FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 1996.
-------------------
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 No. 0-121
KULICKE AND SOFFA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1498399
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2101 BLAIR MILL ROAD, WILLOW GROVE, PENNSYLVANIA 19090
(Address of principal executive offices) (Zip code)
(215) 784-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether 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
----- -----
As of February 6, 1997, there were 19,640,207 shares of the
Registrant's Common Stock, Without Par Value, outstanding.
<PAGE>
KULICKE AND SOFFA INDUSTRIES, INC.
FORM 10 - Q DECEMBER 31, 1996
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet -
December 31, 1996 and September 30, 1996 3
Consolidated Income Statement -
Three Months Ended December 31, 1996 and 1995 4
Consolidated Condensed Statement of Cash Flows -
Three Months Ended December 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6 - 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8 - 13
PART II. OTHER INFORMATION
ITEM 5. CHANGES IN SECURITIES 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 - K 13
SIGNATURES 13
<PAGE>
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
(unaudited)
December 31, September 30,
1996 1996
ASSETS ------------ -------------
CURRENT ASSETS:
Cash and cash equivalents $ 39,995 $ 45,344
Short-term investments 10,482 13,078
Accounts and notes receivable, net 58,369 47,456
Inventories, net 41,921 44,519
Prepaid expenses and other current assets 3,482 4,277
Refundable income taxes -- 6,212
Deferred income taxes 1,640 1,765
------- -------
TOTAL CURRENT ASSETS 155,889 162,651
Property, plant and equipment, net 43,752 41,143
Intangible assets, primarily goodwill, net 44,469 42,049
Long-term investments 420 449
Investment in joint venture 7,615 1,556
Other assets 2,412 1,706
------- -------
TOTAL ASSETS $254,557 $249,554
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 5,312 $ 491
Accounts payable 26,633 23,032
Accrued expenses 17,557 18,389
Income taxes payable 3,901 6,935
------- -------
TOTAL CURRENT LIABILITIES 53,403 48,847
Long-term debt 50,674 50,712
Other liabilities 2,440 2,506
------- -------
TOTAL LIABILITIES 106,517 102,065
------- -------
Commitments and contingencies -- --
SHAREHOLDERS' EQUITY:
Common stock, without par value 49,038 48,733
Retained earnings 101,504 101,085
Cumulative translation adjustment (2,502) (2,329)
------- -------
TOTAL SHAREHOLDERS' EQUITY 148,040 147,489
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $254,557 $249,554
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED INCOME STATEMENT
(in thousands except per share amounts)
(unaudited)
Three months ended
December 31,
-----------------------
1996 1995
------- --------
Net sales $81,844 $127,189
Cost of goods sold 53,063 75,113
------ -------
Gross profit 28,781 52,076
Selling, general and
administrative 16,227 16,988
Research and development, net 10,693 11,276
------ -------
Income from operations 1,861 23,812
Interest income 674 709
Interest expense (854) (881)
Equity in loss of joint venture (1,083) --
Other expense -- (630)
------ -------
Income before income taxes 598 23,010
Provision for income taxes 179 6,673
------ -------
Net income $ 419 $ 16,337
====== =======
Net income per share, primary and
fully diluted $0.02 $0.82
==== ====
Weighted average shares outstanding,
primary and fully diluted 19,833 19,861
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
Three months ended
December 31,
----------------------
1996 1995
------ -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 419 $16,337
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,707 2,183
Deferred income taxes 125 75
Equity in loss of joint venture 1,083 --
Changes in other components of working
capital, excluding the effects
of acquisitions (1,620) (6,477)
Other changes, net 861 181
------ ------
Net cash provided by operating activities 3,575 12,299
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash portion of AFW purchase price,
less cash acquired -- (7,383)
Purchase of property, plant and equipment (3,864) (4,284)
Purchases of short-term investments classified
as available-for-sale (3,927) (5,487)
Proceeds from sales of short-term investments
classified as available-for-sale 6,523 4,954
Proceeds from maturities of debt securities
held-to-maturity 29 505
Investment in joint venture (7,142) --
------ ------
Net cash provided (used) by
investing activities (8,381) (11,695)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under bank
credit facility -- 15,033
Repayment of borrowings (560) (8,015)
Proceeds from exercise of stock options 17 45
------ ------
Net cash provided by financing activities (543) 7,063
------ ------
Change in cash and cash equivalents (5,349) 7,667
Cash and cash equivalents at beginning of
period 45,344 28,624
------ ------
Cash and cash equivalents at end of period $39,995 $36,291
====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands)
(unaudited)
NOTE 1 - BASIS OF PRESENTATION:
The consolidated financial statement information included herein is
unaudited, but in the opinion of management, contains all adjustments,
consisting only of normal recurring adjustments, necessary to present
fairly the Company's financial position as of December 31, 1996 and
September 30, 1996, and the results of its operations and its cash flows
for the three month periods ended December 31, 1996 and 1995. These
financial statements should be read in conjunction with the audited
financial statements included in the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1996.
NOTE 2 - ACQUISITION OF SEMITEC, INC.:
On October 1, 1996, the Company acquired the common stock of Semitec, Inc.
("Semitec") for a purchase price of approximately $4.9 million, including
transaction related costs. The acquisition was accounted for using the
purchase method. Accordingly, Semitec's operating results are included in
the Company's consolidated financial statements commencing October 1, 1996.
Goodwill resulting from this acquisition is being amortized on a straight-
line basis over a twenty-year period.
Of the total purchase price, $4.7 million must be paid to the former
Semitec shareholders in registered shares of Company common stock or in
cash by June 1997. This obligation is included with the current portion of
long-term debt in the December 31, 1996 balance sheet, and bears interest
at the rate of 6% per annum until April 1, 1997, at which time the interest
rate will increase to 12% per annum until paid.
The Semitec purchase price, including transaction related costs, totaled
$4.9 million, and was allocated to the assets acquired and liabilities
assumed based upon their estimated fair market values, as follows:
Total current assets $1,488
Property and equipment 1,260
Goodwill 3,018
Total current liabilities (442)
Total long term liabilities (423)
-----
Total purchase price $4,901
=====
<PAGE>
NOTE 3 - INVENTORY:
December 31, September 30,
1996 1996
------------ -------------
Raw materials and supplies $29,493 $29,985
Work in process 8,782 9,862
Finished goods 14,841 16,427
------ ------
53,116 56,274
Inventory reserves (11,195) (11,755)
------ ------
$41,921 $44,519
====== ======
NOTE 4 - OPERATING RESULTS BY BUSINESS SEGMENT
Operating results by business segment for the three month periods ended
December 31, 1996 and 1995 were as follows:
Packaging Corporate
Three months ended Equipment Materials and
December 31, 1996: Segment Segment Eliminations Total
--------- --------- ------------ --------
Net sales $ 56,224 $ 25,620 $ 81,844
Cost of goods sold 32,349 20,714 53,063
------ ------ ------
Gross profit 23,875 4,906 28,781
Operating costs 20,828 4,529 $ 1,563 26,920
------ ------ ----- ------
Operating income $ 3,047 $ 377 $(1,563) $ 1,861
====== ====== ===== ======
Packaging Corporate
Three months ended Equipment Materials and
December 31, 1995: Segment Segment Eliminations Total
--------- --------- ------------ --------
Net sales $103,235 $ 23,954 $127,189
Cost of goods sold 56,541 18,572 75,113
------- ------- -------
Gross profit 46,694 5,382 52,076
Operating costs 23,250 3,226 $ 1,788 28,264
------- ------ ----- -------
Operating income $ 23,444 $ 2,156 $(1,788) $ 23,812
======= ====== ===== =======
Intersegment sales are immaterial.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company's operating results primarily depend upon the capital
expenditures of semiconductor manufacturers and subcontract assemblers
worldwide which, in turn, depend on the current and anticipated market
demand for semiconductors. The semiconductor industry has historically been
volatile and experienced periodic slowdowns which have had a severe
negative effect on the semiconductor industry's demand for capital
equipment, including assembly equipment manufactured and marketed by the
Company and, to a lesser extent, packaging materials such as those sold by
the Company. These slowdowns have also adversely affected the Company's
operating results. The Company does not consider its business to be
seasonal in nature. The Company believes that such volatility will continue
to characterize the industry and the Company's operations in the future.
A significant portion of the Company's revenue is derived from sales of a
relatively small number of machines, most with selling prices ranging from
$60,000 to over $400,000. A delay in the shipment in a limited quantity of
machines, either due to manufacturing delays, which occur from time to
time, or to rescheduling or cancellations of customer orders, could have a
material adverse effect on the results of the operations for any particular
quarter.
RESULTS OF OPERATIONS - Three months ended December 31, 1996 compared to
the three months ended December 31, 1995.
Demand for semiconductor assembly equipment declined throughout fiscal 1996
resulting in sequential quarterly declines in sales, reaching a low point
of $61.7 million in the fourth quarter of fiscal 1996. In first quarter of
fiscal 1997, the Company saw a resurgence in demand for its automatic wire
bonders and recorded bookings totaling $105.0 million. While this order
rate was lower than the $138.0 million booked during the comparable quarter
of last year, it represented a $39.0 million improvement over the $66.0
million of orders booked during the fiscal 1996 fourth quarter. The backlog
of customer orders increased by $24.0 million, or 35%, to $93.0 million at
December 31, 1996, compared to $69.0 million at September 30, 1996. Since
the timing of deliveries may vary and orders generally are subject to delay
or cancellation, the Company's backlog as of any date may not be indicative
of sales for any succeeding period.
Net sales increased $20.1 million from the fiscal 1996 fourth quarter to
$81.8 million in the first quarter of fiscal 1997, but were $45.4 million
lower than the $127.2 million in sales reported for the first quarter last
year. Equipment segment revenues declined by $47.0 million in the fiscal
1997 first quarter compared to the same period last year, primarily
reflecting reduced demand for the Company's automatic wire bonders.
Specifically, shipments of 1488 turbo and plus gold ball wire bonders
declined by 485 machines, or $42.6 million, and shipments of 1474 fp
machines declined by 25 machines, or $3.3 million. Sales of packaging
materials increased by $1.7 million in the fiscal 1997 first quarter from
the corresponding quarter last year, primarily reflecting incremental sales
associated with the October 1, 1996 acquisition of Semitec, Inc.
<PAGE>
Gross profit as a percentage of net sales decreased to 35.2% in the first
quarter of fiscal 1997 compared to 40.9% during the same period last year.
This decline primarily reflects a shift in the overall mix of product sales
from higher margin equipment products to lower margin packaging materials,
due to the disproportionate decline in equipment sales.
Three months ended
December 31,
------------------
1996 1995
------ ------
Equipment segment sales 68.7% 81.2%
Packaging materials segment sales 31.3% 18.8%
------ ------
Total net sales 100.0% 100.0%
====== ======
In addition, gross profit margins declined in the equipment and packaging
materials segments in the fiscal 1997 first quarter compared to the same
period last year. Equipment segment gross profit margin decreased to 42.5%
from 45.2% primarily due to lower manufacturing overhead absorption
associated with reduced fiscal 1997 unit sales. The packaging materials
segment gross profit margin dropped to 19.1% from 22.5% due principally to
a shift in product mix from higher margin expendable tools to lower margin
wire products.
Selling, general and administrative expenses totaled $16.2 million for the
first quarter of fiscal 1997 compared to $17.0 million for the same period
last year, reflecting lower equipment segment and corporate expenses
resulting from cost reduction initiatives implemented in August 1996. These
savings were partially offset by higher expenses in the packaging materials
segment due to incremental operating costs associated with the Semitec
business and increased expense levels due to expansion of the packaging
materials marketing and distribution organizations.
Net research and development ("R&D") costs decreased to $10.7 million in
the first quarter of fiscal 1997, compared to $11.3 million for the same
period last year. The decline in fiscal 1997 R&D spending was principally
in the equipment segment, and reflects reduced outside contract development
costs and lower expenditures for prototype materials than in fiscal 1996.
The Company continues to invest heavily in the development of the 8000
Series wire bonders and the enhancement of many of its existing products,
including, but not limited to, the Model 1488 plus gold ball bonder and
Model 1474 fp wedge bonder, to enable them to meet customer requirements
for higher lead count devices with finer pitch requirements at faster
bonding speeds than earlier models. The Company also continues to invest in
new technologies which may eventually lead to improved and alternative
semiconductor assembly technologies.
Operating income totaled $1.9 million for the first quarter of fiscal 1997
compared to $23.8 million for the same period in fiscal 1996. Reduced sales
and gross profit in the equipment segment and higher operating costs in the
packaging materials segment were primarily responsible for this decline.
Interest expense incurred during the first quarter of fiscal 1997 resulted
from borrowings under the Company's $50.0 million revolving credit facility
<PAGE>
to fund the 1995 AFW acquisition, and the $4.7 million obligation incurred
in connection with the October 1996 acquisition of Semitec. Interest income
during the first quarter of fiscal 1997 was slightly lower than the same
period last year. Fiscal 1997 investment income resulted almost entirely
from invested cash, while fiscal 1996 interest income also included
approximately $214,000 of interest earned on a note receivable from a
customer.
Non-operating costs of $1.1 million in the first quarter of fiscal 1997
reflect the Company's equity interest in the loss from its joint venture
investment in Flip Chip Technologies, LLC ("FCT"). FCT was formed in
February, 1996 to provide wafer bumping services on a contract basis, and
has recently completed construction of its manufacturing facility in
Phoenix, Arizona. FCT is currently working with its customers to have its
manufacturing process qualified. This qualification process is expected to
continue throughout fiscal 1997. As a result, the Company expects its share
of FCT's losses to exceed the first quarter loss of $1.1 million through
each of the remaining three quarters of fiscal 1997.
Through December 31, 1996, the Company contributed $9.7 million in capital
to the FCT joint venture, of which $7.1 million was contributed during the
first quarter of fiscal 1997. The Company presently anticipates that
additional capital contributions and loans to FCT throughout the remainder
of fiscal 1997 will not exceed $13.0 million. While some additional loans
are expected to be required in early fiscal 1998, it is presently expected
that FCT will become cash neutral during fiscal 1998. However, there can be
no assurance that FCT will not experience delays in generating significant
revenues and cash flows. Such delays, if any, could adversely affect the
Company's operating results and financial condition.
Fiscal 1996 first quarter results included the write-off of approximately
$630,000 of costs incurred with a proposed offering of the Company's common
stock to the public which was indefinitely delayed.
The fiscal 1997 effective tax rate is presently expected to approximate
30%. The fiscal 1996 effective tax rate was 24%, due largely to the loss
reported in the fiscal fourth quarter which was primarily attributable to
the Company's US-based operations.
COMPANY OUTLOOK
Certain of the information set forth below and elsewhere in this report
contains forward looking statements that are subject to certain risks and
uncertainties that could cause actual results to materially differ from
those set forth in the forward looking statements. These risks and
uncertainties include, but are not limited to, the following: the risk of
volatile demand in the semiconductor industry; the deferral or possible
cancellation of existing customer orders; the timing, development,
introduction and acceptance of new products and enhancements to existing
products; the Company's ability to manufacture and ship its products on a
timely basis; competitive pricing pressures; the risk that certain
customers may adopt alternate semiconductor assembly processes; and
international political and other developments which could impact foreign
operations. Reference is made to a more detailed discussion of the
Company's business and risk factors in its Annual Report on Form 10-K for
the fiscal year ended September 30, 1996.
<PAGE>
While semiconductor consumption continues to grow, the Company's equipment
business was adversely affected in fiscal 1996 by industry wide
overinvestment in assembly capacity in fiscal 1995 and early fiscal 1996.
During the third and fourth quarters of fiscal 1996, the rate of new
customer orders booked into backlog was lower than each of the previous
four quarters. This declining order rate resulted in the equipment
segment's sharply lower net sales during the third and fourth quarters of
fiscal 1996 and contributed significantly to the $12.7 million net loss in
the fourth quarter of fiscal 1996. Subsequent to the fiscal 1996 year end,
the customer order rate strengthened and the Company currently anticipates
significant improvements in quarterly revenues and operating results during
the remainder of fiscal 1997 in relation to the quarterly results during
the second half of fiscal 1996. Moreover, the Company continues to believe
that long-term growth prospects for the semiconductor industry and for the
Company's products remain positive.
The Company is in the process of developing a new generation of wire
bonders, the 8000 family, which is based on an entirely new platform and
requires the development of new software and many subassemblies not part of
the Company's current wire bonders. The first prequalification Model 8020
ball bonder (the first production model of the 8000 family) was shipped to
a customer in March 1996, and the first prequalification Model 8060 wedge
bonder was shipped in the first quarter of fiscal 1997. These products are
presently being field tested, and the Company currently expects that these
products will be released in the second half of calendar 1997. Development
and technical risks exist in all of the Company's R&D projects and have the
potential to delay the introduction of new products. No assurance can be
given that the introduction of the 8000 family of products will not be
delayed due to technical or other difficulties. The Company's inability to
complete the development of and introduce the 8000 family of products or
other new products, or its inability to manufacture and ship these products
in volume and on a timely basis, could adversely affect the Company's
competitive position.
LIQUIDITY AND CAPITAL RESOURCES
During the past three fiscal years, the Company has financed its operations
principally through cash flows from operations. Cash generated by operating
activities totaled $3.6 million during the first quarter of fiscal 1997
compared to $12.3 million during the first quarter of fiscal 1996. Cash and
total investments decreased to $50.9 million at December 31, 1996 from the
$58.9 million at September 30, 1996. Reduced cash flows from operating
activities in the first quarter of fiscal 1997 as compared to the first
quarter of fiscal 1996 primarily resulted from lower profitability in
fiscal 1997.
At December 31, 1996, working capital decreased to $102.5 million compared
to $113.8 million at September 30, 1996. The accounts receivable balance at
December 31, 1996 increased by $10.9 million compared to the September 30,
1996 balance. The increase resulted principally from increased sales volume
in the fiscal 1997 first quarter compared to the fiscal 1996 fourth
quarter. The $2.6 million decrease in inventory at December 31, 1996
primarily reflects the effect of higher fiscal 1997 first quarter sales and
the Company's efforts to more effectively manage inventory levels in light
of anticipated product transitions later in fiscal 1997.
<PAGE>
Trade accounts payable and accrued expenses increased by approximately $2.8
million at December 31, 1996 compared to their September 30, 1996 balances.
The increase in trade accounts payable primarily reflects the effect of the
timing of vendor payments at the end of first quarter of fiscal 1997.
During the first quarter of fiscal 1997, the Company invested approximately
$3.9 million in property and equipment, primarily to complete the
construction of the Micro-Swiss manufacturing facility in Yokneam, Israel
and to upgrade equipment used in the Company's manufacturing and R&D
activities. The Company presently expects fiscal 1997 capital spending,
exclusive of investments in joint ventures or possible acquisitions, to
approximate $18 million. The principal capital projects planned for fiscal
1997 include the purchase of tooling and equipment necessary for the
manufacture of new products, including the 8000 family of wire bonders,
relocation of its Singapore based AFW manufacturing and administrative
activities into a single location late in fiscal 1997, the purchase of
equipment necessary to expand manufacturing capacity, primarily in the
United States and Israel, and continued investments in a new global
management information system. Relocations of operations to new facilities
in Singapore and Israel are not expected to have a material adverse effect
on the Company's results of operations, cash flows or liquidity. See
"Results of Operations" above for information concerning anticipated
capital contributions and loans to FCT.
In April 1996, the Company renegotiated the terms of its bank credit
facility resulting in a Restated Loan Agreement providing for a $10.0
million revolving credit facility, expiring February 28, 1997, unless
renewed, and a $50.0 million revolving credit facility expiring March 30,
2001. At December 31, 1996, the $50.0 million borrowed under the revolving
credit facility was classified as long-term debt, as the Company presently
does not expect any principal payments under this loan during the next
year. There were no borrowings under the $10.0 million credit line during
fiscal 1996 or the first quarter of fiscal 1997. The Company expects to
renew the $10.0 million revolving credit facility on comparable terms.
A significant portion of the Company's consolidated earnings are
attributable to undistributed earnings of certain of its foreign
subsidiaries. Deferred income taxes have not been provided on that portion
of undistributed foreign earnings which is expected to be indefinitely
reinvested in foreign operations. If funds were required to be repatriated
to fund the Company's operations or other financial obligations, additional
U.S. Federal income tax expense could be required to be recognized.
The Company believes that anticipated cash flows from operations, its
working capital and amounts expected to be available under its revolving
credit facility will be sufficient to meet the Company's liquidity and
capital requirements for at least the next twelve months, including any
capital contributions and possible loans to FCT. The Company may, however,
seek equity or debt financing to provide capital for corporate purposes
and/or to fund strategic business opportunities, including possible
acquisitions, joint ventures, alliances or other business arrangements
which could require substantial capital outlays. The timing and amount of
such potential capital requirements cannot be determined at this time and
will depend on a number of factors, including demand for the Company's
products, semiconductor and semiconductor capital equipment industry
conditions and competitive factors and the nature and size of strategic
business opportunities which the Company may elect to pursue.
<PAGE>
PART II. OTHER INFORMATION.
ITEM 5. CHANGES IN SECURITIES
During the first quarter of fiscal 1997, the Company contributed 25,660
shares of unregistered common stock, valued at its fair market value, as
its matching contribution to its Section 401(k) Employee Incentive Savings
Plan. Registration for such shares was not required because the transaction
did not constitute a "sale" under Section 2(3) of the Securities Act of
1933, or, alternatively, the transaction was exempt pursuant to the private
offering provisions of that Act and the rules thereunder.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10 - Operating Agreement of
Flip Chip Technologies, L.L.C. dated
as of February 28, 1996
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8 - K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KULICKE AND SOFFA INDUSTRIES, INC.
Date: February 12, 1997 By: /s/ Clifford G. Sprague
______________________________________
Clifford G. Sprague
Senior Vice President,
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Curtis A. Massey
______________________________________
Curtis A. Massey
Vice President,
Corporate Controller
(Principal Accounting Officer)
Exhibit 10
OPERATING AGREEMENT
OF
FLIP CHIP TECHNOLOGIES, L.L.C.
Dated as of February 28, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I ORGANIZATIONAL MATTERS 1
1.1 Organization and Name 1
1.2 Registered Agent and Office 2
1.3 Principal office 2
1.4 Business 2
ARTICLES II MANAGEMENT 2
2.1. Executive Committee 2
2.2. Management Committee 4
2.3. Authority of the Management Committee 5
2.4. Notice of Management Committee Meetings; Location;
Waiver of Notice 7
2.5. Quorum for Management Committee Meetings; Proxies;
Written Actions 8
2.6. Committees of the Management Committee 9
2.7. Standard of Care 9
2.8. Officers of the Company 10
2.9. Indemnification 11
2.10. Additional Authority of the Management Committee;
Selection of the Management Committee 13
2.11. Residual Authority 14
ARTICLE III CAPITALIZATION 14
3.1. Initial Capital Contributions 14
3.2. Determination of Additional Capital Contributions 15
3.3. Appraisal 15
3.4. Final Determination of Units To Be Purchased 15
3.5. Payment of Additional Capital Contributions 16
3.6. Interest on Capital Contributions 16
3.7. Return of Capital Contributions 16
3.8. Withdrawal of Capital 16
3.9. Delinquent Member 16
ARTICLE IV ACCOUNTING AND REPORTS 17
4.1. Books and Records and Capital Accounts 17
4.2. Valuation 18
4.3. Allocations of Federal Income Tax Items 18
4.4. Allocations and Distributions With Respect to
Additional Units 19
4.5. Tax Matters Member; Tax Elections 20
4.6. Audits; Inspection of Books and Records 20
ARTICLE V PROPERTY 20
5.1. Company Property 20
5.2. Method of Holding Property 20
5.3. Bank Accounts 21
ARTICLE VI DISTRIBUTIONS AND COMPENSATION 21
6.1. Distributions 21
6.2. No Set-Off 21
<PAGE>
ARTICLE VII RIGHTS AND OBLIGATIONS OF MEMBERS AND THEIR AFFILIATES 22
7.1. Members Not Agents 22
7.2. Restrictions on and Obligations of Members;
Certain Actions 22
7.3. Non-Competition 22
7.4. Actions Against Other Member 23
7.5 Dissociation 23
7.6 Rights of Dissociating Member 23
7.7 Services to DE 24
7.8 Obligations of Parent 24
ARTICLE VIII ADDITIONAL MEMBERS 24
8.1. Admission of Additional Members 24
8.2. Transfers 24
ARTICLE IX TRANSFER OF UNITS 24
9.1 General 25
9.2 Assignee Not A Substitute Member in Absence of
Unanimous Consent 25
9.3. Rights of First Refusal 25
9.4 Other Requirements for Effectiveness of Transfer 26
ARTICLE X REPRESENTATIONS AND WARRANTY 27
10.1. Representations and Warranties of DE 27
10.2. Representations and Warranties of KS and Parent 28
ARTICLE XI DISSOLUTION OF THE COMPANY 29
11.1. Dissolution 29
11.3. Rights Not Affected 31
ARTICLE XII DEFINITIONS 31
12.1. Definitions 31
ARTICLE XIII GENERAL PROVISIONS 37
13.1. Assignment 37
13.2. Notices 37
13.3. Counterparts 38
13.4. Governing Law; Construction 38
13.5. Further Assurances 39
13.6. Waiver of Right to Partition; No Right of
Withdrawal 40
13.7. Binding Effect; Amendment 40
13.8. Technology Transfer 40
13.9. Specific Performance 40
ARTICLE XIV ALTERNATIVE DISPUTE RESOLUTION 41
14.1. Negotiations 41
14.2. Selection of Arbitrators 41
14.3. Arbitrator Award 41
14.4. Continuing Rights and Obligations 41
14.5. Injunctive Remedies 42
<PAGE>
OPERATING AGREEMENT
OF
FLIP CHIP TECHNOLOGIES, L.L.C.
This Operating Agreement of Flip Chip Technologies, L.L.C., a Delaware
limited liability company, is entered into as of the 28th day of February,
1996, by and among Delco Electronics Corporation, a Delaware corporation
(DE), Kulicke & Soffa Holdings, Inc., a Delaware corporation (KS) (DE and
KS are each hereinafter sometimes referred to as a Member or, collectively,
as the Members) and Kulicke & Soffa Industries, Inc., a Pennsylvania
corporation (Parent).
R E C I T A L S
WHEREAS, DE owns certain technology which DE utilizes for the bumping of
wafers using its flex-on-cap process.
WHEREAS, Parent has organized KS for the purpose of entering into this
Agreement.
WHEREAS, DE is willing to enter into this Agreement only if Parent is
jointly and severally liable for the obligations and liabilities of KS.
WHEREAS, DE and KS desire to organize a limited liability company (the
Company) pursuant to this Agreement to obtain a license to use such
technology and to engage in the business of providing bumping services and
licensing or sublicensing technology related to such services on the terms
and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth herein, the parties agree as follows:
A G R E E M E N T
ARTICLE I
ORGANIZATIONAL MATTERS
1.1 Organization and Name. The Members hereby ratify the formation of
the Company as a Delaware limited liability company pursuant to the
provisions of the Act by the filing of the Certificate with the Delaware
Secretary of State on February 8, 1996. The name of the Company is Flip
Chip Technologies, L.L.C.
1.2 Registered Agent and Office. The registered agent for the service
of process and the registered office shall be that Person and location
reflected in the Certificate as filed with the Delaware Secretary of State.
The Management Committee may, from time to time, change the registered
agent or office through appropriate filings with the Secretary of State.
<PAGE>
In the event the registered agent ceases to act as such for any reason or
the registered office shall change, the Management Committee shall promptly
designate a replacement registered agent or file a notice of change of
address as the case may be.
1.3 Principal office. Unless otherwise designated by the Management
Committee, the principal office of the Company shall be located at
Company's manufacturing facility in Phoenix, Arizona.
1.4 Business. The business of the Company shall be:
(a) To provide flip chip wafer bumping services including the sale
of products related to such services.
(b) To engage in the development and licensing of technology
related to the bumping of wafers and individual dies subject to the terms
of this Agreement.
(c) To engage in any activities reasonably necessary or convenient
to the foregoing.
ARTICLES II
MANAGEMENT
2.1. Executive Committee.
(a) The Company shall be managed by its Members who shall act only
through the Executive Committee and the Management Committee as provided in
this Agreement. All of the executive and management power and authority of
the Company shall reside with the Executive Committee, except to the extent
that (i) the Executive Committee expressly delegates such authority to the
Management Committee and such delegation of authority has not been
subsequently revoked by the Executive Committee, (ii) this Agreement
expressly delegates such authority to the Management Committee or the
President, or (iii) as provided in Sections 2.10 or 2.11. Except as
provided in Sections 3.9, 7.6 and 9.2, the Executive Committee shall be
composed of two (2) Executive Representatives, one of which shall be
appointed by DE and one of which shall be appointed by KS. Each Member
may, without the approval or consent of the other Member and without any
condition or restriction whatsoever, select, designate, appoint, remove and
replace at any time the Executive Representative appointed by it. Such
selection, designation, appointment, removal or replacement shall be
effective upon receipt by the other Member of notice from the Member taking
such action. No Person may serve as an Executive Representative who is not
a director, officer or employee of the Member who appointed such Person.
(b) Except as provided in Sections 3.9 and 7.6(b), action by the
Executive Committee may be taken only with the written approval of both
Executive Representatives.
<PAGE>
(c) Subject to Section 2.10, no Member shall have the authority to
act for, or assume any obligation or responsibility on behalf of, the
Company without the prior approval of the Executive Committee.
(d) Subject to Section 2.10, the members of the Executive Committee
shall be required to take such actions that are, in their judgment,
reasonably necessary to implement a Conforming Budget including approval of
contracts and loans that are commercially reasonable and in the best
interests of the Company, except that, subject to Section 2.10, the
following actions shall be subject to approval or disapproval by the
Executive Committee without regard to the expenditures contemplated in a
Conforming Budget:
(i) The location of the Company's manufacturing facilities.
(ii) Approval of incentive compensation and bonus plans and
arrangements for the Company's employees and base compensation and
incentive compensation for the Company's President.
(iii) Contracts requiring expenditures in excess of $1,000,000
with the exception of contracts to acquire technology to the extent
delegated to the Management Committee pursuant to Section 2.3(a)(ix).
The Executive Committee shall not act in a manner that would unreasonably
impede or delay the implementation of a Conforming Budget.
2.2. Management Committee.
(a) To the extent expressly provided in this Agreement or to the
extent delegated, in writing, by the Executive Committee, the Company shall
be managed by a Management Committee which shall be composed of seven (7)
members, except as provided in Sections 7.6 and 9.2. Except as provided in
Section 2.10, the members shall be appointed as follows: three of the
members shall be appointed by DE (the "DE Officials") and three of the
members shall be appointed by KS (the "KS Officials"). The seventh member
shall be the individual who is serving as President of the Company at the
time of action or meeting of the Management Committee. Except as provided
in Section 2.10, at such times that the Company has no President, the
Management Committee shall consist of the three (3) DE Officials and the
three (3) KS Officials. Each DE Official shall be a director, officer or
employee of DE, and each KS Official shall be a director, officer or
employee of KS. Officials shall not otherwise be required to meet any
special qualifications.
(b) Each member of the Management Committee shall serve until (i)
his or her successor is designated by the Member which appointed him or
her, (ii) his or her earlier resignation or removal by the Member which
appointed him or her or (iii) in the case of the President, until such
individual ceases to be President. Any member of the Management Committee
may resign at any time upon written notice to the Member which appointed
him or her or, in the case of the President, by written notice to DE and
KS. Each Member may, without the approval or consent of the other Member
and without any condition or restriction whatsoever, select, designate,
appoint, remove and replace at any time any one or all of its
<PAGE>
representatives on the Management Committee. Such selection, designation,
appointment, removal or replacement shall be effective as among the Members
upon receipt by the other Member of notice from the Member taking such
action. Notice shall be effective if in writing, signed by the Member
making such designation, appointment, removal or replacement and (i)
delivered to the representatives of the other Member at the commencement of
a meeting, or (ii) delivered by hand, facsimile or telex to the other
Member at least two (2) days prior to a meeting.
(c) Upon Transfer of all of a Member's Units, the transferee, if
admitted as a Member in accordance with Article IX, shall succeed to the
then remaining rights of the transferor under this Agreement.
2.3. Authority of the Management Committee.
(a) The Management Committee shall have the authority and
discretion to manage, and direct the management of, the business and
affairs of the Company only to the extent expressly provided in this
Agreement or to the extent delegated in writing by the Executive Committee
to the Management Committee. Approval by or action taken by the Management
Committee by written unanimous consent or by a simple majority vote at a
meeting at which a quorum is present in accordance with this Agreement and
within the scope of the authority of the Management Committee shall
constitute approval or action by the Company and shall be binding on each
Member. Subject to Section 2.10, the authority and responsibility of the
Management Committee, subject to revocation by the Executive Committee,
shall be as follows:
(i) approval of the Company's Annual Budget for each Fiscal
Year including, subject to Section 3(d), the amount and scope of the
Company's capital expenditures and the amount of debt that the Company will
incur during the Fiscal Year and the amount, if any, of the Additional
Capital Contributions that the Company will need during the Fiscal Year;
(ii) selection of the Company's accounting firm (which shall
be a "Big Six" firm that is not then retained by DE or KS to audit either
of their financial statements) to review or audit the Company's financial
statements;
(iii) approval of agreements by which the Company licenses
others to use its technology, within parameters established by the
Executive Committee;
(iv) preparation of proposed compensation plans for officers
and employees, subject to approval of the Executive Committee; provided,
however that the compensation plan for the Operations Manager shall be as
set forth in the Employee Services Agreement described in Section 2.3(c)
for so long as that Person is provided to the Company pursuant to that
Agreement;
(v) determining whether the Company should take over the
development of any "Technology Improvements" pursuant to Section 2.4(c) of
the Technology Transfer Agreement described in Section 2.3(c) of this
<PAGE>
Agreement or to take over the development of New Technology pursuant to
Section 2.4(d) of the Technology Transfer Agreement;
(vi) determining whether to exercise any right of first
refusal granted to the Company pursuant to Section 2.8 of the Technology
Transfer Agreement;
(vii) determining whether to submit any claim or dispute
arising under an Ancillary Agreement to arbitration pursuant to the
provisions of such agreements;
(viii) deciding whether the Company should request DE to file
patent applications for any technology pursuant to Section 21.1(b) of the
Technology Transfer Agreement; and
(ix) deciding whether to purchase or acquire technology,
provided that the expenditure for such acquisition is authorized in an
Annual Budget.
(b) The Management Committee may delegate to the officers, other
employees and agents of the Company the authority to conduct the business
of the Company in the ordinary course in accordance with a policy of
delegation which may be adopted and revised from time to time by the
Management Committee; provided, however that no action or authority beyond
the authority of the Management Committee shall be delegated to any
officer, employee or agent until such approval has been obtained.
(c) The Members or the Management Committee shall cause the Company
to enter into a Technology Transfer Agreement in the form attached hereto
as Exhibit B, the Support Services Agreement in the form attached hereto as
Exhibit C, the Manufacturing Services Agreement in the form attached hereto
as Exhibit D and the Employee Services Agreement in the form attached
hereto as Exhibit E (each of the above agreements is sometimes referred to
as an "Ancillary Agreement"). The Management Committee shall not enter
into or authorize any other contracts except within the guidelines
established by the Executive Committee.
(d) Between June 1 and August 1 of each year, the Management
Committee shall submit to the Executive Committee a budget (the "Annual
Budget") for the subsequent Fiscal Year (the "Budget Year") which shall
include a projected income statement, statement of cash flows and a balance
sheet as of the end of such Fiscal Year. The Annual Budget shall be
prepared on the assumption that the Company shall make the distributions
authorized pursuant to Section 6.1 unless the Executive Committee instructs
the Management Committee to prepare the Annual Budget on the basis of such
other assumptions as the Executive Committee may specify. If the budget
proposes the issuance of any additional Units, the budget shall include an
estimate of the fair market value of a Unit as of the first day of the
applicable Budget Year (the "Preliminary Valuation"), together with a
summary of the computation used to determine such value. The budgeted
capital expenditures for expansion of the Company's facilities and the
budgeted capital expenditures for maintenance of the Company's existing
facilities shall be separately itemized. Prior to the Fiscal Year
<PAGE>
beginning October 1, 1998, the sum of the debt (excluding current
liabilities incurred in the ordinary course of business) and Capital
Contributions of the Company as projected in each Annual Budget to be
outstanding during a Fiscal Year shall not exceed the amount specified on
Exhibit F with respect to such year. The Annual Budget for any Fiscal Year
beginning prior to October 1, 2000, shall not propose Additional Capital
Contributions which, if made entirely by one Member, could cause the other
Member to become a Class B Member.
(e) At the time the Management Committee submits an Annual Budget,
it shall also submit a projected budget for an additional four Fiscal Years
which shall contain financial information for each such Fiscal Year
comparable to the financial information required in the Annual Budget.
2.4. Notice of Management Committee Meetings; Location;
Waiver of Notice.
(a) Regular meetings of the Management Committee shall be held at
such times and places as may be fixed by the Management Committee, and may
be held without further notice. Special meetings of the Management
Committee may be called by any two members of the Management Committee.
Notice of the time and place of a special meeting of the Management
Committee shall be effective if delivered to each member of the Management
Committee by hand, facsimile or telex at least two (2) business days prior
to the time of such special meeting.
(b) Notices of special meetings of the Management Committee shall
identify the purpose of the special meeting and the business to be
transacted at the special meeting. The Management Committee shall not take
any action at a special meeting with respect to any matter unless the
notice for such meeting states that one of the purposes of the meeting is
to consider the taking of such action, unless such action is unanimously
approved by all members of the Management Committee.
(c) The Management Committee meetings shall be held at the
headquarters of the Company, unless the Management Committee agrees
otherwise. A member of the Management Committee shall have the right to
participate in a meeting of the Management Committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear and speak to each other, and such
participation in a meeting shall constitute presence in person at the
meeting.
(d) Whenever notice is required to be given under this Section 2.4,
a written waiver of notice, signed by the person entitled to notice,
whether before or after the time of the meeting, shall be deemed equivalent
to notice. A person's attendance at a meeting shall constitute a waiver of
notice of that meeting, except when the person attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
<PAGE>
(e) Minutes of the Management Committee meetings shall be taken,
recorded and circulated to members of the Management Committee.
2.5. Quorum for Management Committee Meetings; Proxies; Written Actions.
(a) Except as provided in Sections 3.9, 7.6, 9.2 and 2.10, at least
one DE Official and one KS Official shall constitute a quorum for the
transaction of business at a meeting of the Management Committee; provided,
however, that if no quorum is present for two consecutive meetings called
at least 14 days apart, and for which notice was provided in accordance
with Section 2.4, then a third meeting may be called, noticed in accordance
with Section 2.4, and held at which the quorum shall be any one member of
the Management Committee. No business shall be conducted at a meeting of
the Management Committee unless a quorum is then present at the meeting.
The Management Committee shall choose one of its members to preside over
meetings.
(b) Each member of the Management Committee shall be entitled to
one vote on each matter to come before the Committee. Any DE Official
present at a meeting of the Management Committee shall be entitled to cast
the votes of DE Officials absent from the meeting, and any KS Official
present at a meeting shall be entitled to cast the votes of KS Officials
absent from the meeting.
(c) Any action required or permitted to be taken at any meeting of
the Management Committee may be taken without a meeting if all members of
the Management Committee consent thereto in writing and the writing or
writings are filed with the minutes of the proceedings and meetings of the
Management Committee.
(d) Unless otherwise specifically provided in this Agreement, no
member of the Management Committee shall be disqualified from acting on any
matter because the Member that appointed such person is interested in the
matter to be acted upon by the Management Committee.
2.6 Committees of the Management Committee. The Management Committee
may designate one or more Committees. Each Committee shall be composed of
such number of members (who need not be members of the Management
Committee) as the Management Committee may determine, but the KS Officials
shall have the right to appoint one member to each Committee, and the DE
Officials shall have the right to appoint one member to each Committee.
Any Committee, to the extent provided by the Management Committee, shall
have and may exercise all of the power and authority delegated to it by the
Management Committee, provided that such power and authority is within the
scope of the Management Committee's authority. All of the procedural
provisions of Sections 2.4 and 2.5 shall apply to Committees of the
Management Committee, except that special meetings of a Committee may be
called by any member of such Committee and the chairman of any Committee
shall preside at meetings of such Committee. Action by a Committee shall
require the unanimous approval of the members of such Committee.
<PAGE>
2.7. Standard of Care.
(a) Any member of the Management Committee, the Executive Committee
or any member of any Committee in the performance of his or her duties,
shall be fully protected in relying in good faith on information, opinions,
reports or statements, including financial statements, books of account and
other financial data, if prepared or presented by: (i) one or more
officers or employees of the Company or other Members or members of the
Management Committee; (ii) legal counsel, public accountants, or other
persons holding themselves out as having professional or expert competence
on the matters covered who have been selected with reasonable care by the
Company; or (iii) a Committee of which he or she is not a member.
(b) No member of the Management Committee or the Executive
Committee and no member of any Committee shall be liable to the Company or
any Member for monetary damages for breach of fiduciary duty in his or her
capacity as such, except for liability (i) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation
of law, or (ii) for any transaction from which such member derived an
improper personal benefit.
2.8. Officers of the Company. (a) The officers of the Company shall
consist of a President, an Operations Manager, a Chief Financial Officer
and such other officers as the Executive Committee shall from time to time
deem appropriate. The President shall recommend individuals to serve as
officers of the Company, but the officers shall, subject to Section 2.10,
be elected by the Executive Committee.
(i) The President shall be the chief executive officer and chief
operating officer of the Company. Subject to this Agreement and within
guidelines established by the Management Committee and the Executive
Committee, he or she shall have primary responsibility for the overall
business and affairs of the Company including supervision of strategic
planning, preparation of annual budgets and financial plans, general
management of the activities contemplated by this Agreement including the
manufacturing activities of the Company, coordinating the activities of the
Company with KS and DE, the activities of the Company with DE pursuant to
the Technology Transfer Agreement and the Manufacturing Services Agreement
and the activities of the Company with KS pursuant to the Support Services
Agreement, establishing product availability and prices for the Company's
services and products, hiring additional management employees (excluding
officers) contemplated by the Annual Budget approved in accordance with
this Agreement and communication of information to the Management
Committee. In addition, he or she shall have such other duties as are
incidental to his or her office. Subject to Section 2.10, he or she shall
perform such other duties as may from time to time be assigned to him or
her by the Executive Committee and shall have such other powers as may be
prescribed from time to time by the Executive Committee.
(ii) Within guidelines established by the Executive Committee,
other officers of the Company designated by the Management Committee shall
perform such duties as from time to time shall be assigned by the President
or the Management Committee and have such powers as may be prescribed from
time to time by the Management Committee.
<PAGE>
(b) Subject to Section 2.10, from time to time the Executive
Committee may establish, increase, reduce or otherwise modify
responsibilities for the officers or may create or eliminate offices as the
Executive Committee may consider appropriate. Any number of offices may be
held by the same person, but no officer may take any action or execute any
document on behalf of the Company in more than one capacity. Each officer
shall hold office until his or her successor is appointed or until his or
her earlier resignation or removal. Any officer may be removed at any time
by the Executive Committee. Any officer may resign at any time upon
written notice to the Company.
(c) Each officer shall perform such duties as may be assigned to
him or her from time to time by the Management Committee or any more senior
officer.
(d) Subject to Section 2.10, no officer or employee of the Company
shall be authorized to enter into or incur any obligation or commitment on
behalf of the Company except pursuant to policies adopted by the Executive
Committee, as such policies may be amended from time to time by the
Executive Committee.
2.9. Indemnification. The Company shall, to the extent provided in this
Section 2.9, indemnify each person who is or was a member of the Management
Committee, officer, employee, Executive Representative or agent of the
Company, or of any other limited liability company, corporation,
partnership, joint venture, trust or other entity or enterprise which he or
she is serving or served in any capacity at the request of the Company,
against any and all liability and reasonable expense that may be incurred
by him or her in connection with or resulting from any claim, action, suit,
or proceeding (whether actual or threatened, brought by or in the right of
the Company or such other limited liability company, corporation,
partnership, joint venture, trust or other entity or enterprise or
otherwise, civil, criminal, administrative, investigative, or in connection
with an appeal relating thereto), in which he or she may become involved as
a party or otherwise, by reason of his or her being or having been a member
of the Management Committee, officer, employee, Executive Representative or
agent of the Company or of such other limited liability company,
corporation, partnership, joint venture, trust or other entity or
enterprise, or by reason of any past or future action taken or not taken in
his or her capacity as such member of the Management Committee, officer,
employee, Executive Representative or agent, whether or not he or she
continues to be such at the time such liability or expense is incurred,
provided such Person acted in good faith, in what he or she reasonably
believed to be the best interests of the Company or such other limited
liability company, corporation, partnership, joint venture, trust or other
entity or enterprise, as the case may be, and, in addition, in any criminal
action or proceeding, had no reasonable cause to believe that his or her
conduct was unlawful. As used in this Section 2.9, the terms "liability"
and "expense" shall include, but shall not be limited to, attorneys' fees
and disbursements and amounts of judgments, fines or penalties against, and
amounts paid in settlement by, a member of the Management Committee,
officer, employee, Executive Representative or agent. The termination of
any claim, action, suit, or proceeding, civil or criminal, by judgment,
<PAGE>
settlement (whether with or without court approval) or conviction or upon a
plea of guilty or of nolo contendere, or its equivalent, shall not create a
presumption that a member of the Management Committee, officer, employee,
Executive Representative or agent did not meet the standards of conduct set
forth in the first sentence of this Section 2.9.
Any member of the Management Committee or Executive Representative who
has met the standards of conduct set forth in the first sentence of this
Section 2.9 shall be entitled to indemnification as of right with respect
to any claim, action, suit, or proceeding of the character described
herein. Except as provided in the immediately preceding sentence, any
indemnification hereunder shall be made at the discretion of the Company
but only if (a) the Management Committee, acting by a quorum consisting of
members who are not parties to such claim, action, suit, or proceeding,
shall find that the officer, employee, Executive Representative or agent
seeking indemnification has met the standards of conduct set forth in the
first sentence of this Section 2.9, or (b) independent legal counsel (who
may be regular counsel of the Company) shall deliver to it their written
opinion that such officer, employee or agent has met such standards.
If several claims, issues, or matters of action are involved, any such
Person may be entitled to indemnification as to some matters even though he
or she is not so entitled as to others.
The Company may advance expenses to, or where appropriate may at its
expense undertake the defense of, any such Executive Representative, member
of the Management Committee, officer, employee or agent if such Person
agrees to repay such expenses if it is determined that he or she is not
entitled to indemnification.
The rights of indemnification provided hereunder shall be in addition to
any rights to which any Person concerned may otherwise be entitled by
contract or as a matter of law, and shall inure to the benefit of the
heirs, executors and administrators of any such Person.
If such Person is also entitled to indemnification from any other Person,
the indemnification hereunder shall be primary and coordinated with the
other indemnification of such Person.
2.10. Additional Authority of the Management Committee; Selection of
the Management Committee. If either DE or KS becomes a Class B Member,
then, notwithstanding any other provision of this Agreement, except Section
2.11, all of the management and executive powers (other than the powers
necessary to approve the actions set forth in Section 2.11) previously
vested in the Executive Committee shall thereafter be vested in the
Management Committee, and a quorum of the Management Committee shall
thereafter consist of the members of the Management Committee who are
entitled to cast a majority of the votes. In addition, the members of the
Management Committee shall then be selected as follows:
(a) If the Class B Member holds less than 37% of the Units but more
than 23% of the Units, the Class B Member shall designate two members of
the Management Committee, and the Class A Member shall be entitled to
<PAGE>
designate four members of the Management Committee, and the President shall
serve as the seventh member of the Management Committee.
(b) If the Class B Member holds not more than 23% but more than 10%
of the Units, then the Class B Member shall be entitled to designate one
member of the Management Committee, and the Class A Member shall be
entitled to designate five members of the Management Committee, and the
President shall serve as the seventh member of the Management Committee.
(c) If the Class B Member holds 10% or less of the outstanding
Units, then it shall cease to have any right to appoint any member of the
Management Committee.
Members of the Management Committee shall be designated and removed as
provided in Section 2.2, but a Member shall immediately remove one of the
individuals it has appointed to the Management Committee at the time that
the number of members it is entitled to appoint is reduced.
2.11. Residual Authority. If a Member becomes a Class B Member but holds
10% or more of the outstanding Units, then the Management Committee may
not, without the approval of the Executive Committee, approve, authorize or
permit any of the following:
(a) changing the nature of the Company's business as conducted at
the time the Member became a Class B Member; or
(b) entering into or amending any agreement or arrangement with any
Member or an Affiliate of any Member.
ARTICLE III
CAPITALIZATION
3.1. Initial Capital Contributions. DE shall make Initial Capital
Contributions in the aggregate amount of $16,200,000 which shall be paid in
installments in cash on or before the dates set forth on Exhibit A unless
otherwise determined by the Executive Committee. KS shall make Initial
Capital Contributions in the aggregate amount of $16,800,000 which shall be
paid in installments in cash on or before the dates set forth on Exhibit A
unless otherwise determined by the Executive Committee. The number of
Units to be issued in exchange for such Capital Contributions is set forth
on Exhibit A. A Member who fails to make an Initial Capital Contribution
when due shall be liable to the Company for the amount of the delinquent
Capital Contribution plus costs of collection and interest thereon at the
prime rate as reported in the Wall Street Journal on the date such Initial
Capital Contribution was due, plus five hundred (500) basis points.
3.2. Determination of Additional Capital Contributions. If an Annual
Budget provides that the Company will need Additional Capital Contributions
during any Budget Year, then each Member shall have the right to purchase
its pro-rata share (based on the ownership of Units at that time) of the
<PAGE>
Units to be issued in exchange for such Additional Capital Contributions.
Within seventy-five (75) days after the Annual Budget has been delivered to
the Executive Committee, each Member will notify the other Member in
writing of (a) the number of Units that such Member is willing to purchase
or (b) the number of Units that the Member is tentatively willing to
purchase subject to an appraisal of the Units as provided in Section 3.3
and subject to an adjustment in the number of Units to be purchased to the
extent provided in Section 3.4. A Member that does not give notice within
such period shall be deemed to have elected not to purchase any Units. If
a Member elects not to purchase its pro-rata share of the Units, then the
Management Committee may offer such Units to the other Member, cause the
Company to incur additional debt or modify the proposed expenditures of the
Company as the Management Committee deems appropriate.
3.3. Appraisal. If a Member requests an appraisal, then an appraiser
shall be selected within seven (7) days thereafter. The appraiser shall be
the person that remains after the Members have stricken all but one of the
names from the list of five qualified investment banking firms designated
by the Company's accountants. The Members shall strike names on a rotating
basis with KS making the first deletion. Each Member must make its
deletion within 24 hours of notice of the deletion by the other Member.
The appraiser shall be instructed to determine the issue price of the Units
based on the fair market value of the Company as of the first day of the
Budget Year determined on a basis consistent with the following guidelines:
(a) Each of the Units shall be of equal value and the issue price
of each Unit shall be based on its proportionate share of the fair market
value of the Company without discount for minority interest.
(b) The Company shall be valued as a going concern based on the
purchase price that would be paid by a willing buyer and a willing seller
with neither being under a compulsion to buy or sell.
The appraiser shall be instructed to complete its appraisal within forty-
five (45) days from the date it has been selected. The offering price per
Unit as determined by the appraiser shall be final and binding on the
Members absent fraud.
3.4. Final Determination of Units To Be Purchased. If the number of
Units that a Member elected to purchase was subject to an appraisal and the
fair market value of the Units was within 15% of the Preliminary Valuation
as determined by the Management Committee, then each Member shall be
obligated to purchase the number of Units specified in its notice but the
issue price of the Units shall be the fair market value as determined by
the appraiser. If the fair market value of the Units as determined by the
appraiser is not within 15% of the Preliminary Valuation determined by the
Management Committee, then within sixty (60) days after the appraiser gives
notice of its valuation, each Member shall give the other Member notice of
the number of Units that it will purchase based on such valuation and a
Member that does not give notice within such period shall be deemed to have
elected not to purchase any Units.
<PAGE>
3.5. Payment of Additional Capital Contributions. Each Member will be
liable for the number of Units that it has indicated in its notice it will
purchase pursuant to Section 3.2 or Section 3.4. Additional Capital
Contributions that a Member has agreed to make pursuant to this Section or
Section 3.4 will be due on the dates specified by the Management Committee
upon not less than thirty (30) days' prior written notice. A Member who
fails to make an Additional Capital Contribution when due shall be liable
to the Company for the amount of the delinquent Additional Capital
Contribution together with costs of collection and interest thereon at the
prime rate as reported in the Wall Street Journal on the date such
Additional Capital Contribution was due plus five hundred (500) basis
points.
3.6. Interest on Capital Contributions. Neither Member shall be paid
interest on Capital Contributions to the Company.
3.7. Return of Capital Contributions. No Member shall be entitled to
the return of its Capital Contribution, except by way of distribution of
assets upon dissolution and liquidation of the Company pursuant to the
provisions of this Agreement.
3.8. Withdrawal of Capital. No Member shall be entitled to withdraw any
part of its capital account in the Company or to receive any distribution
from the Company, except as specifically provided in this Agreement. No
Member, upon any distribution to it contemplated hereby, shall be entitled
to demand that such distribution be made in any form other than that
determined by the Executive Committee.
3.9. Delinquent Member. If a Member (the "Delinquent Member") fails to
make an Initial Capital Contribution or an Additional Capital Contribution
and such Capital Contribution plus interest thereon is not made within
twenty (20) days after notice from the Member that has made its required
Capital Contributions (the "Non-Delinquent Member"), then, until such
Capital Contribution plus interest thereon and costs of collection as
provided therein as specified in this Agreement have been paid in full:
(i) The members of the Management Committee appointed by the
Delinquent Member shall not be entitled to vote, and a quorum shall consist
of the members of the Management Committee appointed by the Non-Delinquent
Member.
(ii) The member of the Executive Committee appointed by the
Delinquent Member shall not be entitled to vote, and the member of the
Executive Committee appointed by the Non-Delinquent Member shall have the
exclusive authority to act on behalf of the Executive Committee.
ARTICLE IV
ACCOUNTING AND REPORTS
4.1. Books and Records and Capital Accounts. The Company shall maintain
complete and accurate books and records reflecting the nature and extent of
the assets, liabilities and contractual commitments of the Company and all
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receipts and disbursements of the Company. In addition, the Company shall
maintain all other records necessary for documenting and recording the
operations and affairs of the Company. The Company shall keep its books of
account on an accrual basis and its fiscal year shall end on September 30th
(the "Fiscal Year"). The books of the Company shall be kept at the
principal office of the Company or at such other place as the Management
Committee shall determine. Either Member or its duly authorized
representative may, at its own expense, inspect the books of the Company at
any time during ordinary business hours. The books shall be kept in
accordance with generally accepted accounting principles consistently
applied. At the end of each Fiscal Year of the Company, the books shall be
examined by such independent public accountants of recognized national
standing as may be selected by the Management Committee (the
"Accountants"), at the Company's expense, and audited annual financial
statements prepared in accordance with generally accepted accounting
principles consistently applied showing the financial position of the
Company at the end of such Fiscal Year, the results of its operations, and
its cash flows, for such Fiscal Year, reported upon by the Company's
Accountants, shall be sent to each Member when available. All questions of
accounting policy shall be determined by the Management Committee.
4.2. Valuation. Consistent with the Code and the Regulations, the
initial value (set forth in the books of the Company) of property
contributed to the Company as a Capital Contribution shall be the value of
such property at the time of contribution as determined by the Executive
Committee.
4.3. Allocations of Federal Income Tax Items.
(a) Profits and Losses, including all items of taxable income,
gain, loss and deduction for federal, foreign, state and local and other
income tax purposes for each Fiscal Period of the Company shall be
allocated among the Members in proportion to their Units except as
otherwise provided in this Section 4.3.
(b) In the event of the sale or other disposition of contributed
property for which the adjusted basis in the hands of the Company for
federal income tax purposes differs from the book value of the contributed
property as set forth in the books of the Company, the gain or loss
inherent in such property shall be allocated among the Members for federal
income tax purposes in accordance with Section 704(c) of the Code (or in
the case of any property, whether or not contributed, not expressly subject
to Section 704(c) of the Code, in accordance with the "704(c) principles"
set forth in Treas. Reg. Section 1.704-1(b)).
(c) Tax depreciation, depletion and amortization attributable to
contributed property whose adjusted basis in the hands of the Company for
federal income tax purposes differs from the book value of the contributed
property as set forth in the books of the Company shall be allocated among
the Members for federal income tax purposes in accordance with Section
704(c) of the Code (or in the case of any property, whether or not
contributed, not expressly subject to Section 704(c) of the Code, in
<PAGE>
accordance with the "704(c) principles" set forth in Treas. Reg. Section
1.704-1(b)).
(d) Tax credits shall be allocated among the Members as provided in
regulations promulgated under Sections 48 and 704(b) of the Code or any
successor statute.
(e) The Company shall prepare or cause to be prepared in accordance
with the allocations described in this Section 4.3, a Schedule K-1 (or any
similar successor or substitute form) and shall cause it to be delivered to
each of the Members.
(f)(i) If any fees or any interest payment that the Company pays to
a Member (or to an Affiliate) and treats as deductible costs or expenses of
the Company are disallowed as deductible costs or expenses of the Company
for federal income tax purposes, and are instead treated as a Company
distribution, the Member to which such payments have been made shall first
be allocated an amount of ordinary gross income (and, if insufficient
ordinary gross income, then capital gain) equal to the amount of such fees
treated as a Company distribution for which deductions were disallowed.
(ii) In the event of any other adjustment to the Company's items
of income, gain, loss or deduction which results in a corresponding deemed
contribution to capital by a Member or a corresponding deemed distribution
to a Member, whether pursuant to section 482 of the Code or otherwise, the
following allocations shall be made:
(x) If the corresponding adjustment is a deemed
distribution to a Member, such Member shall first be allocated an amount of
ordinary gross income (and, if insufficient ordinary gross income, then
capital gain) equal to the amount of such adjustment.
(y) If the corresponding adjustment is a deemed
contribution to capital by a Member the other Member shall first be
allocated an amount of ordinary gross income (or if ordinary gross income
is insufficient, then capital gain) equal to the amount of such adjustment.
(iii) If in any year there is insufficient ordinary gross income
and capital gain to provide the full allocation required in Sections
4.3(f)(i) and (ii), then the difference between the required amount and the
amount allocated shall become a priority allocation pursuant to Section
4.3(f) for the succeeding year.
4.4. Allocations and Distributions With Respect to Additional Units. If
Units are transferred or if additional Units are issued during any Fiscal
Year, Profits and Losses, or each item thereof, and all other items
attributable to such Units for such Fiscal Year shall be allocated in
accordance with Section 706(d) of the Code, using any conventions permitted
by law and selected by the Executive Committee. All Distributions paid on
or before the date of a Transfer shall be made to the transferor, and all
Distributions paid thereafter shall be paid to the transferee. If a
<PAGE>
Transfer does not comply with the provisions of Article IX hereof, then all
of such items shall be allocated to the Person who attempted to make the
Transfer.
4.5. Tax Matters Member; Tax Elections. The Executive Committee shall
designate the "Tax Matters Member," as referred to in Section 6231(a)(7)(A)
of the Code, and, subject to the instructions of the Executive Committee,
shall manage administrative tax proceedings conducted at the Company level
by the Internal Revenue Service with respect to Company matters, unless and
until the Executive Committee appoints a new Tax Matters Member.
Approval of the Executive Committee is required for (i) all agreements
and settlements proposed to be entered into with the Internal Revenue
Service or any other governmental taxing authority as a result of an audit
or examination of any Company tax return, and (ii) the extension of the
statute of limitations for assessment of tax deficiencies against the
Members with respect to adjustments to the Company's federal, foreign,
state or local tax returns. Before making any tax election or adopting any
tax accounting method for income tax purposes, the Tax Matters Member shall
obtain the approval of the Executive Committee.
4.6. Audits; Inspection of Books and Records. Either Member may, at its
option and at its own expense, conduct internal audits of the books,
records and accounts of the Company. The Company shall not be required to
maintain any financial records for a period in excess of six years from the
date of the making or receipt thereof unless either Member requests that
they be maintained for a longer period, except for those records, if any,
required to be kept for a longer period under applicable law.
ARTICLE V
PROPERTY
5.1. Company Property. The Capital Contributions of the Members shall
become Company property, and all assets acquired with Company funds, the
proceeds of sale of such assets, or the proceeds of Company indebtedness
shall be so reported in the accounts of the Company.
5.2. Method of Holding Property. Property of the Company may be
acquired, held and conveyed in the name of the Company or in the name of a
Member as nominee for the Company or in the name of any other entity as
agent or nominee for the Company or as security for any loan made to the
Company by such entity, but shall be recorded as Company property in the
accounts of the Company. All real, personal, tangible and intangible
property owned by the Company shall be deemed owned by the Company as an
entity and no Member, individually, shall have any ownership of such
property.
5.3. Bank Accounts. The Company shall establish and maintain such
accounts in such financial institutions (including federal or state banks,
trust companies, or savings and loan institutions) and in such amounts as
the Management Committee or a properly authorized officer may deem
necessary from time to time. Checks may be drawn on, and withdrawals of
<PAGE>
funds shall be made from, any such accounts for Company purposes and shall
be signed or requested by any of the Company's duly authorized personnel.
ARTICLE VI
DISTRIBUTIONS AND COMPENSATION
6.1. Distributions. Liquidating distributions shall be made in
accordance with Article XI. Except as otherwise determined by the
Executive Committee, non-liquidating distributions shall be determined and
made as follows:
(a) Within sixty (60) days after the close of each Fiscal Year, the
Company will distribute to each Member an amount equal to forty percent
(40%) of the taxable income of the Company allocated to such Member (the
"Tax Distributions").
(b) The Company shall not make distributions other than the Tax
Distributions with respect to its Fiscal Years ending on or before
September 30, 1998.
(c) Within sixty (60) days after the close of each Fiscal Year
subsequent to the Fiscal Year ending September 30, 1998, the Company will
distribute to its Members an amount equal to the Company's Net Cash Flow.
Each of the non-liquidating distributions shall be made to the Members in
proportion to their Units as of the date of each distribution.
6.2. No Set-Off. Except as provided in Section 7.6 or as unanimously
agreed by the Members, the Company shall not set off against any
distribution by the Company any amounts owing by any Member to the Company
or to any other Member. The Company shall make all distributions pursuant
to Section 6.1 or Article XI without regard to any claims that the Company
or any Member may have against any other Member.
ARTICLE VII
RIGHTS AND OBLIGATIONS OF MEMBERS
AND THEIR AFFILIATES
7.1. Members Not Agents. Except for the Member acting as the Tax
Matters Member in accordance with Section 4.5, neither Member shall,
without the prior approval of the Executive Committee, take any action on
behalf of or in the name of the Company, or enter into any commitment or
obligation binding upon the Company, except for actions expressly
authorized by the terms of this Agreement. Neither the Company nor any
Member of the Company may take any action which could impose any liability,
contingent liability, obligation or commitment on a Member without such
Member's prior written consent.
<PAGE>
7.2. Restrictions on and Obligations of Members; Certain Actions.
(a) Except as may be expressly agreed in writing, no Member shall
use or possess Company property except for a Company purpose.
(b) The Company shall, to the extent its funds and resources
permit, take all actions permitted by this Agreement that are necessary to
cause the Company to comply with all laws and regulations applicable to the
operation of its business, and to cause the Company to fulfill all of its
contractual obligations; provided, however, that the Members shall have no
obligation to supply funds or resources to the Company for such purposes.
7.3. Non-Competition. Each Member agrees that, during the period such
Person is a Member of the Company and for a period of twenty-four (24)
months thereafter, neither it nor any of its Affiliates will (i) engage in
the business of providing contract flip chip wafer bumping services, (ii)
offer consulting or other services to any entity engaged in such business
or (iii) acquire a more than five percent (5%) equity interest in any
entity engaged in such business or acquire an option or other right to
purchase any such equity interest. Notwithstanding the restrictions of
this Section, (a) KS and its Affiliates may sell equipment to third
parties which is used to provide flip chip bumping services, and KS may
provide services related to such sales, and (b) DE may engage in the
activities permitted by the Technology Transfer Agreement, and DE's right
to engage in such activities shall continue notwithstanding the termination
or expiration of the Technology Transfer Agreement. This provision shall
not be binding on the parties following the dissolution of the Company if
such dissolution occurred by the mutual consent of the Members.
7.4. Actions Against Other Member. Any Member shall be entitled to
maintain, on its own behalf or on behalf of the Company, any action or
proceeding against the other Member, the Parent or the Company (including,
without limitation, any action for damages, specific performance, or
declaratory or other equitable relief) for or by reason of breach by such
party of this Agreement, notwithstanding the fact that any or all of the
parties to such proceeding may then be Members in the Company, and without
dissolving the Company as a limited liability company.
7.5 Dissociation. A Person shall cease to be a Member upon the
happening of any of the following events:
(a) the withdrawal of a Member with the consent of the remaining
Members; or
(b) a Member becoming a Bankrupt Member.
Assignees shall not be deemed to be Members for purposes of this Section
7.5.
7.6 Rights of Dissociating Member. In the event any Member dissociates
prior to the dissolution and winding up of the Company:
<PAGE>
(a) if the Dissociation causes a dissolution and winding up of the
Company under Article XI, distributions to which the Member would have been
entitled shall be reduced by the damages sustained by the Company as a
result of the Dissolution and winding up;
(b) if the Dissociation does not cause a dissolution and winding up
of the Company under Article XI, the Member shall thereafter hold his Units
as an Assignee. In that event, any members of the Management Committee
appointed by the dissociated Member shall cease to be members of the
Management Committee and the number of members of the Management Committee
shall be correspondingly reduced. In addition, the Executive
Representative appointed by the dissociated Member shall cease to be a
member of the Executive Committee, and the Executive Committee shall be
composed of the Executive Representative appointed by the remaining Member.
7.7 Services to DE. The Members acknowledge that DE will be a customer
of the Company. DE shall be treated on the same basis as any other
customer of the Company except that (a) the amount charged to DE for the
Company's products and services as determined at the time DE places an
order for such services and products shall not exceed the lowest amount
charged to other customers excluding customers whose orders for the
Company's products or services exceed DE's orders (based on unit volume of
comparable products), and (b) the Company agrees that each month it will
reserve twenty percent (20%) of its manufacturing capacity for DE provided
that (i) DE gives the Company at least one (1) year's prior notice that it
intends to utilize such capacity and (ii) at least sixty (60) days' prior
to the beginning of such month DE places an order for the Company's
services and products.
7.8 Obligations of Parent. Parent agrees it is jointly and severally
liable with KS for all of KS's obligations and liabilities under this
Agreement.
ARTICLE VIII
ADDITIONAL MEMBERS
8.1. Admission of Additional Members.
(a) No Person may be admitted as an additional Member without the
unanimous consent of the existing Members. Assignees may be admitted as
Substitute Members only as provided in Article IX.
(b) Upon the admission of an additional Member in accordance with
Section 8.1(a) above, the Members shall redetermine their interest in the
Profits, Losses and distributions, and such changes shall be set forth in
an amendment to this Agreement which shall be signed by all of the Members,
including the newly admitted Members.
8.2. Transfers. No Member shall make any Transfer of Units except in
accordance with Article IX.
<PAGE>
ARTICLE IX
TRANSFER OF UNITS
9.1 General. Except as otherwise specifically provided herein, a Member
or Assignee may not Transfer all or any part of such Person's Units. Any
purported Transfer of Units or other rights not in compliance with this
Article IX or Section 13.1 shall be null and void.
9.2 Assignee Not A Substitute Member in Absence of Unanimous Consent.
(a) Except as provided in Section 13.1, any proposed Transfer of
Units to a Person who is not a Member shall not be effective unless and
until the other Member, in its sole and absolute discretion, by written
consent, approves such Transfer and the transferee has complied with
Section 9.4.
(b) Except as provided in Section 9.3, any transferee of Units
shall be an Assignee and have no right to participate in the management of
the business and affairs of the Company or to become a Substitute Member,
unless the remaining Member, in its sole and absolute discretion, by
written consent approves the admission of the transferee as a Substitute
Member.
(c) Upon the Transfer of all of a Member's Units which does not at
the same time Transfer the balance of the rights associated with the Units
(including, without limitation, the rights of the transferring Member to
participate in the management of the business and affairs of the Company)
to a Person who is not then a Member, the Company shall purchase from the
transferring Member, and the transferring Member shall sell to the Company
for a purchase price of $100.00, all remaining rights and interests
retained by the transferring Member which immediately prior to such sale or
gift were associated with the transferring Member, and the Management
Committee and Executive Committee shall thereafter be selected as provided
in Section 7.6.
(d) Any Transfer of Units or admission of an Assignee as a
Substitute Member in compliance with this Article IX shall be deemed
effective as of the last day of the calendar month in which the Assignee or
Substitute Member fully complies with Section 9.4.
9.3. Rights of First Refusal.
(a) A Member may not sell its Units prior to March 1, 1999. At any
time on or after March 1, 1999, any Member may sell all but not less than
all of its Units (the "Selling Member") to a third party subject to the
provisions of this Section. The Selling Member must first obtain from such
third party a written offer (the "Offer") to purchase such Units (the
"Offered Units") which shall specify the purchase price and provide that
the purchase price will be paid in cash at the closing. If the Remaining
Member is DE, an Offer may not be obtained from a Competitor of DE or any
of its Affiliates. If the remaining Member is KS, an Offer may not be
obtained from a Competitor of KS or any of its Affiliates. The Selling
Member shall then give written notice (the "Sale Notice") to the other
<PAGE>
Member (the "Remaining Member") that such Selling Member desires to sell
all of its Units and enclosing a copy of the Offer.
(b) The Remaining Member shall have the option, exercisable for a
period of ninety (90) days after the Sale Notice, to purchase all, but not
less than all, of the Offered Units at the price specified in the Offer.
If the option is exercised, the Selling Member and the Remaining Member
shall complete the purchase and sale within ninety (90) days of the
exercise of the option. The closing shall be held at the principal office
of the Remaining Member at the time and date within such ninety (90) day
period specified by the Remaining Member. At the closing, the purchase
price shall be paid in cash, and the Selling Member shall deliver good
title to the Units free and clear of all liens and encumbrances and execute
such documents as the Remaining Member shall reasonably request to
effectuate the sale.
(c) In the event that the Remaining Member does not exercise its
option, then the Selling Member may sell all, but not less than all, of the
Offered Units provided that the sale is to the Person specified in the
Offer and upon the terms and conditions set forth in the Offer and that the
closing occurs within ninety (90) days after the option of the Remaining
Member expires. In the event of a sale of all of the Selling Member"s
Units, then, subject to the provisions of Section 9.4, the purchaser shall
be admitted as a Substitute Member and shall have all of the rights and
obligations held by the Selling Member immediately prior to the sale.
9.4 Other Requirements for Effectiveness of Transfer. As a condition to
recognizing the effectiveness of any proposed Transfer of Units or
admission of an Assignee as a Substitute Member, the remaining Member may
require the transferring Person and/or the proposed transferee, to execute
such instruments of Transfer, assignment and assumption and such other
documents, and to perform all such other acts which the remaining Member
may deem necessary or desirable to:
(a) constitute such transferee as an Assignee or a Substitute
Member;
(b) confirm that the Person desiring to acquire Units, or to be
admitted as a Member, has accepted, assumed and agreed to be subject to and
bound by all of the terms, obligations and conditions of this Agreement, as
the same may have been further amended (whether such Person is to be
admitted as a Substitute Member or will merely be an Assignee);
(c) preserve, after the Transfer, the Company's status under the
laws of each jurisdiction in which the Company is qualified, organized or
does business;
(d) maintain the Company's classification as a partnership for
federal income tax purposes; and
(e) assure compliance with any applicable state and federal laws
including securities laws and regulations.
<PAGE>
ARTICLE X
REPRESENTATIONS AND WARRANTIES
10.1. Representations and Warranties of DE. DE represents and warrants
to KS that:
(a) DE is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and it has the
corporate power and authority to execute, deliver and perform its
obligations under this Agreement and each Ancillary Agreement to which it
is a party.
(b) This Agreement has been duly authorized, executed and delivered
by it and constitutes the valid and legally binding obligation of DE,
enforceable in accordance with its terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting the rights of creditors generally and by general
principles of equity.
(c) Subject to the exceptions set forth in Section 7.4 of the
Technology Transfer Agreement, the execution, delivery and performance by
it of this Agreement and each Ancillary Agreement to which it is a party
and the contemplated operations of the Company do not and will not (i)
conflict with, result in a breach or default under, or result in the
creation or imposition of any lien upon any of its properties or assets or
in the forfeiture of any of its rights or assets under, the provisions of
its charter or by-laws or any agreement or other instrument to which it is
a party or by which it or any of its properties or assets is bound or (ii)
violate any existing order, award, rule or regulation of any court,
arbitrator or governmental body or any statute or rule of law applicable to
it.
(d) No consent, approval, authorization or other action of and no
registration, designation, declaration, filing or qualification with any
regulatory or governmental authority is required to be obtained or made by
it in connection with the execution, delivery and performance by it of this
Agreement or any Ancillary Agreement to which it is a party, except as
otherwise specified in the Technology Transfer Agreement.
(e) There are no actions, suits or proceedings pending or, to its
knowledge, threatened against or affecting it in any court or before any
governmental agency or arbitration board or tribunal which might adversely
affect (i) its ability to perform its obligations under this Agreement or
(ii) the contemplated operations of the Company or an Ancillary Agreement
to which it is a party.
10.2. Representations and Warranties of KS and Parent. KS and Parent
jointly and severally represent and warrant to DE that:
(a) KS is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and it has the
corporate power and authority to execute, deliver and perform its
<PAGE>
obligations under this Agreement and each Ancillary Agreement to which it
is a party.
(b) Parent is a corporation duly organized, validly existing and in
good standing under the laws of the State of Pennsylvania, and it has the
corporate power and authority to execute, deliver and perform its
obligations under this Agreement.
(c) This Agreement has been duly authorized, executed and delivered
by KS and Parent and constitutes the valid and legally binding obligation
of KS and Parent, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting the rights of creditors generally and
by general principles of equity.
(d) The execution, delivery and performance by KS and Parent of
this Agreement and each Ancillary Agreement to which KS is a party and the
contemplated operations of the Company do not and will not (i) conflict
with, result in a breach or default under, or result in the creation or
imposition of any lien upon any of the properties or assets of KS or Parent
or in the forfeiture of any of the rights or assets under, the provisions
of the charter or by-laws of KS or Parent or any agreement or other
instrument to which KS or Parent is a party or by which KS or Parent or any
of their properties or assets is bound or (ii) violate any existing order,
award, rule or regulation of any court, arbitrator or governmental body or
any statute or rule of law applicable to KS or Parent.
(e) No consent, approval, authorization or other action of and no
registration, designation, declaration, filing or qualification with any
regulatory or governmental authority is required to be obtained or made by
KS or Parent in connection with the execution, delivery and performance by
them of this Agreement or an Ancillary Agreement to which either of them is
a party.
(f) There are no actions, suits or proceedings pending or, to their
knowledge, threatened against or affecting KS or Parent in any court or
before any governmental agency or arbitration board or tribunal which might
adversely affect (i) the ability of either of them to perform its
obligations under this Agreement or an Ancillary Agreement to which it is a
party or (ii) the contemplated operations of the Company.
ARTICLE XI
DISSOLUTION OF THE COMPANY
11.1. Dissolution. The Company shall be dissolved upon the first of the
following to occur; (provided, however, the Company shall not terminate
until the winding-up of affairs is complete):
(a) The agreement of both Members to dissolve and terminate the
Company;
<PAGE>
(b) The sale, abandonment or other disposition of all or
substantially all of the assets of the Company;
(c) The Dissociation of any Member unless the remaining Member
elects to continue the business of the Company and gives written notice of
such election to dissociated Member within sixty (60) days after the event
which caused the Dissociation; or
(d) The occurrence of any other event which under the Act mandates
dissolution of the Company and is not waivable by agreement of the Members.
11.2. Termination of the Company.
(a) Upon the occurrence of any event set forth in Section 11.1
which causes the dissolution of the Company, to the fullest extent
permitted by applicable law, the Management Committee and the President
shall proceed to wind up and terminate the Company affairs with full power
and authority to do all acts necessary and in accordance with the terms
hereof.
(b) Upon dissolution of the Company, a proper accounting shall be
made of the Company's assets and liabilities and obligations from the date
of the last previous accounting to the date of such dissolution, and the
Company's business and affairs shall be liquidated in an orderly manner and
such sales of properties of the Company as may be required for such
purposes shall be made including, without limitation, the sale of any
property which may not be susceptible to division upon distribution to the
Members. Notwithstanding the foregoing, in the event the Executive
Committee shall determine that an immediate sale of part or all of the
Company's assets could cause undue loss to the Members, the Executive
Committee may either defer liquidation (to the extent permitted by law) or
withhold from distribution for a reasonable time, any assets of the Company
or distribute assets in kind to the Members. Pursuant to the liquidation
of the Company, payments shall be made of all expenses of liquidation
(including, without limitation, any legal and accounting expenses incurred
in connection therewith) and all debts of the Company, or adequate
provision shall be made for the payment thereof. The remaining assets and
properties of the Company shall be distributed to the Members, in cash or
in kind, to the Members in proportion to their respective Capital Accounts.
(c) For this purpose, the Capital Account of each Member shall be
reduced by the fair market value of any asset distributed to it and,
accordingly, the Company books shall be adjusted prior to the time of
distribution to reflect such fair market value.
(d) Until terminated by final distribution of all assets, the
Company and the Members shall remain subject to this Agreement.
(e) All distributions of Company property pursuant to the terms of
this Agreement shall be subject to such liens, encumbrances, obligations,
commitments, undertakings and/or restrictions as affect such property at
the date of such distribution.
<PAGE>
11.3. Rights Not Affected. Upon termination of the Company pursuant to
this Article XI, all of the rights and obligations of the Members under
this Agreement shall terminate except as otherwise specifically provided
herein; provided, however, that nothing contained in this Article XI shall
be construed as a limitation upon, and no action or transaction in
pursuance of this Article XI shall be deemed a satisfaction, waiver or
discharge of, any rights, claim or causes of action of either Member
against the other, whether for damages or other relief, arising out of or
by virtue of breach of this Agreement, theretofore or thereafter committed,
by the other Member except as and to the extent that such breach is taken
into account in any computation or adjustment made pursuant to this Article
XI. It shall be a condition of any disposition of the books and records of
the Company under this Articles XI that, notwithstanding the termination of
the Company, each Member shall have access thereto at any time upon
reasonable notice for the purpose of inspection and obtaining copies at its
own expense.
ARTICLE XII
DEFINITIONS
12.1. Definitions. For purposes of this Agreement, unless the context
clearly indicates otherwise, the following terms shall have the following
meanings:
"Act" means the Delaware Limited Liability Company Act and all amendments
to the Act.
"Additional Capital Contribution" means a Capital Contribution made
pursuant to Section 3.2 hereof.
"Affiliate" means (a) any Person which, directly or indirectly, controls,
is controlled by or is under common control with the specified person, (b)
any person of which the specified person serves as an officer, partner or
trustee or with respect to which the specified person served in a similar
capacity, (c) any person of which a specified person is, directly or
indirectly, the beneficial owner of ten percent (10%) or more of any class
of equity securities of the person, (d) any person that, directly or
indirectly, is the beneficial owner of ten percent (10%) or more of any
class of equity securities of the specified person, and (e) any relative or
spouse of the specified person who makes his or her home with the specified
person.
"Agreement" means this Operating Agreement as amended from time to time.
"Ancillary Agreement" has the meaning set forth in Section 2.3(c).
"Annual Budget" has the meaning set forth in Section 2.3(d).
"Assignee" means a Person that has Units who is not a Member.
"Bankrupt Member" means a Member who: (i) has become the subject of a
decree or order for relief under any bankruptcy, insolvency or similar law
affecting creditors' rights now existing or hereafter in effect; or (ii)
<PAGE>
has initiated, either in an original proceeding or by way of answer in any
state insolvency or receivership proceeding, an action for liquidation,
arrangement, composition, readjustment, dissolution, or similar relief.
"Budget Year" has the meaning set forth in Section 2.3(d).
"Capital Account" means the amount of cash and fair market value of
property (net of any liabilities secured by such contributed property that
the Company is considered to assume or take subject to under Section 752 of
the Code) that a Member or Assignee has contributed to the Company as
Capital Contributions, adjusted as follows:
(i) The Capital Account shall be increased by all Profits
allocated to such Person pursuant to Section 4.3.
(ii) The Capital Account shall be decreased by (a) the amount of
cash and the fair market value of all property distributed to such Person
by the Company (net of liabilities securing such distributed property that
such Person is considered to assume or take subject to under Section 752 of
the Code) and (b) all Losses allocated to such Person pursuant to Section
4.3.
(iii) The Capital Account shall be credited in the case of an
increase or debited in the case of a decrease to reflect such Person's
allocable share of any adjustment to the adjusted basis of Company assets
pursuant to Section 734(b) of the Code to the extent provided by Section
1.704 1(b)(2)(iv)(m) of the Regulations.
(iv) The Capital Account shall be adjusted in any other manner
required by Section 1.704 1(b)(2)(iv) of the Regulations or otherwise, in
order to be deemed properly maintained for federal income tax purposes.
(v) Capital Accounts shall not bear interest.
(vi) The transferee of Units shall succeed to the Capital Account
attributable to the Units transferred.
"Capital Contribution" means any contribution of property or services to
the Company made by or on behalf of a Member or Assignee pursuant to
Article III hereof.
"Certificate" means the Certification of Formation of the Company as
properly adopted and amended from time to time by the Members and filed
with the Office of the Secretary of State of Delaware.
"Class A Member" means an Original Member that, together with its
Affiliates, owns 37% or more of the outstanding Units at the time that a
Member becomes a Class B Member.
"Class B Member" means an Original Member that, together with its
Affiliates, owns less than 37% of the outstanding Units.
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Company" means the limited liability company organized pursuant to the
Certificate and this Agreement, and any successor limited liability
company.
"Competitor of DE or any of its Affiliates" means a Person that (i) seeks
to engage in any business activity in which DE or any of its Affiliates, as
shown by its business plans, is, or is taking substantial steps to become,
actively engaged in, or (ii) directly or indirectly holds at least a five
(5) percent ownership interest in another entity engaged in any such
business activity.
"Competitor of KS or any of its Affiliates" means a Person that (i) seeks
to engage in any business activity in which DE or any of its Affiliates, as
shown by its business plans, is, or is taking substantial steps to become,
actively engaged in, or (ii) directly or indirectly holds at least a five
(5) percent ownership interest in another entity engaged in any such
business activity.
"Conforming Budget" means (i) an Annual Budget for a Fiscal Year ending
on or before September 30, 1998, (ii) an Annual Budget that contemplates
that the debt-to-equity ratio of the Company does not exceed 0.3:1 or (iii)
an Annual Budget that the Executive Committee designates as a Conforming
Budget.
"DE" means Delco Electronics Corporation.
"DE Officials" has the meaning set forth in Section 2.2(a).
"Delinquent Member" has the meaning set forth in Section 3.9.
"Dissociation" means any action which causes a Person to cease being a
Member as described in Section 7.5.
"Dissolution Event" means an event, the occurrence of which will result
in the dissolution of the Company under Article XI.
"Executive Committee" has the meaning set forth in Section 2.1.
"Executive Representative" means the Person or Persons designated by a
Member to represent it on the Executive Committee of the Company pursuant
to Article II.
"Fiscal Year" means the taxable year of the Company as defined in Section
4.1.
"KS" means Kulicke & Soffa Holdings, Inc.
"KS Officials" has the meaning set forth in Section 2.2(a).
<PAGE>
"Member" means any Person (i) who has signed this Agreement as a Member
or who is hereafter admitted as a Member of the Company pursuant to this
Agreement and (ii) who holds Units in the Company.
"Net Cash Flow" means, with respect to any Fiscal Year of the Company, an
amount equal to (a) the net income of the Company before income taxes as
determined using generally accepted accounting principles plus the decrease
in working capital minus (b) the sum of any increase in working capital and
principal payments on debt.
"Non-Delinquent Member" has the meaning set forth in Section 3.9.
"Original Member" means either DE or KS or an Assignee of either of them
that succeeds to the rights of either DE or KS pursuant to Section 2.2(c).
"Parent" means Kulicke & Soffa Industries, Inc.
"Person" means a natural person, trust, estate, partnership, limited
liability company or any incorporated or unincorporated organization.
"Profits" and "Losses" for any Fiscal Year means the net income or net
loss of the Company for such Fiscal Year or fraction thereof, as determined
for federal income tax purposes in accordance with the accounting method
used by the Company for federal income tax purposes adjusted as follows:
(i) Tax-exempt income as described in Section 705(a)(1)(B) of
the Code realized by the Company during such Fiscal Year shall be taken
into account as if it were taxable income;
(ii) Expenditures of the Company described in Section
705(a)(2)(B) of the Code for such year, including items treated under
Section 1.704 1(b)(2)(iv) (i) of the Regulations as items described in
Section 705(a)(2)(B) of the Code, shall be taken into account as if they
were deductible items;
(iii) Items that are specially allocated under Section 7.3(f)
shall not be taken into account;
(iv) With respect to property (other than money) which has been
contributed to the capital of the Company, Profit and Loss shall be
computed in accordance with the provisions of Section 1.704 1(b)(2)(iv) (g)
of the Regulations by computing depreciation, amortization, gain or loss
upon the fair market value of such property on the books of the Company;
(v) With respect to any property of the Company which has been
revalued as required or permitted by the Regulations under Section 704(b)
of the Code, Profit or Loss shall be determined based upon the fair market
value of such property as determined in such revaluation;
(vi) The difference between the adjusted basis for federal income
tax purposes and the fair market value of any asset of the Company shall be
treated as gain or loss from the disposition of such asset in the event (i)
any new or existing Member acquires an additional interest in the Company
<PAGE>
in exchange for a contribution to capital of the Company; or (ii) such
asset of the Company is distributed to a Member pursuant to Section 7.5 or
as consideration for a reduction of such Member's interest in the Company
or in liquidation of such interest as defined in Section 1.704-
1(b)(2)(ii)(g) of the Regulations; and
(vii) Interest paid on loans made to the Company by a Manager or
Member and salaries, fees and other compensation paid to any Manager or
Member shall be deducted in computing Profit and Loss.
"Purchasing Member" means a Member that purchases Units pursuant to
Section 9.3.
"Selling Member" means a Member that sells Units pursuant to Section 9.3.
"Regulations" except where the context indicates otherwise, means the
permanent, temporary or, if appropriate, proposed regulations of Department
of the Treasury under the Code as such regulations may be changed from time
to time.
"Substitute Member" means an Assignee who has been admitted as a Member.
"Transfer" means any transfer, sale, gift, assignment, pledge, granting
of a security interest or other disposition, including any disposition by
operation of law.
"Unit" means an interest of a Member or Assignee in the Profits, Losses
and Distributions of the Company as determined in accordance with this
Agreement. Each Member shall be entitled to one Unit for each dollar
contributed to the Company as a Capital Contribution.
ARTICLE XIII
GENERAL PROVISIONS
13.1. Assignment. The duties imposed upon the Members by this Agreement
shall be binding upon the successors and permitted assigns of any Member.
Except for Transfers pursuant to Article IX of this Agreement, no Member
shall assign any rights granted to it or delegate any duties imposed on it
by this Agreement; provided, however, that (a) DE may, with prior
notification to other Members, assign its rights or delegate its duties to
General Motors Corporation ("GM") or a direct or indirect wholly-owned
subsidiary of GM and (b) KS may, with prior notification to other Members,
assign its rights or delegate its duties to Parent or a direct or indirect
wholly-owned subsidiary of Parent.
13.2. Notices. All notices and other communications required or
permitted to be given hereunder shall be in writing and shall be given by
personal delivery, by telegram, by United Stated registered or certified
mail (postage prepaid return receipt requested), addressed as hereinafter
provided or via telephonic facsimile transmission. Notice shall be sent
<PAGE>
and deemed given when (a) if personally delivered, then upon receipt by the
receiving party or (b) if mailed, then three (3) days after being
postmarked or (c) if delivered to a telegraph company office, then upon
acknowledgement of receipt by the receiving party of the telegraph notice
or (d) if sent via telephonic facsimile transmission upon confirmation of
the transmission. All notices, requests and consents hereunder shall be
addressed or directed as follows:
(i) If to DE:
Delco Electronics Corporation
Director of IC Delco
One Corporate Center
Mail Station 8129
Kokomo, IN 46904-9005
With a copy to:
Delco Electronics Corporation
General Counsel
One Corporate Center
Mail Station CT 10K
Kokomo, IN 46904-9005
(ii) If to KS:
Kulicke & Soffa Holdings, Inc.
c/o Corporation Trust Company
1209 Orange Street
Wilmington, DE 19801
(iii) If to the Company, by giving notice to each Member
or to such other address or to such other Person as either Member or the
Company shall have last designated by notice to the Company and the other
Member.
13.3. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which
shall constitute one Agreement, notwithstanding that all of the Members are
not signatories to the original or the same counterpart, or that signature
pages from different counterparts are combined. The signature of any
Member to any counterpart shall be deemed to be a signature to and may be
appended to any other counterpart.
13.4. Governing Law; Construction.
(a) This Agreement shall be construed and enforced in accordance
with and governed by the internal, substantive laws of the State of
Delaware and of the United States of America.
<PAGE>
(b) The headings of the Articles and Sections of this Agreement are
inserted for convenience of reference only and shall not be deemed to
constitute a part of this Agreement.
(c) Unless otherwise specifically stated, references in this
Agreement to Sections, Articles or Exhibits refer to the Sections, Articles
and Exhibits of this Agreement.
(d) Except for the members of the Management Committee and the
Executive Committee (and any other Committee) as specified in Section 2.9
of this Agreement, and the other persons specified in Section 2.9 and who
are intended third party beneficiaries of this Agreement, nothing in this
Agreement is intended to or shall be construed to given any third Person
any rights under this Agreement. No right to indemnification provided by
this Agreement is intended to or shall be construed to limit any right to
indemnification provided by law or any other Agreement.
(e) If any provision of this Agreement shall be deemed or
declared to be unenforceable, invalid or void, the same shall not impair
any of the other provisions of this Agreement, which shall be enforced in
accordance with their respective terms. The Members intend that each
provision of this Agreement be enforced to the maximum extent permissible
under applicable law and, should any provision of this Agreement be
unenforceable because of its scope or the time period covered, the
provision shall be deemed to be reduced and limited to enable the provision
to be enforced to the maximum permissible extent under the laws and public
policies applied in the jurisdiction in which enforcement is sought.
13.5. Further Assurances.
(a) Each Member agrees, from time to time when and as requested by
the Company, to make, execute, swear to, acknowledge, verify, deliver,
file, record and publish any or all of the following:
(i) All documents, certificates or other instruments
(including, without limitation, fictitious name certificates and trade name
certificates) which may be required to be filed by the Company under the
laws of the State of Delaware or of any other state or jurisdiction in
which the Company shall transact business;
(ii) All documents, certificates or other instruments which
may be required or reasonably considered advisable to continue the Company
under any applicable law; and
(iii) all documents, certificates or other instruments which
may be required or reasonably considered advisable by the Company to be
filed under the laws of the State of Delaware and of any other state or
jurisdiction in which the Company shall do business in order to substitute
a Member for a Member transferring its Units pursuant to this Agreement, or
to admit additional, substituted or successor Members pursuant to this
Agreement.
<PAGE>
(b) This Section 13.5 shall survive the delivery of an
instrument of Transfer by any Member transferring the whole or any portion
of or interest in its Units.
13.6. Waiver of Right to Partition; No Right of Withdrawal. Each of the
Members for itself and its respective legal representatives, successors and
assigns, does irrevocably waive and release all rights currently held or
hereafter acquired, at law or in equity or by provision of any statute or
otherwise, to (A) obtain a partition of any asset of the Company, or any
part thereof, or (B) subject the assets of the Company, or any part
thereof, to the authority of any court of bankruptcy, insolvency,
receivership or similar proceeding, and each does hereby irrevocably
consent and agree that no Member will, at any time, commence or maintain
any action (i) for a partition of any of such assets or (ii) to subject any
of such assets to the authority of any such court except as permitted by
this Agreement.
13.7. Binding Effect; Amendment. This Agreement shall be binding upon
and shall inure to the benefit of the Members and their respective legal
representatives, successors and assigns, subject, however, to the
provisions and exceptions herein contained and provided. The written
agreement of both Members is required for any amendment to this Agreement.
13.8. Technology Transfer. No changes may be made by the Company in the
rules regarding the licensing or sublicensing of any technology which the
Company acquired from DE except as provided in Section 2.2 of the
Technology Transfer Agreement.
13.9. Specific Performance. The rights and remedies of either of the
Members hereunder shall not be mutually exclusive, i.e., the exercise of
one or more of the provisions hereof shall not preclude the exercise of any
other provisions hereof. The Members acknowledge that the failure of
either Member to substantially perform its material obligations and
covenants under this Agreement may result in a significant frustration of
the respective business objectives of the Members under this Agreement and
that remedies at law may be inadequate to protect the rights and interests
of the other Member. Accordingly, the Members, in addition to the remedies
provided in this Agreement and otherwise available under the law for the
enforcement of this Agreement, expressly consent to an order for specific
performance of such obligations and covenants of a Member or an order
granting other substantially equivalent equitable remedies calculated to
require performance of any such obligations or covenants, but nothing
herein contained is intended to, nor shall it, limit or affect any rights
at law or by statute or otherwise of any party aggrieved as against the
other for a breach or threatened breach of any provision hereof.
ARTICLE XIV
ALTERNATIVE DISPUTE RESOLUTION
14.1. Negotiations. Any and all claims, disputes, controversies or
differences arising between the Members out of or in relation to or in
connection with this Agreement or any breach hereof shall in the first
<PAGE>
instance be attempted to be settled by good faith negotiations between a
senior officer of each Member designated by such Member.
14.2. Selection of Arbitrators. All disputes arising out of this
Agreement which cannot be solved by amicable means pursuant to Section 14.1
shall be submitted to arbitration and finally settled under the Rules of
the American Arbitration Association. Each Member shall nominate one
arbitrator within thirty (30) days from the day notice was first given by
the other Member of that Member's intention to have the matter submitted to
arbitration together with his nomination of an arbitrator. Failing a
nomination of an arbitrator by one or both of the Members within the time
specified, the other Member may request the nomination of the second
arbitrator by the American Arbitration Association, as the appointing
authority, and the American Arbitration Association shall nominate a third
arbitrator as chairman of the arbitration panel.
14.3. Arbitrator Award. Any arbitration award shall be final and binding
on the Members.
14.4. Continuing Rights and Obligations. The Members agree that, until
the terms of this Article XIV have been satisfied, neither Member shall
initiate any legal action, except as provided for in Section 14.5, nor
issue any notice of termination under this Agreement. The failure of the
Members to agree or resolve a dispute will not be a breach of this
Agreement and not in any way change the rights or obligations of the
parties hereto. Pending settlement of any dispute or disagreement under
this Article XIV, the Members shall proceed diligently to carry out their
obligations under this Agreement.
14.5. Injunctive Remedies. The foregoing provisions of this Article XIV
shall not preclude the Members from applying for any preliminary or
injunctive remedies available for any purpose and securing the subsequent
enforcement of any arbitration award.
IN WITNESS WHEREOF, the undersigned have hereunto executed this Agreement
this 28th day of February, 1996.
DELCO ELECTRONICS CORPORATION
By:________________________________
KULICKE & SOFFA INDUSTRIES, INC.
By:________________________________
KULICKE & SOFFA HOLDING, INC.
By:________________________________
<PAGE>
Exhibit A
INITIAL CAPITAL CONTRIBUTIONS
K&S D&E
CUMULATIVE
CAPITAL CAPITAL CAPITAL
DATE CONTRIBUTION UNITS CONTRIBUTION UNITS CONTRIBUTIONS
- ------------- ------------ ----- ------------ ----- -------------
March 1, 1996 $1,071,000 51 $1,029,000 49 $ 2,100,000
April 1, 1996 $2,040,000 51 $1,960,000 49 $ 6,100,000
July 1, 1996 $5,049,000 51 $4,851,000 49 $16,000,000
Oct. 1, 1996 $3,060,000 51 $2,940,000 49 $22,000,000
Jan. 1, 1997 $2,040,000 51 $1,960,000 49 $26,000,000
Jan. 1, 1998 $3,570,000 51 $3,430,000 49 $33,000,000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 39,995
<SECURITIES> 10,482
<RECEIVABLES> 58,369
<ALLOWANCES> 0
<INVENTORY> 41,921
<CURRENT-ASSETS> 155,889
<PP&E> 43,752
<DEPRECIATION> 0
<TOTAL-ASSETS> 254,557
<CURRENT-LIABILITIES> 53,403
<BONDS> 50,674
0
0
<COMMON> 49,038
<OTHER-SE> 99,002
<TOTAL-LIABILITY-AND-EQUITY> 254,557
<SALES> 81,844
<TOTAL-REVENUES> 81,844
<CGS> 53,063
<TOTAL-COSTS> 53,063
<OTHER-EXPENSES> 26,920
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 854
<INCOME-PRETAX> 598
<INCOME-TAX> 179
<INCOME-CONTINUING> 419
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 419
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
