97 - ----------------------------- ------------------------- J. Daniel McCranie Christopher W. Jones Vice President Sales and Marketing FPGA Product Engineering Director QUICKLOGIC CORPORATION /s/ Richard Johnson 3/20/97 /s/ Phillip Ong 3/20/97 - ----------------------------- ------------------------- Richard Johnson Phillip Ong Vice President World-Wide Sales Vice President Operations - -------------- * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. -1- SCHEDULE 1.1(a) TO TERMINATION AGREEMENT ---------------------------------------- LIST OF CLAIMS AND RIGHTS OF CYPRESS AGAINST SUPPLIERS UNDER WARRANTIES None. SCHEDULE 2.2 TO TERMINATION AGREEMENT ------------------------------------- ALLOCATION OF CONSIDERATION Inventory [ * ] (as estimated by Cypress as of February 28, 1997) Equipment [ * ] Marketing Rights and Contract Termination [ * ] - ------------- * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. SCHEDULE 3 TO TERMINATION AGREEMENT ----------------------------------- CYPRESS DISCLOSURE SCHEDULE No exceptions to the representations and warranties made in Article III. SCHEDULE 4 TO TERMINATION AGREEMENT ----------------------------------- QUICKLOGIC DISCLOSURE SCHEDULE No exceptions to the representations and warranties made in Article IV. EX-10.10 4 CROSS LICENSE AGREEMENT EXHIBIT 10.10 CROSS LICENSE AGREEMENT This Cross License Agreement ("Agreement") is made and entered into as of this 29th day of March, 1997 ("Effective Date") by and between Cypress Semiconductor Corporation, a Delaware corporation, with offices at 3901 North First Street, San Jose, California 95134 ("Cypress"), and QuickLogic Corporation, a California corporation, with offices at 1277 Orleans Drive, Sunnyvale, California 94089-1138 ("QuickLogic"). BACKGROUND The parties possess certain patents and other intellectual property rights, and the parties desire to license these patents and other intellectual property rights to each other pursuant to the terms and conditions of this Agreement. In consideration of the mutual covenants and conditions stated herein, the sufficiency of which is hereby acknowledged, the parties hereby agree as follows: AGREEMENT 1. DEFINITIONS 1.1 "Antifuse Module" shall mean the programming cell used by Cypress from --------------- time to time in the PASIC 1 and PASIC 2 products. 1.2 "Control" for purposes of Sections 1.3, 1.4, and 1.7 shall mean the ------- ability to grant the rights and licenses stated herein without payment of royalties or other consideration to third parties. 1.3 "Cypress Intellectual Property Rights" shall mean all patents, ------------------------------------ copyrights, mask work rights, trade secrets owned or Controlled by Cypress prior to and during the term of this Agreement, including without limitation all applications and registrations with respect thereto, that were developed, conceived and reduced to practice solely by Cypress or jointly by Cypress and QuickLogic under the Existing Agreement in the development of the Antifuse Module, including for purposes of Section 2.3, the method of fabrication, physical structure, and method of design of the Antifuse Module. 1.4 "Cypress Licensed Patents" shall mean all patents throughout the ------------------------ world, now issued or issued within ten (10) years of the Effective Date, that are owned or Controlled by Cypress as of the Effective Date or during the term of this Agreement. 1.5 "Existing Agreement" shall mean that certain Technical Transfer, Joint ------------------ Development License and Foundry Supply Agreement between the parties dated October 2, 1992. -1- 1.6 "Programmable Logic Product" shall mean an integrated circuit that -------------------------- incorporates a network of programmable cells. 1.7 "QuickLogic Intellectual Property Rights" shall mean all patents, --------------------------------------- copyrights, mask work rights, trade secrets owned or Controlled by QuickLogic prior to and during the term of this Agreement, including without limitation all applications and registrations with respect thereto, that were developed, conceived and reduced to practice solely by QuickLogic or jointly by Cypress and QuickLogic under the Existing Agreement in the development of the Antifuse Module, including for purposes of Section 2.1, the method of fabrication, physical structure, and method of design of the Antifuse Module. 1.8 "QuickLogic Licensed Patents" shall mean all patents throughout the --------------------------- world, now issued or issued within ten (10) years of the Effective Date, that are owned or Controlled by QuickLogic as of the Effective Date or during the term of this Agreement. 1.9 "Licensed Products" shall mean any and all Programmable Logic ----------------- Products, except (i) antifuse field programmable gate arrays (FPGAs), or (ii) products providing the same or similar capability to the user as the products described in (i) that are predominantly user configurable and are pin-compatible with the PASIC 1 and PASIC 2 products existing as of the Effective Date (i.e., 1K, 2K, 3K, 4K, 5K, 7K, 8K, and 9K). 2. LICENSE GRANTS 2.1 QuickLogic Licensed Patents and Intellectual Property Rights. ------------------------------------------------------------ QuickLogic hereby grants to Cypress a non-exclusive, non-transferable (except pursuant to Article 5), royalty-free, worldwide license, without right of sublicense, under the QuickLogic Licensed Patents and QuickLogic Intellectual Property Rights to make, have made, use, offer for sale, sell and distribute (directly or indirectly) Licensed Products. 2.2 Cypress Licensed Patents. Cypress hereby grants to QuickLogic a non- ------------------------ exclusive, non-transferable (except pursuant to Article 5), royalty-free, worldwide license, without right of sublicense, under the Cypress Licensed Patents to make, have made, use, offer for sale, sell and distribute (directly or indirectly) Programmable Logic Products. 2.3 Cypress Licensed Antifuse Technology. Cypress hereby grants to ------------------------------------ QuickLogic a non-exclusive, royalty-free, worldwide license, including a right of sublicense, under the Cypress Intellectual Property Rights, to make, have made, use offer, sell and distribute (directly or indirectly) Programmable Logic Products incorporating the Antifuse Module, or the method of fabrication, physical structure or method of design of the Antifuse Module. 2.4 Further Limitations. Nothing contained in this Article 2 shall be ------------------- construed as -2- conferring upon either party, by implication, estoppel or otherwise, any license or other right except the licenses and rights expressly granted herein. Nothing contained in this Agreement shall be construed as: (i) a warranty or representation by either party as to the validity and/or scope of any Cypress Licensed Patents or QuickLogic Licensed Patents (collectively, "Licensed Patents"); (ii) imposing upon either party any obligation to institute any suit or action for infringement of any Licensed Patent, or to defend any suit or action brought by a third party that challenges or concerns the validity of any Licensed Patent; (iii) a warranty or representation by either party that any manufacture, use, sale, lease or other disposition of any products, components or other technology licensed hereunder, will be free from infringement of any patent or other intellectual property right; (iv) imposing upon either party any obligation to file any patent application or to secure any patent or maintain any patent in force; or (v) an obligation on either party to furnish the other with any manufacturing or technical information or any other know-how or information. 2.5 Cypress agrees to reference the inclusion of QuickLogic's VIALINK(tm) antifuse technology in Cypress products in all appropriate marketing materials, including press releases and data sheets, distributed in connection with the sale of such products, it being understood that this provision shall not require Cypress to sell any products containing VIALINK technology. 3. CONFIDENTIALITY 3.1 "Confidential Information" means any information disclosed by either ------------------------ party to the other party under this Agreement or the Existing Agreement, whether directly or indirectly, and whether in writing, orally or by inspection of tangible objects (including without limitation documents, prototypes, samples, plant and equipment), of a confidential or proprietary nature. Confidential Information shall include, without limitation, the terms and conditions of this Agreement, and any information relating to Cypress' manufacturing processes. "Confidential Information" shall not include information that: (i) is or becomes generally known or available by publication, commercial use or otherwise through no fault of the receiving party; (ii) is known and has been reduced to tangible form by the receiving party at the time of disclosure and is not subject to restriction; (iii) is independently developed by the receiving party without use of the disclosing party's Confidential Information; (iv) is lawfully obtained from a third party who has the right to make such disclosure; or (v) is released for publication by the disclosing party in writing. 3.2 Nonuse and Nondisclosure. Each party will protect Confidential ------------------------ Information disclosed to it from unauthorized dissemination and use with the same degree of care that each such party uses to protect its own like information but in no event with less than reasonable care. Except as expressly provided in Section 3.3 below, neither party will use Confidential Information disclosed to it for purposes other than those necessary to directly further the purposes of this Agreement, nor disclose to third parties Confidential Information disclosed to it without the prior written consent of the other party. All disclosures of Confidential Information to third parties made pursuant to Cypress or QuickLogic's exercise of its rights under the licenses set forth in Article 2 shall be subject to a confidentiality agreement between QuickLogic or Cypress, as the case may be, and any such -3- third parties, which confidentiality agreement is reasonably acceptable to the licensor of such Confidential Information under this Agreement. 3.3 Authorized Disclosure. Either party may disclose the existence of, --------------------- and the terms and conditions of, this Agreement as may be required by law, or to governmental departments, agencies, or other bodies, including, without limitation, the Securities and Exchange Commission, and to make a public announcement of the transactions contemplated by this Agreement to the extent that it, in its sole discretion reasonably exercised, is of the view that such announcement is required or deemed advisable in order to meet its obligations under the securities laws or stock exchange requirements in the United States, or in connection with (a) a private or public offering of securities, and (b) any filing and disclosure obligations under the Securities Act or the Exchange Act, including without limitation the filing of this Agreement and all exhibits with the Securities and Exchange Commission; provided that prior to making such disclosure the party making the disclosure shall provide particulars thereof to the other party sufficiently in advance of the disclosure to receive comments from the other party with respect to the disclosure and the obtaining of a protective order with respect to the protection of confidentiality of the disclosure and/or applying for confidential treatment for such disclosure if requested by the other party. 4. LIMITATION OF LIABILITY In no event shall either party be liable to the other party hereunder for any indirect, incidental, special or consequential damages, losses, costs or expenses of any kind, however caused and whether based in contract, tort (including negligence), products liability or any other theory of liability Including but not limited to lost profits, costs of procurement of substitute goods, loss of goodwill, and other business loss. The foregoing limitations shall apply regardless of whether such party knows or has been advised of the possibility of such damages, losses, costs, or expenses. 5. ASSIGNMENT 5.1 No Assignment. Except as expressly provided in this Article 5, ------------- neither party may assign any of its rights or delegate any of its obligations under this Agreement, whether by operation of law or otherwise, without the prior written consent of the other party. The rights and liabilities of the parties hereto will bind and inure to the benefit of the parties and their respective permitted successors, executors and administrators, as the case may be. 5.2 Assignment by Cypress. Cypress' license pursuant to Section 2.1 above --------------------- may be assigned to any entity into which Cypress has merged or that has otherwise succeeded to all or substantially all of Cypress' business and assets by merger, reorganization or otherwise, and which has assumed in writing or by operation of law the terms and conditions of this Agreement pertaining to such license; provided, however, that the scope of the license so assigned shall be ----------------- confined to the -4- Licensed Products (i) which are commercially available as of the date of merger or succession, or (ii) the design of which is in the layout stage as of the consummation of such merger or succession and are made commercially available within one (1) year of such date, as such Licensed Products exist as of one year after the consummation of such merger or succession. 5.3 Assignment by QuickLogic. QuickLogic's license pursuant to Section ------------------------ 2.2 above may be assigned to an entity into which QuickLogic has merged or that has otherwise succeeded to all or substantially all of QuickLogic's business and assets by merger, reorganization or otherwise, and which has assumed in writing or by operation of law the terms and conditions of this Agreement pertaining to such license; provided, however, that the scope of the license so assigned shall ----------------- be confined to the Programmable Logic Products (i) which are commercially available as of the date of merger or succession, or (ii) the design of which is in the layout stage as of the consummation of such merger or succession and are made commercially available within one (1) year of such date, as such Programmable Logic Products exist as of one year after the consummation of such merger or succession. QuickLogic's license pursuant to Section 2.3 above shall be freely assigned by QuickLogic to any entity which has assumed in writing or by operation of law the terms and conditions of this Agreement pertaining such license. 6. TERM AND TERMINATION 6.1 Term. This Agreement shall commence on the Effective Date and ---- continue in full force and effect until the last to expire or be abandoned of the Licensed Patents, unless earlier terminated pursuant to this Article 6. 6.2 Termination for Cause. Either party may terminate this Agreement --------------------- effective upon written notice to the other party if such other party breaches any material term or condition of this Agreement, which breach is not cured within thirty (30) days after written notice of such breach from the non- defaulting party stating its intention to terminate this Agreement. 6.3 Termination of Licenses. Either party may terminate the licenses ----------------------- granted to it under this Agreement (but not the Agreement itself) for any reason effective upon written notice to the other party. 6.4 Effect of Termination; Survival. Upon any termination of this ------------------------------- Agreement, all licenses granted hereunder shall be null and void as of the effective date of such termination, and all rights thereunder shall revert to their respective grantors. The provisions of Articles 3, 4 and 7 and Section 6.4 shall survive the termination of this Agreement for any reason. All other rights and obligations of the parties shall cease upon the effective date of such termination. 7. MISCELLANEOUS PROVISIONS 7.1 Governing Law. This Agreement will be interpreted and governed by the ------------- laws of the -5- State of California, without reference to conflict of laws principles. 7.2 Arbitration. Any dispute arising between the parties with respect to ----------- this Agreement shall be settled by arbitration conducted in Santa Clara County in accordance with the Commercial Rules and Supplementary Procedures for Large, Complex Disputes of the American Arbitration Association as presently in force ("Rules"), except that each party shall have the right to conduct discovery in any manner and to any extent authorized by the Federal Rules of Civil Procedure as interpreted by the federal courts. The arbitration shall be conducted by three (3) arbitrators appointed in accordance with said Rules. If either party wishes to commence an arbitration hereunder, it shall serve written notice to such effect on the other party and, within 45 days thereafter. The arbitrators shall be lawyers and are experienced in the semiconductor fabrication industry. The arbitrator's award shall be final and unappealable. A judgment upon the award may be entered in any court having jurisdiction of the parties. 7.3 Notices. All notices required or permitted under this Agreement will ------- be in writing and will be deemed given when: (i) delivered personally; (ii) sent by confirmed telex or facsimile; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) day after deposit with a commercial overnight carrier specifying next day delivery, with written verification of receipt. All communications will be sent to the respective addresses first set forth above or to such other address as may be designated by a party by giving written notice to the other party pursuant to this Section 7.3. 7.4 Waiver and Amendment. No amendment or modification of this Agreement, -------------------- nor any waiver of any rights, will be effective unless assented to in writing by the party to be charged, and the waiver of any breach or default will not constitute a waiver of any other right hereunder or any subsequent breach or default. 7.5 Severability. If any provision of this Agreement is held to be ------------ invalid by a court of competent jurisdiction, then the remaining provisions shall nevertheless remain in full force and effect. In such event, the parties agree to negotiate, in good faith, a legal and enforceable substitute provision which most nearly effects the parties' intent in entering into this Agreement. 7.6 Entire Agreement. This Agreement is the complete and entire ---------------- expression of the agreement between the parties regarding the subject matter hereof, and shall supersede and replace any and all prior agreements, communications, and understandings (both written and oral) regarding such subject matter. -6- IN WITNESS WHEREOF, the parties have caused their duly authorized representatives to enter into this Agreement, effective as of the Effective Date. CYPRESS SEMICONDUCTOR CORPORATION QUICKLOGIC CORPORATION (Signature) (Signature) (Printed Name) (Printed Name) (Title) (Title) (Date) (Date) -7- EX-10.11 5 WAFER FABRICATION AGREEMENT EXHIBIT 10.11 WAFER FABRICATION AGREEMENT --------------------------- This Wafer Fabrication Agreement (the "Agreement") is entered into and effective as of March 29, 1997 (the "Effective Date"), by and between Cypress Semiconductor Corporation, a Delaware corporation with its principal place of business at 3901 North First Street, San Jose, California 95134 ("Cypress") and QuickLogic Corporation, a California corporation with its principal place of business at 1277 Orleans Drive, Sunnyvale, California 94089 ("QuickLogic"). RECITALS WHEREAS, QuickLogic desires to have certain products manufactured by Cypress; WHEREAS, Cypress is willing to manufacture such products for QuickLogic; and THEREFORE, in exchange for good and valuable consideration and the mutual covenants set forth below, the parties agree as follows: AGREEMENT 1. DEFINITIONS ----------- (a) "Baseline Sort Yield" means the average die yield per wafer start ------------------- calculated over the [*] period preceding the date of calculation as specified in Exhibit C. (b) "Confidential Information" means any information disclosed by ------------------------ either party to the other party, whether directly or indirectly, and whether in writing, orally or by inspection of tangible objects (including without limitation documents, prototypes, samples, plant and equipment), of a confidential or proprietary nature. Confidential Information shall include, without limitation, the terms and conditions of this Agreement, and any information relating to Cypress' manufacturing processes. "Confidential Information" shall not include information that: (i) is or becomes generally known or available by publication, commercial use or otherwise through no fault of the receiving party; (ii) is known and has been reduced to tangible form by the receiving party at the time of disclosure and is not subject to restriction; (iii) is independently developed by the receiving party without use of the disclosing party's Confidential Information; (iv) is lawfully obtained from a third party who has the right to make such disclosure; or (v) is released for publication by the disclosing party in writing. (c) "Month" means a month as defined by the Cypress corporate ----- calendar. (d) "Products" means the wafer types set forth in Exhibit A hereto. -------- (e) "Week" means a week as defined by the Cypress corporate calendar. ---- - ---------- * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 2. AGREEMENT TO MANUFACTURE ------------------------ (a) Supply. Cypress agrees to manufacture and sell Products to ------ QuickLogic, subject to the maximum wafer starts per Week set forth in Exhibit B, and QuickLogic agrees to purchase its requirements of such Products from Cypress, all on the terms and conditions set forth herein. (b) Process and Sort Changes. ------------------------ (i) QuickLogic may request commercially reasonable sort changes and [*] shall pay all costs associated with such changes. QuickLogic may also request process changes, which shall be subject to Cypress's prior written approval which approval shall not be unreasonably withheld. In the event of a process change requested by QuickLogic, the parties will discuss whether the change will be implemented, under what guarantee conditions, if any, and which party shall bear the cost of such process change. In the event of a sort change requested by QuickLogic, the yields set forth in Exhibit C shall not apply during the first [*] of production of Products with such sort change ("Yield Testing Period"), and the Baseline Sort Yields of Products manufactured with such sort change shall be measured during the Yield Testing Period. If the Baseline Sort Yield for a Product during the Yield Testing Period is less than the Baseline Sort Yield for such Product set forth in Exhibit C, such Baseline Sort Yield set forth in Exhibit C shall be adjusted to the Baseline Sort Yield for such Product over the Yield Testing Period. (ii) Cypress may make process changes in the manufacture of the Products without QuickLogic's approval of such changes. If Cypress makes a process change, Cypress's Director of Engineering (FAB II) will notify QuickLogic's Director of Process or the QuickLogic personnel on-site at FAB II prior to implementation and obtain input, if any, from QuickLogic. [*] provided however that if [*] are necessary and a [*], as agreed by [*] which agreement shall not be unreasonably withheld, [*] as long as the change can be verified and qualified by Cypress within the Cypress foundry (i.e. through sort and ETEST). If the process change cannot be verified and qualified within the Cypress foundry, it is further understood and agreed that [*] will pay for the costs of packaging and testing. (c) Product Revisions. In the event the Products are changed pursuant ----------------- to Section 2(b)(i) or 2(b)(ii) as described in this Article 2, except as otherwise expressly provided in Section 2(b)(ii) above with respect to reticles, QuickLogic will provide Cypress with all tooling (e.g., such as masks, probe cards, etc.) necessary to manufacture the Products as modified. (d) Original and Replacement Tooling; Document Control; Frame --------------------------------------------------------- Generation. Tooling (e.g., masks, probe cards, etc.) for each Product shall be - ---------- paid for by QuickLogic, except for replacement of tooling damaged through the gross negligence, recklessness or willful misconduct of Cypress. Cypress will assist QuickLogic as required in the areas of document control and frame - ---------- * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. generation. (e) Equipment Transfers. Within forty (40) days after the later of ------------------- the date of invoice for the equipment transfer referenced below or the actual date of transfer, [*] shall pay to [*] all costs and expenses associated with the transfer of the amorphous silicon equipment used for the manufacture of the Products to Cypress's FAB II site, provided that such costs and expenses shall not to exceed [*]. The date of equipment transfer shall occur after such amorphous silicon equipment in FAB I is no longer in use. (f) Technical Assistance. Cypress agrees to provide up to two (2) -------------------- QuickLogic employees on a full-time basis with access to Cypress facilities, equipment, and personnel for the sole purposes of performing sustaining engineering and step reduction. 3. PURCHASE PRICE AND PAYMENT -------------------------- (a) Purchase Prices. The prices for Products manufactured by Cypress --------------- hereunder shall be as set forth in Exhibit D ("Purchase Prices"). (b) Purchase Price Reductions. If Cypress and QuickLogic mutually ------------------------- agree in writing to reduce the number of steps in the manufacture of any Product, then the Purchase Price for such Product shall be reduced in accordance with the applicable formula set forth in Exhibit D. (c) Payment Terms. Payment shall be due net forty-five (45) days ------------- after the date of the invoice. Any amounts not paid within forty-five (45) days shall accrue interest at the rate of one and one-half percent (1.5%) per month or the highest rate permitted by law, whichever is lower. (d) Taxes. In addition to all payments due under this Agreement, ----- unless QuickLogic provides Cypress with a valid resale or other tax exemption certificate authorized by the appropriate taxing authority, QuickLogic shall pay any sales, use, or other taxes, duties or charges of any kind (including foreign withholding or value-added taxes) imposed by any federal, state or local or foreign government entity with regard to the delivery or sale of products or services provided under this Agreement, excluding only taxes based solely on Cypress' net income or gross receipts. 4. FORECASTS; PURCHASE ORDERS; DELIVERY ------------------------------------ (a) Purchase Orders. All purchases and sales of Products between the --------------- parties shall be set forth in written purchase orders. Such orders shall state wafer starts per Week, delivery dates, and shipping instructions. (b) Acceptance of Orders; Maximum Wafer Starts. Each purchase order ------------------------------------------ shall be -3- - ---------- * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. subject to Cypress' written acceptance; provided, however, that Cypress shall not withhold acceptance of any purchase orders issued in accordance with the provisions of Section 4(c) below that are otherwise consistent with the terms of this Agreement. Notwithstanding the foregoing, in no event shall Cypress be obligated to accept any purchase order calling for a number of wafer starts per Week that exceeds the maximum allowable wafer starts per Week set forth in Exhibit B. If QuickLogic desires more wafers than the allowed maximum, Cypress has the option of not providing them, or if Cypress chooses to provide wafers in excess of the allowed maximum, the price will be negotiated. Purchase orders accepted by Cypress shall supersede previous purchase orders to the extent such previous purchase orders have not yet been fulfilled. Purchase orders accepted by Cypress shall be firm and binding upon QuickLogic, except as otherwise provided in Section 4(c). (c) Purchase Order Commitments. Within days of the Effective Date -------------------------- and prior to each and every subsequent Month, QuickLogic shall give to Cypress a purchase order covering [*] of wafer starts ("[*] Purchase Order"). The first [*] of each [*] Purchase Order shall be firm and binding upon QuickLogic. (i) In each and every [*] Purchase Order submitted to Cypress, except the first such [*] Purchase Order: (A) the quantity of wafer starts called for in the [*] of such [*] Purchase Order shall be equal to the quantity of wafer starts called for in such [*] in the preceding [*] Purchase Order; (B) the quantity of wafer starts called for in the [*] of such [*] Purchase Order shall be equal to the quantity of wafer starts called for in such [*] in the preceding [*] Purchase Order; (C) the quantity of wafer starts called for in the [*] of such [*] Purchase Order may be [*], but any [*] shall not exceed [*] multiplied by the quantity of wafer starts called for in such [*] in the preceding [*] Purchase Order; and (D) the quantity of wafer starts called for in the [*] of such [*] Purchase Order may be [*] in any amount, subject to Section 4(b). (ii) Cypress has the option of building ahead wafers; provided, however, that the quantity of such wafer starts shall not exceed the [*] of (A) [*] multiplied by the quantity of wafer starts per Week called for in the [*] of such [*] Purchase Order; and (B) the quantity of wafer starts called for in the [*] of such [*] Purchase Order. QuickLogic must pay for finished wafers and work-in-progress that Cypress has opted to build ahead in accordance with this Section 5(c)(ii). (iii) QuickLogic shall participate in Cypress' Weekly wafer start meetings, at which QuickLogic will provide to Cypress the Product mix of both requested material and build ahead material (if any) to be started in the following Week. (d) Controlling Document. The terms and conditions of this Agreement, -------------------- including without limitation all Purchase Prices, shall control all sales of Products hereunder, and any additional or different terms or conditions in either party's purchase order, acknowledgment, or -4- - ---------- * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. similar document shall be of no effect, unless agreed to in writing by duly authorized representatives of both parties. (e) Shipping and Delivery. Delivery shall be F.O.B. Cypress' --------------------- facilities. Cypress shall not ship wafers earlier than the delivery date specified in QuickLogic's purchase order, it being understood that if Cypress builds ahead wafers pursuant to a purchase order submitted by QuickLogic, delivery may be made pursuant to the requested delivery date stated in such purchase order. QuickLogic shall have the right to designate the method of shipment, but if Cypress has not received such designation within a reasonable time prior to the scheduled delivery date, Cypress may, at its discretion, make arrangements for delivery to QuickLogic in accordance with its existing shipping practices. 5. YIELDS ------ (a) Yield. For each [*] period during the term of this Agreement, ----- subject to Section 2(b)(i) above, the average die yields per wafer start during each such period shall equal or exceed the applicable [*] die yields per wafer start set forth in Exhibit C. For each [*] period during the term of this Agreement, subject to Section 2(b)(i) above, the average die yields per wafer start during each such period shall equal or exceed the applicable [*] die yields per wafer start set forth in Exhibit C. QuickLogic's exclusive remedy and Cypress' sole obligation in the event the die yields per wafer start set forth in Exhibit C are not met shall be for Cypress to promptly start additional wafers to make up the yield shortfall as quickly as reasonably possible; provided, however, than in no event is Cypress under any obligation to have the total number of wafer starts in any given Week exceed [*] multiplied by the maximum allowed starts per Week set forth Exhibit B. The Purchase Price for such additional wafers in 1997 shall be the lower of the Purchase Prices for such Products set forth in Exhibit D. (b) Disputes. -------- (i) Any dispute, controversy or claim arising out of or relating to a breach by Cypress of its obligations under Section 5(a) above, shall be resolved by final and binding arbitration. Such dispute shall be administered by the American Arbitration Association ("AAA") in accordance with Commercial Rules then in effect. The arbitration shall be conducted by a sole arbitrator who shall have experience with the manufacture of semiconductor products. The arbitration shall be held in Santa Clara County. (ii) The parties require that the arbitration proceed as expeditiously as possible. The arbitration shall commence upon the submission of a Demand for Arbitration to the AAA. The appointment of the sole arbitrator will be made within ten (10) business days of such submittal. Within thirty (30) days of the filing of the Demand for Arbitration, each party shall prepare and submit a full statement of its claims which will set forth such party's position with -5- - ---------- * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. respect to the dispute in question. The arbitration shall be completed within sixty (60) days of the filing of the Demand for Arbitration. The arbitrator's award shall be rendered within five (5) business days of the close of arbitration. The arbitrator shall select as his or her decision the position of one or the other party. The arbitrator shall not have authority to render any substantive decision other than to so select the position of either Cypress or QuickLogic. The costs of the arbitration shall be shared equally by the parties and each party shall bear its own expenses. During the pendency of any arbitration, except in the event of a dispute over payment for Products hereunder, Cypress shall commence wafer starts called for by the most recent [*] Purchase Order in accordance with Section 5(a) above, which wafers shall be paid for by QuickLogic pursuant to Article 3 above. (iii) The parties acknowledge that QuickLogic may be irreparably harmed in the event Cypress breaches its obligations under Sections 5(a) and/or 5(b) above. Cypress further agrees not to oppose or contest in any way QuickLogic's efforts to seek temporary injunctive relief. Cypress therefore agrees that except in the event of a dispute over payment for Products where Cypress has not unilaterally changed the pricing or payment terms hereunder, QuickLogic may immediately seek to obtain a court order pursuant to the Temporary Order for Specific Performance attached hereto as Exhibit E requiring specific performance by Cypress of its obligations under Sections 5(a) and/or 5(b) during the pendency of any arbitration. 6. WARRANTIES AND DISCLAIMER ------------------------- (a) Mutual Warranties. Each party warrants that it has full power and ----------------- authority to enter into this Agreement, to carry out its obligations under this Agreement and to grant the rights granted hereunder. (b) Disclaimers. EXCEPT AS PROVIDED IN THIS ARTICLE 6, CYPRESS AND ----------- QUICKLOGIC DISCLAIM ALL OTHER WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT. 7. TERM AND TERMINATION OF AGREEMENT --------------------------------- (a) Term. This Agreement shall commence upon the Effective Date and, ---- unless terminated sooner in accordance with Section 7(b), shall expire on December 31, 2001. (b) Termination for Cause By Either Party. Either party will have the ------------------------------------- right to terminate this Agreement immediately upon written notice at any time if: (i) The other party is in material breach of any warranty, term, condition -6- - ---------- * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. or covenant of this Agreement and fails to cure that breach within thirty (30) days after written notice of that breach stating the first party's intention to terminate; (iii) The other party: (A) becomes insolvent; (B) fails to pay its debts or perform its obligations in the ordinary course of business as they mature; (C) admits in writing its insolvency or inability to pay its debts or perform its obligations as they mature; or (D) makes an assignment for the benefit of creditors. (c) Return of Materials. Any materials, information, test programs, ------------------- procedures or Confidential Information provided to one party by the other party hereunder shall be maintained in confidence by the receiving party and shall be returned to disclosing party upon termination of this Agreement or when no longer needed in connection with its performance under this Agreement. (d) Effect of Termination. Upon termination of this Agreement, each --------------------- party will be released from all obligations and liabilities to the other occurring or arising after the date of such termination, except that the provisions of Articles 3, 6, 8, 9, 10 and 11, and Sections 4(e), 7(c), and 7(d) will survive termination of this Agreement. Neither party will be liable to the other for damages of any sort solely as a result of terminating this Agreement in accordance with its terms. Termination of this Agreement will be without prejudice to any other right or remedy of either party. 8. CONFIDENTIALITY --------------- (a) Confidentiality. Each party will protect Confidential Information --------------- disclosed to it from unauthorized dissemination and use with the same degree of care that each such party uses to protect its own like information but in no event with less than reasonable care. Except as expressly provided in Section 8(b) below, neither party will use Confidential Information disclosed to it for purposes other than those necessary to directly further the purposes of this Agreement, nor disclose to third parties Confidential Information disclosed to it without the prior written consent of the other party. (b) Authorized Disclosures. ---------------------- (i) QuickLogic may disclose to Taiwan Semiconductor Manufacturing Corporation ("TSMC") the amorphous silicon process recipes and equipment specifications for the purpose of manufacture of products for QuickLogic by TSMC. (ii) Either party may disclose the existence of, and the terms and conditions of, this Agreement as may be required by law, or to governmental departments, agencies, or other bodies, including, without limitation, the Securities and Exchange Commission, and to make a public announcement of the transactions contemplated by this Agreement to the extent that it, in its sole discretion reasonably exercised, is of the view that such announcement is required or deemed advisable in order to meet its obligations under the securities laws or stock exchange requirements in -7- the United States, or in connection with (a) a private or public offering of securities, and (b) any filing and disclosure obligations under the Securities Act or the Exchange Act, including without limitation the filing of this Agreement and all exhibits with the Securities and Exchange Commission; provided that prior to making such disclosure the party making the disclosure shall provide particulars thereof to the other party sufficiently in advance of the disclosure to receive comments from the other party with respect to the disclosure and the obtaining of a protective order with respect to the protection of confidentiality of the disclosure and/or applying for confidential treatment for such disclosure if requested by the other party. (c) Limited License to Cypress. QuickLogic authorizes Cypress to use -------------------------- Confidential Information supplied by QuickLogic under this Agreement solely for the purpose of manufacturing Products. 9. OWNERSHIP AND INTELLECTUAL PROPERTY INDEMNITY --------------------------------------------- (a) Ownership. Except as expressly provided in this Agreement, --------- neither party grants to the other party under this Agreement any right, title, or interest in or to such party's technology, proprietary information, Confidential Information, patent rights, copyrights, mask work rights, trade secret rights or other intellectual property rights. (b) Intellectual Property Indemnity. ------------------------------- (i) QuickLogic agrees to defend and/or settle any claims, actions or proceedings ("Claims") brought by a third party against Cypress to the extent based upon a claim alleging that the Products or the manufacture or use thereof infringes any patent right, copyright, mask work right, trade secret or other intellectual property right of any third party (excluding claims to the extent they allege that portions of the manufacturing process developed solely by Cypress, or jointly by Cypress and QuickLogic under the Existing Agreement, infringes an intellectual property right of a third party), and QuickLogic agrees to pay any settlements entered into or final damages awarded against Cypress with respect to such Claims; provided that Cypress will provide reasonably prompt notice of Claims thereof and reasonable assistance in connection with the defense thereof (at QuickLogic's expense), and will allow QuickLogic full control of the defense and settlement thereof, it being understood and agreed that Cypress may participate in the defense and/or settlement of Claims at its own expense with counsel of its own choosing. (ii) Cypress agrees to defend and/or settle any claims, actions or proceedings ("Claims") brought by a third party against QuickLogic to the extent based upon a claim alleging that the manufacturing process developed solely by Cypress and used in the manufacture of the Products infringes any patent right, copyright, trade secret or other intellectual property right of any third party (it being understood that this Section 9(b)(ii) specifically excludes claims alleging that portions of the manufacturing process developed jointly by QuickLogic and Cypress under the -8- Existing Agreement infringe an intellectual property right of a third party), and Cypress agrees to pay any settlements entered into or final damages awarded against QuickLogic with respect to such Claims; provided that QuickLogic will provide reasonably prompt notice of Claims thereof and reasonable assistance in connection with the defense thereof (at Cypress's expense), and will allow Cypress full control of the defense and settlement thereof, it being understood and agreed that QuickLogic may participate in the defense and/or settlement of Claims at its own expense with counsel of its own choosing. 10. LIMITATION OF LIABILITY ----------------------- EXCEPT FOR LIABILITY ARISING UNDER ARTICLES 8 OR 9 HEREOF, IN NO EVENT SHALL EITHER PARTY BE LIABLE UNDER THIS AGREEMENT FOR ANY LOST PROFITS, LOSS OF GOODWILL, OVERHEAD, COST OF COVER OR OTHER INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR RELATED TO THIS AGREEMENT, HOWEVER CAUSED, AND WHETHER BASED IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, OR OTHERWISE. THESE LIMITATIONS SHALL APPLY EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE, AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY STATED HEREIN. 11. MISCELLANEOUS ------------- (a) Relationship of Parties. Each party is an independent contractor ----------------------- and this Agreement shall not be construed as creating a partnership, joint venture or employment relationship between the parties or as creating any other form of legal association that would impose liability on one party for the act or failure to act of the other party. (b) Assignment. The rights and liabilities of the parties hereto will ---------- bind and inure to the benefit of their respective permitted successors and assigns, as the case may be. Neither party may assign or delegate its obligations under this Agreement either in whole or in part, without the prior written consent of the other party, except to a person or entity into which it has merged or which has otherwise succeeded to all or substantially all of its business and assets, by merger, reorganization or otherwise. Any attempted assignment in violation of the provisions of this Section 11(b) will be void. Notwithstanding the foregoing, Cypress may cause one or more of its affiliates or subsidiaries to perform its obligations under this Agreement, provided that no such delegation shall serve to excuse, terminate or otherwise limit the continuing obligations of Cypress hereunder. (c) Force Majeure. Neither party will be liable for any failure or ------------- delay in its performance under this Agreement due to causes, including, but not limited to, an act of God, act of civil or military authority, fire, epidemic, flood, earthquake, riot, war, sabotage, labor shortage or -9- dispute, and governmental action, which are beyond its reasonable control; provided that the delayed party: (i) gives the other party written notice of such cause promptly, and (ii) uses its reasonable efforts to correct such failure or delay in its performance. The delayed party's time for performance or cure under this Section 11(c) will be extended for a period equal to the duration of the cause. (d) Applicable Law. This Agreement will be interpreted and governed -------------- by the laws of the State of California, without reference to conflict of laws principles. (e) Arbitration. Except as provided in Section 5(b), any dispute ----------- arising between the parties with respect to this Agreement shall be settled by arbitration conducted in Santa Clara County. If either party wishes to commence an arbitration hereunder, it shall serve written notice to such effect on the other party and, within 45 days thereafter, the parties shall mutually select a single arbitrator to conduct such arbitration from among a list of retired federal and state trial court judges eligible to serve in such capacity furnished to the parties by the American Arbitration Association. If the parties are unable to select an arbitrator by mutual agreement within such period, the arbitrator shall be selected by the American Arbitration Association in accordance with its procedures. In conducting the arbitration, the arbitrator shall apply the Commercial Arbitration Rules of the American Arbitration Association as modified by any other instructions that the parties may agree upon at the time, except that each party shall have the right to conduct discovery in any manner and to any extent authorized by the Federal Rules of Civil Procedure as interpreted by the federal courts. The arbitrator's award shall be final and unappealable. A judgment upon the award may be entered in any court having jurisdiction of the parties. (f) Severability. If any provision of this Agreement is held to be ------------ invalid by a court of competent jurisdiction, then the remaining provisions shall nevertheless remain in full force and effect. In such event, the parties agree to negotiate, in good faith, a legal and enforceable substitute provision which most nearly effects the parties' intent in entering into this Agreement. (g) Notices. All notices required or permitted under this Agreement ------- will be in writing and will be deemed given when: (i) delivered personally; (ii) sent by confirmed telex or facsimile; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) day after deposit with a commercial overnight carrier specifying next day delivery, with written verification of receipt. All communications will be sent to the respective addresses first set forth above or to such other address as may be designated by a party by giving written notice to the other party pursuant to this Section 11(g). All communications will be sent to the attention of: To Cypress: To QuickLogic: (h) No Waiver. No amendment or modification of this Agreement, nor --------- any -10- waiver of any rights, will be effective unless assented to in writing by the party to be charged, and the waiver of any breach or default will not constitute a waiver of any other right hereunder or any subsequent breach or default. (i) No Rights in Third Parties. This Agreement is made for the -------------------------- benefit of the parties and their respective subsidiaries and affiliates, if any, and not for the benefit of any third parties. (j) Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which will be deemed an original, but which collectively will constitute one and the same instrument. (k) Headings and References. The headings and captions used in this ----------------------- Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. (l) Construction. This Agreement has been negotiated by the parties ------------ and their respective counsel. This Agreement will be interpreted fairly in accordance with its terms and without any strict construction in favor of or against either party. (m) Export Controls. The obligation of Cypress to provide the --------------- Products, as well as any technical assistance, shall be subject in all respects to such United States laws and regulations as shall from time to time govern the license and delivery of technology and products abroad by persons subject to the jurisdiction of the United States, including the Export Administration Act of 1979, as amended, any successor legislation, and the Export Administration Regulations issued by the Department of Commerce, Bureau of Export Administration. QuickLogic warrants that it will comply with the Export Administration Regulations and all other applicable United States laws and regulations governing exports in effect from time to time. (n) Complete Agreement. This Agreement is the complete and entire ------------------ expression of the agreement between the parties regarding the subject matter hereof, and shall supersede and replace any and all prior agreements, communications, and understandings (both written and oral) regarding such subject matter. IN WITNESS WHEREOF, the parties have caused their duly authorized representatives to enter into this Agreement, effective as of the Effective Date. QUICKLOGIC, INC. By: /s/ E. Thomas Hart ---------------------------------------- -11- Title: President and CEO ------------------------------------- Name: E. Thomas Hart ------------------------------------- (Print) CYPRESS SEMICONDUCTOR CORPORATION By: /s/ Emmanuel Hernandez ---------------------------------------- Title: CFO ------------------------------------- Name: Emmanuel Hernandez ------------------------------------- (Print) -12- EXHIBIT A --------- PRODUCTS -------- Devices - ------- 382 384 386 388 3803 3805 3807 3809 EXHIBIT B --------- MAXIMUM WAFER STARTS PER WEEK ----------------------------- The maximum allowable wafer starts per Week shall be as follows: 1997 - [*] wafers/Week 1998 - [*] wafers/Week 1999 - [*] wafers/Week 2000 - [*] wafers/Week 2001 - [*] wafers/Week - ---------- * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. EXHIBIT C --------- YIELDS PER WAFER START ---------------------- The tables below set forth the yield/wafer start on a rolling [*] and [*] output. [*] Formula: wafer starts x [*] x [*]. [*] Formula: wafer starts x [*] x [*]. [*] YIELDS PER WAFER START PRODUCT [*] GUARANTEED DIE OUT/START 382 [*] [*] = [*] 384 [*] [*] = [*] 386 [*] [*] = [*] 388 [*] [*] = [*] 3807 [*] [*] = [*] 3805 Will be established based on a consecutive [*] period designated by QuickLogic and will be applicable immediately after such designation. 3809 3803 [*] YIELDS PER WAFER START PRODUCT [*] GUARANTEED DIE OUT/START 382 [*] [*] = [*] 384 [*] [*] = [*] 386 [*] [*] = [*] 388 [*] [*] = [*] 3807 [*] [*] = [*] 3805 Will be established based on a consecutive [*] period designated by QuickLogic and will be applicable immediately after such designation. 3809 3803 - ---------- * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. EXHIBIT D --------- PURCHASE PRICE -------------- D.1 Purchase Prices: ----------------
1997 1998 1999 2000 2001 Q1 Q2 Q3 Q4 1H 2H Starts/Week Up to the [*] [*] [*] [*] Up to [*] Up to [*] Up to [*] Up to [*] following wafer Wafer Wafer Wafer Wafer starts per Week Starts/Week Starts/Week Starts/Week Starts/Week PASIC 1 [*]/wafer out [*] [*] [*] [*] [*] PASIC 2 [*]/wafer out [*] [*] [*] [*] [*] Over the foregoing wafer starts per Week for 1997, and up to * wafers per Week PASIC 1 * PASIC 2 *
D.2 Step Reductions. The following formulas shall be applied pursuant to --------------- Section 3(b): (a) [*] Formula. The Purchase Price for a Product shall be ----------- decreased in accordance with the following formula: Adjusted Purchase Price = the Original Purchase Price less an amount equal to: [*]
(1) Calculated in accordance with Cypress's normal procedures. (b) [*] Formula. In cases in which a reduction in steps includes the ----------- removal of a step requiring [*], the Purchase Price for a Product shall be decreased in accordance with the following formula instead of the formula of D.2(a) above: - ---------- * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. Adjusted Purchase Price per Product = the Original Purchase Price per Product less an amount equal to: [*]
(1) Calculated in accordance with Cypress's normal procedures. - ---------- * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. EXHIBIT E --------- FORM OF TEMPORARY ORDER FOR SPECIFIC PERFORMANCE ------------------------------------------------ SUPERIOR COURT OF CALIFORNIA COUNTY OF SANTA CLARA QUICKLOGIC CORPORATION, ) CASE NO: ) Petitioner,) ORDER FOR PRELIMINARY ) INJUNCTION v. ) ) DATE: CYPRESS SEMICONDUCTOR ) TIME: CORPORATION, ) DEPT: ) Respondent. ) ) - ------------------------ Upon consideration of the written Application of petitioner QuickLogic Corporation ("QuickLogic") for a preliminary injunction, the verified petition, the Demand for Arbitration, the Memorandum of Points and Authorities and Declarations filed in support of the Application, and it appearing to the satisfaction of the Court that this is a proper case for granting a preliminary injunction, and that, except for disputes pertaining to payment of Products where Cypress has not unilaterally changed the prices or payment terms under the Wafer Fabrication Agreement dated __________ between QuickLogic and Cypress Semiconductor Corporation (the "Agreement"), Cypress has previously agreed to QuickLogic's seeking such relief pending the arbitration of their dispute, and that unless such injunction is granted as prayed for, QuickLogic will suffer great and irreparable injury before the matter can be fully arbitrated, and on proof made to the Court's satisfaction, and good cause appearing: IT IS ORDERED that, during the pendency of the arbitration between the above-named parties, Cypress, and its officers, agents, employees, representatives and all persons acting in concert or participating with them, is required to continue fabricating and supplying semiconductor wafers to QuickLogic in accordance with Section 5(a) of the Agreement; IT IS FURTHER ORDERED that Cypress will commence wafer starts as required by Sections 5(a) and 5(b) of the Agreement; IT IS FURTHER ORDERED that QuickLogic is not required to provide a written undertaking. The Court reserves jurisdiction to modify this injunction as the ends of justice may require. DATED:_____________ ______________________________________ JUDGE OF THE SANTA CLARA COUNTY SUPERIOR COURT EX-10.14 6 TECHNICAL TRANSFER EXHIBIT 10.14 TECHNICAL TRANSFER, JOINT DEVELOPMENT LICENSE --------------------------------------------- AND FOUNDRY SUPPLY AGREEMENT ---------------------------- THIS AGREEMENT is entered into in Santa Clara, California on _________, 1992 (the "Effective Date") between QuickLogic Corporation, a California corporation, having an office and place of business, at 2933 Bunker Hill Lane, Santa Clara, California 95054 ("QuickLogic") and Cypress Semiconductor Corporation, a Delaware corporation, having an office and place of business at 3901 North First Street, San Jose, California 95134 ("Cypress"). WITNESSETH ---------- WHEREAS, QuickLogic has developed and has the right to use and license others to use an amorphous silicon antifuse semiconductor processing technology; and WHEREAS, QuickLogic and Cypress believe that such QuickLogic technology when incorporated into a high performance CMOS process will result in a process suitable for producing commercially successful field programmable gate arrays; and WHEREAS, Cypress designs, develops, manufactures and markets a wide variety of integrated circuits employing high performance CMOS processes; and WHEREAS, Cypress and QuickLogic wish to cooperate in the joint development of a process which combines Quicklogic's technology with Cypress's CMOS Process as well as in the implementation of several new field programmable gate array ("FPGA") products and families employing such combined process; and WHEREAS, Cypress wishes to market certain QuickLogic FPGA products as implemented in a Cypress process; and WHEREAS, the parties wish to license each other upon the terms hereinafter set forth; and WHEREAS, Cypress is willing to supply QuickLogic wafer processing services upon the terms hereinafter set forth; and WHEREAS, Cypress wishes to make an equity investment in QuickLogic; NOW THEREFORE, it is agreed between the parties as follows. ARTICLE 1 SCOPE ----- This Agreement involves the joint development of a suitable process for manufacturing FPGA devices, the granting to Cypress of certain license rights related to existing QuickLogic products, subsequent development jointly and separately of FPGA and other products and families of products, the licensing thereof and the purchase of wafers from Cypress by QuickLogic. It is, however, recognized by Cypress and QuickLogic that the FPGA process and products are leading edge and as a result the development process is not entirely deterministic. Accordingly, both companies agree to perform, on a best effort basis, in accordance with the terms and conditions in this Agreement recognizing the inherent risks of a new technology. Under the terms of a separate agreement Cypress shall purchase certain shares of Series D Preferred Stock of QuickLogic. ARTICLE 2 DEFINITIONS ----------- For purposes of this agreement, the following terms shall have the following meanings: 2.1 "FPGA Technical Information" shall mean the information and materials listed on Exhibit A. 2.2 "QL16X24", "QL8X12", and "QL12X16" shall mean the integrated circuit products described in the QuickLogic Very High Speed FPGA, 1992 Data Book. 2.3 "Cypress CMOS Process" shall mean the Cypress 0.65 micron CMOS process denoted by Cypress as its Logic 2.5 process. 2.4 "FPGA Product Family" shall mean FPGA Products which are based on a common logic cell architecture but supplied in a variety of I/O counts and gate densities which all use the same Vcc supply, the same lithography, and which all have similar performance characteristics. 2.5 "FPGA Process" shall mean processes jointly developed by the parties as a result of the modifications made to the Cypress CMOS Process or to other Cypress processes in accordance with Paragraph 4.9 by the incorporation of the FPGA Technical Information. 2.6 "FPGA Products" shall mean the QL16X24, the QL8X12, and the QL12X16 and any other FPGA integrated circuit on a silicon substrate having only an array of programmable logic cells consisting of basic gate and flip-flop elements interconnected by rows and columns of programmable wiring channels and which use the FPGA Process. 2.7 "Non-FPGA Products" shall mean products other than FPGA Products which use the FPGA Process. -2- 2.8 "Software Product" shall mean all software developed by either party prior to and during the Product Transfer Period (as hereinafter defined) for the purposes of, in whole or in part, accomplishing, supporting, implementing, incorporating, verifying, emulating, simulating or testing the design of FPGA Products and Non-FPGA Products and shall also include the characterization and test programs described at Paragraph 4.10 below as well as any software offered by either party as a part of a development system as described in Paragraph 5.2. 2.9 "Hardware Product" shall mean all hardware developed by either party prior to and during the Product Transfer Period (as hereinafter defined) for the purposes of, in whole or in part, accomplishing, supporting, implementing, incorporating, verifying, emulating, simulating, testing or programming FPGA Products and Non-FPGA Products and shall also include schematics, bills of material and all manufacturing information as well as any software offered by either party as a part of a development system as described in Paragraph 5.2. 2.10 "Development System" shall mean a group of products, identified as a single item in a published price list, developed for License or sale to customers by either party prior to and during the Product Transfer Period (as hereinafter defined) for the purposes of, in whole or in part supporting the design of FPGA and Non-FPGA Products. It shall include Hardware Products, Software Products or both. 2.11 "MTP" (Manufacturing Transfer Package) for a product shall mean the information and materials listed and described on Exhibit A. 2.12 "Cypress Intellectual Property" shall mean all patents, copyrights, mask works, and trade secrets owned or controlled by Cypress or any Subsidiary of Cypress during the term of this Agreement. 2.13 "QuickLogic Intellectual Property" shall mean all patents, copyrights, mask works, and trade secrets owned or controlled by QuickLogic or any Subsidiary of QuickLogic during the term of this Agreement. 2.14 "Subsidiary" shall mean a corporation, company or other entity more than fifty percent (50%) of whose outstanding shares or securities (representing the right, other than is effected by events of default, to vote for the election of directors or other managing authority) are, now or are hereafter, owned or controlled, directly or indirectly, by a party hereto, but such corporation, company or other entity shall be deemed to be a only so long as such ownership or control exists. 2.15 "Net Sales Price" as applied to products licensed hereunder means the gross sales price thereof in the form in which it is sold whether assembled or disassembled; less the following items but only so far as they pertain to the sale of such apparatus by the licensed party or any of its Subsidiaries and are included in such gross sales price: (a) usual trade discounts actually allowed; -3- (b) packing costs; (c) import, export and excise taxes, and customs duties; (d) costs of insurance and transportation from the place of manufacture to the customer's premises or point of installation; (e) costs of installation at the place of use; (f) costs of special development and special engineering not incident to the manufacture of apparatus subject to royalty; and (g) accepted returns from customers and negotiated settlements with customers. 2.1 "Fair Market Value" as applied to products licensed hereunder means the Net Sales Price which the seller would realize from an unaffiliated buyer in an arm's length sale of identical apparatus in the same quantity and at the same time and place as such transaction; provided, however, that it shall not be lower than complete cost (less the items to be deducted from Net Sales Price, to the extent these items are included in such complete cost) plus the usual profit factor. In the cases of transactions not at "arm's length", in the cases of leases and rentals, and in the cases of transactions in which a licensed product is exchanged for other than a separate, entirely-money consideration, "Net Sales Price" shall mean Fair Market Value. 2.1 "Product Transfer Period" shall mean the period of time beginning up on the Effective Date and ending five (5) years thereafter. ARTICLE 3 PROCESS DEVELOPMENT PHASE ------------------------- This phase involves the transfer to Cypress of certain QuickLogic processing information and joint development efforts by the parties leading towards the development of a process for producing FPGA Products and product families. This phase shall be conducted as follows: 3.1 Transfer of FPGA Technical Information. Within thirty (30) days of the -------------------------------------- Effective Date, QuickLogic shall furnish to Cypress the FPGA Technical Information. 3.2 Development. The parties working jointly shall use their best efforts to ----------- combine the FPGA Technical Information with the Cypress CMOS Process in order to develop the FPGA Process. 3.3 Costs. QuickLogic shall pay for and supply the initial quantity of mask ----- sets associated with each new process development effort and Cypress shall pay for the first $50,000 of wafer cost associated with such effort. After $50,000 of wafer cost for a process development effort is -4- reached, the parties will thereafter share the cost of both mask sets and wafers for that effort on a fifty-fifty (50-50) basis. 3.4 Completion. The parties shall consider the process development ---------- successfully completed when the FPGA Process is capable of satisfactorily and repeatedly producing wafers containing FPGA Products which meet mutually agreed-upon visual and electrical criteria at a mutually acceptable yield. ARTICLE 4 PRODUCT TRANSFER AND PRODUCT DEVELOPMENT PHASE ---------------------------------------------- This phase involves the transfer by QuickLogic of MTPs for the QL16X24,, the QL8X12, and the QL12X16 and the subsequent development of new FPGA Products and product families as follows: 4.1 Transfers. Promptly following the Effective Date QuickLogic shall begin --------- the work necessary to develop and transfer a MTP to Cypress for the QL16X24 at the earliest reasonable date. Upon completion of the mask set for the QL16X24, QuickLogic shall begin the work necessary to develop and transfer MTPs for the QL8X12 and the QL12X16 pursuant to a reasonable and orderly schedule. 4.2 Product Development. Thereafter, during the Product Transfer Period the ------------------- parties shall work jointly to develop new FPGA Products and product families. 4.3 Costs. ----- (a) Mask Sets and Wafers. The cost of all mask sets and wafers involved -------------------- in new product development shall be shared equally on a fifty-fifty basis. (b) Qualification and Reliability Testing. The costs of product ------------------------------------- qualification and reliability testing for products to be marketed by both parties shall be shared equally on a fifty-fifty basis. In the case of products which only one party intends to market, that party shall be responsible for such costs. 4.4 Engineering. A joint development team shall be established, comprised of ----------- knowledgeable and experienced design engineers furnished by each party. It is agreed that QuickLogic shall furnish approximately seventy-five percent (75%) of the engineering labor hours related to the design and development of new FPGA Products and that Cypress shall furnish an average of twenty- five percent (25%) of the engineering labor hours required for such design and development. -5- 4.5 Product Selection, Marketing and Licenses. ----------------------------------------- (a) Selection. Each party may specify new FPGA Products to be designed --------- and developed by the joint development team and the parties may also design and develop new FPGA Products and Non-FPGA Products independently of the activities of the joint development team and subject to Paragraph (b) below, each party shall be free to market or not market a product chosen by the other party. (b) Marketing and Licenses. As a general rule each party shall be granted ---------------------- a license of the scope and in accordance with terms set forth in Article 6 to all FPGA Products developed by the other party or by the joint development team during the Product Transfer Period. However, in the event either party (the "Non-Marketing Party") decides that it shall not market two successive FPGA Products chosen or developed by the other party (the "Developing Party") the Developing Party may designate a specific FPGA Product which the Non-Marketing Party must accept and place on the market as a condition precedent to the Developing Party's obligation to grant to the NonMarketing Party a license to FPGA Products subsequently developed by the Developing Party. 4.6 Program Manager. Each party shall promptly after the execution of this --------------- Agreement designate a Program Manager and shall notify the other in writing of its Program Manager. The Program Manager shall be responsible for: (a) Periodic reviews of the activities of the joint development team; (b) Representing the parties in all matters relating to the choice of products to be developed; (c) Submission and acceptance of materials required to be delivered under this Agreement; (d) Arranging such meetings and consultations between Cypress and QuickLogic personnel associated with the development program as may be deemed necessary for the successful accomplishment of work under this Agreement; (e) Handling the disclosure and receipt of proprietary information in accordance with Paragraph 12.1 hereof; (f) Submission of requests for changes, proposals and responses thereto; and (g) Written authorization of changes to any product. Each party shall advise the other in writing of any successor or designee of the named Program Manager. -6- 4.7 Completion of New Products. Development work on new FPGA Products shall be -------------------------- considered complete upon the creation and furnishing to Cypress' manufacturing facilities of an MTP for each such product. 4.8 Product Announcements and Deliveries. It is agreed that Cypress shall not ------------------------------------ deliver samples of each of the first four separate products (a separate product being one identified by a unique base mask set) of each new FPGA Product Family to any customer or potential customer for a period of three (3) months from the date that QuickLogic, with regard to each such product, either: (a) issues a press release announcing price and delivery; or (b) delivers its first sample which meets the basic parametric and reliability goals of the process to a customer or potential customer, whichever is first. QuickLogic agrees that it shall not unreasonably withhold products from the market for the purpose of delaying the right of Cypress to ship samples to its customers or potential customers. This shall not apply to design changes or process shrinks primarily aimed at cost reduction or speed enhancement of products developed by the parties nor shall it apply to those products developed subsequent to the pASIC 1 Family on which products Cypress has contributed more than fifty percent (50%) of the design personnel resources and which is perceived by the parties as being primarily a Cypress project. 4.9 Other FPGA Processes. QuickLogic shall be furnished knowledge of, and -------------------- permitted unrestricted access to all processes and process variations implemented in the facilities of Cypress and its Subsidiaries during the Product Transfer Period. QuickLogic shall use such knowledge and access for the purpose of determining the feasibility and suitability of producing new FPGA Products with each Cypress process so examined. No process so examined may be adapted for FPGA by QuickLogic without the agreement of Cypress. Once any such process has been employed in the manufacture of an FPGA Product at Cypress or at a Cypress Subsidiary, it may be used by QuickLogic for the development of Non-FPGA Products. 4.10 Non-FPGA Products. Both parties may use the FPGA Process to develop Non- ----------------- FPGA Products subject to the following: (a) The party developing a Non-FPGA Product shall offer a royalty-free license to the product of the scope and in accordance with the terms set forth in Article 6. (b) If such offer is not accepted, the developing party shall have and retain a license of the scope and in accordance with the terms set forth in Article 6 subject to the payment of royalties as set forth in such Article. 4.11 Information Exchanges and Cooperation. ------------------------------------- (a) The parties agree to cooperate fully in the sharing of all development information and results relating to products and processes developed under or covered by this Agreement as openly as possible. Information relating to device and package reliability testing shall be regularly exchanged and any yield enhancements or cost -7- reductions will be equally available to both parties. In accordance with the scope and limitations set forth in Article 6 for Software Products, each party shall also license the other party to use and copy the source code for any and all characterization and electrical test programs developed by either party for the licensed devices. (b) The undertakings contained in Paragraph 4.11(a) above, shall. continue beyond the Product Transfer Period for the full term of the Agreement but information furnished following conclusion of the Product Transfer Period shall only be with respect to the products, and related processes, theretofore transferred so that, for example, (i) improvements in placement and routing, and in programming or (ii) changes in masks or process which improve yield, performance or reliability, etc., for an FPGA Product developed during the term of the Agreement but after the expiration of the Product Transfer Period will be furnished by the developing party to the other party, in accordance with the provisions of this Paragraph 4.11 if the development of such FPGA Product had been completed prior to the expiration of the Product 'Transfer Period. ARTICLE 5 SOFTWARE PRODUCTS AND DEVELOPMENT SYSTEMS ----------------------------------------- 5.1 Software Products. All Software Products of either party shall be ----------------- furnished to and licensed to the other party. The components of each Software Product to be furnished shall include, but not be limited to, source code, object code, documentation, and specifications in computer readable format. In addition, each party shall furnish reasonable assistance and consultation in the use and incorporation of such software into the other party's product support and design environment. Changes to the other party's source codes, shall be under the direction of, and implemented at the furnishing party's facilities. Each party shall transfer to and make available to the other party all such Software Products as soon as any such Software Product, or preliminary version thereof, (e,g., alpha or beta copies), is released to any third party. For each Software Product transferred, the receiving party shall be granted a license of the scope and in accordance with the terms set forth in Article 6. 5.2 Development Systems. Each party is also hereby granted the right to ------------------- purchase and resell any FPGA Product development system, including hardware and software offered for sale by the other party during the term of this Agreement. Re-branding, if requested shall be paid for by the requesting party in the form of a one time charge to be negotiated on a case-by-case basis. The purchase price for such development systems shall be calculated and adjusted from time to time in accordance with the procedures, formulas and terms set forth on Exhibit C. 5.3 Third Party Systems. The parties agree to cooperate fully with each other ------------------- and with development system suppliers to encourage to the maximum extent possible the widespread availability of appropriate development systems, including hardware and to support FPGA Products. -8- ARTICLE 6 LICENSES -------- 6.1 Product Licenses. ---------------- (a) Product Licenses to Cypress. --------------------------- (i) FPGA Products. Cypress is granted a worldwide, nonexclusive, ------------- nontransferable license without the right to sublicense, except to Subsidiaries who agree in writing to be bound by the terms of this Agreement under QuickLogic's Intellectual Property, the FPGA Technical Information, the FPGA Process, and any MTPs furnished by QuickLogic hereunder to make (but not to have made except pursuant to specific prior written approval by QuickLogic), use, sell, lease, or otherwise dispose of FPGA Products. (ii) Non-FPGA Products. If Cypress is the developing party, or ----------------- accepts an offer of a license from QuickLogic pursuant to Paragraph 4.10(a) above, Cypress shall be deemed granted a worldwide, nonexclusive, nontransferable license (without the right to sublicense except to Subsidiaries who agree in writing to be bound by the terms of this agreement) under QuickLogic Intellectual Property, the FPGA Technical Information, the FPGA Process, and any MTPs furnished by QuickLogic hereunder to make (but not to have made except pursuant to specific prior written approval by QuickLogic), use, sell, lease, or otherwise dispose of Non-FPGA Products. (iii) Cypress Product License Royalties. The above license grants --------------------------------- shall be royalty-free except as follows: (1) FPGA Products. Cypress shall pay QuickLogic a royalty ------------- calculated as a percentage of the Net Sales Price in accordance with the following schedule:
Cypress Share of Total FPGA Product Sales Rate ------------------ ---- 0%-49% 0% 50%-59% 2% on amount between 50% and 59% 60%-70% 4% on amount between 60% and 69% Greater than 70% 5% on amount greater than 70%
-9- (2) Non-FPGA Products. If Cypress is the developing party and ----------------- an offer made by Cypress pursuant to Paragraph 4.10(b) above is not accepted by QuickLogic, Cypress shall I pay to QuickLogic a royalty at the rate of 2 1/2% of the Net Sales Price. (b) Product Licenses to QuickLogic. ------------------------------ (i) FPGA Products. QuickLogic and its Subsidiaries who agree in ------------- writing to be bound by the terms of this Agreement are granted a worldwide, nonexclusive, nontransferable license (with the right to sublicense provided no Cypress proprietary information is disclosed), under Cypress' Intellectual Property, the FPGA Technical Information, the FPGA Process, and any MTPs furnished by Cypress hereunder to make, have made, use, sell, lease, or otherwise dispose of FPGA Products. Except for QuickLogic's right to make and to have made wafers for use and sale or other disposition by it (as wafers, as die and as incorporated in more completely finished goods) which may be freely used and resold by its transferees, QuickLogic's sublicense right is limited to inventions described in Article 10. (ii) Non-FPGA Products. If QuickLogic is the developing party, or ----------------- accepts an offer of a license from Cypress pursuant to Paragraph 4.10(a) above, QuickLogic and its Subsidiaries who agree in writing to be bound by the terms of this Agreement shall be deemed granted a worldwide, nonexclusive, nontransferable license (with the right to sublicense provided no Cypress proprietary information is disclosed in the case of products developed by QuickLogic, but not for Cypress developed products) under Cypress Intellectual Property, the FPGA Technical Information, the FPGA Process, and any MTPs furnished by Cypress hereunder to make, have made, use, sell, lease, or otherwise dispose of Non-FPGA Products. Except for QuickLogic's right to make and to have made wafers for use and sale or other disposition by it (as wafers, as die and as incorporated in more completely finished goods) which may be freely used and resold by its transferees, QuickLogic's sublicense right is limited to inventions described in Article 10. (iii) QuickLogic Product License Royalties. The above license grants ------------------------------------ shall be royalty-free except for Non-FPGA Products where QuickLogic is the developing party and an offer made by QuickLogic pursuant to Paragraph 4.10(a) above is not accepted, in which case QuickLogic shall pay to Cypress a royalty at the rate of 2 1/2% of the Net Sales Price. -10- 6.2 Software Licenses. QuickLogic and Cypress hereby each grant to each other ----------------- under QuickLogic Intellectual Property or Cypress Intellectual Property, as appropriate, personal, nonexclusive, nontransferable licenses to use the Software Products internally, to modify and prepare derivative works of the Software Products, to copy the Software Products and to sublicense object code versions of the Software Products in accordance with the terms of Paragraph 6.4 below. 6.3 Retention of Title. Each party retains title and ownership in and to an, ------------ Software Product developed by it and all subsequent copies, modifications, and derivative works. 6.4 Sublicensing. Neither party may sublicense the source code of an Software ------------ Product received by it hereunder. Object code versions of each party's Software Products, including copyright notices and proprietary legends of the furnishing party may be sublicensed to end-users and distributors for use in support of FPGA Products under sublicense agreements which include and require the following: (a) appropriate restrictions on Sublicensing assignment and transfer; (b) a prohibition of reverse engineering and decompiling; (c) limitations on copying, including a requirement that all copies must contain the furnishing party's copyright notice and any proprietary legends; (d) confidentiality provisions at least as restrictive as those contained in Paragraph 12.1 of this Agreement; (e) a requirement that the licensed software be returned upon termination, cancellation, or expiration; (f) a disclaimer conspicuously typed and placed which negates all warranties, express, implied, or statutory, including merchantability, fitness and freedom from claims of third party infringement of an, kind. 6.5 Software Royalties. Each party shall pay the other party a per-copy ------------------ royalty on Software Products included in Development Systems in an amount calculated in accordance with the terms of Exhibit C. Royalties would only be charged on complete Software Products which are used internally by a party or transferred by it to a third party. The parties intend that no royalty will be charged if only portions of a Software Product are included in the other party's final product (e.g., only place and route fitters or only VHDL code) though, of course, minor omissions would not avoid a royalty obligation. 6.6 License. Limitation. Notwithstanding any other provision contained in -------------------- this Article 6 or elsewhere in this Agreement, all licenses from QuickLogic to Cypress are, through the period ending May 31, 1995, limited to a license only to develop FPGA Products and Non-FPGA Products for the PLD, FPGA and Standalone Programmable ROM markets. Thereafter, providing this Agreement is still in force and effect, the license shall. automatically be expanded to encompass all FPGA Products and Non-FPGA Products. -11- ARTICLE 7 ROYALTIES --------- 7.1 Reporting and Payment. For the purpose of reporting on and paying --------------------- royalties with respect to products licensed to it hereunder by the other party, each party shall furnish the other party a written report stating the total Net Sales Price of each licensed FPGA Product and licensed Non- FPGA Product as well as the total number of copies of each licensed Software Product distributed by the reporting party during the periods anding June 30 and December 31 of each year. Each such report shall be given within sixty (60) days following the end of the period reported on and shall be accompanied by a check in full payment of all royalties due for such period. 7.2 Records and Audit. Each party shall keep full, clear, and accurate records ----------------- with respect to the products subject to royalty hereunder. Each party shall have the right, through the employment of a certified public accountant, to examine and audit at all reasonable times, all such records and such other records and accounts as may under recognized accounting practices contain information bearing upon the amount of royalty payable by it under this Agreement. Prompt adjustment shall be made by the proper party to compensate for any errors or omissions disclosed by such examination or audit. ARTICLE 8 WAFER SUPPLY ------------ During the term of this Agreement, Cypress shall supply QuickLocic with five or six inch wafers containing FPGA Products or Non-FIDGA Products upon the following terms: 8.1 Capacity Up to 250. Cypress guarantees that it shall provide a wafer start capacity in accordance with the following schedule:
Year Starts Per Week ---- --------------- 1992 Up to 50 wafers 1993 Up to 100 wafers 1994 Up to 175 wafers 1995 Up to 200 wafers Thereafter Up to 250 wafers
8.2 Capacity In Excess of 250. In addition, in return for an equity investment ------------------------- by QuickLogic in Cypress or in one of Cypress' Subsidiaries in the amount of one and one-half million dollars ($1,500,000) per 50 wafer starts per week, QuickLogic may purchase the right at any time during the term) of this Agreement to obtain a permanently guaranteed wafer, start capacity in excess of 250 wafers per week. -12- 8.3 Continuation. If QuickLogic, prior to the expiration of this Agreement, ------------ determines that it wishes to secure thc base capacity of up to 250 wafer starts per week for a continued supply of such wafers by Cypress after the expiration of this Agreement, QuickLogic may do so by notifying Cypress of its intention to secure such capacity prior to the expiration of this Agreement and making an investment in Cypress or in one of Cypress' Subsidiaries in the amount of one and one-half million dollars ($1,500,000) per 50 wafer starts per week. For example, an equity investment of seven and one half million dollars ($7,500,000) shall secure a permanently guaranteed capacity of 250 wafers starts per week. 8.4 Price. The per wafer price to be paid by QuickLogic shall in the case of ----- products marketed by both parties be no greater than the per wafer price at which Cypress transfers such wafers internally to its own product organizations or in the case of products marketed only by QuickLogic no greater than the price at which Cypress would transfer wafers of the same complexity (as a function of number of mask steps) to such organizations. QuickLogic's audit rights as set forth at 7.2 above shall be deemed to include the right to examine and audit such records as are necessary or reasonable to determine the correctness and currency of such internal transfer prices. 8.5 Yields and Specifications. Cypress agrees that all such wafers shall be ------------------------- processed in accordance with its normal processing quality standards and procedures. Cypress does not guarantee yields but agrees that in general wafers shipped to QuickLogic shall contain yields which are no less than those wafers transferred internally to its own product organizations. The following wafer acceptance criteria will apply: 1. A standard visual quality inspection to be jointly agreed upon. 2. A standard DC parametric measurement value specification to be jointly agreed upon. 3. A minimum wafer sort (die) yield value, to be jointly agreed upon for each product once a regular yield history has been established for each product. 4. All rejected wafers must be returned within thirty (30) business days after discovery of the reasons for rejection, with accompanying documentation and statement in support of such reasons. It is further agreed that both companies will freely share yield data and information with each other on a frequent and regular basis. A separate wafer inventory for each company will be maintained for each company throughout the fabrication process and identified with unique lot numbers. -13- 8.6 Scheduling, Ordering and Terms of Payment. QuickLogic shall place purchase ----------------------------------------- orders calling for deliveries within Cypress' normal processing lead times. Quick-turn processing, "risk wafer" transactions, etc. shall be negotiated on a case-by-case basis. Cypress agrees that no less priority shall be assigned to QuickLogic's requirements than regularly assigned to its own internal transfers of the same products. Terms of payment shall be net thirty (30) days from the date of shipment or receipt of invoice, whichever is later and shall be subject to change by mutual agreement. ARTICLE 9 TERM, CANCELLATION AND TERMINATION ---------------------------------- 9.1 Term. Unless canceled as hereinafter provided, this Agreement shall ---- expire five (5) years from the Effective Date or three (3) years after the transfer of the last MTP to a Cypress manufacturing facility, whichever is longer. 9.2 Breach. If either party breaches a material provision and does not cure ------ such breach within thirty (30) days after written notice from the other party or (if cure is impossible within such period) if a recovery plan is not mutually agreed upon within such period, such other party shall have the right at its option to: (a) suspend performance or payment until such breach is cured; (b) cancel this Agreement; or (c) seek a combination of (a) and (b) and those remedies available at law or equity to the extent not limited by the terms of this Agreement. The election of (a), (b), or (c) above shall not excuse the breaching party from any obligation arising prior to the date of such election. --- 9.3 Insolvency. Should either party: (a) become insolvent; (b) make an ---------- assignment for the benefit of creditors; (c) file or have filed against it a petition in bankruptcy or seeking reorganization; (d) have a receiver appointed; (e) institute an, proceedings for liquidation or winding up; then the other party may, in addition to other rights and remedies it may have, cancel this Agreement immediately by written notice. 9.4 Effect of Cancellation. ---------------------- (a) Licenses. Upon cancellation by either party pursuant to Paragraphs 9.2 -------- or 9.3 above the licenses granted hereunder by the canceling party to the canceled party shall cease, but the licenses granted hereunder by the canceled party to the canceling party shall continue in accordance with their terms. 9.5 Effect of Expiration. -------------------- (a) Licenses. Each party's license rights to FPGA Products, Non-FPGA -------- Products, and Software Products to the extent such rights have arisen under this Agreement prior to expiration shall survive (subject to compliance with -14- the royalty reporting and payment provisions of Article 7) with regard to each such product until such time as a party paying royalties, reports and pays less than two thousand five hundred dollars ($2,500) for any one product for eight consecutive calendar quarters at which time such party's obligation to report or pay further royalties for that product shall cease. (b) Wafer Supply. If QuickLogic has exercised the options to secure ------------ additional capacity as described in Paragraphs 8.2 and/or 8.3, the provisions of Paragraphs 8.4, 8.5, and 8.6 shall survive the expiration of this Agreement. If QuickLogic does not exercise either of the options described in Paragraphs 8.2 or 8.3, Cypress shall continue to supply wafers upon competitive terms (i.e., at a price and on a delivery schedule not less favorable than that available from a bona fide third party) or, at the option of Cypress, provide reasonable assistance in transferring the processes then being used to produce for QuickLogic to a foundry acceptable to QuickLogic. (c) General. The provisions of Article 12 shall survive the expiration of ------- this Agreement. 9.6 Effect of Change in Ownership. ----------------------------- (a) Prior to QuickLogic consummating (i) any reorganization (as the term "reorganization" is defined in the California Corporations Code, as amended) or (ii) any sale of substantially all of its assets to a third party, notice of QuickLogic's intent ("Notice of Intent") shall be given to Cypress. Within twenty (20) days following the date of the Notice of Intent either Cypress or QuickLogic may elect to terminate the ongoing obligations of the parties hereunder to provide the other with access to new processes and to new product developments or to engage in further joint new product developments ("Termination As To New Developments"). If such election is not exercised during that twenty (20) day period the right to do so shall be waived. If Cypress gives timely notice of its election to Terminate As To New Developments QuickLogic may cancel the proposed reorganization or sale of assets and give notice to Cypress of such cancellation in which event the Notice of Intent and the Termination As To New Developments shall be null and void and this Agreement shall continue in full force and effect. (b) Upon the timely exercise of such election by a party (unless the Notice of Intent is withdrawn as provided in 9.6 (a) above) then to the extent already begun the transfer of MTPs for products and the furnishing of information and access for processes, will be completed promptly and completely as would have been appropriate had the election not been made. -15- (c) Except for completion of the provision of information as provided in subparagraph (ii) above, the Product Transfer Period shall (unless the Notice of Intent is withdrawn as provided in 9.6 (i) above) be deemed to have ended as of the date of notice of that election, and neither party shall have any obligation to transfer or otherwise provide information with respect to new products or new processes to, or engage in the joint development of new product with, the other party. The provisions of Paragraph 4.11(b) above, however, shall remain in effect. (d) In al1 other respects the Agreement shall continue in full force and effect except that the obligation of Cypress to provide wafers for Quicklogic shall, thereafter, be at the lesser of a competitive price as defined in paragraph 9.5(b) above or one hundred fifty dollars ($150) more than the per wafer price defined in Paragraph 8.4 above. ARTICLE 10 INVENTIONS ---------- 10.1 All discoveries, improvements and inventions conceived or first reduced to practice as that term is used before the U.S. Patent Office by Cypress personnel in the performance of work under this Agreement shall be the sole and exclusive property of Cypress and Cypress shall retain any and all rights to file any patent applications thereon. 10.2 All discoveries, improvements and inventions conceived or first reduced to practice as that term is used before the U.S. Patent Office by QuickLogic personnel in the performance of work under this Agreement shall be the sole and exclusive property of QuickLogic, and QuickLogic shall retain any and all rights to file any patent applications thereon. 10.3 In the event personnel of Cypress and QuickLogic jointly invent devices or circuits during the performance of work under this Agreement, then the joint invention shall be jointly owned without accounting to either party. In the event of a joint invention, the parties shall mutually determine whether an application or applications for patent shall be filed on such joint invention, the party which will prepare and file such application or applications, and the country and countries in which the same is to be filed. The patent expenses incurred shall be divided equally between the parties. -16- ARTICLE 11 VLSI FABRICATION ---------------- Until such time as Cypress has implemented and qualified its production, QuickLogic will, at the request of Cypress, use its best efforts to supply Cypress with QL8X12 and QL12X16 devices fabricated by VLSI for resale by Cypress. The terms and conditions of any such purchase shall be in accordance with the provisions of Exhibit D. ARTICLE 12 GENERAL ------- 12.1 Confidential Information. It is agreed that all information regarded as ------------------------ proprietary shall be suitably marked by the owner thereof. Both parties agree to receive and hold each other's proprietary information in confidence and to exert the same effort to prevent disclosure thereof as they would for their own proprietary information which they did not wish disclosed to third parties. The obligations of this paragraph shall terminate five (5) years after the date of expiration of this Agreement, survive any cancellation or termination thereof, and impose no obligation upon either party with respect to any oortion of the received information a) which was known to the recipient prior to its first receipt from the other party; b) which is now, or shall hereafter through no act or failure to act upon the part of the recipient become generally known; c) is furnished to others by the disclosing party without restriction on disclosure; d) which is hereafter furnished to recipient by a third party and without restriction on disclosure; or e) which is independently developed by recipient provided the person or persons developing same have not had access to the same information as received from the other party. 12.2 Assiqnment. This Agreement shall be binding upon and inure to the benefit ---------- of the parties hereto, their subsidiaries, and their respective successors and assigns, provided that neither arty shall assign any of its rights or privileges hereunder without the prior written consent of the other party except to a successor in ownership of all or substantially all of the assets of the assigning party, and which successor shall expressly assume in writing the performance of all the terms and conditions of this Agreement to be performed by the assigning party. Any attempt at assignment in derogation of the foregoing shall be null and void. 12.3 Damage Limitation. Independently of any other remedy limitation hereof and ----------------- notwithstanding any failure of the essential purpose of any such limited remedy, it is agreed that in no event shall either party be liable for special, incidental or consequential damages of any kind under this agreement. 12.4 Publicity. All notices to third parties and all other publicity concerning --------- the transactions contemplated by this Ageement shall be jointly planned and coordinated -17- by and between the parties. Neither of the parties shall act unilaterally in this regard without the prior written approval of the other party; however, this approval shall not be unreasonably withheld. 12.5 Governing Law. This Agreement shall be governed by, construed in ------------- accordance with, and subject to the laws of California as applied to contracts entered into in California by California residents to be performed entirely within the State of California. It is the express intention of the parties that any claim or controversy of any kind arising out of or relating in any way to this Agreement shall be resolved only by prompt submission to binding arbitration in accordance with the then prevailing American Arbitration rules with the following modifications: (a) Not later than five (5) days following notice by one party to the other requesting arbitration, each party will notify the other of the person it has selected ("Selector") to choose an arbitrator and the two Selectors shall promptly meet to name an arbitrator. In the event both Selectors are not identified within the time provided or, if identified, they are unable to agree upon an arbitrator within twenty (20) days following the notice of request for arbitration, either party shall have the right to have the arbitrator selected by the American Arbitration Association. (b) Arbitration shall take place in the County of Santa Clara, California and the arbitrator shall be authorized to conduct the proceedings in as expeditious manner as possible consistent with the interests of justice. (c) Notwithstanding any provision to the contrary in the applicable law or in the rules of the American Arbitration Association, the arbitrator shall have no authority to award punitive or exemplary damages of any nature. (d) Pursuant to California Code of Civil Procedure 1283.1(b), the Parties agree that the provisions of 1283.05 are hereby incorporated into, made a part of and are applicable to this arbitration agreement solely for the purpose of obtaining the production of documents. (e) To the extent not covered by the arbitrator's award, the cost of the arbitration shall, be shared equally by the parties. (f) Any award rendered by the arbitrator may be entered for enforcement, if necessary, in any court of competent jurisdiction, the party against whom enforcement is sought bearing the costs and expenses, including attorneys fees, related to such entry and enforcement. 12.6 Integration. This Agreement embodies the entire understanding of the ----------- parties as it relates to the subject matter hereof. This Agreement supersedes the Memorandum of -18- Understanding dated May 29, 1992, and any other prior agreements or understandings between the parties as to this subject matter. No amendment or modification of this Agreement shall be valid or binding upon the parties unless in writing and signed by duly authorized representatives of each party. 12.7 Waiver. No failure or delay on the part of either party in the exercise ------ of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof, or of any other right, power or privilege. 12.8 Notice. Any notice herein required or permitted to be given will be in ------ writing and may be personally served, or sent by telex or mail and will be deemed to have been given: if personally given when served, if by facsimile machine to the proper address and facsimile number, or if mailed, on the fifth business clay after deposit in the United States with airmail postage, prepaid and properly addressed. For purposes hereof the address of the parties hereto (until a notice of change thereof is given as provided in this paragraph) will be as follows: If to QuickLogic: QuickLogic Corporation 2933 Bunker Hill Lane Santa Clara, CA 95054 FAX: (408) 987-2012 ATTN: David Laws, President and Chief Executive Officer If to Cypress: Cypress Semiconductor Corporation 3901 North First Street San Jose, CA 95134 FAX: (408) 943-2830 ATTN: Thomas Freeze, Vice President, Programmable Logic Division 12.9 Force Majeure. Neither of the parties hereto shall be deemed to be in ------------- default of this Agreement to the extent any failure to perform hereunder is a result of conditions beyond its reasonable control, including but not limited to, acts of God, war, insurrection, strikes, fires, floods, earthquakes, work stoppages and embargoes, material shortages, subcontractor delays, equipment or other facilities failures and/or -19- any act or failure to act by the other party hereto, and neither party shall have the right to cancel for any such delay or default on the part of the other party. 12.10 Severability. If any provision of this Agreement is held to be ------------ ineffective, unenforceable or illegal for any reason, such decision shall not affect the validity or enforceability of any or all of the remaining portions thereof. 12.11 Counterpart Originals. This Agreement may be executed simultaneously in --------------------- two or more counterparts, each of which shall be deemed an original but all of which together constitute one in the same Agreement. 12.12 Captions. Paragraph titles or captions contained herein are inserted only -------- as a matter of convenience and for reference, and in no way define, limit, extend, or describe the scope of this Agreement, nor the intent of any provision thereof. 12.13 Market Representations. Cypress acknowledges and agrees that QuickLogic ---------------------- has made no statements or representations as to the size of the market for the FPGA Products or as to the amount of rqalties, revenue or profits to be received by Cypress. Cypress acknowledges that in entering into this Agreement it is relying entirely on its own estimate as to the market for such products. 12.14 Technical Information Warranty. Each party represents and warrants that ------------------------------ all technical information (including Software Products) to be furnished by it under this Agreement to the other party shall be in the same form as the information used by the furnishing party in its regular design or production of the products in question at the time of furnishing. If any technical information furnished hereunder does not meet this requirement and such fact is confirmed by the furnishing party, the furnishing party shall promptly correct the discrepancy at its cost by furnishing corrected information. THIS WARRANTY IS EXPRESSED IN LIEU OF ALL OTHER WARRANTIES, EXPRESS, STATUTORY, OR IMPLIED INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND OF ALL OTHER OBLIGATIONS OR LIABILITIES ON THE FURNISHING PARTY'S PART. 12.15 Warranties. Nothing contained in this Agreement sha11 be construed as: ---------- (a) a warranty or representation by any licensor as to the validity or scope of any patent; or (b) a warranty or representation that any manufacture, sale, lease use or other disposition hereunder will be free from infringement of any patent other than those under which and to the extent to which licenses are in force hereunder; or -20- (c) an agreement to bring or prosecute actions or suits against third parties for infringement of conferring any right to bring or prosecute actions or suits against third parties for infringement; or (d) conferring any right to use in advertising, publicity, or otherwise, any trademark, trade names or names, or any contraction, abbreviation or simulation thereof, of either party; or (e) conferring by implication, estoppel or otherwise, upon any party licensed hereunder, any license or other right except the licenses and rights expressly granted hereunder. 12.16 Notwithstanding any other provision of this Agreement, in the event the equity investment by Cypress in QuickLogic referred to in the Recital, is not consummated to the satisfaction of each party in the exercise of such party's sole and exclusive judqment, on or before sixty (60) days following the Effective Date, either party may, on five (5) days prior notice to the other party, terminate this Agreement. In such event all physical embodiments of any information given by one party to the other under or in contemplation of this Agreement shall be returned to the originating party and, except for the obligations of confidentiality set forth in Paragraph 12.1, all other obligations and all rights and licenses arising hereunder shall terminate forthwith. Neither party shall, as a result of such termination, be or become liable to the other for any costs or expenses incurred by such other party in connection with the preparation of this Agreement or any activities undertaken in contemplation of performance hereunder. 12.17 Terms and Conditions of Sale. Unless otherwise provided in this Agreement ---------------------------- or as may otherwise be agreed to by the parties, all sales of product (including, but not limited to, finished product, wafers and die) by one party to the other as contemplated in this Agreement shall, except for price, be on the most favorable terms and conditions afforded by that party to any of its customers without regard to quantities or other similar considerations. 12.18 Further Assistance. Each of the parties agrees to take such further ------------------ actions, and to execute and deliver such additional agreements and instruments, as the other party may reasonably require to consummate, evidence or confirm the agreements contained herein in the manner contemplated hereby. 12.19 Relationship. Nothing contained herein or done pursuant to this Agreement ------------ shall constitute the parties as entering upon a joint venture or shall constitute either party hereto the agent of the other party for any purpose or in any sense whatsoever. -21- 12.20 United States Export Controls. In order to facilitate the exchange of ----------------------------- information in accordance with this Agreement and in conformity with the laws and regulations of the United States relating to the exportation of technical data, both parties agree to fully comply with all relevant laws and reculations of the United States Government and to assure that no violation of such laws or regulations shall occur. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their authorized representatives. QuickLogic Corporation Cypress Semiconductor Corporation By__________________________ By__________________________ Title_______________________ Title_______________________ Date________________________ Date________________________ -22- EXHIBIT A --------- FPGA TECHNICAL INFORMATION -------------------------- Structural Drawing of ViaLink Element Electrical Specifications of ViaLink Process Flow Chart Process Parameters Programming Characteristics Life Test Data Electrical Design Criteria -23- EXHIBIT B --------- MANUFACTURING TRANSFER PACKAGE ------------------------------ Schematic Diagram of Product Plots of mask layout Data base tape Assembly diagram Manufacturing Flow Chart Probe card wiring diagram Test Specifications Wafer sort and Final Test Program Load board schematic Characterization Data Burn-in Schematic Reliability Data Data Sheet -24- EXHIBIT C --------- CALCULATION OF DEVELOPMENT SYSTEM PURCHASE PRICES ------------------------------------------------- The price (including royalty) to be paid by a party purchasing a Development System from the developing party shall be the sum of (i) an amount equal to the amortization of the developing party's cost to develop that Development System over the total number of units of that Development System distributed to customers by both parties and (ii) the developing party's unit manufacturing cost for that Development System including direct material, labor and overhead, plus (iii) 20% of the total of (i) and (ii). The price shall not, however, exceed the developing party's then current published distributor cost for that Development System. For example, if the Cypress cost for developing a particular Development System was $100,000; if each party distributed 50,000 units of that Development System; and if the Cypress manufacturing cost (as defined above) of one unit was $100, the sum of $1 would be added to the manufacturing cost and to the total of $101 you would add 20% ($20.20) making the purchase price to QuickLogic $121-20. The first time a party intends to purchase a particular Development System from the other party it shall give the developing party its best estimate of the total number of units it will purchase during that calendar year. The developing party will then give the purchasing party a statement certified by its controller as to its manufacturing costs and its development costs, and indicate the total combined number of units of that Development System that the two parties estimate they will distribute by the end of that year. Based on that information the parties will calculate the development cost factor to be included in the purchase price for that Development System as set forth above. The development cost factor for each, Development System will be reviewed and recalculated within 90 days following the end of each calendar year, based upon the actual number of units of each that were purchased by the purchasing party and that were distributed (to persons other than the purchasing party) by the developing party and such recalculated factor will be used to establish the purchase price for the remainder of the then current calendar year. In addition if, as of the end of any calendar year, there had been a net overpayment or net underpayment for Development Systems on account of incorrect assumptions as to quantities, an adjusting payment shall be made by one party to the other, as required to balance the account. -25- EXHIBIT D --------- TERMS AND CONDITIONS FOR RESALE BY CYPRESS ------------------------------------------ OF QUICKLOGIC SUPPLIED SILICON ------------------------------ 1. Cypress distributors in the USA and Canada shall be authorized to quote, sell and promote the devices on or after February 1, 1993. 2. Device shipments, including free samples or units for sale, to Cypress customers and distributors outside North American may commence on or after October 1, 1993. Quantities shipped outside North America in any quarter shall not exceed 10% of the total quantity shipped by Cypress in the same quarter. Prior to October 1, Cypress may sample up to 30 devices each to ten international customers. Up to four of these customers may be in Japan and no more than two may be in any other country. 3. Device types to be supplied are the commercial operating range versions of QL8xl2A-xPL68, and the QL12xl6-xPL84 (where x designates the -0 and - 1 speed grades). The -2 speed versions will be made available when QuickLogic is able to generate consistent yields above 30%. 4. Devices will be supplied tested, but unmarked in standard QuickLogic shipping containers externally identified with the ordered part numbers. 5. Cypress may request up to 10% of its unit volume as die on sorted wafers. No guarantees can be made on yield to specific bin distribution criteria. 6. Cypress shall place its orders, by device type and speed selection, once per month in the firstweek of each month. At any time the first two months of backlog shall be firm and noncancellable. The next two months shall be a projection of Cypress' expected demand. QuickLogic will advise its ability to supply the quantities in months three and four within two weeks of receipt of the projection. At the time that the order becomes non-cancellable, Cypress may vary its firm order for these quantities by plus or minus 25% from the last projection. 7. If QuickLogic is unable to meet quantities committed against the firm orders due to manufacturing limitations, it will guarantee Cypress up to 50% of the total quantity available subject to a maximum of 3K/month for the 12x16. -26- 8. Price for packaged units shall be 40% less than the published US distributor cost for each type at the time of shipment, or 10% above the cost of material, labor and manufacturing overhead, whichever is the greater. Price for die in wafer form shall be 50% less than the distributor cost for the -1 version of the packaged unit. 9. QuickLogic will support Cypress sales of these products by supplying and permitting reproduction of the pASIC 1 Family, the QL8xl,2A and the QL12x16 device data sheets. It will also act as a consultant for technical questions. -27- EX-10.19 7 MEMORANDUM OF UNDERSTANDING DATED 10/28/96 EXHIBIT 10.19 MEMORANDUM OF UNDERSTANDING BETWEEN QUICKLOGIC AND TSMC LTD. Whereas QuickLogic desires to access TSMC Ltd.(TSMC) Semiconductor Wafer Foundry Capacity and TSMC desires to provide QuickLogic with said Semiconductor Wafer Foundry Capacity and QuickLogic desires a foundry to develop a process for production and TSMC desires to develop such process. Now Therefore, in consideration of the mutual promises contained herein, the parties agree as follows. TSMC agrees to assist QuickLogic in either transferring and/or developing a production process for QuickLogic's ViaLink (TM) technology. TSMC and QuickLogic will enter into a rolling "Take or Pay" contract, for a period of three (3) years, starting on the date of first Risk Production Wafer Outs and incrementing annually by mutual consent, of substantially the same from as the "Take or Pay" contracts currently offered to TSMC's existing customers. TSMC and QuickLogic will enter into an Agreement, initially for three (3) years, renewable annually as a rolling three year Agreement in which QuickLogic agrees to purchase not less than [*] of the total volume of wafers for those products purchased from foundry sources, excluding wafers purchased from Cypress Semiconductor, with TSMC in the first and succeeding years. TSMC agrees to Manufacture and supply such wafers to QuickLogic providing that such quantity of wafers do not exceed an annual forecast provided by QuickLogic by more than [*]in the first year and [*] in the second and all successive years. TSMC further agrees to supply QuickLogic with wafers in excess of the above committed capacity on a best efforts basis if additional capacity is available in any TSMC fab which can produce the QuickLogic Technology. 1 * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. QuickLogic will also provide annually, on the anniversary of three months prior to the first Risk Production Wafer Out, a forecast of the total number of wafers for [*] or for the remaining term of the Agreement, such forecast being for yearly periods commencing on the anniversary of the first Risk Production Wafer Out. QuickLogic will make a firm commitment to purchase the numbers of wafer outs for [*]. At the end of each quarter QuickLogic will provide to TSMC, in writing, [*] forecast of the number of wafers by quarter by technology, the first such forecast being provided to TSMC three (3) months prior to the first Risk Production Wafer Out. The first [*] of such forecast shall be a firm commitment to purchase the wafers forecast for that period. QuickLogic reserves the right to obtain a "Second Source", up to a maximum of [*] of its requirements in any one year. In the event that TSMC fails to meet the market requirements or the capacity commitments of QuickLogic for any Product, QuickLogic shall have the right to second source the Product without regard to quantity limitations until such time as TSMC can supply that part at the required capacity. If TSMC fails to deliver wafers ordered by QuickLogic within the TSMC Committed Capacity, including a failure to deliver due to low process yields, and such failure to deliver results in a failure by QuickLogic to take delivery of the QuickLogic Committed Capacity, then QuickLogic shall not be liable to forfeit the "Take or Pay" Deposit for any shortfall in wafers resulting from TSMC's failure to deliver. It is agreed that the Confidentiality Agreements between QuickLogic and TSMC shall include the following provisions: QuickLogic and TSMC agree that all Confidential Information shall be held in strict confidence and released only to employees of either party who have a Need to Know, and have agreed to comparable restrictions on use and disclosure. 2 * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. DEVELOPMENT OF THE PROCESS AND TECHNOLOGY QuickLogic and TSMC will jointly develop a 0.5 micron (0.5um) single poly, triple metal (SPTM) process FPGA using the QuickLogic ViaLink (TM) amorphous silicon anti-fuse technology. In addition to assisting TSMC to transfer the process to a TSMC Fab, QuickLogic will work with TSMC on an ongoing basis to improve and enhance the yields of the production process. TSMC shall make its best efforts to migrate this process to future technologies to realize the benefits of smaller geometries. QuickLogic will retain all rights to the ViaLink trademark and basic technology and process. [*] DEVELOPMENT SCHEDULE It is agreed that a good faith estimate of the schedule for both QuickLogic and TSMC for the Project Development is for the Project to start in [*] with Risk Production forecast at [*]. DEVELOPMENT EXPENSE It is agreed that the Development Expense for the Project shall be shared between QuickLogic and TSMC as follows:
QuickLogic TSMC Loop Test (estimated at [*]) [*]% [*]% Full run wafers (estimated at [*]) [*]% [*]% Test Wafers [*]% [*]% Qualification Wafers [*]% [*]% Masks, including frames (17 reticles) [*]% [*]% Foundry Machinery and Modifications [*]% [*]%
3 * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. QuickLogic and TSMC will hold monthly development reviews at times and locations to be mutually agreed upon, until the process is fully qualified. QuickLogic and TSMC will hold Operations reviews twice per year at locations to be mutually agreed upon. QuickLogic and TSMC will hold a quality audit once per year at a time to be mutually agreed upon by the Parties. A good faith estimate of the volume that TSMC expects to support and that QuickLogic expects to purchase, expressed in eight inch (8") Physical Wafers, is as follows: YEAR Year 1 Year 2 Year 3 QuickLogic Committed Capacity [*] [*] [*] TSMC Committed Capacity [*] [*] [*] Ratio of Committed Capacities [*] [*] [*] Providing that, for those Products where TSMC is a foundry source for QuickLogic, TSMC supplies not less than [*] of the aggregate total number of wafers, excluding purchased from Cypress Semiconductor, for those Products from all foundry sources, verifiable by third party audit, QuickLogic will receive [*] pricing for Products using its technology. This shall be interpreted as QuickLogic pricing shall be in the [*] of prices for wafers sold to TSMC customers for a specific TSMC Fab, for like Technology, [*] 4 * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. For clarification and to establish Preliminary Budgetary Numbers TSMC provides the following good faith estimate of prices for products and services referred to in the preceding paragraphs; Q1,1997 Q4,1997 8" "QuickLogic" Anti-fuse Process $[*] $[*] Loop Test (estimate at [*]) $[*] per wafer Full run wafers (estimated at [*]) $[*] per wafer Qualification Wafer $[*] per wafer Masks, including frames (17 reticles) $[*] total QuickLogic desires to have the option to purchase tested die to fulfill their contractual requirements. TSMC agrees to provide die pricing options after the Amorphous Silicon Anti-fuse Process has been fully qualified in full production and not less than [*] of full production have yielded sufficient data and information to ensure the reliability of the yield predictions for any Specific Product or Device Design. This Memorandum of Understanding is intended to be a non-binding statement of QuickLogic's and TSMC's mutual interest. The binding agreement between TSMC and QuickLogic will be set forth only in the Definitive Agreement to be negotiated and signed after the date of this Memorandum of Understanding. This Memorandum of Understanding may be terminated by either party upon notice to the other at any time prior to the execution of a Definitive Agreement. 5 * An asterisk indicates confidential material that has been omitted from this document and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. Signed Signed /s/ Donald W. Brooks /s/ E. Thomas Hart - ------------------------ ------------------------ Signature Signature Name: Donald W. Brooks Name: E. Thomas Hart -------------------- --------------------- Title: President, TSMC Ltd. Title: President & CEO -------------------- --------------------- Date: 10/28/96 Date: 28 October 1996 -------------------- --------------------- 6 EX-10.20 8 FIRST AMENDED & RESTATED COMMON STOCK PURCHASE AGREEMENT EXHIBIT 10.20 QUICKLOGIC CORPORATION First Amended and Restated Common Stock Purchase Agreement June 13, 1997 TABLE OF CONTENTS -----------------
Page ---- 1. Authorization and Delivery of Common Stock............................. 1 1.1 Authorization.................................................... 1 1.2 Right to the Shares............................................. 1 ------------- 2. Delivery............................................................... 1 -------- 1.2 No IPO Prior to April 1, 1998.................................... 1 ----------------------------- 1.2 IPO Consummated Prior to April 1, 1998........................... 1 -------------------------------------- 3. Representations and Warranties of the Company.......................... 2 --------------------------------------------- 3.1 Organization and Standing; Articles of Incorporation and Bylaws.. 2 --------------------------------------------------------------- 3.2 Corporate Power.................................................. 2 --------------- 3.3 No Subsidiaries.................................................. 3 --------------- 3.4 Capitalization................................................... 3 -------------- 3.5 Authorization.................................................... 3 ------------- 3.6 Financial Statements............................................. 4 -------------------- 3.7 Title to Properties; Liens and Encumbrances...................... 4 ------------------------------------------- 3.8 Intellectual Property Rights..................................... 4 ---------------------------- 3.9 Proprietary Information Agreements............................... 5 ---------------------------------- 3.10 Operating Rights................................................ 6 ---------------- 3.11 Manufacturing, Distribution and License Rights.................. 6 ---------------------------------------------- 3.12 Compliance with Other Instruments, None Burdensome, etc......... 6 ------------------------------------------------------- 3.13 Litigation, etc................................................. 6 --------------- 3.14 Employee Compensation Plans..................................... 7 --------------------------- 3.15 Insurance....................................................... 7 --------- 3.16 Registration Rights............................................. 7 ------------------- 3.17 Governmental Consent, etc....................................... 7 ------------------------- 3.18 Offering........................................................ 7 -------- 3.19 Material Contracts and Obligations.............................. 7 ---------------------------------- 3.20 Tax Returns and Payments........................................ 8 ------------------------ 3.21 Related Party Transactions...................................... 8 -------------------------- 3.22 Certain Transactions............................................ 8 -------------------- 3.23 Environmental Protection........................................ 8 ------------------------ 3.24 Brokers or Finders.............................................. 9 ------------------ 3.25 Changes......................................................... 9 ------- 3.26 Foreign Investment in Real Property Act......................... 10 --------------------------------------- 3.27 Disclosure...................................................... 10 ---------- 4. Representations and Warranties of the Purchaser........................ 10 ----------------------------------------------- 4.1 Authorization.................................................... 10 ------------- 4.2 Experience....................................................... 10 ---------- 4.3 Investment....................................................... 11 ---------- 4.4 Rule 144......................................................... 11 -------- 4.5 No Public Market................................................. 11 ----------------
4.6 Access to Data................................................... 11 -------------- 4.7 Further Limitations on Dispositions.............................. 11 ----------------------------------- 5. Conditions to Purchaser's Obligations at the Closing................... 11 ---------------------------------------------------- 5.1 Representations and Warranties Correct........................... 12 -------------------------------------- 5.2 Covenants........................................................ 12 --------- 5.3 Good Standing Certificates....................................... 12 -------------------------- 5.4 Secretary's Certificate.......................................... 12 ----------------------- 5.5 Legal Investment................................................. 12 ---------------- 6. Conditions to Company's Obligations at the Closing..................... 12 -------------------------------------------------- 6.1 Representations and Warranties Correct........................... 12 -------------------------------------- 7. Miscellaneous.......................................................... 12 ------------- 7.2 Waivers and Amendments........................................... 12 ---------------------- 7.3 Governing Law.................................................... 13 ------------- 7.4 Survival......................................................... 13 -------- 7.5 Successors and Assigns........................................... 13 ---------------------- 7.6 Entire Agreement................................................. 13 ---------------- 7.7 Severability of this Agreement................................... 13 ------------------------------ 7.8 Finder's Fees.................................................... 13 ------------- 7.9 Legends.......................................................... 13 ------- 7.10 Removal of Legends and Transfer Restrictions.................... 14 -------------------------------------------- 7.11 Titles and Subtitles............................................ 14 -------------------- 7.12 Counterparts.................................................... 14 ------------ 7.13 Delays or Omissions............................................. 14 ------------------- 7.14 Notices......................................................... 14 -------
QUICKLOGIC CORPORATION FIRST AMENDED AND RESTATED -------------------------- COMMON STOCK ------------ PURCHASE AGREEMENT ------------------ This FIRST AMENDED AND RESTATED COMMON STOCK PURCHASE AGREEMENT (the "Agreement") is made as of June 13, 1997 by and between QuickLogic Corporation, a California corporation (the "Company"), and Cypress Semiconductor Corporation, a Delaware company (the "Purchaser"). A. On March 29, 1997 (the "Original Date"), the Company and the Purchaser entered into a certain Common Stock Purchase Agreement dated the Original Date (the "Prior Agreement"); and B. The Company and the Purchaser desire to amend and restate the Prior Agreement in its entirety and to enter into this Agreement upon the terms and conditions set forth below; this Agreement shall supersede the Prior Agreement in its entirety. Therefore, in consideration of the mutual promises, representations, warranties, covenants, and conditions set forth in this Agreement, the parties to this Agreement mutually agree as follows: 1. Authorization and Delivery of Common Stock. ------------------------------------------ 1.1 Authorization. The Company has authorized the issuance and ------------- delivery of 18,226,716 shares of its Common Stock ("Common Stock") having the rights, preferences, and privileges set forth in the Amended and Restated Articles of Incorporation (the "Restated Articles") of the Company, attached hereto as Exhibit A. 1.2 Right to the Shares. Subject to the terms and conditions hereof, ------------------- at the Closing (as defined in that certain Termination Agreement (the "Termination Agreement") between the Company and Purchaser dated March 29, 1997), the Company became obligated to deliver to Purchaser, and Purchaser became entitled to receive from the Company 18,226,716 shares of Common Stock (the "Shares") (and such additional shares that are issuable pursuant to Section 2.5 of the Termination Agreement) in the manner set forth in Section 2 below. 2. Delivery. The delivery of the Shares shall take place in the -------- following manner: 2.1 No IPO Prior to April 1, 1998. In the event that the Company has ----------------------------- not consummated the initial public offering ("IPO") of its Common Stock prior to April 1, 1998, then the Company shall deliver all of the Shares to the Purchaser on or about April 1, 1998, but in any event by April 7, 1998. 2.2 IPO Consummated Prior to April 1, 1998. In the event that the -------------------------------------- Company has consummated an IPO prior to April 1, 1998, then the Company shall deliver to the Purchaser in connection with the IPO that number of Shares that the Purchaser is able to sell in accordance with that certain Sixth Amended and Restated Registration Rights Agreement (the "Registration Rights Agreement") in substantially the form attached as Exhibit F to the Termination Agreement, and the balance of Shares shall be delivered upon the lapse of the Lockup Period (defined below) following the effective date of the IPO; provided, in the event the Company undertakes a registered public offering of its Common Stock following an IPO (a "Follow-on Offering") prior to the lapse of the lockup period agreed to by the Company's directors, officers and greater than 1% shareholders for the IPO (the "Lockup Period"), the Company shall deliver such number of Shares that Purchaser is able to sell in accordance with the Registration Rights Agreement in the Follow-on Offering, and the remaining balance of Shares shall be delivered to Cypress upon the expiration of the lock-up agreements executed in connection with such Follow-on Offering. The Company shall instruct its transfer agent to deliver the Shares deliverable at the expiration of the applicable Lockup Period at least twenty (20) days prior to such date. In the event that the Lockup Period provides for a set number of days where the Lockup Period would expire in a period where the Company's directors and officers are prevented from trading because of the set "blackout" period between earnings releases provided in the Company's insider trading policy, then the Company's directors, officers and greater than 1% shareholders shall agree to a Lockup Period that does not expire until the date that trading can commence under the Company's insider trading policy. Any early releases of any lockup shall include the pro-rata release of Shares based on the total number of shares that are locked-up, and such early- released Shares shall not, at the time of such early release, be subject to any blackout provision on the released Shares, which are entitled to registration as provided in the Registration Rights Agreement. 3. Representations and Warranties of the Company. Except as set forth on --------------------------------------------- the Schedule of Exceptions attached hereto as Exhibit A, the Company hereby represents and warrants to Purchaser as of the Original Date as follows: 3.1 Organization and Standing; Articles of Incorporation and Bylaws. --------------------------------------------------------------- The Company is a corporation duly organized and validly existing under, and by virtue of, the laws of the State of California, is in good standing under such laws and is authorized to exercise all of its corporate powers, rights and privileges. The Company has the requisite legal and corporate power and authority to own, lease and operate its properties and assets and to conduct its business as presently conducted and as proposed to be conducted. The Company is qualified to do business as a foreign corporation in each jurisdiction where the failure to be so qualified would have a material adverse effect on the business of the Company as now conducted or as proposed to be conducted. True, correct and complete copies of the Company's Articles, Bylaws and other charter documents, each as will be in effect at the Closing have been delivered to Purchaser. 3.2 Corporate Power. The Company has the requisite legal and --------------- corporate power to execute and deliver the Termination Agreement and the Transaction Agreements (as defined in the Termination Agreement), to file the Restated Articles with the Secretary of State of California, to issue and sell the Shares hereunder and to carry out and perform its obligations under the terms of the Transaction Agreements. -2- 3.3 No Subsidiaries. Except as described in Exhibit A, the Company --------------- has no subsidiaries or affiliated companies and does not otherwise own or control, directly or indirectly, any equity interest in any other corporation, partnership, association or other business entity. 3.4 Capitalization. As of the Closing (as defined in the Termination -------------- Agreement), the authorized capital stock of the Company consisted of 105,000,000 shares of Common Stock (the "Common Stock") and 61,567,874 shares of Preferred Stock (the "Preferred Stock"), 2,505,000 of which are designated Series A Preferred Stock ("Series A Preferred"), 10,274,637 of which are designated Series B Preferred Stock ("Series B Preferred"), 12,106,811 of which are designated Series C Preferred Stock ("Series C Preferred"), 3,125,000 of which are designated Series D Preferred ("Series D Preferred"), 23,873,667 of which are designated Series E Preferred Stock ("Series E Preferred") and 9,482,759 of which are designated Series F Preferred Stock ("Series F Preferred"). As of February 7, 1997, 4,785,364 shares of Common Stock, 2,505,000 shares of Series A Preferred, 10,274,637 shares of Series B Preferred, 11,975,561 shares of Series C Preferred, 3,125,000 shares of Series D Preferred, 23,873,667 shares of Series E Preferred and 7,716,119 shares of Series F Preferred were issued and outstanding. All such issued and outstanding shares have been duly authorized and validly issued, are fully paid and nonassessable, and were issued in compliance with all applicable federal and state securities laws. The rights, preferences and privileges of the Preferred Stock are as stated in the Articles. Each share of Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred, Series F Preferred and Common Stock is convertible into one share of Common Stock of the Company (as subject to adjustment pursuant to its terms). The Company has reserved 61,567,874 shares of Common Stock for issuance upon conversion of the Preferred Stock. Except for (i) the conversion privileges of the Preferred Stock, (ii) 14,700,000 shares of Common Stock reserved for issuance pursuant to the Company's 1989 Stock Option Plan, under which options to purchase 8,532,958 shares were outstanding as of February 7, 1997 and 4,225,928 shares were available for future grant as of February 7, 1997, (iii) 100,000 shares reserved for issuance pursuant to the Company's Sales Representative Stock Purchase Plan, (iv) 131,250 shares of Series C Preferred Stock reserved for issuance pursuant to the exercise of a warrant to purchase Series C Preferred Stock, and (v) the rights provided in Section 3 of the Shareholders Agreement to the Shareholders (as defined therein), at the Closing there will be no other outstanding rights of first refusal, preemptive rights or other rights, options, warrants, conversion rights, or other agreements either directly or indirectly for the purchase or acquisition from the Company of any shares of its capital stock. 3.5 Authorization. All corporate action on the part of the Company, ------------- its officers, directors and shareholders necessary for the authorization, execution, delivery and performance of the Transaction Agreements and for the authorization, sale, issuance (or reservation for issuance) and delivery of the Shares, and the performance of the Company's obligations under the Transaction Agreements has been taken. The Transaction Agreements when executed and delivered by the Company, will constitute legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights and, with respect to the Registration Rights Agreement, except as the enforceability of Section 7 thereof may be limited by -3- public policy. The Shares, when issued in compliance with provisions of this Agreement, will be, validly issued, fully paid and nonassessable, and free of any liens or encumbrances; provided, however, that the Shares may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein. The Shares will be, assuming the accuracy of the representations set forth in Section 4 hereof, issued in compliance with all applicable state and/or federal securities laws. The Shares are not subject to any preemptive rights or rights of first refusal except as have been waived or satisfied. Except as provided in the Shareholders Agreement, the Company is not a party or subject to any agreement or understanding, and, to the Company's knowledge, there is no agreement or understanding between any persons and/or entities, which affects or relates to the voting or giving of written consents with respect to any security or by a director of the Company. 3.6 Financial Statements. The Company has delivered to Purchaser its -------------------- audited financial statements (balance sheet, and statement of operations and statement of cash flows and statement of shareholders' equity) for the years ended December 31, 1996, 1995 and 1994 and its unaudited financial statements (balance sheet, statement of operations, statement of cash flows and statement of shareholders' equity) for the one (1) month period ended January 31, 1997 (collectively, the "Financial Statements"). The Financial Statements are complete and correct in all material respects and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis for the periods indicated and with each other. The Financial Statements accurately set out and describe the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein, subject, in the case of the unaudited financial statements, to normal year-end audit adjustments. Except as set forth in the Financial Statements, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Financial Statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with generally accepted accounting principles. 3.7 Title to Properties; Liens and Encumbrances. The Company has ------------------------------------------- good and marketable title to all of its properties and assets. Such properties and assets are not subject to any mortgage, pledge, lien, security interest, conditional sales agreement, encumbrance or charge, except liens for current taxes not yet due and payable. The Company is not in default or in breach and has not received notice of default of any provision of its leases or licenses and the Company holds valid leaseholds or licensed interests in the properties which it leases or which is licensed to it. The Company's properties and assets are in good condition and repair in all material respects. 3.8 Intellectual Property Rights. Except as disclosed in Exhibit A, ---------------------------- the Company (a) owns or has the right to use, free and clear of all liens, claims and restrictions, all patents, trademarks, service marks, trade names, copyrights and other intangible or intellectual property rights (and licenses with respect to the foregoing) needed for or used in the conduct of its business as now conducted and as proposed to be conducted without infringing upon or otherwise acting adversely to the right or claimed right of any person under or with respect to any -4- of the foregoing, and (b) is not obligated or under any liability whatsoever to make any payments by way of royalties, fees or otherwise to any owner of, licensor of, or other claimant to, any patent, trademark, trade name, copyright or other intangible assets, with respect to the use thereof or in connection with the conduct of its business or otherwise. Except as disclosed in Exhibit A, the Company owns or has the unrestricted right to use all patents, trademarks, service marks, trade names, copyrights, trade secrets, including know-how, inventions, designs, processes, and technical data required for or incident to the development, manufacture, operation and sale of all products and services sold or proposed to be sold by the Company and all of the patents, trademarks, service marks, trade names, copyrights and trade secrets of the Company are held by the Company free and clear of any rights, licenses, liens or claims of others, including, without limitation, current and former employees, former employers of all current and former employees, consultants, officers, directors and shareholders of the Company. 3.9 Proprietary Information Agreements. All employees and ---------------------------------- consultants of the Company are parties to a written agreement ("Proprietary Information and Inventions Agreement") under which each such employee or consultant (i) is obligated to disclose and transfer to the Company, without the receipt by such person of any additional value therefor (other than normal salary or fees for consulting services), all inventions, developments and discoveries which, during the period of his employment with or performance of services for the Company, he makes or conceives of either solely or jointly with others, that relate to any subject matter with which his work for the Company may be concerned, or relate to or are connected with the business, products or projects of the Company, or involve the use of the time, material or facilities of the Company, and (ii) is obligated to maintain the confidentiality of proprietary information of the Company. To the best of the Company's knowledge, none of the Company's employees or consultants, is in violation of the Proprietary Information and Inventions Agreement to which such employee or consultant is a party. None of the Company's employees or consultants is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would conflict with their obligation to use their best efforts to promote the interests of the Company or that would conflict with the Company's business as conducted or as proposed to be conducted. Neither the execution nor delivery of the Transaction Agreements, nor the carrying on of the Company's business by its employees and consultants, nor the conduct of the Company's business as proposed, will conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees or consultants are now obligated. The Company does not believe it is or will be necessary to utilize, and will not utilize, any inventions of any of the Company's employees or consultants (or people it currently intends to hire) made or owned prior to their employment by the Company or that it is or will be necessary to utilize any other assets or rights of any of its employees or consultants (or people it currently intends to hire) made or owned prior to their employment with or engagement by the Company, in violation of any limitations or restrictions to which any such employee or consultant is a party or to which any of such assets or rights may be subject. To the best of the Company's knowledge, none of the Company's employees or consultants, have taken, removed or made use of any proprietary documentation, manuals, products, materials, or any other tangible item from his previous employer, and the Company will not make use of any such proprietary items in the business of the Company. -5- 3.10 Operating Rights. The Company has all operating authority, ---------------- licenses, franchises, permits, certificates, consents, rights and privileges (collectively, the "Permits") as are necessary or appropriate to the operation of its business as now or as proposed to be conducted, the absence of which would have a material and adverse effect on the business of the Company. Such Permits are in full force and effect, no violations have been or are expected to be recorded in respect of any such Permits, and no proceeding is pending or threatened that could result in the revocation or limitation of any of such Permits. The Company has conducted its business so as to comply in all respects with all such material Permits. 3.11 Manufacturing, Distribution and License Rights. The Company has ---------------------------------------------- not granted rights or licenses to manufacture, assemble, distribute or sell its products to any person or entity, is not bound by any agreement that affects the Company's exclusive right to manufacture, assemble, distribute or sell its products, and has not licensed or sold any of its technology or proprietary information to any person or entity. 3.12 Compliance with Other Instruments, None Burdensome, etc. The ------------------------------------------------------- Company is not in violation of any term of its Articles or Bylaws. The Company is not in violation of any term or provision of any material mortgage, indenture, contract, agreement, instrument, judgment or decree and the Company is not in violation of any applicable order, statute, rule or regulation where such violation could have a material and adverse effect on the Company. The execution, delivery and performance of and compliance with this Agreement and the other Transaction Agreements and the issuance of the Shares have not resulted and will not result in any violation of or conflict with the Company's Articles or Bylaws, and have not resulted and will not result in any violation of, or be in conflict with, or constitute a default under, or result in the creation of, any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company; and there is no such violation or default or event which, with the passage of time or giving of notice or both, would constitute a violation or default which would materially and adversely affect the business of the Company or any of its properties or assets. 3.13 Litigation, etc. Except as disclosed in Exhibit A, there are no --------------- actions, suits proceedings or investigations pending against the Company or its properties before any court or governmental agency (nor is there any threat thereof) which, either in any case or in the aggregate, might result in any material adverse change in the business or financial condition of the Company or any of its properties or assets, or in any material impairment of the right or ability of the Company to carry on its business as now conducted or as proposed to be conducted, or in any material liability on the part of the Company, and none which questions the validity of this Agreement and the other Transaction Agreements or any action taken or to be taken in connection herewith or therewith. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or governmental agency or instrumentality. The foregoing includes, without limitation, actions pending or threatened (or any basis therefor known to the Company) involving the prior employment of any of the Company's employees, their use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreement with prior employers. -6- There is no action, suit, proceeding or investigation by the Company currently pending or which the Company intends to initiate. 3.14 Employee Compensation Plans. Except for the Company's 1989 Stock --------------------------- Option Plan and 1991 Sales Representative Stock Purchase Plan, the Company is not a party to or bound by any currently effective employment contract, deferred compensation agreement, benefit plan, pension, profit-sharing plan, stock option, retirement agreement, or other employee compensation agreement. The Company has provided copies of all such plans, contracts, and agreements to which the Company is currently a party. The Company is not bound by or subject to (and none of its assets are bound by or subject to) any arrangement with any labor union and does not have any collective bargaining agreements covering any of its employees. 3.15 Insurance. The Company has obtained and maintained in full force --------- and effect fire, casualty and liability insurance policies with recognized insurers with such coverages as are carried by similar companies, sufficient in amount to allow replacement of the tangible properties of the Company that might be damaged or destroyed. 3.16 Registration Rights. Except as contemplated by this Agreement ------------------- and the Registration Rights Agreement, the Company is not under any obligation to register any of its presently outstanding securities or any of its securities which may hereafter be issued. 3.17 Governmental Consent, etc. No consent, approval or authorization -------------------------- of, or designation, declaration or filing with, any governmental authority on the part of the Company is required in connection with the valid execution, delivery, and performance of this Agreement and the other Transaction Agreements or the offer, sale or issuance of the Shares, or the consummation of any other transaction contemplated by this Agreement and the other Transaction Agreements except certain filings as may be required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the Securities Act of 1933, as amended (the "Securities Act"), the California Corporations Code and the securities laws of other states in which Purchasers reside. 3.18 Offering. Subject to the accuracy of the Purchaser's -------- representations in Section 4 hereof, the offer, sale and issuance of the Shares constitute transactions exempt from the registration requirements of Section 5 of the Securities Act, and from the qualification requirements of applicable state or other securities laws. 3.19 Material Contracts and Obligations. Set forth in Exhibit A ---------------------------------- hereto is a list of all agreements, contracts, indebtedness, liabilities and other obligations to which the Company is a party or by which the Company is bound that are material to the conduct and operations of its business, properties and prospects, that provide for payments to or by the Company in excess of $80,000, that relate to any product or technology the Company is developing, or that involve transactions or proposed transactions between the Company and its officers or directors. All of such agreements and contracts are valid, binding and in full force and effect in all material respects, assuming due execution by the other parties to such agreements and contracts. -7- 3.20 Tax Returns and Payments. The Company has accurately prepared ------------------------ and timely filed all tax returns (foreign, federal, state and local) required to be filed by it. All taxes shown to be due and payable on said returns, any assessments received, and all other taxes due and payable by the Company on or before the date hereof have been paid or will be paid prior to the time they become delinquent. The federal income tax returns of the Company have not been audited by the Internal Revenue Service. No deficiency assessment or proposed adjustment of the Company's foreign or federal income tax or state or local taxes is pending and the Company has no knowledge of any proposed liability for any tax to be imposed upon its properties or assets for which the Company has not adequately reserved. 3.21 Related Party Transactions. No officer or director of the -------------------------- Company (a) is an officer, director or general partner of, or directly or indirectly owns beneficially more than 5% of the equity of, any business which (i) furnishes or sells services or products which compete with services or products furnished or sold by the Company, or (ii) purchases from or sells or furnishes to the Company any goods or services on terms less favorable than the Company could obtain from third parties on an arms-length basis, or (b) has a beneficial interest in any contract or agreement to which the Company is a party or by which it may be bound or affected involving the payment or receipt of in excess of $10,000. 3.22 Certain Transactions. Except as set forth on Exhibit A attached -------------------- hereto, the Company is not indebted, directly or indirectly, to any of its officers, directors or shareholders or to their respective spouses or children, in any amount whatsoever; none of such officers, directors, or shareholders, or any members of their immediate families, are indebted to the Company or have any direct or indirect ownership interest in any firm or corporation with which the Company has a business relationship, or any firm or corporation that competes with the Company. No officer, director or shareholder, or any member of their immediate families, is, directly or indirectly, interested in any material contract with the Company. The Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation. 3.23 Environmental Protection. Except as disclosed in Exhibit A: ------------------------ (a) The Company has not caused or allowed, nor has the Company contracted with any party for, the generation, use, transportation, treatment, storage or disposal of any Hazardous Substances (as defined below) in connection with the operations of its business or otherwise. (b) The Company, the operations of its business, and any real property that the Company owns, leases, or otherwise occupies or uses (the "Premises") are in compliance with all applicable Environmental Laws (as defined below) and orders or directives of any governmental authorities having jurisdiction under such Environmental Laws including, without limitation, any Environmental Laws or orders or directives with respect to any cleanup or remediation of any release or threat of release of Hazardous Substances. (c) The Company has not received any citation, directive, letter or other communication, written or oral, or any notice of any proceedings, claims or lawsuits, from -8- any person, entity or governmental authority arising out of the ownership or occupation of the Premises, or the conduct of its operations, nor is it aware of any basis therefor. (d) The Company has obtained and is maintaining in full force and effect all necessary permits, licenses and approvals required by any Environmental Laws applicable to the Premises and the business operations conducted thereon (including operations conducted by tenants on the Premises) and is in compliance with all such permits, licenses and approvals. (e) The Company has not caused, or allowed a release, or a threat of release, of any Hazardous Substance onto, at or near the Premises nor, to the best of the Company's knowledge, has the Premises or any property at or near the Premises ever been subject to a release, or a threat of release, of any Hazardous Substance. The term "Environmental Laws" shall mean any federal, state or local law, ordinance or regulation pertaining to the protection of human health or the environment including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Sections 9601, et seq., Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections 11001, et seq., and the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901, et seq. The term "Hazardous Substance" includes oil and petroleum products, asbestos, polychlorinated biphenyls and urea formaldehyde, and any other materials classified as hazardous or toxic under any Environmental Laws. 3.24 Brokers or Finders. The Company has not incurred, directly or ------------------ indirectly, any liability for brokerage or finders' fees, agent's commission, or other similar charges in connection with this Agreement or any of the transactions contemplated hereby. 3.25 Changes. Since January 31, 1997, there has not been: ------- (a) any changes in the assets, liabilities, financial condition, operating results or prospects of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business which have not been, in the aggregate, materially adverse; (b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, prospects or business of the Company (as such business is presently conducted and as it is proposed to be conducted); (c) any waiver by the Company of a valuable right or of a material debt owed to it; -9- (d) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and which is not material to the assets, properties, financial condition, operating results, prospects or business of the Company (as such business is presently conducted and as it is proposed to be conducted); (e) any change or amendment to a material contract or arrangement by which the Company or any of its assets or properties is bound or subject; (f) any material change in any compensation arrangement or agreement with any employee; or (g) to the Company's knowledge, any other event or condition of any character which might materially and adversely affect the assets, properties, financial condition, operating results, prospects or business of the Company (as such business is presently conducted and as it is proposed to be conducted). 3.26 Foreign Investment in Real Property Act. The Company is not a --------------------------------------- "United States real property holding corporation" for the purposes of Section 897(c)(2) of the Internal Revenue Code of The United States of America and the Treasury Regulations thereunder ("FIRPTA"). 3.27 Disclosure. No statement by the Company contained in the ---------- Transaction Agreements, nor any written statement or certificate furnished or to be furnished to the Purchaser in connection with the transactions contemplated hereby including without limitation the Business Plan (when read with other documents so furnished) contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made except that, with respect to the financial projections given by the Company, the Company only represents that such projections where made in good faith. 4. Representations and Warranties of the Purchaser. Purchaser represents ----------------------------------------------- and warrants to the Company with respect to the purchase of the Shares as of the Original Date as follows: 4.1 Authorization. All action on the part of the Purchaser necessary ------------- for the authorization, execution, delivery and performance by the Purchaser of the Transaction Agreements has been taken, and the Transaction Agreements when executed and delivered by the Purchaser constituted valid and binding obligations of the Purchaser, enforceable in accordance with their terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditor's rights and, with respect to the Amended Registration Rights Agreement, except as the enforceability of Section 7 thereof may be limited by public policy. 4.2 Experience. The Purchaser is experienced in evaluating and ---------- investing in new high technology companies such as the Company. -10- 4.3 Investment. The Purchaser is acquiring the Shares for ---------- investment, for its own account, and not with a view to, or for resale in connection with, any distribution. The Purchaser understands that the Shares have not been, and will not be (except as contemplated in the Registration Rights Agreement) registered under the Securities Act or applicable state or other securities laws by reason of a specific exemption from the registration provisions of the Securities Act and applicable state and other securities laws which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. 4.4 Rule 144. The Purchaser acknowledges that the Shares must be -------- held indefinitely unless subsequently registered under the Securities Act and applicable state and other securities laws or unless an exemption from such registration is available. The Purchaser is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions. 4.5 No Public Market. The Purchaser understands that no public ---------------- market now exists for the Shares and that it is unlikely that a public market will ever exist for the Shares. 4.6 Access to Data. The Purchaser has had an opportunity to discuss -------------- the Company's business, management and financial affairs with the Company's management and an opportunity to review the Company's facilities. The Purchaser understands that such discussions, as well as the written information issued by the Company, were intended to describe the aspects of the Company's business and prospects which it believes to be material but were not necessarily a thorough or exhaustive description. 4.7 Further Limitations on Dispositions. Without in any way limiting ----------------------------------- the representations set forth above, the Purchaser further agrees that, if at the time of any transfer of any Shares, such Shares shall not be registered under the Securities Act, prior to any disposition of all or any portion of the Shares, the Company may require, as a condition of allowing such transfer, that the holder or transferee furnish to the Company (i) such information as is necessary in order to establish that such transfer may be made without registration under the Securities Act; and (ii) at the expense of the holder or transferee, an opinion by legal counsel designated by such holder or transferee and reasonably satisfactory in form and substance to the Company, to the effect that such transfer may be made without registration under the Securities Act. Notwithstanding the foregoing, no such opinion of counsel shall be necessary for a transfer pursuant to Rule 144 of the Securities and Exchange Commission or by a Purchaser which is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner or to any person or entity that is deemed to be an "affiliate" of the Purchaser for purposes of the Securities Act. 5. Conditions to Purchaser's Obligations at the Closing. The Purchaser's ---------------------------------------------------- right to receive the Shares and obligations under the Termination Agreement and other Transaction Agreements shall be subject to the following conditions prior to the date for closing (the "Closing Date"), any of which may be waived in whole or in part by the Purchaser. -11- 5.1 Representations and Warranties Correct. The representations and -------------------------------------- warranties made by the Company in Section 3 hereof shall be true and correct when made, and shall be true and correct on the Closing Date with the same force and effect as if they had been made on and as of the same date. 5.2 Covenants. All covenants, agreements, and conditions in this --------- Agreement required to be performed or complied with by the Company on or prior to such Closing Date shall have been performed or complied with by the Company. 5.3 Good Standing Certificates. The Company shall have delivered a -------------------------- Certificate dated as of a recent date issued by the Secretary of State of the State of California to the effect that the Company is legally existing and in good standing and a letter dated as of a recent date from the Franchise Tax Board of the State of California to the effect that the Company is in good standing. 5.4 Secretary's Certificate. The Company shall have delivered a ----------------------- certificate executed by the Secretary or Assistant Secretary of the Company dated such Closing Date, certifying the following matters: (a) the resolutions adopted by the Company's Board of Directors and shareholders relating to the transactions contemplated by this Agreement; (b) the Articles of the Company; (c) the Bylaws of the Company; and (d) incumbency of officers of the Company. 5.5 Legal Investment. At such Closing Date, the issuance of the ---------------- Shares to the Purchaser hereunder shall be legally permitted by all laws and regulations to which the Purchaser and the Company are subject. 6. Conditions to Company's Obligations at the Closing. The Company's -------------------------------------------------- obligation to deliver the Shares is subject to the fulfillment at or prior to the Closing Date of the following conditions, any of which may be waived in whole or in part by the Company in accordance with the provisions of Section 7.2 hereof: 6.1 Representations and Warranties Correct. The representations and -------------------------------------- warranties made by the Purchaser in Section 4 hereof shall be true and correct when made, and shall be true and correct on the Closing Date with the same force and effect as if they had been made on or as of the same date. 7. Miscellaneous. ------------- 7.1 Waivers and Amendments. With the written consent of the ---------------------- Purchaser, the obligations of the Company under this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely), and with the same consent, the Company, when authorized by resolution of its Board of Directors, may enter into a supplementary agreement for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement. -12- 7.2 Governing Law. This Agreement shall be governed in all respects ------------- by the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within California. 7.3 Survival. The representations, warranties, covenants and -------- agreements made herein shall survive any investigation made by the Purchaser and the closing of the transactions contemplated hereby. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto or in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder as of the date of such certificate or instrument. 7.4 Successors and Assigns. Except as otherwise expressly provided ---------------------- herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 7.5 Entire Agreement; Termination of Prior Agreement. This Agreement ------------------------------------------------ constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof. Without limiting the foregoing, the Prior Agreement shall be terminated as of the date hereof and shall be superseded and replaced in its entirety by this Agreement. 7.6 Severability of this Agreement. In case any provision of this ------------------------------ Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 7.7 Finder's Fees. The Company represents and warrants that it has ------------- retained no finder or broker in connection with the transactions contemplated by this Agreement and hereby agrees to indemnify and to hold the Purchaser harmless of and from any liability for commission or compensation in the nature of a finder's fee to any broker or other person or firm (and the costs and expenses of defending against such liability or asserted liability) for which the Company, or any of its employees or representatives, are responsible. Each Purchaser represents and warrants that such Purchaser has retained no finder or broker in connection with the transactions contemplated by this Agreement and hereby agrees to indemnify and to hold the Company harmless of and from any liability for any commission or compensation in the nature of a finder's fee to any broker or other person or firm (and the costs and expenses of defending against such liability or asserted liability) for which such Purchaser, or any of its employees or representatives, are responsible. 7.8 Legends. Each certificate representing the Shares shall be ------- endorsed with a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN -13- ACCORDANCE WITH RULE 144 OR ITS SUCCESSOR RULE UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. Each certificate representing the Shares shall also bear any legend required by any applicable state securities law. The Company need not register a transfer of Shares, unless the conditions specified in the foregoing legends are satisfied. The Company may also instruct its transfer agent not to register the transfer of any of the Shares unless the conditions specified in the foregoing legend is satisfied. 7.9 Removal of Legends and Transfer Restrictions. The legend -------------------------------------------- relating to the Securities Act endorsed on a stock certificate pursuant to Section 7.9 of this Agreement and the stop transfer instructions with respect to the Shares represented by such certificate shall be removed and the Company shall issue a certificate without such legend to the holder of such Shares if such Shares are registered under the Securities Act and a pros pectus meeting the requirements of Section 10 of the Securities Act is available or if such holder provides to the Company an opinion of counsel reasonably satisfactory to the Company to the effect that a public sale, transfer or assignment may be made without registration or if the Shares may be sold pursuant to Rule 144(k) of the Securities Act of 1933. 7.10 Titles and Subtitles. The titles of the sections and subsections -------------------- of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 7.11 Counterparts. This Agreement may be executed in counterparts, ------------ each of which shall be an original, but all of which together shall constitute one instrument. 7.12 Delays or Omissions. It is agreed that no delay or omission to ------------------- exercise any right, power or remedy accruing to any Purchaser, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach or default, or any acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character by any Purchaser of any breach or default under this Agreement, or any waiver by any Purchaser of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in writing and that all remedies, either under this Agreement, or by law or otherwise afforded to the Purchaser, shall be cumulative and not alternative. 7.13 Notices. All notices and other communications required or ------- permitted hereunder shall be in writing and shall be deemed effectively given upon personal delivery or upon deposit with the United Stated Post Office, by first class mail, postage prepaid, addressed: (a) if to Purchaser, at the Purchaser's address as set forth below, or at such other address as such Purchaser shall have furnished to the Company in writing, or (b) if to the Company, at the -14- Company's address as set forth below, or at such other address as the Company shall have furnished to the Purchaser in writing: Cypress Semiconductor Corporation 3901 North First Street San Jose, CA 95134-1599 Attention: T.J. Rodgers To the Company: --------------- QuickLogic Corporation 2933 Bunker Hill Lane, Ste. 100A Santa Clara, CA 95054 Attn: E. Thomas Hart [SIGNATURE PAGE FOLLOWS] -15- IN WITNESS WHEREOF, the parties have caused this First Amended and Restated Common Stock Purchase Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first written above. "THE COMPANY" QUICKLOGIC CORPORATION /s/ Vincent A. McCord By________________________________ Vice President and Chief Financial Officer Title__________________________________________ "PURCHASER" CYPRESS SEMICONDUCTOR CORPORATION /s/ Emmanuel Hernandez By________________________________ Chief Financial Officer Title_____________________________ -16- EXHIBIT A --------- QUICKLOGIC CORPORATION COMMON STOCK PURCHASE AGREEMENT SCHEDULE OF EXCEPTIONS The disclosures set forth in this Schedule of Exceptions are itemized to correspond to the first or principal section of the QuickLogic Corporation Common Stock Purchase Agreement (the "Agreement") to which they relate. Each of the disclosures made herein shall qualify each of the sections of the Agreement to which they relate. While no specific reference herein is made to the Termination Agreement (and the exhibits thereto) , the provisions thereof shall be deemed to qualify any applicable representations and warranties made by QuickLogic in the Agreement. Section 3.7 Title to Properties; Liens and Encumbrances. ------------------------------------------- The Company owns no real property. The Company has purchased certain office and manufacturing equipment used in its business. The aggregate value of such equipment is approximately $2,400,000. Section 3.8 Intellectual Property Rights. ---------------------------- With respect to the representation that the Company has the unrestricted right to use all trade secrets, including know-how, inventions, design processes and technical data, the Company has not conducted an investigation or audit of its or third parties' intellectual property rights or its or third parties' proprietary rights, nor has it retained intellectual property counsel for that purpose. The exceptions to the representations contained in Section 3.8 that the Company is currently aware are set forth below. Licenses. -------- The Company has granted certain technology license rights and manufacturing rights to VLSI Technology, Inc. ("VLSI") pursuant to an agreement dated May 9, 1990, as amended (the "VLSI" Agreement"). -1- Actel Litigation. ---------------- On January 20, 1994, Actel Corporation filed suit against QuickLogic alleging infringement by QuickLogic of U.S. Patents No. 4,758,745; 4,873,459; 5,055,718; and 5,198,705, and seeking damages and injunctive relief. On or about February 10, 1994, QuickLogic filed an answer and counter-claim seeking in the counter-claim a declaration that each of the patents alleged to be infringed was not infringed and in addition that each of the patents upon which suit was brought was invalid, void and unenforceable. Discovery has begun. QuickLogic moved to stay proceedings pending reexamination of two patents involved in the litigation and the court granted this motion in early Summer 1994. The United States Patent and Trademark Office confirmed the patentability of the two Actel patents placed in reexamination (the '745 and the '459 patents) in late summer and early fall 1994. The court then lifted the stay in late November 1994 and shortly thereafter Actel filed a motion for summary judgment with respect to the interpretation claim 1 of the '705 patent and its infringement which QuickLogic opposed. On October 4, 1996, the Special Master recommended that Actel's motion be granted; QuickLogic has objected to this recommendation. (The recommendation does not address the validity of claim 1 of the '705 patent. Validity must still be resolved by the court or at trial.) A hearing on the recommendation was held on January 27, 1997 and February 3, 1997, but Judge Ware has not yet issued his ruling. Actel on or about March 15, 1995 amended its complaint to add to the suit U.S. Patent No. 5,367,208 (the "'208 patent"), a patent which issued on November 22, 1994 and which is assigned to Actel. On or about April 12, 1995, QuickLogic filed a counterclaim against Actel alleging infringement by Actel of QuickLogic U.S. Patents No. 5,220,213 (the "'213 patent") entitled "Programmable Application in Specific Integrated Circuit and Logic Cell Therefore" and 5,396,127 (the "'127 patent"), entitled "Programmable Application in Specific Integrated Circuit and Logic Cell Therefore". This counterclaim was in response to the amended complaint filed by Actel against QuickLogic on or about March 15, 1995. On March 7, 1995, Actel filed its second supplemental complaint, which alleged patent infringement of Actel U.S. Patent No. 5,479,113 (the "'113 patent"), entitled "User-Configurable Logic Circuits Comprising Antifuses and Multiplexer-Based Logic Modules." QuickLogic filed its answer, denying these allegations, on April 12, 1995. On June 14, 1995, Actel again amended its complaint to include counterclaims against QuickLogic and John Birkner for misappropriation of trade secrets, breach of contract, breach of confidential relationship, unfair competition and assignment of patents. Mr. Birkner and QuickLogic denied each of these claims, in replies to Actel's counterclaims, filed July 5, 1995 and July 7, 1995, respectively. On January 14, 1997, U.S. Patent No. 5,594,364, entitled "Programmable Application Specific Integrated Circuit and Logic Cell Therefore" (the "'364 patent") was issued to QuickLogic. On February 28, 1997, QuickLogic filed a motion to amend its counterclaim to include a claim for patent infringement of the '364 patent. A hearing on this motion will be held before the Special Master on April 23, 1997. -2- The parties have each made summary judgment motions covering various claims of the patents in dispute. No hearing dates on these motions have been set. For much of 1996 the parties were embroiled in a dispute concerning the disqualification of Actel's former counsel who was replaced after Judge Ware ruled in favor of QuickLogic's motion to disqualify the former counsel and Actel's appeal to the Federal Circuit Court of Appeals was unsuccessful. Both parties are engaged in discovery. A discovery cut off of January 30, 1998 has been set in the case. No trial date has been set, but both parties have requested that the trial be held in the fourth quarter of 1998. Instant Circuit Corporation --------------------------- The Company has received correspondence from Instant Circuit Corporation "ICC") alleging that the Company's technology may infringe one or more of ICC's patents. The Company and its patent counsel have reviewed the ICC patents and have notified ICC that the Company does not believe that the Company's technology infringes ICC's patents. ICC has responded by letter dated February 5, 1992 reiterating its belief that the Company's products infringe ICC's patents, but indicating ICC's intent to wait to see whether the Company's products are successful in the marketplace before pursuing the matter. The Company has not heard anything further from ICC since that date. Xilinx ------ On June 12, 1992, the Company received a letter from Xilinx requesting the Company to review Xilinx's patent 4,870,302 entitled "Configurable Electrical Circuit Having Configurable Logic Elements and Configurable Interconnects" and stating Xilinx's belief that at least one claim under that patent is infringed by the Company's products. No litigation has been instituted by Xilinx, and there has been no correspondence between the Company and Xilinx regarding this matter during the year preceding the .Closing Date. While the Company does not believe that there is any basis for a legal claim by Xilinx, there can be no assurance that Xilinx will not elect to take further legal action in the future. Such legal action, if instituted, could have a material adverse effect on the Company's business. Phil Ferguson ------------- California EDD has filed a claim against the Company relating to services rendered by Phil Ferguson. The Company expects to settle the claim for less than $25,000. See disclosure under Section 3.9. -3- Section 3.9 Proprietary Information Agreements. ---------------------------------- Actel has claimed that QuickLogic has misappropriated the trade secrets of Actel based, at least in part, upon the fact that John Birkner, a founder of QuickLogic, performed consulting services for Actel prior to and allegedly after joining the Company. Section 3.11 Manufacturing, Distribution and License Rights. ---------------------------------------------- The Company has granted certain rights to VLSI and Cypress pursuant to the VLSI Agreement and the Cypress Agreement, respectively. The Company has entered into an MOU with TSMC U.S.A. providing for the acquisition of eight (8) inch wafers. Section 3.13 Litigation. ---------- See the discussion of the Actel, Xilinx and ICC and other issues discussed in Section 3.8 above. Section 3.17 Governmental Consent. -------------------- See Section 3.5. Section 3.19 Material Contracts and Obligations. ---------------------------------- The following is a list of all agreements and obligations described in Section 3.19: 1. VLSI Agreement. 2. The Company has entered into a lease agreement for its new facility at 1277 Orleans Drive, Saratoga, California. The lease expires on November 26, 2003. 3. Software OEM Distribution Agreement with Data I/O, Inc. pursuant to which the Company obtained rights to sublicense certain Data I/O software on an OEM basis. The Company is required to make annual royalty payments of up to $100,000 to Data I/O pursuant to this Agreement. 4. Employee Restricted Stock Purchase Agreements between the Company and each of the founders and option agreements with persons who have been granted options. The Company also has outstanding miscellaneous licensing agreements with entities including Synplicity, SimuCad, Doulos, Saros, Premia and Data I/O. None of these agreements currently involve annual payment obligations in excess of $80,000. -4- 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-11.1 9 STATEMENT RE CALCULATION OF EARNINGS PER SHARE EXHIBIT 11.1 QUICKLOGIC CORPORATION SCHEDULE OF COMPUTATION OF PRO FORMA EARNINGS (LOSS) PER SHARE (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
QUARTER 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................... 784 552 784 Weighted average common equivalent shares relating to convertible preferred stock (using the as if-converted method)....................... 8,496 8,496 8,496 Common equivalent shares relating to stock options and warrants (using the treasury stock method)................. -- 58 -- Common shares and common equivalent shares relating to stock options issued subsequent to May 1996........ 3,332 3,332 3,332 ------- ------- -------- Shares used in pro forma net income (loss) per share calculation................... 12,612 12,438 12,612 Pro Forma net income (loss) per share......................... $ (0.29) $ -- $ (1.83)
EX-16.1 10 LETTER OF DELOITTE & TOUCHE LLP EXHIBIT 16.1 June 9, 1997 Securities and Exchange Commission Mail Stop 9-5 450 Fifth Street, N.W. Washington, D.C. 20549 RE: QuickLogic Corporation Dear Sirs/Madams: We have read and agree with the comments, as they pertain to us, relating to the change in independent accountants under the heading "Change in Accountants" in the QuickLogic Corporation's Registration Statement on Form S- 1 expected to be filed with the Securities and Exchange Commission on or about June 9, 1997. Yours truly, /s/ Deloitte & Touche LLP EX-27.1 11 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS 3-MOS DEC-31-1996 MAR-31-1997 JAN-01-1996 JAN-01-1997 DEC-31-1996 MAR-31-1997 10,366 10,336 0 0 2,609 3,653 2,084 2,284 3,248 4,667 20,826 18,931 1,708 2,502 2,290 2,411 22,577 21,476 10,176 11,759 602 1,658 0 0 8 9 1 1 11,790 8,049 22,577 21,476 23,578 6,628 23,578 6,628 11,158 2,813 11,158 2,813 16,497 26,655 0 0 60 21 (3,597) (23,103) 0 0 (3,897) (23,200) 0 0 0 0 0 0 (3,597) (23,103) (.29) (1.83) 0 0
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