-----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, Dl5McexkZm8OKa/L8uCzNE/1Y0Y5PzsnI59yrXZiam2H6IOZVgbcqFWT0X4YLj9O LY4GlMwZoEOJlYY0uL7C2A== 0000898430-01-501557.txt : 20010804 0000898430-01-501557.hdr.sgml : 20010804 ACCESSION NUMBER: 0000898430-01-501557 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NUMERICAL TECHNOLOGIES INC CENTRAL INDEX KEY: 0001091226 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943232104 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-30005 FILM NUMBER: 1696395 BUSINESS ADDRESS: STREET 1: 70 W PLUMERIA AVE CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4089191910 MAIL ADDRESS: STREET 1: 70 W PLUMERIA AVE CITY: SAN JOSE STATE: CA ZIP: 95134 10-Q 1 d10q.txt FORM 10-Q PERIOD ENDED 6/30/2001 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____ Commission file number: 333-95695 NUMERICAL TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) Delaware 94-3232104 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 70 West Plumeria Drive 95134-2134 San Jose, California (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (408) 919-1910 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares outstanding of the registrant's Common Stock, par value $0.0001 per share, as of July 25, 2001 was 33,125,667 INDEX NUMERICAL TECHNOLOGIES, INC. Page No. PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (unaudited) Condensed Consolidated Balance Sheets ....................... 3 Condensed Consolidated Statements of Operations ............. 4 Condensed Consolidated Statements of Cash Flows ............. 5 Notes To Condensed Consolidated Financial Statements ........ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 8 Item 3. Quantitative and Qualitative Disclosure about Market Risk.... 18 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds.................... 18 Item 4. Submission of Matters to a Vote of Security Holders ......... 19 Item 6. Exhibits and Reports an Form 8-K............................. 19 SIGNATURES............................................................... 19 2 PART I - FINANCIAL INFORMATION Item 1 Financial Statements NUMERICAL TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) (unaudited) June 30, December 31, 2001 2000 -------- ------------ ASSETS Current assets: Cash and cash equivalents $ 24,281 $ 30,607 Short-term investments 36,209 23,281 Accounts receivable 7,405 4,983 Prepaid and other 2,856 3,177 -------- -------- Total current assets 70,751 62,048 Property and equipment, net 3,139 3,209 Goodwill and other intangible assets 152,072 175,402 Other assets 487 315 -------- -------- $226,449 $240,974 ======== ======== LIABILITIES Current liabilities: Accounts payable $ 2,909 $ 3,208 Accrued expenses and other liabilities 4,727 4,608 Deferred revenue 12,398 6,320 -------- -------- Total current liabilities 20,034 14,136 -------- -------- Deferred tax liability 5,874 7,704 -------- -------- Stockholders' equity: Convertible preferred stock, $0.0001 par value: Authorized: 5,000 shares; Issued and outstanding: none - - Common stock, $0.0001 par value: Authorized: 100,000 shares; Issued and outstanding: 33,069 and 32,834 shares in 2001 and 2000, respectively 3 3 Additional paid in capital 320,562 319,541 Receivable from stockholders (3,939) (4,050) Deferred stock compensation (19,325) (30,572) Accumulated deficit (96,661) (65,751) Accumulated other comprehensive loss (99) (37) -------- -------- Total stockholders' equity 200,541 219,134 -------- -------- $226,449 $240,974 ======== ======== See the accompanying notes to these condensed consolidated financial statements. 3 NUMERICAL TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
Three months ended Six months ended June 30, June 30, 2001 2000 2001 2000 -------- -------- -------- -------- Revenue $ 11,703 $ 4,742 $ 22,023 $ 8,198 -------- -------- -------- -------- Costs and expenses: Cost of revenue 1,180 296 2,103 630 Research and development 3,917 3,257 7,810 5,849 Sales and marketing 3,809 2,134 7,431 3,932 General and administrative 1,758 1,204 3,405 2,089 Depreciation and amortization 12,191 4,748 24,561 9,760 Amortization of deferred stock compensation(*) 4,495 5,524 10,227 10,741 -------- -------- -------- -------- Total costs and expenses 27,350 17,163 55,537 33,001 -------- -------- -------- -------- Loss from operations (15,647) (12,421) (33,514) (24,803) Interest expense - (193) - (893) Interest income and other 679 875 1,539 1,018 -------- -------- -------- -------- Loss before benefit from income taxes (14,968) (11,739) (31,975) (24,678) Benefit from income taxes 249 - 1,065 - -------- -------- -------- -------- Net Loss $(14,719) $(11,739) $(30,910) $(24,678) ======== ======== ======== ======== Net loss per common share, basic and diluted $ (0.49) $ (0.50) $ (1.03) $ (1.57) ======== ======== ======== ======== Weighted average common shares outstanding, basic and diluted 30,238 24,850 29,886 16,209 ======== ======== ======== ======== (*)Amortization of deferred stock compensation Cost of sales $ 266 $ 230 $ 496 $ 425 Research and development 2,250 2,562 5,467 5,004 Sales and marketing 1,166 1,330 2,524 2,586 General and administrative 813 1,402 1,740 2,726 -------- -------- -------- -------- $ 4,495 $ 5,524 $ 10,227 $ 10,741 ======== ======== ======== ========
See the accompanying notes to these condensed consolidated financial statements. 4 NUMERICAL TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, except per share data) (unaudited)
For the Six Months Ended June 30, -------------------------- 2001 2000 ---- ---- Cash flows from operating activities: Net loss $(30,910) $(24,678) Adjustments to reconcile net loss to cash flows from operating activities: Depreciation 931 474 Amortization of deferred stock compensation 10,227 10,741 Amortization of acquired intangibles 23,630 9,286 Changes in assets and liabilities: Accounts receivable (2,422) (872) Prepaid and other 321 (415) Other assets (172) 64 Accounts payable (299) 1,044 Accrued expenses and other liabilities (181) 505 Deferred revenue 6,078 2,518 Deferred tax (1,830) - -------- -------- Net cash provided by (used in) operating activities 5,373 (1,333) -------- -------- Cash flows from investing activities: Proceeds from sales of short-term investments 35,977 - Purchase of short-term investments (48,905) (15,655) Purchase of property and equipment (861) (1,055) -------- -------- Net cash used in investing activities (13,789) (16,710) -------- -------- Cash flows from financing activities: Proceeds from Initial public offering - 81,161 Repayment on notes payable - (40,000) Proceeds from exercise of common stock options 848 1,139 Proceeds from employee stock purchase plan 1,214 - Repurchase of common stock (21) (75) Repayment of notes receivable for common stock 111 - -------- -------- Net cash provided by financing activities 2,152 42,225 -------- -------- Effect of foreign currency translation on cash flows (62) - -------- -------- Net increase (decrease) in cash and cash equivalents (6,326) 24,182 Cash and cash equivalents at beginning of period 30,607 13,486 -------- -------- Cash and cash equivalents at end of period $ 24,281 $ 37,668 ======== ======== Supplemental disclosure of cash flow information: Stockholder notes receivable exchanged for common stock - 3,771 ======== ======== Interest paid - 893 ======== ========
See the accompanying notes to these condensed consolidated financial statements. 5 NUMERICAL TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 - GENERAL The unaudited condensed consolidated financial statements have been prepared by Numerical Technologies, Inc. (the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial position, operating results and cash flows for those periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the years ended December 31, 2000, 1999 and 1998, included in the Company's form 10-K filed with the SEC on March 27, 2001. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for any other period or for the fiscal year, which ends December 31, 2001. NOTE 2 - ACQUISITION On October 27, 2000, the Company acquired Cadabra Design Automation Inc. (Cadabra), a limited liability company incorporated in Nova Scotia, Canada. Under the terms of the acquisition, the Company issued approximately 2,671,000 shares and 528,000 options to purchase the Company's common stock in exchange for all of the outstanding stock and the assumption of all the outstanding options of Cadabra. The total purchase price was approximately $110.6 million, including acquisition costs of approximately $3.0 million. The acquisition was accounted for using the purchase method of accounting. The allocation of the purchase price is as follows (in thousands): Net tangible assets................................................ $ 1,964 In process research and development................................ 1,630 Developed technology............................................... 660 Customer base...................................................... 5,040 Covenants not to compete........................................... 2,290 Work force......................................................... 1,800 Goodwill........................................................... 97,244 ------- Total consideration............................................... 110,628 Deferred Stock Compensation........................................ 12,594 ------- Total............................................................. $123,222 ======= The estimated purchase price was allocated to the identifiable assets acquired and the liabilities assumed based upon the fair market value on the acquisition date. The net tangible assets consist primarily of accounts receivable, property and equipment, and other liabilities. Because the in-process technology had not reached the stage of technological feasibility at the acquisition date and had no alternative future use, the amount was immediately charged to operations. The amounts allocated to developed technology and customer base and trade name are amortized over the estimated useful life of four years. The amounts allocated to covenants not to compete and work force are being amortized over the estimated useful lives of two and three years, respectively. The excess amount of the purchase price over the fair market value of the identifiable assets acquired is accounted for as goodwill and is being amortized over its estimated useful life of four years. The valuation for the intangible assets has been determined using management's assumptions and the report from an independent appraiser. 6 Had the acquisition of Cadabra occurred on January 1, 2000, pro forma combined revenues would have been $6,194,000 and $10,844,000 for the three months and six months ended June 30, 2000. Pro forma net loss would have been $22,257,000 or $(0.84) per share and $44,596,000 or $(2.52) per share for the three months and six months ended June 30, 2000. Pro forma adjustments have been added to record the amortization of identifiable intangible assets and goodwill and amortization of deferred stock compensation related to the acquisition of Cadabra as if the transaction occurred on January 1, 2000. NOTE 3 - NET LOSS PER SHARE Basic net income per share is calculated using the weighted average number of common shares outstanding during the period. Diluted net income per share is calculated using the weighted average number of common shares and common stock equivalents, if dilutive, outstanding during the period. Common stock equivalents includes common shares issuable upon exercise of common stock, conversion of preferred stock and warrants. For the periods presented the Company had losses and therefore all common stock equivalents are excluded from the computation of diluted net loss per share because their effect is antidilutive. NOTE 4 - COMPREHENSIVE INCOME (LOSS) A summary of comprehensive income for the periods presented is as follows (in thousands): Three Months Ended Six months ended June 30, June 30, (unaudited) (unaudited) 2001 2000 2001 2000 ---- ---- ---- ---- Net loss $(14,719) $(11,739) $(30,910) $(24,678) Foreign currency translation adjustments (3) - (62) - -------- -------- -------- -------- Total comprehensive loss $(14,722) $(11,739) $(30,972) $(24,678) ======== ======== ======== ======== NOTE 5 - LITIGATION The Company is subject to various legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. On March 14, 2000, ASML MaskTools, Inc. filed a complaint alleging that we infringe two U.S. patents and have committed unfair or fraudulent business practice under the California Business and Professions Code. The Company is currently investigating the patents and allegations. This lawsuit is in early stages of discovery and no trial date has been set. Although the outcome of these claims cannot be predicted with certainty, management does not believe that any of these legal matters will have a material adverse effect on the Company's financial condition. Were an unfavorable ruling to occur, there exists the possibility of a material impact on the net income of the period in which the ruling occurs and thereafter. NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets". Under SFAS No. 141, all business combinations initiated after June 30, 2001 must be accounted for using the purchase method. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually (or more frequently if there are indicators such assets may be impaired) for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives (but with no maximum life). The amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the Company is required to adopt SFAS No. 142 effective January 1, 2002. The Company is currently evaluating the effect that adoption of the provisions of SFAS No. 142 will have on the Company's results of operations and financial position. NOTE 7 - RELATED PARTY TRANSACTIONS In November 2000, a loan was granted to an officer and stockholder of the Company for $1.1 million. The loan, which is secured by the assets of the officer and stockholder, is non-interest bearing and was payable in full in May 2001. In May 2001, the Company extended the payment date to August 15, 2001. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Certain information contained or incorporated by reference in this Quarterly Report on Form 10-Q is forward-looking in nature. All statements included or incorporated by reference in this Quarterly Report on Form 10-Q or made by our management, other than statements of historical fact, are forward-looking statements. Examples of forward-looking statements include statements regarding our future financial results, operating results, business strategies, projected costs, products, competitive positions and plans and objectives of management for future operations. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "would," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue," or the negative of these terms or other comparable terminology. Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including without limitation those discussed in the section entitled "Factors That May Affect Our Future Results". These and many other factors could affect our future financial and operating results, and could cause actual results to differ materially from current expectations. Overview We develop and market proprietary technologies and software products that enable the design and manufacture of semiconductors with subwavelength feature sizes. We derive revenue from intellectual property and software licenses, maintenance and related technical services. To date, we have derived a significant portion of our revenue from research and development licenses to integrated device manufacturers, or IDMs, and foundries of our phase shifting attendant subwavelength technologies and software licenses, as well as licenses of photomask verification software to semiconductor equipment resellers. To date we have entered into production licenses with five semiconductor manufacturers. We expect to enter into additional production licenses as semiconductor manufacturers adopt our proprietary technologies for production. Production licenses grant licensees the right to use our phase shifting intellectual property and software to design and manufacture subwavelength integrated circuits, or ICs. In order for semiconductor manufacturers to enter into production licenses with us, these manufacturers must continue to embrace our proprietary technologies and software products and not enter into agreements with our competitors in this regard. We must also expend significant sales and marketing resources on these manufacturers with no guarantee of success. Results of Operations Revenue. Revenues were $11.7 million and $22.0 million for the three months and six months ended June 30, 2001 compared to $4.7 million and $8.2 million for the same periods in 2000, representing increases of 147% and 169% for the respective periods. These increases, which were aided by our acquisition of Cadabra in October 2000, were primarily attributable to the continued adoption of our software and proprietary technology solution by companies throughout the design-to-silicon flow. Costs and Expenses Cost of revenue. Cost of revenues were $1.2 million and $2.1 million for the three months and six months ended June 30, 2001 compared to $296,000 and $630,000 for the same periods in 2000. The increase was primarily due to increased cost for engineers associated with maintenance and technical services, which resulted from an increased customer base. As a percent of revenues, cost of revenue increased to 10% for both the three months and six months ended June 30, 2001 compared to 6% and 8% for the same periods in 2000. We anticipate that cost of revenues will increase in dollar amount as we support our increasing number of industry partners and customers and assist our research and development licensees to transition into production. Research and development. Research and development expenses were $3.9 million and $7.8 million for the three months and six months ended June 30, 2001 compared to $3.3 million and $5.8 million for the same periods in 2000. These increases were primarily due to increased costs associated with additional personnel acquired in the acquisition of Cadabra in October 2000 and, to a lesser degree, our expanding research and development efforts in subwavelength technologies and products. As a percent of revenues, research and development expenses were 33% and 35% for the three months and six months ended June 30, 2001 compared to 69% and 71% for the same periods in 2000. We anticipate that we will continue to commit substantial resources to research and 8 development in the future and expect that research and development expenses will increase in dollar amounts to support increased research and development efforts, but decline as a percentage of revenue in the long term. Sales and marketing. Sales and marketing expenses were $3.8 million and $7.4 million for the three months and six months ended June 30, 2001 compared to $2.1 million and $3.9 million for the same periods in 2000. These increases were primarily due to additional sales and marketing personnel, increased sales commissions and higher tradeshow expenses, and to a lesser degree as a result of additional personnel acquired in the Cadabra acquisition in October 2000. As a percent of revenues, sales and marketing expenses decreased to 33% and 34% for the three months and six months ended June 30, 2001 compared to 45% and 48% for the same periods in 2000. We expect that sales and marketing expenses will increase in dollar amounts to support increased sales efforts, but decline as a percentage of revenue in the long term. General and administrative. General and administrative expenses were $1.8 million and $3.4 million for the three months and six months ended June 30, 2001 compared to $1.2 million and $2.1 million for the same periods in 2000. These increases were primarily the result of increased spending in personnel, personnel-related costs and professional fees and to a lesser degree as a result of additional personnel acquired in the Cadabra acquisition. As a percent of revenues, general and administrative expenses decreased to 15% for both the three months and six months ended June 30, 2001 compared to 25% for the same periods in 2000. We expect that general and administrative expenses will increase in dollar amounts to support increased administrative efforts, but decline as a percentage of revenue in long term. Depreciation and amortization. Depreciation and amortization expenses were $12.2 million and $24.6 million for the three months and six months ended June 30, 2001 compared to $4.7 million and $9.8 million for the same periods in 2000. These increases were primarily the result of amortization of acquired intangibles associated with the acquisition of Cadabra in October 2000. Amortization of deferred stock compensation. Amortization of deferred stock compensation represents the amount of amortization related to the difference between the exercise price of options granted and the estimated fair market value of the underlying common stock on the date of the grant. We recognized stock-based compensation of $4.5 million and $10.2 million for the three months and six months ended June 30, 2001 compared to $5.5 million and $10.7 million for the same periods in 2000. We are amortizing these amounts over the vesting periods of the individual options, using the multiple option method. Interest expense. Interest expense was $0 for both the three months and six months ended June 30, 2001 compared to $193,000 and $893,000 for the same periods in 2000. Interest expense related to the notes payable associated with the acquisition of Transcription in January 2000. In April 2000, we paid the remaining principal and interest due under these notes with proceeds from our initial public offering. Interest income and other. Interest income and other was $679,000 and $1.5 million for the three months and six months ended June 30, 2001 compared to $875,000 and $1.0 million for the same periods in 2000. The decrease in the three months period is the result of lower interest rates in 2001. The increase in the six month period is attributable to having higher cash balances invested for the entire 6 months in 2001 which more than offset the decreases in interest rates in 2001 compared to 2000. The cash balances invested for the 6 months period ended June 30, 2000 was increased significantly during the period as a result of proceeds from our initial public offering in April 2000, whereas the monies were available for investment for the entire 6 months in 2001. Benefit from income taxes. We recorded a benefit for income taxes of $249,000 and $1.1 million for the three months and six months ended June 30, 2001 compared to $0 for the comparable periods in 2000. The tax benefit in 2001 is the result of the utilization of deferred tax liabilities associated with the amortization of intangible assets established as of result of acquisitions in 2000. Liquidity and Capital Resources As of June 30, 2001, we had cash and cash equivalents and short-term investments of $60.5 million. As of the same date, we had working capital of $50.7 million, including deferred revenue of $12.4 million. Deferred revenue represents the excess of amount billed to licensees over revenue recognized on license and maintenance contracts. Net cash provided by operating activities was $5.4 million during the six month period ended June 30, 2001, compared with cash used of $1.3 million in the comparable period in 2000. Net cash provided in the six month period ended June 30, 2001 primarily reflects a net loss of $30.9 million, increases in accounts receivable of $2.4 million and decreases in deferred taxes of $1.8 million, offset by amortization of intangibles and depreciation expenses of $23.6 million, 9 amortization of deferred stock compensation of $10.2 million and increases in deferred revenue of $6.1 million. Net cash used in investing activities was $13.8 million during the six month period ended June 30, 2001, compared with $16.7 million used in the comparable period in 2000. Net cash used in the six month period ended June 30, 2001 consisted of net purchases of short-term investments of $12.9 million and purchases of computer hardware and software, office furniture and equipment of $861,000. We expect capital spending of approximately $2.0 million in fiscal year 2001 mainly for computer hardware and software, office furniture and equipment, and business systems upgrades. Net cash provided by financing activities was $2.2 million during the six month period ended June 30, 2001, compared with $42.2 million in the comparable period in 2000. Net cash provided in the six month period ended June 30, 2001 principally related to net proceeds from the exercise of stock options and from the employees stock purchase plan. We are subject to various legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. In addition, on March 14, 2000, ASML MaskTools, Inc. filed a complaint alleging that we infringe two U.S. patents and have committed unfair or fraudulent business practice under the California Business and Professions Code. We are currently investigating the patents and allegations. This lawsuit is in early stages of discovery and no trial date has been set. Although the outcome of these claims cannot be predicted with certainty, management does not believe that any of these legal matters will have a material adverse effect on the Company's financial condition. Were an unfavorable ruling to occur it could limit our ability to offer some features of our OPC product and there exists the possibility of a material impact on the net income of the period in which the ruling occurs and thereafter. We expect to experience significant growth in our operating expenses, particularly research and development and sales and marketing expenses, for the foreseeable future in order to execute our business strategy. As a result, we anticipate that such operating expenses, as well as planned capital expenditures, will constitute a material use of our cash resources. In addition, we may utilize cash resources to fund acquisitions of, or investments in, complementary businesses, technologies or product lines. We believe that the net proceeds from the sale of the common stock in our initial public offering completed in April 2000, together with existing cash, will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months. Thereafter, we may find it necessary to obtain additional equity or debt financing. In the event additional financing is required, we may not be able to raise it on acceptable terms or at all. In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets". Under SFAS No. 141, all business combinations initiated after June 30, 2001 must be accounted for using the purchase method. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually (or more frequently if there are indicators such assets may be impaired) for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives (but with no maximum life). The amortization provisions of SFAS No. 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the Company is required to adopt SFAS No. 142 effective January 1, 2002. The Company is currently evaluating the effect that adoption of the provisions of SFAS No. 142 will have on the Company's results of operations and financial position. Factors Which May Affect Future Results If the key markets within the semiconductor industry, especially semiconductor manufacturers, do not adopt our proprietary technologies and software products, we may be unable to generate sales of our products. If the four key markets within the semiconductor industry, which we believe are semiconductor manufacturing, semiconductor equipment manufacturing, photomask manufacturers and design, do not adopt our proprietary technologies and software products, our revenue could decline. We believe we design our technologies and products so that each key market within the semiconductor industry can work efficiently with the other markets. For example, if designers do not adopt our technologies and products, it will be more difficult for them to design semiconductors which are understood and processed efficiently by mask manufacturers that do adopt our technologies and products. In addition, we believe semiconductor manufacturers need to adopt our proprietary technologies and software products first in order to drive adoption by the other three markets. Semiconductor manufacturers define and develop the manufacturing process. While designers, mask manufacturers and equipment manufacturers are not required to adopt our technologies and products in order to work with semiconductor manufacturers that do adopt them, we believe the 10 efficiency of the manufacturing process with respect to such designers, mask manufacturers and equipment manufacturers is diminished if they do not. If each key market of the semiconductor industry does not perceive our proprietary technologies and software products as the industry standard, our technologies and products could become less valuable and more difficult to license. Factors that may limit adoption of our subwavelength solution within the markets include: . our current and potential industry partners and customers may fail to adopt our technologies and products; . the semiconductor industry may not need subwavelength processes if there is a slowdown in semiconductor manufacturing or a decrease in the demand for smaller semiconductor feature sizes; and . the industry may develop alternative methods to produce subwavelength features with existing capital equipment due to a rapidly evolving market and the likely emergence of new technologies. In order for potential industry partners and customers to adopt, and expend their own resources to implement, our technologies and products, we must expend significant marketing resources, with no guarantee of success. Our proprietary technologies and software products involve a new approach to the subwavelength gap problem. As a result, we must employ intensive and sophisticated marketing and sales efforts to educate prospective industry partners and customers about the benefits of our technologies and products. Our sales and marketing expenses increased to $7.4 million in the six months ended June 30, 2001 from $3.9 million in the six months ended June 30, 2000. In addition, even if our industry partners and customers adopt our proprietary technologies and software products, they must devote the resources necessary to fully integrate our technologies and products into their operations. This is especially true for our industry partners so that they can begin to resell and market our solution to their customers. If they do not make these expenditures, establishing our technologies and products as the industry standard to the subwavelength gap problem will be difficult. We depend on the growth of the semiconductor industry and the current economic slowdown in this industry may cause a decrease in the demand for our proprietary technologies and software products and revenue. We are dependent upon the general economic cycles of the semiconductor industry. Our ability to increase or even maintain our current revenue is largely dependent upon the continued demand by semiconductor manufacturers and each other key market within the semiconductor industry for integrated circuits, or ICs, and IC-related technologies. The semiconductor industry has from time to time experienced economic downturns characterized by decreased product demand, production over-capacity, price erosion, work slowdowns and layoffs. We believe the semiconductor industry is currently experiencing such an economic downturn and, as a result, the sales of some of our proprietary technologies and software products has decreased and may continue to decrease. Our limited operating history and dependence on new technologies make it difficult to evaluate our future prospects. We only have a limited operating history on which you can base your valuation of our business. We face a number of risks as an emerging company in a new market. For example, the key markets within the semiconductor industry may fail to adopt our proprietary technologies and software products, or we may not be able to establish distribution channels. Our company incorporated in October 1995. In February 1997, we shipped our initial software product, IC Workbench. We have only recently begun to expand our operations significantly. For example, we grew from 120 employees as of June 30, 2000 to 213 employees as of June 30, 2001. We have a history of losses, we expect to incur losses in the future and we may be unable to achieve profitability. We may not achieve profitability if our revenue increases more slowly than we expect or not at all. In addition, our operating expenses are largely fixed, and any shortfall in anticipated revenue in any given period could cause our operating results to decrease. For example, for the six months ended June 30, 2001, revenues from Cadabra Design Automation, Inc, a corporation that we recently acquired, were less than anticipated. We have not been profitable in any quarter, and our accumulated deficit was approximately $96.7 million as of June 30, 2001. We expect to continue to incur significant operating expenses in connection with increased funding for research and development and expansion of our sales and 11 marketing efforts. In addition, we expect to incur additional non-cash charges relating to amortization of intangibles and deferred stock compensation. As a result, we will need to generate significant revenue to achieve and maintain profitability. If we do achieve profitability, we may be unable to sustain or increase profitability on a quarterly or annual basis. If we fail to protect our intellectual property rights, competitors may be able to use our technologies which could weaken our competitive position, reduce our revenue or increase our costs. Our success depends heavily upon proprietary technologies, specifically our patent portfolio. The rights granted under our patents and patent applications may not provide competitive advantages to us. In addition, litigation may be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. As a result of any such litigation, we could lose our proprietary rights and incur substantial unexpected operating costs. Litigation could also divert our resources, including our managerial and engineering resources. We rely primarily on a combination of patents, copyrights, trademarks and trade secrets to protect our proprietary rights and prevent competitors from using our proprietary technologies in their products. These laws and procedures provide only limited protection. Our pending patent applications may not result in issued patents, and our existing and future patents may not be sufficiently broad to protect our proprietary technologies. Also, patent protection in foreign countries may be limited or unavailable where we have filed for and need such protection. Furthermore, if we fail to adequately protect our trademark rights, this could impair our brand identity and ability to compete effectively. If we do not successfully protect our trademark rights, this could force us to incur costs to re-establish our name or our product names, including significant marketing activities. If third parties assert that our proprietary technologies and software products infringe their intellectual property rights, this could injure our reputation and limit our ability to license or sell our proprietary technologies or software products. Third parties, for competitive or other reasons, could assert that our proprietary technologies and software products infringe their intellectual property rights. These claims could injure our reputation and decrease or block our ability to license or sell our software products. For example, on March 14, 2000, ASML MaskTools, Inc. filed a complaint alleging we infringe two U.S. patents and have committed unfair or fraudulent business practice under the California Business and Professions Code. We are currently investigating the patents and allegations. The defense of these claims could divert management's attention from the day to day operations of our company, as well as divert resources from current planned uses, such as hiring and supporting additional engineering personnel. Litigation is inherently uncertain, and an adverse decision could limit our ability to offer some features in our OPC product. In addition, third parties have advised us of literature which they believe to be relevant to our patents. It is possible that this literature or literature we may be advised of in the future could negatively affect the scope or enforceability of our present or future patents and/or result in costly litigation. In addition, we are aware of and are evaluating certain patents with which our products, patents or patent applications may conflict. If any of these patents are found to be valid, and we are unable to license such patents on reasonable terms, or if our products, patents, or patent applications are found to conflict with these patents, we could be prevented from selling our products, our patents may be declared invalid or our patent applications may not result in issued patents. In addition, a company could invite us to take a patent license. If we do not take the license, the requesting company could contact our industry partners or customers and suggest that they not use our software products because we are not licensed under their patents. This action by the requesting company could affect our relationships with these industry partners and customers and may prevent future industry partners and customers from licensing our software products. The intensely competitive nature of our industry and the important nature of our technologies to our competitors' businesses may contribute to the likelihood of being subject to third party claims of this nature. Any potential dispute involving our patents or other intellectual property could include our industry partners and customers, which could trigger our indemnification obligations with them and result in substantial expense to us. In any potential dispute involving our patents or other intellectual property, our licensees could also become the target of litigation. This could trigger our technical support and indemnification obligations in some of our license agreements which could result in substantial expense to us. In addition to the time and expense required for us to supply such support or indemnification to our licensees, any such litigation could severely disrupt or shut down the business of our licensees, which in turn could hurt our relations with our customers and cause the sale of our proprietary technologies and software products to decrease. Defects in our proprietary technologies and software products could decrease our revenue and our competitive market share. 12 If our industry partners and customers discover any defects after they implement our proprietary technologies and software products, these defects could significantly decrease the market acceptance and sales of our software products, which could decrease our competitive market share. Any actual or perceived defects with our proprietary technologies and software products may also hinder our ability to attract or retain industry partners or customers, leading to a decrease in our revenue. These defects are frequently found during the period following introduction of new products or enhancements to existing products. Despite testing prior to introduction, our software products may contain software errors not discovered until after customer implementation. If our software products contain errors or defects, it could require us to expend significant resources to alleviate these problems, which could result in the diversion of technical and other resources from our other development efforts. If we do not continue to introduce new technologies and software products or product enhancements ahead of rapid technological change in the market for subwavelength solutions, our operating results could decline and we could lose our competitive position. We must continually devote significant engineering resources to enable us to introduce new technologies and software products or product enhancements to address the evolving needs of key markets within the semiconductor industry in solving the subwavelength gap problem. We must introduce these innovations and the key markets within the semiconductor industry must adopt them before changes in the semiconductor industry, such as the introduction by our current and potential competitors of more advanced products or the emergence of alternative technologies, render the innovations obsolete, which could cause us to lose our competitive position. These innovations are inherently complex, require long development cycles and a substantial investment before we can determine their commercial viability. Moreover, designers, mask manufacturers and equipment manufacturers must each respond to the demand of the market to design and manufacture masks and equipment for increasingly smaller and complex semiconductors. Our innovations must be viable and meet the needs of these key markets within the semiconductor industry before the consumer market demands even smaller semiconductors, rendering the innovations obsolete. We may not have the financial resources necessary to fund any future innovations. In addition, any revenue that we receive from enhancements or new generations of our proprietary technologies and software products may be less than the costs of development. We rely on a small number of customers for a substantial amount of our revenue, and if our contracts with such customers were terminated, or if the revenues we expect to receive are otherwise reduced, we would need to replace this revenue through other sources. Approximately 50% of our revenue for the three months ended June 30, 2001 is derived from two customers. If any of the contracts with these customers were to be terminated or not extended or renewed, or if the revenues we expect to receive are otherwise reduced, we could lose a material portion of our revenue. We would need to replace this revenue with revenue from other customers by increasing the sale of our proprietary technologies and software products to our current customers and industry partners, or by entering into new contracts with new customers either of which would result in an unexpected diversion of management efforts and possible increases to operating expenses, with no immediate increase in revenue. Our chief executive officer and chief technology officer, as well as the co- founders of Transcription and the key executive officers of Cadabra, are critical to our business and they may not remain with us in the future. Our future success will depend to a significant extent on the continued services of Y. C. (Buno) Pati, our President and Chief Executive Officer; Yao- Ting Wang, our Chief Technology Officer and Senior Vice President of Engineering; Roger Sturgeon, one of our directors and a senior executive of Transcription; Kevin MacLean, Senior Vice President and General Manager of Transcription; Faysal Sohail, Senior Vice President of Worldwide Field Operations and Martin Lefebrve, a member of our Office of Technology and senior executive of Cadabra. If we lose the services of any of these key executives, it could slow our product development processes and searching for their replacements could divert our other senior management's time and increase our operating expenses. In addition, our industry partners and customers could become concerned about our future operations, which could injure our reputation. We do not have long-term employment agreements with these executives and we do not maintain any key person life insurance policies on their lives. Many of our current competitors have longer operating histories and significantly greater financial, technical, marketing and other resources than we do and as a result, they may acquire a significant market share before we do. Our current competitors, or alliances among these competitors, may rapidly acquire significant market share. These competitors may have greater name recognition and more customers which they could use to gain market share to our detriment. We encounter direct competition from other direct providers of phase shifting, optical proximity correction, or OPC, manufacturing 13 data and automated cell generation technologies. These competitors include such companies as Avant!, Mentor Graphics and Prolific, Inc. We also compete with companies that have developed or have the ability to develop their own proprietary phase shifting and OPC solutions, such as IBM. These companies may wish to promote their internally developed products and may be reluctant to purchase products from us or other independent vendors. Our competitors may offer a wider range of products than we do and thus may be able to respond more quickly to new or changing opportunities, technologies and customer requirements. These competitors may also be able to undertake more extensive promotional activities, offer more attractive terms to customers than we do and adopt more aggressive pricing policies. Moreover, our competitors may establish relationships among themselves or with industry partners to enhance their services, including industry partners with which we may desire to establish a relationship. The market for software solutions that address the subwavelength gap problem is new and rapidly evolving. We expect competition to intensify in the future, which could slow our ability to grow or execute our strategy. We believe that the demand for solutions to the subwavelength gap problem may encourage many competitors to enter into our market. As the market for software solutions to the subwavelength gap problem proliferates, if our competitors are able to attract industry partners or customers on a more accelerated pace than we can and retain them more effectively, we would not be able to grow and execute our strategy as quickly. In addition, if customer preferences shift away from our technologies and software products as a result of the increase in competition, we must develop new proprietary technologies and software products to address these new customer demands. This could result in the diversion of management attention or our development of new technologies and products may be blocked by other companies' patents. We must offer better products, customer support, prices and response time, or a combination of these factors, than those of our potential competitors. We intend to pursue new, and maintain our current, industry partner relationships, which could substantially divert management attention and resources, with no guarantee of success. We expect to derive significant benefits, including increased revenue and customer awareness, from our current and potential industry partner relationships. In our pursuit to maintain and establish partner relationships within each of the key markets in the semiconductor industry, we could expend significant management attention, resources and sales personnel efforts, with no guarantee of success. To establish and maintain our partner relationships, we expend our limited financial resources on increasing our sales and business development personnel, trade shows and marketing within trade publications. If we did not have to pursue potential industry partners, we could focus these resources exclusively on direct sales to our customers. In addition, through our partner relationships, our partners resell, market, either jointly with us unilaterally, and promote our technologies and products. If these relationships terminate, such as due to our material breach of the contracts or the partners' election to cancel the contract, which generally is permissible with prior notice to us, we would have to increase our own limited marketing and sales resources for these activities. Further, we may be unable to enter into new industry partner relationships if any of the following occur: . current or potential industry partners develop their own solutions to the subwavelength gap problem; or . our current or potential competitors establish relationships with industry partners with which we seek to establish a relationship. We have only recently entered into many of our current partner relationships. These relationships may not continue or they may not be successful. We also may be unable to find additional suitable industry partners. We recently acquired Cadabra Design Automation Inc. If we are not successful in integrating Cadabra's products and operations with ours, our revenue and operating results could decline. Our acquisition of Cadabra will only be successful if we are able to integrate its operations with ours, which could substantially divert management's attention from the day-to-day operations of the combined company. We must successfully integrate Cadabra's products with ours. One of the elements of our strategy is to integrate our subwavelength solution with the Cadabra solution in order to offer design teams fast access to the processes that incorporate our subwavelength technologies. We must also focus our research and development and sales and marketing efforts to realize the technological benefits of this combination. If we encounter any difficulties in the transition process, we may not be able to successfully integrate Cadabra's business or technologies and may not achieve anticipated revenue and cost benefits. We also cannot guarantee that the acquisition will result in sufficient revenues or earnings to justify our investment in, or expenses related to, the acquisition or that any synergies will develop. If we are not successful in integrating Cadabra's businesses or if expected earnings or synergies do not materialize, we would likely incur significant expenses as well as non-cash 14 charges to write-off acquired intangible assets, which could seriously harm our financial condition and operating results. In this regard, for the six months ended June 30, 2001, revenues from Cadabra were less than anticipated. In addition, the process of combining our company with Cadabra could interrupt the activities of any or all of the companies' businesses. It is possible that we will not be able to retain Cadabra's key management, technical and sales personnel. The acquisition of Cadabra could also cause our industry partners and customers to be uncertain about our ability to support the combined companies' products and technologies and the direction of the combined companies' development efforts. In particular, semiconductor manufacturers, which have previously relied on and endorsed the Cadabra solution, must continue to rely on and endorse this solution under our combined company. As a result, these semiconductor manufacturers, as well as our other industry partners and customers, may delay or cancel these orders, which could significantly decrease our revenue and limit our ability to implement our combined business strategy. Moreover, the economic downturn in the semiconductor industry could compound the difficulties inherent in our integration of the Cadabra business by causing decreased revenues for the combined company and further uncertainty regarding the success of the integration. Our acquisition of Transcription Enterprises Limited may increase the focus of the semiconductor industry on the manufacturing data preparation market, which could lead to a rapid and substantial increase in competition. Our acquisition of Transcription may increase the semiconductor industry's awareness of the market for manufacturing data preparation software, which could lead to a substantial increase in the number of start-up companies that focus on software solutions for data preparation. Manufacturing data preparation software translates semiconductor designs into instructions that control manufacturing equipment. Potential competitors could pursue and execute partnership agreements with key industry partners we intend to pursue, which could make it difficult or impossible for us to develop relationships with these potential industry partners. In addition, some of our current competitors may increase their own research and development budgets relating to data preparation, or may more aggressively market competing solutions. Fluctuations in our quarterly operating results may cause our stock price to decline. It is likely that our future quarterly operating results may fluctuate from time to time and may not meet the expectations of securities analysts and investors in some future period. As a result, the price of our common stock could decline. Historically, our quarterly operating results have fluctuated. We may experience significant fluctuations in future quarterly operating results. The following factors may cause these fluctuations: . our recent acquisition of Transcription and Cadabra, as well as future potential acquisitions by us; . the timing and structure of our product license agreements; and . changes in the level of our operating expenses to support our projected growth. The accounting rules regarding revenue recognition may cause fluctuations in our revenue independent of our booking position. The accounting rules we are required to follow require us to recognize revenue only when certain criteria are met. As a result, for a given quarter it is possible for us to fall short in our revenue and/or earnings estimates even though total orders are according to our plan or, conversely, to meet our revenue and/or earnings estimates even though total orders fall short of our plan, due to revenue produced by deferred revenue. Orders for software support and professional services yield revenue over multiple quarters, often extending beyond the current fiscal year, or upon completion of performance rather than at the time of sale. The specific terms agreed to with a customer and/or any changes to the rules interpreting such terms may have the effect of requiring deferral of product revenue in whole or in part or, alternatively, of requiring us to accelerate the recognition of such revenue for products to be used over multiple years. We face operational and financial risks associated with international operations. We derive a significant portion of our revenue from international sales. For the six months ended June 30, 2001, compared to six months ended June 30, 2000, the breakdown of our revenue by geographic region, as a percentage of our total revenue, was North America, 64% and 62%, Asia, 27% and 28%, Europe, 6% and 9%, and other, 3% and 1%, respectively. In addition, as a result of our acquisition of Cadabra, a Nova Scotia limited liability company, 51 of our 213 employees as 15 of June 30, 2001 were located in Ontario, Canada. We have only limited experience in developing, marketing, selling and supporting our proprietary technologies and software products, and managing our employees and operations, internationally. We may not succeed in maintaining or expanding our international operations, which could slow our revenue growth. We are subject to risks inherent in doing business in international markets. These risks include: . fluctuations in exchange rates which may negatively affect our operating results; . export controls which could prevent us from shipping our software products into and from some markets; . changes in import/export duties and quotas could affect the competitive pricing of our software products and reduce our market share in some countries; . compliance with and unexpected changes in a wide variety of foreign laws and regulatory environments with which we are not familiar; . greater difficulty in collecting accounts receivable resulting in longer collection periods; and . economic or political instability. We may be unable to continue to market our proprietary technologies and software products successfully in international markets. We may need to raise additional funds to support our growth or execute our strategy and if we are unable to do so, we may be unable to develop or enhance our proprietary technologies and software products, respond to competitive pressures or acquire desired businesses or technologies. We currently anticipate that our available cash resources will be sufficient to meet our presently anticipated working capital and capital expenditure requirements for at least the next 12 months. However, we may need to raise additional funds in order to: . support more rapid expansion; . develop new or enhanced products; . respond to competitive pressures; or . acquire complementary businesses or technologies. These factors will impact our future capital requirements and the adequacy of our available funds. We may need to raise additional funds through public or private financings, strategic relationships or other arrangements. The market price of our common stock has been and may continue to be volatile and could decline. The market price of our common stock has fluctuated in response to factors, some of which are beyond our control, including: . changes in market valuations of other technology companies; . conditions or trends in the semiconductor industry; . actual or anticipated fluctuations in our operating results; . any deviations in net revenue or in losses from levels expected by securities analysts; . announcements by us or our competitors of significant technical innovations, contracts, acquisitions or partnerships; . volume fluctuations, which are particularly common among highly volatile securities of technology related companies; and . departures of key personnel. 16 General political or economic conditions, such as recession or interest rate or currency rate fluctuations in the United States or abroad, also could cause the market price of our common stock to decline. The fluctuations in our stock price could result in securities class action litigation, which could result in substantial costs and diversion of our resources. Volatility in the market price of our common stock could result in securities class action litigation. Any litigation would likely result in substantial costs and a diversion of management's attention and resources. The share prices of technology companies' stocks have been highly volatile and have recorded lows well below their historical highs. As a result, investors in these companies often buy the stock at high prices only to see the price drop a short time later, resulting in a drop in value in the stock holdings of these investors. Our stock may not trade at the same levels as other technology stocks, or at its historical prices. We are growing rapidly and must effectively manage and support our growth in order for our business strategy to succeed. We have grown rapidly and will need to continue to grow in all areas of operation. If we are unable to successfully integrate and support our existing and new employees, including those employees added as a result of our acquisition of Cadabra, into our operations, we may be unable to implement our business strategy in the time frame we anticipate, or at all. In addition, building and managing the support necessary for our growth places significant demands on our management as well as our limited revenue. These demands have, and may continue to, divert these resources away from the continued growth of our business and implementation of our business strategy. Further, we must adequately train our new personnel, especially our technical support personnel, to adequately, and accurately, respond to and support our industry partners and customers. If we fail to do this, it could lead to dissatisfaction among our partners or customers, which could slow our growth. We must continually attract and retain engineering personnel or we will be unable to execute our business strategy. We have experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled engineers with appropriate qualifications to support our rapid growth and expansion. We must continually enhance and introduce new generations of our phase shifting and OPC technologies. As a result, our future success depends in part on our ability to identify, attract, retain and motivate qualified engineering personnel with the requisite educational background and industry experience. If we lose the services of a significant number of our engineers, it could disrupt our ability to implement our business strategy. Competition for qualified engineers is intense, especially in the Silicon Valley where our headquarters are located. Our operations are primarily located in California and, as a result, are subject to power loss and other natural disasters. Our business operations depend on our ability to maintain and protect our facilities, computer systems and personnel, which are primarily located in or near our principal headquarters in San Jose, California. California is currently experiencing power outages due to a shortage in the supply of power within the state. In the event of an acute power shortage, California has on some occasions implemented, and may in the future continue to implement, rolling blackouts throughout California. We currently do not have backup generators or alternate sources of power in the event of a blackout, and our current insurance does not provide coverage for any damages we or our customers or industry partners may suffer as a result of any interruption in our power supply. If blackouts interrupt our power supply, we would be temporarily unable to continue operations at our facilities. Any such interruption in our ability to continue operations at our facilities could damage our reputation, harm our ability to retain existing customers and industry partners, or obtain new customers or industry partners, and could result in loss of revenue. Furthermore, the deregulation of the energy industry in California has caused power prices to increase. If wholesale prices continue to increase, our operating expenses will likely increase. In addition, San Jose exists on or near a known earthquake fault zone. Our facilities are susceptible to damage from earthquakes and other natural disasters, such as fires, floods and similar events. Although we maintain general business insurance against fires and some general business interruptions, there can be no assurance that the amount of coverage will be adequate in any particular case. We may be unable to consummate other potential acquisitions or investments or successfully integrate them with our business, which may slow our ability to expand the range of our proprietary technologies and software products. To expand the range of our proprietary technologies and software products, we recently acquired Transcription and Cadabra, and we may acquire or make investments in additional 17 complementary businesses, technologies or products if appropriate opportunities arise. We may be unable to identify suitable acquisition or investment candidates at reasonable prices or on reasonable terms, or consummate future acquisitions or investments, each of which could slow our growth strategy. If we do acquire additional companies or make other types of acquisitions, we may have difficulty integrating the acquired products, personnel or technologies. These difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses. Item 3. Quantitative and Qualitative Disclosure about Market Risk. Our exposure to market risk for changes in interest rates relate primarily to our investment portfolio. We do not use derivative financial instruments for speculative or trading purposes. We place our investments in instruments that meet high credit quality standards, as specified in our investment policy. The policy also limits the amount of credit exposure to any one issuer and type of instrument. We do not expect any material loss with respect to our investment portfolio. PART II - OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds (c) Recent Sales of Unregistered Securities --------------------------------------- There were no sales of unregistered securities during the quarter ended June 30, 2001. However, during the quarter ended June 30, 2001, 308,929 exchangeable shares of Cadabra Design Automation Inc. ("Cadabra"), which were issued in connection with our October 2000 acquisition of Cadabra, were exchanged for an equal number of shares of our common stock. We did not receive any consideration in connection with such exchanges. These shares were exchanged pursuant to regulation D or Regulation S. (d) Use of Proceeds from Registered Securities ------------------------------------------ In April 2000, we sold a total of 6,364,100 shares of common stock (the total amount registered) at $14.00 per share through our initial public offering pursuant to a registration statement on Form S-1 declared effective by the Securities and Exchange Commission on April 6, 2000 (333-95695). The initial public offering commenced on April 7, 2000 and the net proceeds, after underwriters' commission and fees and other costs of an estimated $7.9 million associated with the offering, totaled approximately $81.2 million. Since April 12, 2000 (the closing date of the Company's initial public offering), the Company has used an estimated $46.5 million of the net proceeds from the Company's initial public offering to fund operating expenses and increase working capital, $2.5 million to purchase and install machinery and equipment, and $30.2 million to pay the balance of principal and accrued interest under the notes payable, which were issued in connection with the acquisition of Transcription. The Company has placed approximately $2.0 million in short-term, interest-bearing, investment grade securities pending future use. No payments constituted direct or indirect payments to directors, officers, general partners of the issuer or their associates, or to persons owning ten percent or more of any class of equity securities of the issuer or to affiliates of the issuer. Item 4. Submission of Matters to a Vote of Security Holders The Company's annual meeting of Stockholders was held on June 13, 2001 in San Jose, California. At the meeting, the following matters were voted on by the Company's stockholders:
Witheld/ Abstentions/ Broker For Against Non-vote --- ------- -------- Election of Directors: Abbas El Gamal 24,085,443 393,292 - Harvey Jones 24,446,529 32,206 - Yao-Ting Wang 21,898,155 2,580,580 -
In addition to the above directors, the following directors' term of office continued after the meeting: William Davidow 18 Narendra K. Gupta Thomas Kailath Yagyensh(Buno) Pati Roger Sturgeon Ratify the appointment of PricewaterhouseCoopers As independent accounts for the fiscal year ending December 31, 2001 24,458,864 - 2,265 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. The exhibits listed in the accompanying Index to Exhibits are incorporated by reference as part of this Form 10-Q. (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the quarter ending June 30, 2001. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NUMERICAL TECHNOLOGIES, INC. Dated August 2, 2001 By: /s/ Richard S. Mora Richard S. Mora Chief Financial Officer (duly authorized officer and principal financial accounting officer) 19 INDEX TO EXHIBITS These Exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K: EXHIBIT NUMBER DESCRIPTION - ------ ----------- 2.1 Agreement and Plan of Reorganization, dated as of December 21, 1999, between the registrant, Transcription Enterprises Limited, Transcription Enterprises, Inc., Kevin MacLean and Roger Sturgeon.* 2.2 Agreement and Plan of Merger between the registrant and Numerical Technologies, Inc., a Delaware corporation.* 2.3 Agreement and Plan of Amalgamation, dated as of September 5, 2000, by and among Numerical Technologies, Inc., Numerical Nova Scotia Company, Numerical Acquisition Limited, 3047725 Nova Scotia Limited, Cadabra Design Automation Inc., Martin Lefebvre, and Faysal Sohail. *** 3.2 Amended and Restated Certificate of Incorporation of registrant.* 3.3 Bylaws of registrant.* 4.1 Form of registrant's common stock certificate.* 4.2 1999 Second Amended and Restated Shareholders Rights Agreement, dated January 1, 2000, between the registrant and the parties named therein, as amended on January 14, 2000.* 10.1 Form of Indemnification Agreement entered into by registrant with each of its directors and executive officers.* 10.2 2000 Stock Plan and related agreements.* 10.3 1997 Stock Plan and related agreements.* 10.4 2000 Employee Stock Purchase Plan and related agreements.* 10.5 Lease Agreement, dated June 15, 1999, by and between the registrant and CarrAmerica Realty Corporation.* 10.6 Lease Agreement, dated May 10, 1990, between Transcription Enterprises, Inc. and Los Gatos Business Park.* 10.7 Employment Agreement, dated January 1, 2000, by and between Transcription Enterprises, Inc. and Roger Sturgeon.* 10.8 Employment Agreement, dated January 1, 2000, by and between Transcription Enterprises, Inc. and Kevin MacLean.* 10.9 Non-Competition Agreement, dated January 1, 2000, by and between Numerical Technologies, Inc., Transcription Enterprises, Inc., Transcription Enterprises Limited and Roger Sturgeon.* 10.10 Non-Competition Agreement, dated January 1, 2000, by and between Numerical Technologies, Inc., Transcription Enterprises, Inc., Transcription Enterprises Limited and Kevin MacLean.* 10.11 Stock Option Agreement--Early Exercise, dated November 2, 1999, by and between the registrant and William Davidow.* 10.12 Stock Option Agreement--Early Exercise, dated May 26, 1999, by and between the registrant and Richard Mora.* 10.13 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and between the registrant and Richard Mora.* 10.14 Stock Option Agreement--Early Exercise, dated March 31, 1999, by and between the registrant and Atul Sharan.* 10.15 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and between the registrant and Atul Sharan.* 10.16 Stock Option Agreement--Early Exercise, dated February 3, 1999, by and between the registrant and Lars Herlitz.* 10.17 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and between the registrant and Lars Herlitz.* 10.18 Stock Option Agreement--Early Exercise, dated November 17, 1999, by and between the registrant and John Traub.* 10.19 Stock Option Agreement--Early Exercise, dated December 27, 1999, by and between the registrant and John Traub.* 10.20 Stock Option Agreement--Early Exercise, dated July 15, 1998, between the registrant and Harvey Jones.* 10.21 License Agreement, dated as of October 1, 1999, between registrant and Cadence Design Systems, Inc.*+ 10.22 OEM Software License Agreement, dated December 31, 1997, between registrant and Zygo Corporation (fka Technical Instrument Company).*+ 10.23 Addendum to OEM Software License Agreement, dated March 25, 1999, between registrant and Zygo Corporation.* 10.24 Software Production and Distribution Agreement, dated January 9, 1998, between registrant and KLA-Tencor Corporation.*+ 10.25 License Agreement, dated December 23, 1999, between registrant and Seiko Instruments, Inc.*# 20 10.26 Development and Distribution Agreement, dated October 1, 1991, between Transcription Enterprises Limited and KLA Instruments Corporation.*+ 10.27 Addendum Number One to Development and Distribution Agreement, dated December 27, 1999, between Transcription Enterprises Limited and KLA Instruments Corporation.*+ 10.28 Stock Option Agreement--Early Exercise, dated February 1, 2000, by and between the registrant and Roger Sturgeon.* 10.29 Stock Option Agreement--Early Exercise, dated February 1, 2000, by and between the registrant and Kevin MacLean.* 10.30 Stock Option Agreement--Early Exercise, dated February 10, 2000, by and between the registrant and Y.C. (Buno) Pati.* 10.31 Stock Option Agreement--Early Exercise, dated February 10, 2000, by and between the registrant and Yao-Ting Wang.* 10.32 Stock Option Agreement--Early Exercise, dated October 23, 1998, by and between the registrant and Atul Sharan.* 10.33 Amendment No. 1 to Lars Herlitz' Stock Option Agreements dated February 3, 1999 and December 27, 1999, dated as of January 24, 2000, by and between the registrant and Lars Herlitz.* 10.34 Amendment No. 1 to Atul Sharan's Stock Option Agreements dated October 23, 1998, March 31, 1999 and December 27, 1999, dated as of January 24, 2000, by and between the registrant and Atul Sharan.* 10.35 Amendment No. 1 to John Traub's Stock Option Agreements dated November 17, 1999 and December 27, 1999, dated as of January 24, 2000, by and between the registrant and John Traub.* 10.36 Stock Option Agreement--Early Exercise, dated February 10, 2000, by and between the registrant and Naren Gupta.* 10.37 PSM Software Development and License Agreement, dated as of March 10, 2000, by and between registrant and Cadence Design Systems, Inc.*+ 10.38 License Agreement, dated March 1, 2000, between registrant and Motorola, Inc.**+ 10.39 Production License Agreement, dated December 31, 2000, between registrant and United Microelectronics Corporation.****+ 10.40 Patent Cross License Agreement, dated April 17, 2001, between registrant and Intel Corporation. + * Incorporated by reference to registration statement on Form S-1 (333-95695) as declared effective by the Securities and Exchange Commission on April 6, 2000. ** Incorporated by reference to registration statement on Form 10-Q as filed with the Securities and Exchange Commission on May 12, 2000. *** Incorporated by reference to the current report on Form 8-K as filed with the Securities and Exchange Commission on September 15, 2000. **** Incorporated by reference to the registrant's Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 27, 2001. + Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. 21 EX-10.40 3 dex1040.txt PATENT CROSS LICENSE AGREEMENT DATED 4/17/2001 EXHIBIT 10.40 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission. INTEL/NUMERICAL CONFIDENTIAL FINAL EXECUTION VERSION PATENT CROSS LICENSE AGREEMENT BETWEEN NUMERICAL TECHNOLOGIES, INC. AND INTEL CORPORATION This Patent License Agreement ("Agreement") is entered into as of April 17, 2001 ("Effective Date") by and between Numerical Technologies, Inc., a Delaware corporation, having an office at 70 West Plumeria Drive, San Jose, CA 95134- 2134, U.S.A. ("Numerical") and Intel Corporation, a Delaware corporation, having an office at 2200 Mission College Blvd., Santa Clara, California 95052, U.S.A. ("Intel") (individually or collectively "party" or "parties"). IN CONSIDERATION OF THE MUTUAL COVENANTS AND PROMISES CONTAINED HEREIN, THE PARTIES AGREE AS FOLLOWS: 1. DEFINITIONS ----------- 1.1. "Capture Period" shall mean any time on or prior to the [***] anniversary of the Effective Date. 1.2. "Change of Control" shall mean a transaction or a series of related transactions in which (i) one or more related parties who did not previously own at least a fifty percent (50%) interest in a party to this Agreement obtain at least a fifty percent (50%) interest in such party, and, in the reasonable business judgment of the other party to this Agreement, such change in ownership will have a material effect on the other party's business, or (ii) a party acquires, by merger, acquisition of assets or otherwise, all or any portion of another legal entity such that the market capitalization value of such party on the Change of Control Date is greater than 200% of the Measure Market Value. For the purposes of this Section 1.2, "Measure Market Value" means the highest closing market value of such party over the previous twelve month period as measured from the day prior to the signing of the agreement for the transaction resulting in the Change of Control. 1.3. "Design" means any information used to describe or represent an Integrated Circuit (or part thereof) for the purpose of manufacturing such Integrated Circuit, including, without limitation, layouts, netlists, floor plans, logical or electrical descriptions and schematics. [***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. INTEL/NUMERICAL CONFIDENTIAL 1.4. "Flash Memory Products" shall mean non-volatile Integrated Circuits capable of storing data that are electrically programmable and electrically erasable. 1.5. "Information System Product" shall mean any active circuit element, apparatus, appliance, circuit assembly, computer, device, equipment, firmware, housing, Integrated Circuit, instrumentality, material, method, passive circuit element, process, service, software, substrate or other means for calculating, classifying, combining, computing, detecting, displaying, handling, hosting, imaging, inputting, manifesting, measuring, modifying, networking, originating, photographing, playing, printing, processing, providing, receiving, recording, reproducing, retrieving, scanning, serving, storing, switching, transmitting or utilizing data or other information for business, scientific, control or other purposes, including components and subsystems thereof or supplies therefore. 1.6. "Integrated Circuit" shall mean an integrated unit comprising (a) one or more active and/or passive circuit elements associated on one or more substrates, such unit forming, or contributing to the formation of, a circuit for performing electrical functions (including, if provided therewith, housing and/or supporting means) in combination with (b) any and all firmware, microcode or drivers, if needed to cause such circuit to perform substantially all of its intended hardware functionality, whether or not such firmware, microcode or drivers are shipped with such integrated unit or installed at a later time. 1.7. "Integrated Circuit Manufacturing Process Technology" shall mean methods and processes performed during the actual fabrication of Integrated Circuits and Masks except to the extent that such methods and processes are: (1) performed by the use or creation of Numerical Software, and/or (2) the creation of Numerical Mask Portions and the use of such Numerical Mask Portions during the process of imaging, modeling, testing, analysis and inspection of Numerical Integrated Circuit Portions; regardless of whether or not the foregoing activities (set forth in subparts (1) and (2) of this Section 1.7) are performed as Numerical Consulting Services. 1.8. "Intel Architecture Emulator" shall mean software that, through emulation, simulation or any other process, allows a computer that does not contain an Intel Compatible Processor (or a processor that is not an Intel Compatible Processor) to execute binary code that is capable of being executed on an Intel Compatible Processor. 1.9. "Intel Compatible Chipsets" shall mean one or more Integrated Circuits that alone or together are capable of (i) electrically interfacing directly (with or without buffering or pin reassignment) with an Intel Processor to form the connection between an Intel Processor and any other device including, without limitation, Processors, 2 INTEL/NUMERICAL CONFIDENTIAL input/output devices, and memory; or (ii) communicating directly with any Intel Compatible Processor through an Intel Interface. 1.10. "Intel Compatible Compiler" shall mean a compiler that generates object code that can, with or without additional linkage processing, be executed on any Intel Processor. 1.11. "Intel Compatible Processor" shall mean any Processor that (a) can perform substantially the same functions as an Intel Processor by compatibly executing or otherwise processing (i) a substantial portion of the instruction set of an Intel Processor or (ii) object code versions of applications or other software targeted to run on or with an Intel Processor, in order to achieve substantially the same result as an Intel Processor; or (b) is substantially compatible with an Intel Processor Bus. 1.12. "Intel Interface" shall mean a proprietary bus or other data path first introduced by Intel that (a) is capable of transmitting and/or receiving information inside an Integrated Circuit or between two or more Integrated Circuits, together with the set of protocols defining the electrical, physical, timing and functional characteristics, sequences and control procedures of such bus or data path; and (b) Intel has not granted a license to or committed to grant a license to through participation in a formal or informal Standard Industry Group or other standard setting body; and (c) Intel has not publicly disclosed with no obligation of confidentiality. 1.13. "Intel Licensed Products" shall mean any Intel product that constitutes: (a) an Information System Product (b) software or (c) any combination thereof, that are sold by Intel as Intel's own product (subject to the limitations set forth in Section 3.4) and not on behalf of another, provided that Intel Licensed Products shall not include any Numerical Proprietary Products. 1.14. "Intel Processor" shall mean a Processor first developed by, for or with substantial participation by Intel, or the design of which has been purchased or otherwise acquired by Intel, including without limitation the Intel 8086, 80186, 80286, 80386, 80486, Pentium(R), Pentium Pro, Pentium(R) II, Pentium(R) III, StrongARM, Xscale, Frio, Itanium(R) processor, 80860 and 80960 microprocessor families, and the 8087, 80287, and 80387 math coprocessor families. 1.15. "Intel Processor Bus" shall mean an Intel Interface that is capable of connecting one or more Intel Processors to each other, to an Intel Compatible Chipset or to a main memory or cache. 1.16. "Intel Proprietary Product" shall mean Integrated Circuits (except Numerical Integrated Circuit Portions), Integrated Circuit Manufacturing Process Technology, 3 INTEL/NUMERICAL CONFIDENTIAL Intel Compatible Processors, Intel Architecture Emulators, Intel Compatible Compilers, Intel Compatible Chipsets, Intel Interfaces (including Intel Processor Buses) and Flash Memory Products. 1.17 "Licensed Party" shall mean a party which is licensed under this Agreement. 1.18 "Mask" shall mean a plate that has been patterned to modulate the intensity or phase of light in order to project an optical image onto silicon wafers as part of the process for manufacturing Integrated Circuits. The definition of Mask shall not include the electronic circuits of the Integrated Circuit. 1.19 "Numerical Consulting Services" shall mean services and business methods directly performed by employees or subcontractors of Numerical, to the extent that such services and business methods consist of: (a) training customers (or otherwise consulting with customers) on the use of, Numerical Software; and/or (b) using Numerical Software to create Numerical Mask Portions on behalf of customers; and/or (c) assisting customers in using Numerical Software to create Numerical Mask Portions; and/or (d) assisting customers in using Numerical Software to create Numerical Integrated Circuit Portions from Numerical Mask Portions. 1.20. "Numerical Integrated Circuit Portion" shall mean any portion of an Integrated Circuit that is directly attributable to a Numerical Mask Portion and not any other portion of a Mask. 1.21 "Numerical Licensed Products" shall mean (a) Numerical Software, and/or (b) Numerical Mask Portions, and/or (c) Numerical Integrated Circuit Portions and/or (d) Numerical Consulting Services that are sold, provided or licensed by Numerical (directly or indirectly) as Numerical's own product or service (subject to the limitations set forth in Section 3.4) and not as a third party's product or service. Numerical Licensed Products excludes Intel Proprietary Products. 1.22. "Numerical Mask Portion" shall mean any portions of any Mask that (a) are altered by the use of Numerical Software, and (b) contain information about the layout and/or location of active or passive circuit elements (but not the active and/or passive circuit elements themselves). For purposes of clarification, the parties intend that the definition of Numerical Mask Portion does not include any element that is attributable 4 INTEL/NUMERICAL CONFIDENTIAL to a Design provided by a third party, except to the extent that such element satisfies subparts (a) and (b) of this Section 1.22. 1.23 "Numerical Proprietary Product" means those portions of software offered or provided (as a software product, or on a application service provider basis (or other service bureau basis) or on a consulting basis) to third parties having any of the following functionality: phase shifting, optical proximity correction, lithography process correction, cell library generation, mask data preparation, lithography simulation, and silicon vs. layout checking. Numerical Proprietary Product shall not include those portions of software provided by Intel to its bona fide foundry customers solely to enable such foundry customers to use Intel as a foundry for such foundry customer's Integrated Circuits but only to the extent that such software provides the functionality of cell library generation. 1.24 "Numerical Software" shall mean any portions of any Numerical product that (a) are software, and (b) are offered or provided (as a software product, application service provider (or other service bureau basis) or on a consulting basis) directly or indirectly to third parties as Numerical's product, and (c) provide for the design (including modification or enhancement thereof), computer modeling, simulation, analysis and/or testing (except for that portion of the software that controls electrical hardware testers and/or analyzers)and inspection (as opposed to the manufacture) of any aspect of an Integrated Circuit or Mask, including, without limitation, phase shifting, optical proximity correction, lithography process correction, cell library generation, mask data preparation, lithography simulation and/or layout checking. 1.25 "Patents" shall mean all classes or types of patents other than design patents (including, without limitation, originals, divisions, continuations, continuations-in-part, extensions or reissues as well as the patent applications for such patents to the extent patent rights attach to such applications), and applications for these classes or types of patent rights in all countries of the world (collectively "Patent Rights") that have a first effective filing date during the Capture Period and which, at any time during the term of this Agreement, are (a) owned by the applicable party (or any of its Subsidiaries) or (b) to which the applicable party (or any of its Subsidiaries) has the right to enforce or to grant licenses within and of the scope set forth herein and without the requirement to pay consideration to any third party (other than an employee inventor or consultant inventor of the applicable party or its Subsidiaries) for the grant of a license under this Agreement. 1.26 "Processor" shall mean any Integrated Circuit or combination of Integrated Circuits capable of processing digital data, including, without limitation, a microprocessor or coprocessor, a math coprocessor, a network processor or coprocessor, a graphics controller or a digital signal processor. 5 INTEL/NUMERICAL CONFIDENTIAL 1.27 "Subsidiary" shall mean any corporation, partnership, joint venture, limited liability company or other entity, now or hereafter, in which a party: (a) owns or controls (either directly or indirectly) or originally contributed (either directly or indirectly) at least fifty percent (50%) of the tangible and intangible assets of such entity; and (b) owns or controls (either directly or indirectly) either of the following: (1) if such entity has voting shares or other securities, at least fifty percent (50%) of the outstanding shares or securities entitled to vote for the election of directors or similar managing authority and such entity is under no obligation (contractual or otherwise ) to directly or indirectly distribute more than seventy percent (70%) of its profits to a third party, or (2) if such entity does not have voting shares or other securities, at least fifty percent (50%) of the ownership interest that represents the right to make decisions for such entity and an interest sufficient to receive at least thirty percent (30%) of the profits and/or losses of such entity. (c) An entity shall be deemed to be a Subsidiary of a party under this Agreement only so long as all requisite conditions of being a Subsidiary under this Section 1.27 are met. 2. MUTUAL RELEASES --------------- 2.1. Numerical. Subject to Intel's payment of License Fees and --------- Maintenance Payments under Section 4, Numerical, on behalf of itself and its Subsidiaries, hereby releases, acquits and forever discharges Intel, its Subsidiaries that are Subsidiaries as of the Effective Date or become Subsidiaries during the term of this Agreement, and its and their distributors and customers, direct and indirect, from any and all claims or liability for infringement (direct, induced, indirect or contributory) of any Numerical Patents that arise prior to the expiration of this Agreement, to the extent such infringement would have been licensed under the license granted to Intel hereunder if such license had been in existence at the time of such infringing activity. 2.2. Intel. Intel, on behalf of itself and its Subsidiaries, hereby ----- releases, acquits and forever discharges Numerical, its Subsidiaries that are Subsidiaries as of the Effective Date or become Subsidiaries during the term of this Agreement, and its and their distributors and customers, direct and indirect, from any and all claims or liability for infringement (direct, induced, indirect or contributory) of any Intel Patents that arise prior to the expiration of this Agreement, to the extent such infringement would have 6 INTEL/NUMERICAL CONFIDENTIAL been licensed under the license granted to Numerical hereunder if such license had been in existence at the time of such infringing activity. Intel, on behalf of itself and its Subsidiaries, further hereby releases, acquits and forever discharges Numerical, its Subsidiaries that are Subsidiaries as of the Effective Date from any and all claims of trade secret misappropriation. 3. GRANT OF RIGHTS --------------- 3.1. Numerical License to Intel. Subject to the terms and conditions of -------------------------- this Agreement including the payment of fees under Section 4 (and no other payments), Numerical hereby grants to Intel a non-exclusive, non-transferable worldwide license, without the right to sublicense, under Numerical's Patents to: (a) make, use, sell (directly or indirectly), offer to sell, import and otherwise dispose of all Intel Licensed Products; and (b) make, have made, use and/or import any equipment and practice any method or process for the manufacture, use, sale and/or offer for sale of Intel Licensed Products; and (c) have made (subject to the limitations set forth in Section 3.4) Intel Licensed Products by another manufacturer for supply solely to Intel for use, import, sale, offer for sale or disposition by Intel pursuant to the license granted above in Section 3.1(a). 3.2. Intel License to Numerical. Subject to the terms and conditions of -------------------------- this Agreement, Intel hereby grants to Numerical a non-exclusive, non- transferable (except as expressly allowed under Section 5.3), royalty- free, fully paid up, worldwide license, without the right to sublicense, under Intel's Patents to: (a) make, use, sell (directly or indirectly), offer to sell, import and otherwise dispose of all Numerical Licensed Products; and (b) make, have made, use and/or import any equipment and practice any method or process for the manufacture, use sale, and/or offer for sale of all Numerical Licensed Products; and (c) have made (subject to the limitations set forth in Section 3.4) Numerical Licensed Products by another manufacturer for supply solely to Numerical for use, import, sale, offer for sale or disposition by Numerical pursuant to the license granted above in Section 3.2(a). 7 INTEL/NUMERICAL CONFIDENTIAL 3.3. Duration and Extent of Licenses. All licenses granted in this ------------------------------- Section 3 as to any Intel Patent or Numerical Patent shall continue for the entire unexpired term of such Patent. 3.4. Have Made Rights. ---------------- (a) Each party's rights to have Licensed Products manufactured for it by third parties under the licenses granted under Sections 3.1 and 3.2 above shall apply only when the designs, specifications and working drawings for the Licensed Product to be manufactured by such third party are furnished to the third party manufacturer by the Licensed Party for distribution as a Licensed Party's product without the intent (in whole or part) or the effect (in whole or part) of circumvention of the anti-laundering provisions of this Agreement. (b) The parties understand and acknowledge that either party's Licensed Products may consist of software, and that software is often distributed to end users by providing a single master copy of such software to a distributor, replicator, VAR, OEM or other agent and authorizing such agent to reproduce such software in substantially identical form. Accordingly, the parties agree that the licenses granted in this Section 3 are intended to apply to the reproduction and subsequent distribution of such Licensed Products in a form substantially identical form to that provided by the Licensed Party to such authorized agent. Nothing in this Section 3.4(b) shall be deemed to be a license for Intel to distribute or otherwise provide or make available to third parties, any Numerical Proprietary Products. (c) Upon written request of the party to this Agreement that grants the relevant license to the Licensed Party ("Requesting Party"), the Licensed Party shall, within 30 days of receiving such request, and to the extent not prohibited by written agreement with a third party, inform the Requesting Party in writing whether, any manufacturer identified by the Requesting Party is manufacturing any Licensed Product for the Licensed Party pursuant to the "have made" rights granted under this Agreement. 3.5. Clarification Regarding Patent Laundering. The parties understand and ----------------------------------------- acknowledge that the licenses granted hereunder are intended to cover only the products of the two parties to this Agreement, and are not intended to cover manufacturing activities that either party may undertake on behalf of third parties (patent laundering activities). Similarly, the licenses provided under this Agreement are not intended to cover services provided by the parties to the extent that such services are provided to or on behalf of a third party using tangible or intangible materials provided by or on behalf of the third party. Accordingly, by way of clarification, the following guidelines are 8 INTEL/NUMERICAL CONFIDENTIAL provided to aid the determination of whether a party's product is a Licensed Product as defined herein or whether such product is disqualified from being a Licensed Product because circumstances surrounding the manufacture of the product suggest patent laundering. (a) Products of either party that otherwise meet the definition of Licensed Product are disqualified as Licensed Products if such products are manufactured on behalf of a third party from designs received in a substantially completed form from a third party for resale to or on behalf of that party. (b) Products of either party that otherwise meet the definition of Licensed Product are not disqualified as Licensed Products under the prohibition against patent laundering set forth in this Section 3.5 if: (1) the Licensed Party selling or licensing such Licensed Product owns the design of such Licensed Product and is under no obligation (other than that imposed by applicable law) that restricts the sale and/or distribution of such Licensed Product only to specific parties; or (2) the Licensed Party distributing such Licensed Product has an unrestricted, royalty-free ownership or license right to the design of the Licensed Product. (c) Notwithstanding anything is this Section 3.5, it shall not be considered "patent laundering" and it shall be permissible for Numerical to provide bona fide Numerical Consulting Services to third parties in accordance with the license granted in Section 3.2. 3.6. Limited Right to Suspend Patent License for Sales to Affiliates. --------------------------------------------------------------- (a) For purposes of this Section 3.6, "Affiliate" means any entity that is directly or indirectly Controlled by, under common Control with or that Controls the subject party. For purposes of this definition, "Control" means direct or indirect ownership of or the right to exercise (i) at least fifty percent (50%) of the outstanding shares or securities entitled to vote for the election of directors or similar managing authority of the subject entity; or (ii) at least fifty percent (50%) of the ownership interest representing the right to make the decisions for the subject entity. (b) Notwithstanding anything herein to the contrary, a party ("Licensing Party") shall have the limited right to suspend the licenses granted under this Agreement to the Licensed Party with respect to sales to an Affiliate of the Licensed Party if: 9 INTEL/NUMERICAL CONFIDENTIAL (1) The Affiliate is a direct or indirect customer of the Licensed Party; and (2) the Affiliate initiates a legal or administrative proceeding against the Licensing Party and/or any of its Subsidiaries alleging that the Licensing Party infringes a patent right of the Affiliate, and (3) the alleged infringing activity would have been licensed had the identified patent right been owned or controlled by the Licensed Party, and (4) the Licensing Party did not first assert a patent claim against the Affiliate or any of its Subsidiaries. (c) If the Licensing Party elects to suspend the licenses granted under this Agreement pursuant to Section 3.6(b), the Licensing Party shall give written notice of its intent to suspend the licenses to the Licensed Party, which notice shall set forth the facts known to the Licensing Party that support its decision to suspend the license. The Licensed Party shall have sixty (60) days from the date of such written notice to cure the circumstances that prompted such notice. Such suspension shall be effective sixty (60) days following the date of such written notice, and shall be solely for the purpose of allowing the Licensing Party to assert a claim of infringement against the Affiliate that brought the original claim against the Licensing Party. During the sixty (60) day period preceding the suspension, the Licensed Party is encouraged to engage in the dispute resolution procedure set forth in Section 7.15, it being understood and agreed that a Licensing Party has not waived its claim for damages during such cure period or dispute resolution process. Suspension of license rights under this Section 3.6 shall apply only with respect to the Licensed Products of the Licensed Party that are sold or licensed to such Affiliate. (d) In the event the Licensing Party opts to assert a claim for infringement against the Affiliate, the Licensing Party agrees that it shall not seek monetary damages against the Licensed Party but rather shall look to the Affiliate for monetary damages. The Licensing Party shall not assert a patent claim directly against the Licensed Party until it has first exhausted its legal remedies directly against the Affiliate. If the Licensing Party resolves its patent dispute with the Affiliate, either through entrance of a judgment or by settlement of the dispute, the Licensing Party agrees that it shall not bring a separate action against the Licensed Party with respect to products sold or licensed to such Affiliate. 10 INTEL/NUMERICAL CONFIDENTIAL 3.7. Licenses and Subsidiaries. ------------------------- (a) Intention for Subsidiaries to be Bound. -------------------------------------- (1) Except as expressly set forth herein, the parties intend that this Agreement shall extend to all of each party's Subsidiaries. The parties agree that to the extent they are not already bound, each party shall use reasonable and diligent efforts to ensure that all such Subsidiaries are bound by the terms of this Agreement. (2) Each party agrees to take all steps that are reasonable and in good faith under the circumstances to ensure that all Patents directed to inventions that are made by its employees and/or contractors either alone or in conjunction with the employees and/or contractors of one or more of its Subsidiaries are licensed under this Agreement. Each party further agrees to take all steps that are reasonable and in good faith under the circumstances to ensure that all Patents directed to inventions that are made in substantial part using funding provided directly or indirectly by that party and/or its Subsidiaries are licensed under this Agreement. (3) Notwithstanding Section 3.7(a)(2) above, however, both parties understand and intend that there are circumstances in which a party could reasonably agree in good faith with a third party that the party would not have rights to license and/or enforce Patents directed to inventions developed in conjunction with employees and/or contractors of such third party. For example, both parties understand that it could be reasonable under the circumstances for a party to agree in good faith not to have rights to license and/or enforce Patents directed to inventions that arise out of: (i) bona fide joint development projects based in substantial part on the pre-existing technology of an independent third party; or (ii) bona fide joint development projects undertaken with the significant assistance of the employees and/or contractors of an independent third party. (4) Either party to this Agreement shall have the right to request a written confirmation or denial from the other party to this Agreement that a specific Subsidiary is (or is not) bound by this Agreement. A party receiving such a request shall provide such written confirmation (including a full explanation in support of such confirmation or denial) within 30 days after the receipt of the request. 11 INTEL/NUMERICAL CONFIDENTIAL (b) In the event that neither a party nor any of its Subsidiaries has the right to grant a license under any particular Patent Right of the scope set forth herein, then the license granted herein under such Patent shall be of the broadest scope which the licensing party or any of its Subsidiaries has the right to grant. (c) The parties represent, warrant and covenant that they shall not participate in the creation of Subsidiaries where a primary purpose of such creation is to extend the benefits of this Agreement to a third party. (d) If either party or one of their Subsidiaries ("First Party") owns or has the right to enforce or control the enforcement of any rights in any Patent, but such First Party does not have the right to license those rights to the other party to this Agreement (the "Second Party") hereunder ("Restricted Patent Rights"), then, if and to the extent that such Restricted Patent Rights would have been licensed to the Second Party under this Agreement if the First Party had the right to license such patents: (1) the First Party will not sue the Second Party for infringing the Restricted Patent Rights; (2) the First Party shall not give its assent if that assent is required to allow a third party entity to assert the Restricted Patent Rights against the Licensed Products of the Second Party; provided that (i) this restriction shall be dropped if the Second Party first initiates litigation against the holder of the Restricted Patent Rights, and (ii) in any event the First Party shall be free to fulfill its contractual obligations to provide assistance and support as may be required under the relevant contractual agreement; and (3) the First Party promises to off-set or repay over to the Second Party any monetary awards for damages and/or royalties actually to be paid or paid by the Second Party and owing to said First Party as a result of litigation by the holder of the Restricted Patent Rights against the Licensed Products of the Second Party to the extent attributable to such Restricted Patent Rights. (e) The extension of license rights to a Subsidiary under this Agreement shall apply only during the time period when such Subsidiary meets all requirements of a Subsidiary. However, if a Subsidiary of a party that holds any Patents that are licensed to the other party hereunder ceases to meet all requirements of being a Subsidiary, the licenses granted by such Subsidiary to the other party under this Agreement shall continue for the life of such Patents 12 INTEL/NUMERICAL CONFIDENTIAL even after such entity ceases to meet all the requirements of being a Subsidiary. (f) Notwithstanding anything to the contrary contained in this Agreement, in the event that either party or any of its Subsidiaries obtains rights to any Patents that would be included within the Patents licensed hereunder but for the fact that such a license would require the party granting such license to make payments to a third party, such Patents shall be included within the Numerical Patents or the Intel Patents, as the case may be, if the party to whom such would be licensed under this Agreement agrees in a separate written agreement to be bound by, and protect such grantor against, those payment obligations. 3.8. Waiver of Indirect Infringement Liability. ----------------------------------------- (a) For purposes of this Section 3.8, "Indirect Infringement" means a claim for infringement where the accused infringer is not directly infringing the subject Patents, but is in some manner contributing to a third party's direct infringement of the subject Patents by, for example, supplying parts or instructions to the third party that as a result of such parts or instructions enable such third party to infringe directly the subject Patents. Indirect Infringement includes without limitation contributory infringement and inducing infringement. (b) Each party agrees that during the term of this Agreement, it will not assert a claim of Indirect Infringement against a Licensed Party where such a claim would be based in any part or in any way upon (i) any activity for which the Licensed Party is licensed under this Agreement if such activity had been performed by the Licensed Party directly, or (ii) the Licensed Party providing instructions regarding or sample designs related to its Licensed Products. The parties agree that the foregoing sentence does not and shall not in any way limit their respective rights to assert direct or indirect claims of infringement against third parties. 3.9. No Other Rights. No other rights are granted hereunder, by --------------- implication, estoppel, statute or otherwise, except as expressly provided herein. Specifically, (i) except as expressly provided in Section 3, nothing in the licenses granted hereunder or otherwise contained in this Agreement shall expressly or by implication, estoppel or otherwise give either party any right to license the other party's Patents to others, and (ii) no license or immunity is granted by either party hereto directly or by implication, estoppel or otherwise to any third parties acquiring items from either party for the 13 INTEL/NUMERICAL CONFIDENTIAL combination of Licensed Products with other items or for the use of such combination. 4. BUSINESS TERMS -------------- 4.1. Numerical shall provide Intel with certain Numerical Software under the terms set forth in Exhibit A hereto. --------- 4.2. In consideration for the rights and licenses granted by Numerical under this Agreement and the Intel Corporation Purchase Agreement attached hereto as Exhibit A, Intel shall make payments to --------- Numerical in accordance with the schedule set forth in Exhibit B --------- to this Agreement. Payments shall be made via FEDWIRE to [***] 4.3 Intel shall have the option, in its sole discretion, of receiving Maintenance Services from Numerical under this Agreement and Intel shall have the right to cancel such Maintenance Services at any time in its sole discretion subject to the terms of this Agreement. For the purpose of this Agreement "Maintenance Services" is provided on an annual basis and shall mean (a) support and maintenance of the Numerical Software received by Intel pursuant to the terms of Exhibit A, and (b) licenses, under this Agreement, to all filings for Numerical Patents (and Numerical Patents issued therefrom) during the corresponding Maintenance Services period. The payments for Maintenance Services are owing in advance on an annual basis and payments will be made as set forth in Exhibit B. Commencing after the end of the first year of the first Payment Due Date in Exhibit B, such Maintenance Service is non-refundable and non-cancelable for each annual period, upon Intel's commencement of the first quarterly payment for such annual period. 4.4. Intel shall not provide Support to a challenge in a legal proceeding by a third party to the validity of any of Numerical's Patents that are issued as of the Effective Date. "Support" means (1) providing paid consulting services in support of such a challenge to the Patents, or (2) providing direct financial support or legal advice to such a challenge of the Patents of the licensing party. Notwithstanding the foregoing, neither party shall be prohibited from fulfilling its obligations under a subpoena or as otherwise compelled under applicable law, even if performance of those obligations tends to cast doubt on the validity of one or more of the other party's Patents. 5. EFFECTIVE DATE, TERM AND TERMINATION ------------------------------------ 5.1. Term. This Agreement and the rights and licenses granted ---- hereunder shall become effective on the Effective Date, and shall continue in effect until terminated by one of [***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 14 INTEL/NUMERICAL CONFIDENTIAL the parties pursuant to Section 5.2 or until the expiration of last to expire Patent that is licensed under this Agreement. 5.2. Termination for Cause. --------------------- (a) A party may terminate the other party's rights and licenses hereunder upon notice if the other party hereto commits a material breach of this Agreement and does not correct such breach within sixty (60) days after receiving written notice complaining thereof. In the event of such termination, the rights and licenses granted to the defaulting party shall terminate, but the rights and licenses granted to the party not in default shall survive such termination of this Agreement subject to its continued compliance with the terms and conditions of this Agreement. (b) A party hereto may terminate this Agreement upon sixty (60) days written notice of termination to the other party given at any time upon or after: (1) the filing by the other party of a petition in bankruptcy (other than reorganization) or insolvency which petition is not dismissed within sixty (60) days of its filing; (2) any final adjudication that the other party is bankrupt or insolvent; (3) the appointment of a receiver for all or substantially all of the property of the other party which appointment is not discharged within sixty (60) days of making; or (4) the institution of any proceedings for the liquidation or winding up of the other party's business or for the termination of its corporate charter which proceedings are not dismissed within sixty (60) days of their commencement. (c) In the event of termination pursuant to Sections 5.2(a) and 5.2(b), the rights and licenses granted to the terminated party shall terminate, but the rights and licenses granted to the other shall survive such termination of this Agreement subject to its continued compliance with the terms and conditions of this Agreement. 5.3. Effect on License Grants Following a Change of Control. If one party ------------------------------------------------------ to this Agreement (the "Changed Party") undergoes a Change of Control with a third party (the "New Party"), then the Changed Party shall promptly give notice of such Change of Control to the other party to this Agreement (the "Unchanged Party") in writing within fifteen (15) days after the effective date of the closing of such Change of 15 INTEL/NUMERICAL CONFIDENTIAL Control. In the event of a Change of Control, this Agreement shall be deemed to have been automatically amended as of the effective date of the closing of such Change of Control ("Change of Control Date") as follows: (a) Capture Period. The Capture Period for the Patents of both -------------- parties shall terminate effective on the Change of Control Date. (b) Unchanged Party. The license set forth in Section 3 to the --------------- Unchanged Party shall survive with respect to the Patents falling within the Capture Period in accordance with the terms of this Agreement. (c) Intel as Changed Party. In the event of termination pursuant to ---------------------- a Change of Control in which Intel is the Changed Party, the license granted to Intel under Section 3 of this Agreement shall terminate, and New Party shall continue to pay fees to Numerical pursuant Article 4 of the Agreement. (d) Numerical as Changed Party. -------------------------- (1) In the event of a Change of Control in which Numerical is the Changed Party: i. The definition of Numerical Software shall be amended to read as follows: "Numerical Software" shall mean any portions of any New Party product that (a) are software, and (b) are offered or provided (as a software product, application service provider (or other service bureau basis) or on a consulting basis) directly or indirectly to third parties as the New Party's product, and (c) provide for the design (including modification or enhancement thereof), computer modeling, simulation, analysis and/or testing (except for that portion of the software that controls electrical hardware testers and analyzers) and inspection (as opposed to the manufacture) of any aspect of an Integrated Circuit or Mask, including, without limitation, phase shifting, optical proximity correction, lithography process correction, cell library generation, mask data preparation, lithography simulation and/or layout checking, and (d) are (1) commercially available as Numerical Software by Numerical (i.e. not a custom product) on the Change of Control Date or had been significantly developed by Numerical prior to the Change of Control Date without the use of any resources of the New Party and are made commercially available within 16 INTEL/NUMERICAL CONFIDENTIAL nine (9) months of the Change of Control Date (collectively the "New Numerical Software"), and (2) subsequent changes that constitute bug fixes and minor modifications, but such license shall not extend or apply to any changes that constitute the addition of substantial new features or substantial new functionality, provided that the unchanged portion and bug fixes and minor modifications of any such New Numerical Software shall remain licensed even if substantial new features or substantial new functionality is added. ii. The definition of Numerical Licensed Products shall be amended to include the revised definition of Numerical Software provided under Section 5.3(d)(1)(i). iii. The license granted to Numerical under Section 3 of this Agreement shall survive only with respect to those Numerical Licensed Products that fall within the revised definition of Numerical Licensed Products (including with respect to Numerical Mask Portions, Numerical Integrated Circuit Portions and Numerical Consulting Services to the extent that those definitions are modified by the modification to the definition of Numerical Software set forth in Section 5.3(d)(1)(i)). (2) In the event that: (i) Numerical is subject to a Change of Control by a nonaffiliated party that is already (as measured on the Change of Control Date) licensed to the Intel Patents (in a scope of license similar to that granted under this Agreement); and (ii) the Change of Control Date occurs within ninety (90) days of the Effective Date of this Agreement, Intel's obligation to make payments under Section 4, shall be discounted by an amount equal to one-third (1/3) of the remaining amounts owing under Exhibit B to this --------- Agreement as such amounts are measured on the Change of Control Date. (3) Intel shall continue to pay fees to Numerical pursuant Article 4 of the Agreement (except as expressly provided otherwise in Section 5.3(d)(2)). 5.4. Survival. The provisions of Sections 1, 2, 5, 6 and 7, payment -------- obligations under Article 4 shall survive any termination or expiration of this Agreement, and Exhibit A shall survive in accordance with its own terms and --------- conditions. 6. LIMITED WARRANTIES AND DISCLAIMER --------------------------------- 6.1. Limited Warranties. Each of the parties hereto represents and ------------------ warrants that: 17 INTEL/NUMERICAL CONFIDENTIAL (a) it has the right to grant the other the licenses granted hereunder; (b) it has the full right and power to enter into and perform this Agreement and that there are no outstanding agreements, assignments or encumbrances inconsistent with any provisions of this Agreement; and (c) this Agreement constitutes a valid and legally binding obligation of each party enforceable against each party in accordance with its terms. 6.2. Disclaimer. Nothing contained in this Agreement shall be construed ---------- as: (a) a warranty or representation by either of the parties to this Agreement as to the validity, enforceability or scope of any class or type of Patent; or (b) a warranty or representation that any manufacture, sale, lease, use or other disposition of Licensed Products hereunder will be free from infringement of any patent rights or other intellectual property rights of any third party or will be free from infringement of intellectual property rights (other than Patents) of the other party; or (c) an agreement to bring or prosecute actions or suits against third parties for infringement or conferring any right to bring or prosecute actions or suits against third parties for infringement; or (d) except in the context of a press release to be issued pursuant to Section 7.17 conferring any right to use in advertising, publicity, or otherwise, any trademark, trade name 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 under any Patent, copyright, mask work, trade secret, trademark other intellectual property right except the licenses and rights expressly granted hereunder; or (f) an obligation to furnish any technical information or know-how. 6.3. NO IMPLIED WARRANTIES. EACH PARTY HEREBY DISCLAIMS ANY IMPLIED --------------------- WARRANTIES WITH RESPECT TO THE PATENTS LICENSED HEREUNDER, INCLUDING WITHOUT LIMITATION, THE WARRANTIES OF MERCHANTABILITY, NON- INFRINGEMENT OR FITNESS FOR A PARTICULAR PURPOSE. 18 INTEL/NUMERICAL CONFIDENTIAL 7. MISCELLANEOUS PROVISIONS ------------------------ 7.1. Infringement Claims. During the term of this Agreement, Numerical ------------------- shall have no obligation to defend or indemnify any third party patent infringement claims asserted against Intel or any Intel Subsidiaries relating to Intel Licensed Products (except as set forth in the Intel Corporate Purchase Agreement attached as Exhibit A). During the term of this Agreement, Intel shall have no obligation to defend or indemnify any third party patent infringement claims asserted against Numerical or any Numerical Subsidiaries relating to Numerical Licensed Products. 7.2. Relationship of the Parties. Numerical and Intel shall be --------------------------- independent contractors and neither of them shall be nor represent themselves to be the legal agent, partner or employee of the other party for any purpose; (i) neither party has the authority to make any warranty or representation on behalf of the other party nor to execute any contract or otherwise assume any obligation or responsibility in the name of or on behalf of the other party; and (ii) neither party shall be bound by, nor liable to, any third party for any act or any obligations or debt incurred by the other party, except to the extent specifically agreed to in writing by the parties. 7.3. Injunction. Except as expressly provided herein, either party may ---------- seek a preliminary injunction or other preliminary judicial relief if, in its judgment, such action is necessary to avoid irreparable damage or to compel compliance by the other with the terms of this Agreement. 7.4. Enforcement Rights. There may be countries in which a party hereto ------------------ may have, as a consequence of this Agreement, rights against infringers of the other party's Patents licensed hereunder. Each party hereby waives any such right it may have by reason of such third party's infringement or alleged infringement of the other party's Patents. 7.5. Headings. The Article headings in this Agreement are for -------- convenience only, and shall not be considered a part of, or affect the interpretation of, any provision of this Agreement. 7.6. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be an original, with the same effect as if the signatures thereto and to this Agreement were upon the same instrument. 7.7. Non-assignability of this Agreement. Except as provided under ----------------------------------- Section 5.3, this Agreement is personal to the parties, and the Agreement or any right or obligation hereunder is not assignable whether in conjunction with a change in ownership, merger, acquisition, the sale or transfer of all, or substantially all or any part of a party's business or assets or 19 INTEL/NUMERICAL CONFIDENTIAL otherwise, either voluntarily, by operation of law, or otherwise, without the prior written consent of the other party, which consent may be withheld at the sole discretion of such other party. Any such purported assignment or transfer shall be deemed a breach of this Agreement and shall be null and void. This Agreement shall be binding upon and inure to the benefit of the parties and permitted successors. 7.8. Notice. All notices required or permitted to be given hereunder ------ shall be in writing and shall be delivered by hand, or if dispatched by prepaid air courier or by registered or certified airmail, postage prepaid, addressed as follows: If to Numerical: If to Intel: Numerical Technologies, Inc. General Counsel 70 West Plumeria Drive Intel Corporation San Jose, CA 95134-2134 2200 Mission College Blvd. United States of America Santa Clara, CA 95052 Attn.: General Counsel United States of America With a required copy to: Wilson, Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, CA U.S.A. Attn: John Roos Such notices shall be deemed to have been served when received by addressee or, if delivery is not accomplished by reason of some fault of the addressee, when tendered for delivery. Either party may give written notice of a change of address and, after notice of such change has been received, any notice or request shall thereafter be given to such party as above provided at such changed address. 7.9. No Rule of Strict Construction. Regardless of which party may have ------------------------------ drafted this Agreement, no rule of strict construction shall be applied against either party. 7.10. Severability. If any provision of this Agreement is determined by a ------------ court to be unlawful or otherwise unenforceable, the provision will be severed and deleted from this Agreement, and the remainder of the Agreement will continue in effect. The Parties shall negotiate in good faith an enforceable substitute provision that most nearly achieves the intent and economic effect of such invalid or unenforceable provision. 20 INTEL/NUMERICAL CONFIDENTIAL 7.11. Taxes. Each party shall be responsible for the payment of its own ----- tax liability arising from this transaction. 7.12. Modification; Waiver. No modification or amendment to 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. 7.13. Governing Law. This Agreement and matters connected with the ------------- performance thereof shall be construed, interpreted, applied and governed in all respects in accordance with the laws of the United States of America and the State of New York, without reference to conflict of laws principles. 7.14. Jurisdiction. Intel and Numerical agree that all disputes and ------------ litigation regarding this Agreement and matters connected with its performance shall be subject to the exclusive jurisdiction of the federal courts of the Northern District of California or of the state courts sitting therein. 7.15. Dispute Resolution. All disputes arising directly under the express ------------------ terms of this Agreement or the grounds for termination thereof shall be resolved as follows: First, the senior management of both parties shall meet to attempt to resolve such disputes. If the senior management cannot resolve the disputes, either party may make a written demand for formal dispute resolution. Within thirty (30) days after such written demand, the parties agree to meet for one (1) day with an impartial, independent mediator to be mutually agreed to by the parties and consider dispute resolution alternatives other than litigation. If an alternative method of dispute resolution is not agreed upon within sixty (60) days after the one-day mediation, either party may begin litigation proceedings. 7.16. Confidentiality of Terms. The parties hereto shall keep the terms ------------------------ of this Agreement confidential and shall not now or hereafter divulge these terms to any third party except: (a) with the prior written consent of the other party; or (b) to any governmental body having jurisdiction to call therefor; or (c) as otherwise may be required by law or legal process, including to legal and financial advisors in their capacity of advising a party in such matters; or (d) to the minimum extent necessary to comply with United States law in a filing with the Securities and Exchange Commission; or 21 INTEL/NUMERICAL CONFIDENTIAL (e) during the course of litigation so long as the disclosure of such terms and conditions are restricted in the same manner as is the confidential information of other litigating parties and so long as (a) the restrictions are embodied in a court- entered Protective Order and (b) the disclosing party informs the other party in writing at least ten (10) days in advance of the disclosure; or (f) in confidence to legal counsel, accountants, banks and financing sources and their advisors solely in connection with financial transactions or other corporate transactions. 7.17. Press Release. Numerical shall be entitled to issue the press ------------- release set forth in Exhibit C. Such press release shall be made --------- public as soon as reasonably possible after the Effective Date. 7.18. Compliance with Laws. Anything contained in this Agreement to the -------------------- contrary notwithstanding, the obligations of the parties hereto and of the Subsidiaries of the parties under this Agreement shall be subject to all laws, present and future, of any government having jurisdiction over the parties hereto or the Subsidiaries of the parties, and to orders, regulations, directions or requests of any such government. 7.19. Force Majeure. The parties hereto shall be excused from any failure ------------- to perform any obligation hereunder to the extent such failure is caused by war, acts of public enemies, strikes or other labor disturbances, fires, floods, acts of God, electrical interruption, earthquakes or any causes of like or different kind beyond the control of the parties. 7.20. Nothing in this Agreement shall be construed to grant to Intel the right to distribute or otherwise make available to any third party any Numerical Software. 7.21. Entire Agreement. This Agreement, the Exhibits hereto, the Non- ---------------- Disclosure Agreement between the parties dated October 18, 2000 (Intel CNDA #4113864) and any addenda and amendments executed by the parties embody the entire understanding of the parties with respect to the subject matter hereof, and merges all prior discussions between them, and neither of the parties shall be bound by any conditions, definitions, warranties, understandings, or representations with respect to the subject matter hereof other than as expressly provided herein. No oral explanation or oral information by either party hereto shall alter the meaning or interpretation of this Agreement. 22 INTEL/NUMERICAL CONFIDENTIAL WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the date below written. INTEL CORPORATION NUMERICAL TECHNOLOGIES, INC. By: /s/ S. Chou By: /s/ Yagyensh C. Pati ------------------------- ------------------------- Sunlin Chou Yagyensh C. Pati ---------------------------- --------------------------- Printed Name Printed Name Senior Vice President CEO ---------------------------- --------------------------- Title Title April 17, 2001 April 19, 2001 ---------------------------- --------------------------- Date Date 23 INTEL/NUMERICAL CONFIDENTIAL EXHIBIT A Intel Corporation Purchase Agreement 24 INTEL/NUMERICAL CONFIDENTIAL FINAL EXECUTION VERSIONS INTEL CORPORATION PURCHASE AGREEMENT --SOFTWARE AND RELATED SERVICES-- Agreement No. C-9627 ---------------- Effective Date April 17, 2001 ---------------- Expiration Date [***] ---------------- CNDA No. 4113864 ---------------- INTEL: Intel Corporation (and all Intel Divisions and Subsidiaries, hereinafter "Buyer" or "Intel") Located at: 5200 NE Elam Young Parkway, Hillsboro, OR, 97124 SUPPLIER: Numerical Technologies, Inc. (hereinafter "Supplier") Located at: 70 West Plumeria Drive, San Jose CA 95134-2134 Addenda: attached to this Agreement X General Terms and Conditions - Software & Related Services --- (Mark "X" where applicable.) X A. Software & Services Description/Specifications/Price --- X B. Software Maintenance and Support --- ___ C. Alcohol and Drug Free Workplace X D. Protection of Buyer's Information Assets --- X E. Certificate of Originality --- ___ F. Assignment of Intellectual Property X G. Source Code Escrow --- ___ H. Supplemental Provisions
Buyer may license Software or purchase Services and Supplier shall provide the Software and/or Services as described in Addendum A, at prices specified, and in accordance with the Terms and Conditions of this Agreement. Patents are licensed under the terms and conditions set forth in the Patent Cross License Agreement between the Parties to which this Intel Corporation Purchase Agreement is attached. All Purchase Orders regarding Supplier's in-Phase software product issued to Supplier by Buyer during the term of this Agreement shall be governed only by the Terms and Conditions of this Agreement notwithstanding any preprinted terms and conditions on Supplier's acknowledgment or Buyer's Purchase Order. Any additional or different terms in Supplier's documents are hereby deemed to be material alterations and notice of objection to and rejection of them is hereby given. [***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 1 INTEL/NUMERICAL CONFIDENTIAL GENERAL TERMS AND CONDITIONS 1. DEFINITIONS ----------- A. "Acceptance Date" means the date on which Intel accepts or is deemed to have accepted the Software under Section 9 herein. B. "Authorized Subcontractor" means an individual which has entered into an agreement which provides for restrictions on the use and disclosure of confidential information which is at least as protective of Suppliers' intellectual property and confidential information as this Agreement. C. "Business Day" means any day, other than a Saturday or Sunday, on which banks are open for business in San Francisco, California. D. "Change of Control" is (i) a reorganization, merger or consolidation or sale or other disposition of substantially all of the assets of a Party, or (ii) an acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1933, as amended) of beneficial ownership (within the meaning of Rule 13d- 3 promulgated under such Act) of more than fifty percent of either (x) the then outstanding shares of common stock of such Party; or (y) the combined voting power of the then outstanding voting securities of such Party entitled to vote generally in the election of directors. E. "Derivative Works" means only those software programs: (1) which are based on the scripting interfaces available within the Software, and (2) have functionality that is limited to configuration of the manufacturing process and tools. F. "Expiration Date" means the [***] of the Effective Date unless earlier terminated in accordance with the terms of this Agreement. G. "Field of Use" means the manufacture, use and sale of integrated circuit products (and the use of manufacturing processes therefore) that will be sold directly or indirectly under the Intel name or Intel owned trademark; or if expressly indicated in an accepted Purchase Order as "For Production Purposes", the production of integrated circuit products that will be sold under the Intel name or Intel owned trademark. H. "Purchase Order" means Intel's written release placed with Supplier to order and schedule delivery of the Software and/or Services specified in this Agreement. Intel's Purchase Order may be transmitted to Supplier by mail, facsimile, or electronic data interchange. I. "Release" means a substantial improvement in user functionality that is marketed by Supplier as a new and improved Software product, or a version of the Software which replaces previous Releases. Substantial improvement must include more than just new hardware support (i.e., devices, drivers, ports to the Software) and fixes to program errors in a previous Release. Such Releases are typically identified by a change in the first digit [(x).x.x] (i.e.-2.0, 3.0, 4.0). J. "Services" means the designated work provided by Supplier, in accordance with Addendum A hereto or a mutually agreed upon, written, and pre-defined scope of work, which may include development, training, consulting, support, and/or maintenance. K. "Software" means the object code form (unless expressly stated otherwise) of Supplier's software and/or firmware products (including documentation that are, at a minimum, customarily provided with the Software) described in Addendum A, and any Releases, Updates, and Upgrades, licensed to Intel under the terms of this Agreement. All such items shall be included in the License Fee and/or pricing set forth in Addendum A. L. "Source Code" means the source code version of the Software, along with all available information, proprietary information, technical documentation, specifications, and schematics which are necessary to enable Intel to develop, maintain, support, and/or enhance the Software without assistance of any other third person or reference to any other materials, including maintenance tools (test programs and program specifications), proprietary or third party system utilities (compiler and assembler descriptions), and a description of the system/program generation. M. "Time Period" means the period of time designated in Addendum A for the designated Software. If no Time Period is designated in Addendum A for Software, the Time Period shall be one year from the date of delivery to Buyer. N. "Update" means functional and/or feature improvements made, at Supplier's discretion or at Intel's reasonable request, to the Software, when and if available, including but not limited to performance enhancements or improvements (including bug fixes and/or error corrections). Such Updates are typically identified by a change in the digit(s) to the right of the tenths digit [x.x.(x)] (i.e.-1.01, 1.02, 1.03). O. "Upgrade" means the unique functional and/or feature improvements made at Supplier's discretion or at Intel's reasonable request, which may be made to the Software, when and if available. Such Upgrades are typically identified by a change in the tenths digit [x.(x).x] (i.e.-1.10, 1.20, 1.30). 2. TERM OF THE AGREEMENT --------------------- The term of this Agreement shall begin on the Effective Date and continue to the Expiration Date, unless earlier terminated pursuant to Section 6 or extended on mutual agreement of the parties in writing. 3. LICENSE GRANT ------------- A. In addition to the rights granted in the Patent Cross License Agreement (to which this Agreement is Exhibit "A", Supplier grants to Intel a non- exclusive, nontransferable, royalty-free, worldwide, perpetual, not sublicenseable license, under all intellectual property rights owned or licensed by Supplier and embodied in the Software and associated documentation and technical materials listed in Addendum A, to use, copy, and distribute internally only the Software for the express purpose of practicing the Field of Use for the term for Intel's internal purposes only and not for resale or redistribution to any third party. Supplier's license is limited to the Time Period and the number of users set forth in Addendum A hereto. Buyer shall have the right to (i) use copies of the Software for internal training, (ii) permit Intel's Authorized Subcontractors to exercise Intel's rights under this Agreement solely in performance of work for Intel; and (iii) make archival copies which shall only be used in the event of failure of the original. B. Supplier shall make available to Intel, when and if available, the latest Releases, Updates, and Upgrades made to each Software program licensed herein as soon as they are made generally available to Supplier's other customers, provided (i) [***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 2 INTEL/NUMERICAL CONFIDENTIAL the Software or Services are under the Warranty Period (at no additional charge) or (ii) if the Warranty Period has expired and Buyer is paying for and is current in its payments for support and maintenance in accordance with Addendum A of this Agreement. C. Title to and ownership of the Software shall at all times remain with Supplier and its suppliers. Intel will include on any authorized copies the copyright notices, patent marks or other proprietary legends contained within or upon the Software or upon the associated documentation. Intel agrees that it will not remove any copyright notices, proprietary markings, trademarks or trade names from the Software. Supplier shall have the right to disable the Software in the event that Buyer exceeds the scope of this license, in accordance with Section 6B of this Agreement. All rights in the Software not expressly granted herein are reserved by Supplier. D. Supplier also grants to Intel the right to prepare (by means of its own employees or Authorized Subcontractors) Derivative Works for its own internal purposes and internal use and not for further distribution outside of Intel. Intel shall own all right, title, and interest in the Derivative Works; provided however that the Derivative Works shall be subject to Supplier's underlying ownership of and intellectual property rights and the licenses granted hereunder. E. Buyer agrees that it will not, and will not authorize a third party to: (1) create derivative works of the Software (as the term "derivative work" is defined under the United States copyright laws) (provided that this Section 3(E)(1) shall in no way limit Intel's express rights Section 3(D) to prepare Derivative Works as such term is defined in Section 1(E)), or (2) alter or in any way modify the Software without the prior written consent of Supplier, which will not be unreasonably withheld; or (3) translate, decompile, disassemble, reverse compile, reverse engineer, interrogate, or decode the Software or in any other manner reduce the Software to human perceivable form (except to the extent that such restrictions are not permitted under applicable law); or (4) use the Software to provide processing services to third parties or otherwise make the Software available for third party use or access (e.g. on a service bureau basis); or (5) use the Software, except as set forth under this Agreement. Supplier shall not use or incorporate Intel's Derivative Works into Supplier's Software without the express written permission of Intel. 4. PRICING ------- A. License Fees and Service Rates (hereinafter "Prices") are set forth in Addendum A and shall remain fixed for the duration of this Agreement except as provided herein. B. For any Software or Services purchased by Intel under this Agreement after the initial purchase of the Software described on Addendum A but in no event for the Software described in Addendum A, the price charged Intel for any such Software or Service shall always be Supplier's lowest price charged any customer for similar Software or a similar Service supplied in - similar volumes provided that prices must be compared based on similar terms and conditions, taking into account all of the terms and conditions of the transaction at the time it was entered into, and with reference to the totality of consideration received by Supplier for such Software or Services including any special terms, conditions, rebates, or allowances of any nature and regardless of the type (whether stock, technology, cash or otherwise) ("Comparable Software or Services"). If, prior to invoicing Intel for certain Software or Services Supplier licenses Comparable Software or Service to any customer at a price less than that quoted to Intel, Supplier shall adjust its price to the lower price for any un- invoiced Software or Services and for all outstanding and future invoices for such Software or Services. In no event shall Intel be entitled to receive retroactive discounts for Software or Services for which Supplier has already issued an invoice to Intel even if another Supplier customer thereafter pays a lower price than Intel for Comparable Software or Services. The rights granted to Intel under this Section 4B shall terminate on the [***] anniversary of the Effective Date, or termination of the Agreement, whichever is earlier. C. All applicable taxes and other charges such as duties, customs, tariffs, imposts, and government imposed surcharges shall be stated separately on Supplier's invoice and where Supplier has a legal obligation to pay the tax, it shall paid by Supplier and fully reimbursed by Buyer. In the event that Intel is prohibited by law from remitting payments to the Supplier unless Intel deducts or withholds taxes therefrom on behalf of the local taxing jurisdiction, then Intel shall duly withhold such taxes and shall remit the remaining net invoice amount to the Supplier. Intel shall not reimburse Supplier for the amount of such taxes withheld. If Supplier reasonably believes it is required by law, upon Supplier's reasonable request, Intel shall provide to Supplier all documentation necessary for Supplier to confirm Intel's payment of applicable taxes. D. Additional costs, except those described on Addendum A, will not be reimbursed without Buyer's prior written approval. 5. INVOICING AND PAYMENT --------------------- A. Except for the payments provided under the Patent Cross License, original invoices shall be submitted and shall include: Purchase Agreement number from the Purchase Order, Purchase Order number, line item number, listing of and dates of Service provided (if applicable), complete bill to address, description of incidental items, quantities, unit price, extended totals, and any applicable taxes or other charges. Intel's payment shall not constitute acceptance. B. Supplier shall be solely responsible for and hold Intel harmless for any and all payments to Supplier's vendors or subcontractors utilized in the performance of the Services. C. Except for the payments provided under the Patent Cross License, Supplier agrees to invoice Intel no later than one hundred eighty (180) days after completion of Services or shipment of items. D. Except for the payments provided under the Patent Cross License, Buyer shall make payment within forty-five (45) days after the receipt of the proper original invoice or Intel's receipt of Software or performance of Services, whichever is later. 6. TERMINATION ----------- A. Except for the purchases of licenses and maintenance reflected on Addendum A to this Agreement, Intel may terminate this Agreement at any time for its sole convenience by giving thirty (30) days' prior written notice of termination to Supplier. Upon such notice of termination, Buyer shall have no right to issue Purchase Orders under this Agreement, but all Purchase Orders which have been issued by Buyer and then accepted by Supplier prior to the effective date of such termination, shall survive in accordance with their terms (along with the terms and conditions within this Agreement for the duration of such Purchase Order). In the event that Intel has been granted a license which by it terms expressly grants a right of survival beyond any termination of this Agreement, such license shall also survive termination or expiration of this Agreement in accordance with its terms. B. For cause. Either party may terminate this Agreement for the material default by the other party of a material obligation related to this agreement which is not cured within thirty (30) days after notice. C. In the event one of the Parties signs a binding letter of intent (or similar document) or executes an agreement (subject to conditions of closing) that contemplates a Change of Control [***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 3 INTEL/NUMERICAL CONFIDENTIAL the other Party (that is, the Party not contemplating a Change of Control) may terminate this Agreement upon giving thirty days prior written notice to the Party contemplating the Change of Control. In the event of a termination by Intel for a Change of Control of Supplier, (1) the licenses to the Software delivered prior to the effective date of such termination shall survive in accordance with their terms and (2) Supplier shall continue to provide support and maintenance in accordance with the terms of this Agreement to the extent that Intel has prepaid for such services, and (3) upon mutual agreement of the parties, shall have the right to purchase additional support and maintenance for Software and additional Software from Supplier. The parties acknowledge and agree that this Section 6 applies to Software and Services obtained under this Agreement, and not the rights obtained under the Patent Cross License Agreement. D. Intel will be responsible for payment for authorized Services and Software already provided by Supplier or for fees, costs and expenses incurred by Supplier within a reasonable time after any such written notice of termination by Buyer (not to exceed 10 days), but not yet invoiced provided all charges are pursuant to a mutually agreed upon, pre-defined, and written scope of work, and the Services for which such charges were incurred have not been initiated after receipt by Supplier of Buyer's written notice of termination. E. Before assuming any payment obligation under this section, Intel may inspect Supplier's work in process and audit all relevant documents prior to paying Supplier's invoice. 7. CONTINGENCIES ------------- Neither party shall be responsible for its failure to perform due to causes beyond its reasonable control such as acts of God, fire, theft, war, riot, embargoes or acts of civil or military authorities. If delivery of Software or performance of Services are to be delayed by such contingencies, Supplier shall immediately notify Intel in writing and if such delay is reasonably expected to last beyond ten (10) days Intel may either: (i) extend time of performance; or (ii) terminate all or part of the uncompleted portion of the Purchase Order at no cost to Intel. Nothing in this Section 7 shall affect the parties' rights and obligations under Section 6(c) of this Agreement. 8. DELIVERY, PURCHASE ORDERS, AND SCHEDULING ----------------------------------------- A. Supplier shall notify Buyer in writing within ten (10) Business Days of receipt of Buyer's Purchase Order if Supplier is unable to make any scheduled delivery and state the reasons therefor. The absence of such notice constitutes acceptance of the Purchase Order and commitment to the release terms set forth in the applicable Purchase Order. B. Supplier shall deliver Software per the release schedule as indicated in the accepted Purchase Order, and Buyer may return non-conforming shipments at Supplier's risk and expense. At Intel's request, Supplier shall deliver the Software in electronic form. C. Supplier shall promptly perform Services as scheduled in the accepted Purchase Order or shall promptly notify Buyer if unable to perform any scheduled Services and shall state the reasons. D. Without penalty, Buyer may place any portion of a Purchase Order on hold for a maximum of thirty (30) days by providing reasonable notice (one (1) Business Day in the case of Software and ten (10) Business Days in the case of Services) to Buyer. E. Buyer shall have no obligation with respect to the purchase of Software or Services under this Agreement until such Software or Services are specified in an issued Purchase Order which contains specific release dates for specific Software or Services. Supplier shall have no obligation to provide Software or Services under this Agreement until such Software or Services are specified in an accepted Purchase Order which contains specific release dates for specified Software or Services. 9. WARRANTY -------- A. To Supplier's knowledge as of the Effective Date of the Agreement, Supplier represents and warrants that the Software does not infringe any intellectual property right of any third party. B. Supplier makes the following warranties regarding Software and Services furnished hereunder, which warranties shall survive for a period of ninety (90) days from the date upon which the Software is delivered ("Delivery Date") or the date upon which the Services were provided ("Warranty Period"): (i) Supplier has all necessary rights, title, and interest in and to the Software to grant the rights set forth herein to Buyer, free of any claims, liens, or conflicting rights in favor of any third party; (ii) The Software licensed in this Agreement is free from material programming errors and defects in workmanship and materials, and substantially complies with functionality and performance set forth in Supplier's published specifications or as otherwise expressly agreed in writing. (iii) The Software is free from any viruses at the time of delivery to Intel; (iv) The Software (i) will function without error or interruption related to Date Data from more than one century; (ii) the Software requires all Date Data (whether received from users, systems, applications or other sources) include an indication of century in each instance; and (iii) all date output and results, in any form, shall include an indication of century in each instance. As used herein, "Date Data" means any data or input which includes an indication of or reference to date. (v) There will be no disruption in the delivery of Software or Services under this Agreement as a result of or due to the date change from and between December, 1999, and January, 2000, nor due to the year 2000 being a leap year. (vi) Services shall be provided in a workmanlike and competent manner in accordance with the professional standards in Supplier's trade or industry, and shall meet the descriptions. C. During the Warranty Period and without additional charge, Supplier shall provide Intel with at least the same level of Software support as provided to its other customers under warranty with no additional charge. Buyer may purchase additional support at the prices set forth in Addendum A of this Agreement D. If Supplier breaches any of the foregoing warranties, or Software or Services are otherwise defective or non-conforming, during the Warranty Period, Supplier shall promptly correct any non-conforming Software, Service, or defective workmanship in accordance with Addendum B of this Agreement, Buyer's sole remedy for a breach of the warranties set forth in this Section 9 shall be Supplier's repair or replacement of the Software or Services E. Warranty Disclaimer. SUPPLIER AND ITS SUPPLIERS MAKE NO WARRANTIES, ------------------- REPRESENTATION OR CONDITIONS, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, OTHER THAN THE EXPRESS LIMITED WARRANTIES MADE BY SUPPLIER IN THIS SECTION 9 AND SUPPLIER AND ITS SUPPLIERS HEREBY DISCLAIM ALL OTHER EXPRESS, STATUTORY AND IMPLIED WARRANTIES, REPRESENTATIONS AND CONDITIONS, INCLUDING THE 4 INTEL/NUMERICAL CONFIDENTIAL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON- INFRINGEMENT AND THE IMPLIED CONDITION OF SATISFACTORY QUALITY. Nothing in this Section 9(E) shall limit Buyer's remedies under Section 11 of this Agreement. 10. CONFIDENTIALITY AND PUBLICITY ----------------------------- A. During the course of this Agreement, either party may have or may be provided access to the other's confidential information and materials. Additionally, Supplier may be engaged to develop new information for Intel (by entering into a mutually agreeable, predefined, and written scope of work), or may develop such information during the performance of Services, which information will become, upon creation, confidential information of the party as set forth in such scope of work. B. Provided information and materials are marked in a manner reasonably intended to make the recipient aware, or the recipient is sent written notice within forty-eight (48) hours of disclosure, that the information or materials are "Confidential", each party agrees to maintain the "Confidential" information of the other party in accordance with the terms of this Agreement and the CNDA referenced on the signature page of this Agreement and any other applicable separate nondisclosure agreement between Intel and Supplier. At a minimum each party agrees to maintain such information in confidence and limit disclosure on a need to know basis, to take all reasonable precautions to prevent unauthorized disclosure, and to treat such information as it treats its own information of a similar importance, until the information becomes publicly available through no fault of the receiving party. C. Supplier will furnish a copy of Addendum D to each of its employees and subcontractors assigned to or contracted for Intel work and will take reasonable steps to assure Intel that all such have read and understood Addendum D. Neither party shall use the confidential information of the other except to fulfill its obligations or exercise the rights granted to it under this Agreement. D. The parties agree that neither party will disclose the existence of this Agreement, nor any of its details or the existence of the relationship created by this Agreement, to any third party without the specific, written consent of the other. If disclosure of the existence or the relationship of the parties created by this Agreement or any of the terms hereof is required by applicable law, rule, or regulation, or is compelled by a court or governmental agency, authority, or body: (i) the parties shall use all legitimate and legal means available to minimize the disclosure to third parties of the content of the Agreement, including without limitation seeking a confidential treatment request or protective order; (ii) the disclosing party shall inform the other party at least ten (10) Business Days in advance of the disclosure (if possible in the disclosing party's reasonable judgment); and (iii) (if possible in the disclosing party's reasonable judgment), the disclosing party shall give the other party a reasonable opportunity to review and comment upon the disclosure, and any request for confidential treatment or a protective order pertaining thereto, prior to making such disclosure. The parties may disclose this Agreement (a) in confidence to their respective legal counsel, accountants, bankers, and financing sources as necessary in connection with obtaining services from such third parties (b) in confidence (except to the extent required to comply with law), in connection with the requirements of a securities filing; (c) in confidence, in connection with the enforcement of this Agreement or rights under this Agreement; or (d) in confidence, in connection with a merger or acquisition or proposed merger or acquisition, or the like. The obligations stated in this section shall survive the expiration or termination of this Agreement. Neither party may use the other party's name or trademarks in advertisements, brochures, banners, letterhead, business cards, reference lists, or similar advertisements without the other's written consent. E. Supplier acknowledges that Intel's receipt of Confidential Information under this Agreement shall not create any obligation in any way limiting or restricting the assignment of employees or contractors within Intel. F. Either party may re-assign employees who have Residuals without restriction; provided that this right to use Residuals does not represent a license under any current or future patents, copyrights or other intellectual property rights of the disclosing party. The term "Residuals" means any information retained in the unaided memories of the receiving party's employees who have had permitted access to the disclosing party's Confidential Information pursuant to the terms of this Agreement. An employee's memory is unaided if the employee has not intentionally memorized the Confidential Information for the purpose of retaining and subsequently using or disclosing it. 11. INTELLECTUAL PROPERTY INDEMNIFICATION ------------------------------------- Supplier shall defend, indemnify and hold Intel harmless from any costs, expenses (including reasonable attorneys' fees), losses, damages or liability incurred because of actual or alleged infringement of any patent, copyright, trade secret, trademark, mask work arising out of Intel's use of the licensed Software or Services as provided by Supplier in accordance with the terms of this Agreement; provided that Supplier is (i) promptly informed in writing of such claim and action (as soon as is reasonably possible after Buyer's notification of such claim and action); (ii) given exclusive authority and control to defend, settle or otherwise remove or avoid such claim and action; and (iii) provided with all reasonable assistance that it requests in connection with such claim and action (at Supplier's cost and expense). With respect to Software, Supplier's indemnification under this subsection does not apply to the extent that such claim arises from: (i) Software modified without Supplier's prior express written permission; (ii) Derivative Works; (iii) modifications made at the Buyer's request (except to the extent that such claim would arise from the use of the Software without such modifications) (iv) use of the Software in combination with other Software or products not supplied by Supplier (except to the extent the such claim would arise from the use of the Software alone); (v) use of the Software in violation of the terms of this Agreement or applicable law, (vi) use of the Software after Supplier's written instructions to cease such use, (vii) use of other than a current unaltered release of the Software to the extent that the infringement would have been avoided by such current unaltered release where such current unaltered release was made available to Buyer at no additional cost or (viii) willful infringement of Buyer. With respect to Services, Supplier's indemnification under this subsection does not apply to the extent that such claim arises from: (i) materials or software which are delivered in accordance with Buyer's specifications or directions; (ii) Derivative Works; or (iii) use of the materials or software delivered pursuant to Service in violation of the terms of this Agreement or applicable law. Supplier shall have no obligation to indemnify Buyer under this Agreement for costs or expenses incurred without its prior written authorization, unless Supplier fails to defend Intel in a timely and proper manner. If a third party's claim endangers or disrupts Intel's use of the Software, or Services provided by Supplier, Supplier may, (a) obtain a license so Intel may continue use of the Software or Supplier may continue to provide the Service (at no additional cost to Intel); (b) replace or modify the Software or Service with a compatible, functionally equivalent and non-infringing product or service; or if these options are commercially unreasonable (d) terminate the license to the Software and refund to Intel the pro 5 INTEL/NUMERICAL CONFIDENTIAL rata amount paid for the Software or Service. THIS SECTION 11 STATES THE ENTIRE LIABILITY AND OBLIGATION OF SUPPLIER AND THE EXCLUSIVE REMEDY OF BUYER, ITS SUB-DISTRIBUTORS AND END USERS WITH RESPECT TO INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS BY THE SOFTWARE OR SERVICES. 12. COMPLIANCE WITH LAWS AND RULES ------------------------------ A. Each party shall comply with all national, state, and local laws and regulations relating to its performance under this Agreement, governing the manufacture, transportation, and/or sale of items and/or the performance of Services in the course of this Agreement. In the United States, these may include, but are not limited to, Department of Commerce, Environmental Protection Agency, and Department of Transportation regulations applicable to Hazardous Materials. B. Supplier shall abide by all Buyer's rules and regulations while on Buyer's premises or performing Services including, but not limited to, safety, health and Hazardous Material management rules, and rules prohibiting misconduct on Buyer's premises including, but not limited to, use of physical aggression against persons or property, harassment, and theft. Supplier shall perform only those Services identified on Addendum "A" and will work only in areas designated for such Services. C. Supplier represents and agrees that it is in compliance with Executive Order 11246 and implementing Equal Employment Opportunity regulations and the Immigration Act of 1987, unless exempted or inapplicable. 13. INSURANCE --------- A. Without limiting or qualifying Supplier's liabilities, obligations, or indemnities otherwise assumed by Supplier pursuant to this Agreement, Supplier shall maintain, at its sole cost and expense, with companies acceptable to Buyer, Commercial General Liability and Automobile Liability Insurance with limits of liability not less than $1,000,000.00 per occurrence and including liability coverage for bodily injury or property damage (1) assumed in a contract or agreement pertaining to Supplier's business and (2) arising out of Supplier's product, Services, or work. Supplier's insurance shall be primary, and any applicable insurance maintained by Buyer shall be excess and non-contributing. The above coverages shall name Buyer as additional insured. B. Supplier shall also maintain statutory Workers' Compensation coverage, including a Broad Form All States Endorsement in the amount required by law, and Employers' Liability Insurance in the amount of $1,000,000.00 per occurrence. Such insurance shall include an insurer's waiver of subrogation in favor of Buyer. C. If Supplier is providing any professional service to Buyer, Supplier shall maintain Professional Liability Insurance (including errors and omissions coverage) with liability limits not less than $1,000,000. D. Supplier shall provide Buyer with properly executed Certificate(s) of Insurance prior to commencement of any operation hereunder and shall notify Buyer, no less than 30 days in advance, of any reduction or cancellation of the above coverages. 14. INDEMNIFICATION --------------- Except for claims of intellectual property infringement which are the subject of Section 11, Supplier shall, to the fullest extent permitted by law, protect, defend, indemnify, and hold Buyer harmless from and against any and all claims, liabilities, demands, penalties, forfeitures, suits, judgments, and the associated costs and expenses (including attorney's fees), which Buyer may hereafter incur, become responsible for, or pay out as a result of: death or personal injury (including bodily injury) to any person, destruction or damage to any property, contamination of or adverse effects on the environment, and any clean up costs in connection therewith, or any violation of law, governmental regulation or orders, to the extent caused by (i) any negligent or willful acts, errors, or omissions by Supplier, its employees, officers, agents, representatives, or subcontractors in the performance of this Agreement; or (ii) dangerous defects in Software or Services provided that Supplier is (1) promptly informed in writing of such claim or action (not to exceed ten (10) days); (2) given exclusive authority and control to defend, settle or otherwise remove or avoid such claim or action; and (3) provided with all reasonable assistance (at Supplier's cost and expenses) that it requests in connection with such claim and action. Supplier shall not be responsible for any costs or expenses incurred by Buyer under this Section 14 without Supplier's prior written permission, which shall not be unreasonably withheld. 15. RETENTION AND AUDITS -------------------- Supplier will maintain complete and accurate records of the Services performed under this Agreement for a period of five (5) years after the completion of these Services. 16. INDEPENDENT CONTRACTOR ----------------------- In performing Services under this Agreement, Supplier is an independent contractor and its personnel and other representatives shall not act as nor be agents or employees of Buyer. As an independent contractor, Supplier will be solely responsible for determining the means and methods for performing the required Services. Supplier shall have complete charge and responsibility for personnel employed by Supplier; however, Buyer reserves the right to instruct Supplier to remove from Buyer's premises immediately any of Supplier's personnel who is in breach of Section 12 or 17 of this Agreement. Such removal shall not affect Supplier's obligation to provide Services under this Agreement. 17. SECURITY -------- Supplier acknowledges Intel's requirement that employees of Supplier performing work at Buyer's facilities, who require unescorted access to those facilities, shall have no record of criminal convictions involving drugs, assaultive or combative behavior, or theft within the last five years. Supplier understands that such employees may be subject to criminal history investigations by Buyer at Buyer's expense and will be denied access to Buyer's facilities if any such criminal convictions are discovered. Supplier represents that it has not done background checks or drug testing on its employees, and agrees that it shall instruct its employees not to accept unescorted access to Intel facilities. 18. MERGER, MODIFICATION, WAIVER, AND REMEDIES ------------------------------------------ 6 INTEL/NUMERICAL CONFIDENTIAL A. This Agreement contains the entire understanding between Intel and Supplier with respect to the subject matter hereof and merges and supersedes all prior and contemporaneous agreements, dealings and negotiations. No modification, alteration, or amendment shall be effective unless made in writing, dated and signed by duly authorized representatives of both parties. B. No waiver of any breach hereof shall be held to be a waiver of any other or subsequent breach. C. Each party's rights and remedies herein are in addition to any other rights and remedies provided by law or in equity. D. If any provision of this Agreement is determined by a court of competent jurisdiction to be invalid, illegal, or unenforceable, such determination shall not affect the validity of the remaining provisions unless Intel determines in its discretion that the court's determination causes this Agreement to fail in any of its essential purposes. 19. ASSIGNMENT Neither party may assign or factor any rights in nor delegate any obligations under this Agreement or any portion thereof without the written consent of the other. Each party may cancel this Agreement for cause should the other party attempt to make an unauthorized assignment of any right or obligation arising hereunder. Notwithstanding the foregoing, such other party's consent will not be required for any assignment by a party of this Agreement to a third party in connection with a Change of Control provided that the foregoing does not limit either Party's termination rights under Section 6(c) of the Agreement. Any attempted assignment, delegation or transfer by Party in derogation of the foregoing shall be null and void. Subject to the foregoing, this Agreement shall be fully binding upon, inure to the benefit of and be enforceable by the Parties hereto and their respective permitted successors and assigns. 20. APPLICABLE LAW -------------- This Agreement shall be governed by the laws of the State of New York, excluding its conflict of laws provision. The provisions of the United Nations Convention on Contracts for the International Sale of Goods shall not apply to this Agreement. 21. HEADINGS -------- The headings provided in this Agreement are for convenience only and shall not be used in interpreting or construing this Agreement. 22. SPECIFIC PERFORMANCE -------------------- Notwithstanding anything else contained in this Agreement, Intel and Supplier specifically agree that failure to perform certain obligations undertaken in connection with this Agreement may cause irreparable damage, and that monetary damages may not provide an adequate remedy in such event. The parties further agree that Supplier's failure to complete performance of the Services called for in this Agreement or on any project released under this Agreement or to deliver or effect delivery of Services and/or materials as contracted may be such certain obligations. Accordingly, it is agreed that, in addition to any other remedy to which the non-breaching party may be entitled, at law or in equity, the non-breaching party shall be entitled to seek an order of specific performance to compel performance of such obligations in any action instituted in any court of the United States or any state thereof having subject matter jurisdiction. 23. RIGHT TO DEVELOP ---------------- Subject to the provisions of Section 10, Intel reserves the right to independently develop (without reference to the Software or other intellectual property of Supplier) (subject to the Patent Cross License Agreement (to which this Agreement is Exhibit "A", market, distribute, and otherwise commercially exploit software and/or firmware products of any type whatsoever, including without limitation software and/or firmware that are similar to or compete with the Software (but subject in each case to the Patent Cross License Agreement (to which this Agreement is Exhibit A)). Further, nothing in this Agreement shall be interpreted to create an obligation on the part of Intel to use the Software for any purpose whatsoever. Nothing in this Section 23 shall be deemed to provide Intel with a license (whether express or implied) to the intellectual property of Supplier. 24. LIMITATION OF LIABILITY ----------------------- IN NO EVENT SHALL EITHER PARTY OR THEIR SUPPLIERS BE LIABLE 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), PRODUCT LIABILITY OR ANY OTHER THEORY OF LIABILITY, INCLUDING BUT NOT LIMITED TO LOST PROFITS, COSTS OF PROCUREMENT OF SUBSTITUTE GOODS, LOSS OF GOODWILL, LOSS OF DATA OR SYSTEM USE, AND OTHER BUSINESS LOSS, REGARDLESS OF WHETHER SUCH PARTY KNOWS OR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, LOSSES, COSTS, OR EXPENSES. IN NO EVENT SHALL SUPPLIERS' AGGREGATE LIABILITY UNDER THIS AGREEMENT EXCEED THE TOTAL AMOUNT PAID BY BUYER FOR THE SOFTWARE AND SERVICES UNDER THIS AGREEMENT. NOTWITHSTANDING THE FOREGOING, NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED TO LIMIT EITHER PARTY'S LIABILITY FOR PERSONAL INJURY (INCLUDING BODILY INJURY) OR DEATH, PROPERTY DAMAGE, OR ANY INDEMNIFICATION PROVIDED BY EITHER PARTY TO THE OTHER PARTY UNDER THIS AGREEMENT. SUPPLIER'S TOTAL, CUMULATIVE LIABILITY UNDER SECTION 11 FOR ANY AND ALL CLAIMS OF INFRINGEMENT OF PATENTS WILL BE LIMITED TO THE AGGREGATE AMOUNT OF $[***] 25. DERIVATIVE WORKS AND INVENTIONS ------------------------------- A. The Parties agree that the ownership of all works of authorship, inventions, improvements, developments and discoveries conceived, made or discovered by Supplier, solely or in collaboration with others, in the course of performance of the Services provided for Buyer as well as any Derivative Works (except as provided in Section 3D), as well as all patents, trade secrets, trademarks and other intellectual property rights therein and thereto (collectively, the "Inventions") shall be agreed upon by the Parties in a separate writing, including without limitation any applicable Statement of Work for Services prior to the start of any such Services. [***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 7 INTEL/NUMERICAL CONFIDENTIAL 26. CUSTOMS AND EXPORT CONTROL -------------------------- Intel and Supplier shall take appropriate steps to ensure that the distribution and export/re-export of the Software will be in compliance with the laws, regulations, orders, or other restrictions of the U.S. Export Administration Regulations. Supplier will provide, upon Intel's Customs Department reasonable request, all necessary import and export related information regarding the Software to meet any applicable export or import regulation, including, without limitation, a statement of origin for all Software and applicable customs documentation for Software which is wholly or partially developed and/or packaged outside of the country of import. 27. SURVIVABILITY ------------- The following sections shall survive termination or expiration of this Agreement: Sections 1, 6, 7, 9, 10, 11, 14, 15, 16, 18, 20, 21, 22, 23, 24, 25, and 27, and Paragraphs 3C, 3E and 5D, the provisions of Addendum A, Addendum B and the provisions of any and all Certificates of Originality and Assignments of Intellectual Property which are executed by Supplier, will survive any termination or expiration of this Agreement. In addition, to the extent Addendum A indicates that the Time Period for designated Software is "perpetual," Section 3A and 3D shall survive any termination or expiration of this Agreement. 8 NTI and INTEL CONFIDENTIAL ADDENDUM "A" ------------ SOFTWARE DESCRIPTION, SPECIFICATION, PRICE NAME / ------ DESCRIPTION SPECIFICATIONS PRICE - ----------- -------------- ----- [***] user licenses iNPhase phase shifting software See Exhibit B to the Patent Cross License Agreement. - -------------------------------------------------------------------------------- SUPPORT AND MAINTENANCE LIST OF SERVICES PROVIDED FEES ----------------- ---- Software Support and Maintenance Set forth in Exhibit B to Patent including Software Updates, telephone Cross License Agreement for pricing. and applications support Pricing for the period beyond that reflected in such Exhibit B is subject to the parties mutual agreement. [***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. 9 INTEL/NUMERICAL CONFIDENTIAL DESCRIPTION OF SERVICES - STATEMENT OF WORK TEMPLATE: 1. PROJECT DURATION, PHASES, AND PAYMENT ------------------------------------- 1.1 Project Duration. The Project Duration will be for a period of_______ from the Effective Date. 1.2 Project Phases. The Project will be developed in ____ Phases. The Phases and the work to be performed in each Phase are specified below: Phase 1: -------- (1) Statement of Work for Phase (General description of work to be performed in this phase, including ownership of Intellectual Property, etc. in accordance with Section 25 of this Agreement): (2) Site where Work will be performed: (3) Intel Deliverables needed for Phase (Specific description of what Intel will provide to Supplier): (4) Product Deliverable (Specific description of what Supplier will deliver to Intel and what Intel will pay for): (5) Due Date for Phase 1: (6) Acceptance Criteria (Describe how Intel will determine that the Product Deliverable meets Intel expectations): (7) Submission of Materials Upon Completion of Phase: When the work for this Phase is completed, Supplier will submit signed milestone payment request and Certificate of Originality in the form of Addendum ___ and the following: (insert description of other materials such as test reports, data, etc.): (8) Amount to be paid to Supplier by Intel upon completion of phase and acceptance by Intel in accordance with Paragraph 6 of this Statement of Work): $____________(If time and material payment basis, describe amounts payable for completion of each deliverable during this Phase, applicable rates, maximum amount if applicable.) Phase 2, 3, etc: (Repeat above format for each Phase) ---------------- 1.3 Final Phase: Within seven (7) days after completion of the final phase of the Project, or the termination of the Project, Supplier will deliver to Intel the following: (1) All Product Deliverables, either in whole, or partially completed as of the termination of the Project; (2) Completed and signed Assignment of Intellectual Property for all Product Deliverables; (3) Completed Certificate of Originality for Product Deliverables 2. PROJECT MANAGEMENT ------------------ 2.1 Project Managers: The project managers for the Project are ---------------- For Intel: For Developer: 3. ACCEPTANCE TEST PLAN. After Supplier has delivered the Product and the -------------------- other materials to Intel, Intel shall test the Product for acceptance in accordance with the criteria set forth in the applicable Phase ("Acceptance Test Plan"). If the Product does not pass the Acceptance Test Plan, Intel will advise Supplier promptly and provide Supplier with a description of any defects and nonconformities. Supplier must correct any defect or nonconformities within ten (10) days and resubmit the Product and such other material as Intel may reasonably request. Intel will then retest the Product for acceptance using the Acceptance Test Plan. 10 INTEL/NUMERICAL CONFIDENTIAL If the Product still does not meet the Acceptance Test Plan, Supplier will attempt to correct any remaining defects or nonconformities, but after the second failure of the Product to pass the Acceptance Test Plan Supplier will be in default and at any time Intel may terminate the Project and exercise any of its rights under the Agreement. 11 INTEL/NUMERICAL CONFIDENTIAL ADDENDUM "B" SUPPORT AND MAINTENANCE SERVICE 1. COMPENSATION: Supplier shall provide Services specified in Addendum A to ----------- Intel. Intel and Supplier agree that the compensation which Supplier will receive for Services provided to Intel is listed on Addendum A. Intel shall not be responsible for any amount greater than the amount listed in Addendum A. Supplier shall be responsible for any and all payments to Supplier's subcontractors utilized in the performance of these Services. No additional billable activities will occur until and unless Intel issues a purchase order requesting such activities. 2. SOFTWARE SUPPORT AND ERROR LISTINGS: Supplier agrees to provide Intel with: A. The Releases, Updates and Upgrades for each Software program as provided in Addendum A. Software Releases, Updates and Upgrades shall (if obligated to be provided) be provided on CD-ROM or other formats as mutually acceptable to the parties. B. All necessary system reconfiguration Releases for hardware compatibility and support to ensure that the Software remains compatible with manufacturer's operating system software. C. Qualified telephone support available 8x5 Pacific Time(5) days a week, Monday through Friday, for the Software. D. Supplier's hotline telephone number is: (408) 919-1910 -------------- If the Software fails to conform to the specifications set forth in Addendum A, Supplier agrees to use reasonable efforts to modify the Software to conform to the Specifications, and to respond to general questions from Buyer regarding the use and functionality of the Software, according to the procedure and priority levels set forth below, as determined by Buyer.
---------------------------------------------------------------------------------------------------- Priority Level Critical Urgent Routine ---------------------------------------------------------------------------------------------------- Priority Level A problem preventing the A problem impairing the A problem impacting a Definition operation of a major operation of a major minor, yet desired, function of the Software. function of the Software. specified function or feature of the Software. ---------------------------------------------------------------------------------------------------- Required Response Supplier shall respond Supplier shall respond Supplier shall respond within 1 hour and make within 24 hours and make within 72 hours and make commercially reasonable commercially reasonable commercially reasonable effort to provide a effort to provide a effort to provide a correction to the error correction to the error correction to the error within 24 hours from within 72 hours from within 30 business days notice. notice. from notice. ----------------------------------------------------------------------------------------------------
E. To the extent provided for in Addendum A, Supplier will promptly supply Intel's designated contact person (listed in Section 13) with all revisions or upgrades of Software application manuals and guides issued on a priority basis, together with a list of known Software errors and their respective solutions. This list will be distributed by Intel to its employees with a need to know. 3. APPLICATION SUPPORT: Supplier agrees to provide Intel with: -------------------- A. Qualified telephone support available for Software and applications inquiries, with responses provided within one (1) business day. Supplier's hotline telephone number is: (408) 919-1910. --------------- B. Supplier's commercially reasonable efforts to verify any Software error within ten (10) business days after receiving notification of the error by Intel. If Supplier requires a test case to verify a Software error, Supplier shall verify the error within one (1) business day after receipt of a test case from Intel. C. On-site visits for applications support within two (2) business days when an on-site visit is required to remedy any Software error(s) due to non- compliance with Supplier's performance specifications described in Addendum B. D. If Supplier decides to cease production and/or support for any Software, Supplier shall promptly notify Intel and provide (to the extent it exists) a Software conversion methodology to any new or replacement product(s) Supplier will offer. Upon Supplier's discontinuance of the Software offering, Supplier will continue to fully support the current Software for a period of time ninety (90) days. 4. DEFAULT: Supplier and Buyer shall negotiate in good faith the terms and ------- conditions of an escrow agreement by and among Buyer, Supplier and Data Securities International ("DSI") which shall upon completion become Addendum G to this Agreement. Pursuant to such escrow agreement, Supplier will make regular deposits of Source Code for the Software (excluding only those third party components which it does not have a right to deposit). The escrow agreement will provide for the release of the deposited material only on the conditions set forth in this section 4. In the event that Supplier defaults on the support obligations set forth above, Supplier agrees that the most current version of the Software and necessary documentation will be 12 INTEL/NUMERICAL CONFIDENTIAL released to Buyer for the sole and limited purpose of correcting an error reported to Supplier and returning operation of the Software as originally provided for in the specifications. Intel's receipt of Source Code shall not vitiate Supplier's duty to perform under this Agreement. 5. CONTACTS -------- The following initial contact persons will facilitate Service scheduling, communications and notifications between Intel and Supplier. Either party may change its contact person by written notice to the other party. INTEL: Richard Schenker SUPPLIER: Atul Sharan ---------------- ----------- 5200 NE Elam Young Parkway, RA1-240 70 West Plumeria Drive Hillsboro, OR 97124 San Jose CA 95134-2134 (503) 613-8392 (tel) (408) 919-1910 (tel) (503) 613-8964 (fax) (408) 919-1920 (fax) 13 INTEL/NUMERICAL CONFIDENTIAL ADDENDUM C ---------- ALCOHOL AND DRUG FREE WORKPLACE Not applicable. 14 INTEL/NUMERICAL CONFIDENTIAL ADDENDUM D ---------- PROTECTION OF INTEL'S ASSETS Supplier agrees to safeguard Intel's classified (i.e., Intel Confidential, Intel Secret, Intel Restricted Secret and Intel Top Secret) and proprietary information as provided for in the body of the parties' Agreement. Supplier also agrees to use and apply Intel's information protection methods stated below in this Addendum in the performance of Services. Supplier agrees that this performance standard applies to all Confidential Information, regardless of the medium (Intel's or Supplier's) in or on which it is retained or communicated and to software that is licensed by Intel for its internal use. Supplier is not automatically granted access to Intel Confidential Information. However, authorization to use or access Intel Confidential Information may be granted by Intel if access is necessary and directly related to Supplier's scope of work or duties. Unless specifically authorized, Supplier may not use or access Intel Confidential Information that may be happened upon or inadvertently discovered except as provided for under the terms of this Agreement. Neither may a Supplier or Supplier's employee control an Intranet web site at Intel. Supplier shall not modify Intel Confidential Information except as provided for under the terms of the Agreement or with the explicit permission of the Intel, with the exception of contract-related requirements or resources that allow for individual customization (e.g., Microsoft Windows user features). The Supplier's employees, agents, or subcontractors may not disclose Intel Confidential Information to their co-workers, except for disclosure to those similarly bound to protect Intel's intellectual property with a need to know to fulfill this Agreement. INTEL INFORMATION PROTECTION METHODS ------------------------------------ This section outlines the Intel's minimum requirements for protection methods for all Intel Confidential Information that the Supplier's personnel may come in contact with. Intel recognizes that the correct and proper protection of its information rests with its employees and Suppliers who have been authorized access. Failure to comply with these requirements will provide grounds for immediate termination of this Agreement by Intel. Intel shall notify Supplier in the event it wishes to modify or amend this Addendum D. For further information or questions, contact your Intel management sponsor. 15 INTEL/NUMERICAL CONFIDENTIAL ADDENDUM E ---------- CERTIFICATE OF ORIGINALITY -------------------------- This Certificate of Originality must be completed by Supplier when furnishing software material (program product or offering and related documentation, or other software material) for Intel. One Certificate of Originality can cover one complete product, even if that product includes multiple modules. However, a separate Certificate of Originality must be completed for the code and another for its related documentation (if any.) Please leave no questions blank. Write "not applicable" or "N/A" if a question is not relevant to the furnished software material. ************************************************** 1. Name of the software material (provide complete identification, including version, release and modification numbers for programs and documentation): 2. Was the software material or any portion thereof written by any party other than you, or your employees working within their job assignment? Yes ______ No ______ If Yes, provide the following information: (a) Indicate if the whole software material or only a portion thereof was written by such party, and identify such portion: ------------------------------------------------------------ (b) Specify for each involved party: (i) Name: (ii) Company: (iii) Address: (iv) If the party is a company, how did it acquire title to the software material (e.g., software material was written by company's employees as part of their job assignment)? 16 INTEL/NUMERICAL CONFIDENTIAL (v) If the party is an individual, did s/he create the software material while employed by or under contractual relationship with another party? Yes ______ No ______ If Yes, provide name and address of the other party and explain the nature of the obligations: (c) How did you acquire title to the software material written by the other party? 3. Was the software material or any portion thereof derived from any third party's pre-existing material(s)? Yes ______ No ______ If Yes, provide the following information for each of the pre-existing materials: (a) Name of the materials: (b) Owner: (c) How did you get the right to use the pre-existing material (s) ? 4. Identify below, or in an attachment, any other circumstances which might affect Intel's ability to reproduce and market this software product, including: (a) Confidentiality or trade secrecy of pre-existing materials: (b) Known or possible royalty obligations to others: (c) Pre-existing material developed for another party or customer (including government) where you may not have retained full rights to the material: (d) Materials acquired from a person or company possibly not having title to them: (e) Other circumstances: SUPPLIER: _________________________ Signature: ________________________ Printed Name ______________________ Title: ____________________________ Date: _____________________________ 17 INTEL/NUMERICAL CONFIDENTIAL Date: ______________________________ ADDENDUM F ---------- ASSIGNMENT OF INTELLECTUAL PROPERTY Not applicable. 18 INTEL/NUMERICAL CONFIDENTIAL ADDENDUM G ---------- SOURCE CODE ESCROW Not applicable. 19 INTEL/NUMERICAL CONFIDENTIAL ADDENDUM H ---------- SUPPLEMENTAL PROVISIONS Not applicable. 20 NTI and INTEL CONFIDENTIAL EXHIBIT B Payment Schedule - -------------------------------------------------------------------------------- Payment License Maintenance Payment Yearly Total Due Date in ($ Millions) in ($ Millions) in ($ Millions) in ($ Millions) - -------------------------------------------------------------------------------- [***] [***] [***] [***] [***] - -------------------------------------------------------------------------------- [***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions. INTEL/NUMERICAL CONFIDENTIAL EXHIBIT C Press Release INTEL ENTERS TECHNOLOGY LICENSING AGREEMENT WITH NUMERICAL TECHNOLOGIES San Jose, CA -- (INSERT DATE), 2001 -- Numerical Technologies, Inc. (NASDAQ: NMTC) today announced a multi-year, multi-million dollar technology cross-licensing agreement with the Intel Corporation for advanced photolithography solutions used in the production of high-end semiconductors. The agreement gives Intel the rights to use the Numerical patented phase- shifting technology and software for the production of advanced integrated circuits (ICs). In addition, Numerical gains access to Intel's patents related to advanced lithography, including phase shift mask technology. "Intel has always recognized the competitive value of leading edge process technologies," stated Dr. Jai Hakhu, Vice President, Technology and Manufacturing Group, General Manager, Technology Manufacturing Engineering, Intel Corporation. "We are pleased that this licensing relationship has significant value for both of us." "Intel is the recognized industry leader in semiconductor manufacturing," stated Y. C. (Buno) Pati, president and CEO of Numerical Technologies. "They have consistently been early developers and adopters of the most advanced process technology solutions and we are very excited that our successful ongoing relationship has resulted in this agreement." Numerical's production-proven phase-shifting technology enables semiconductor manufacturers to reliably and cost-effectively fabricate subwavelength ICs using available optical lithography equipment. Numerical's phase-shifting technology is the only commercially available strong phase- shifting technology that is currently used in IC production. It has been used to fabricate transistors as small as 25 nm-the world's smallest transistors manufactured with 248-nm lithography equipment. Numerical's phase-shifting technology is covered under US Patent #5,858,580. About Numerical: Numerical Technologies Inc. develops and markets proprietary technology, software tools and services that enable the semiconductor industry to produce subwavelength integrated circuits, i.e., integrated circuits with components smaller than the wavelength of light used to create circuit patterns on silicon. Numerical's products and industry alliances form a comprehensive design-to- silicon solution that enables the creation of smaller, faster and more power- efficient semiconductors using available manufacturing equipment. Numerical's customers include the world's leading semiconductor companies, design automation tool vendors, semiconductor equipment suppliers and photomask manufacturers. Additional information about the company is available on the Web at http://www.numeritech.com, - ------------------------- INTEL/NUMERICAL CONFIDENTIAL (Safe Harbor paragraph to be inserted by Numerical.) CONTACTS: Numerical Technologies: Susan Lippincott, (408) 273-4474, susan@numeritech.com MCA: Chris Castillo, (650) 968-8900 x 118, ccastillo@mcapr.com ### -----END PRIVACY-ENHANCED MESSAGE-----