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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 26, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
--------------- TO
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COMMISSION FILE NUMBER: 0-11879
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VLSI TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 94-2597282
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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1109 MCKAY DRIVE
SAN JOSE, CALIFORNIA 95131
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 434-3100
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
PREFERRED SHARE PURCHASE RIGHTS
(TITLE OF CLASS)
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Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 20, 1998 was approximately $844,931,361 based upon the
last sale price reported for such date on the Nasdaq National Market. For
purposes of this disclosure, Common Shares held by persons who hold more than 5%
of the outstanding voting shares and Common Shares held by executive officers
and directors of the Registrant have been excluded in that such persons may be
deemed to be "affiliates" as that term is defined under the rules and
regulations promulgated under the Securities Act of 1933. This determination is
not necessarily conclusive.
As of February 20, 1998, the number of shares of the Registrant's Common
Stock outstanding was 45,711,951.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following document are incorporated by reference in this Annual
Report on Form 10-K: the Proxy Statement for the Registrant's Annual Meeting of
Stockholders to be held May 14, 1998 (the "Proxy Statement"), (Parts I & III).
The Proxy Statement will be filed with the Securities and Exchange Commission in
definitive form on or before 120 calendar days after 1997 fiscal year end.
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PART I
ITEM 1. BUSINESS
VLSI Technology, Inc., a Delaware corporation (VLSI or the Company), was
incorporated in May 1987 as a successor to the business of VLSI Technology,
Inc., a California corporation (VLSI-California). The merger of VLSI-California
into the Company was completed on December 31, 1987. References herein to "VLSI"
or the "Company" include its predecessor VLSI-California unless specified or
unless the context otherwise requires.
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward-looking statements as a result of various risks and
uncertainties, including those set forth in the section entitled "Factors
Affecting Future Results" in Item 7 of Part II of this Form 10-K and elsewhere
herein. Statements made herein are as of the date of this Form 10-K and can only
be relied on as of that date. The Company disclaims any obligation to update the
contents of those statements subsequent to the filing of this Form 10-K.
The Company's fiscal year ends on the last Friday in December. Fiscal years
1997, 1996 and 1995 ended December 26, 27 and 29, respectively. References to
1997, 1996 and 1995 shall be to the respective fiscal year unless otherwise
stated or the context otherwise requires.
OVERVIEW
VLSI designs, manufactures and markets custom and semi-custom integrated
circuits (ICs) targeted at specific areas of the electronics marketplace. These
products address a range of applications in the wireless communications,
networking, consumer digital entertainment and advanced computing markets. VLSI
markets its products primarily to Original Equipment Manufacturer (OEM)
customers in these markets. See "MARKETING AND CUSTOMERS" below.
The Company has developed significant design expertise in its targeted
markets, establishing a library of proprietary cells and highly integrated
building blocks. The Company's objective is to design and manufacture
highly-integrated, complex custom and semi-custom semiconductor devices that
enable its customers to develop and bring to market higher value-added systems
and products. Key elements in its strategy to achieve this objective include:
Target selected growth markets. VLSI has targeted a limited number of high
growth markets in which it has built significant expertise. The Company utilizes
its library of proprietary cells and high-level building blocks to deliver
value-added custom-IC solutions to these high-growth markets rapidly and
efficiently. This approach allows the Company to offer more value to the
customer at potentially higher gross profit margins for the Company. The
Company's target markets include wireless and networking communications
applications, consumer digital entertainment systems and advanced computing
applications.
Partner with market leaders and market makers. VLSI focuses its
manufacturing and research and development resources on products for a limited
number of OEM customers. Concentrating resources on leading OEM customers
enables the Company to effectively utilize its world class Sales/Technology
Centers in developing complex application-specific integrated circuits (ASICs)
and application-specific standard products (ASSPs) that best meet the customers'
requirements. Engaging with one to three leading companies in each of the
targeted markets provides VLSI with significant potential for growth. During
1997, the Company's top 20 customers represented approximately three-quarters of
the Company's net revenues. During 1996 and 1995, the Company's top 20 customers
accounted for approximately two-thirds of the Company's net revenues.
Develop differentiated products. VLSI seeks to use an ASIC methodology to
develop products that allow a customer both to offer differentiated features and
to reduce the customer's product cost. The Company creates highly complex
products that reduce the number of integrated circuit devices required for a
given application and contain advantageous combinations of features and
functionality.
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Use FSB(TM) libraries to reduce customers' time to market. The Company's
Functional System Block(TM) (FSB) libraries, an expanding collection of
pre-designed cells and high-level building blocks, provide easy design-in of
frequently used integrated circuit functions. VLSI and its customers use FSB
library elements to design and integrate products more rapidly, thereby reducing
the Company's customers' time to market. The Company's libraries of FSBs include
a DES Encryption FSB, a PCI FSB, Floppy Disk Controllers, SCSI Controllers, T1
Controllers, Graphics Controllers (LCD and CRT) and a suite of analog functions
for communications FSBs. VLSI continues to expand its FSB libraries through
internal development and through the acquisition or licensing of technology from
other companies. Technology acquired and/or licensed from other companies
includes an ARM RISC-based microprocessor (low power, high performance embedded
control applications), Oak DSP, Ethernet, Fibre Channel, MPEG II and SSA.
Offer worldwide support. The Company seeks to differentiate itself from its
competitors not only through the quality of its products, but also through the
level of its technological support and service. VLSI operates 27
Sales/Technology Centers dispersed in North America, Europe, Asia-Pacific and
Japan. In this worldwide network of Sales/Technology Centers, experienced
engineers with a specific technical focus work directly with customers to
develop designs for new products and to provide continuing post-sale customer
support.
PRODUCTS AND SERVICES
VLSI designs, manufactures and markets custom and semi-custom integrated
chips. The Company dedicates certain of its engineers to particular applications
in order to gain systems expertise and experience by developing highly complex
circuits and System-Level Silicon(TM) solutions. This increased systems
expertise enables VLSI to offer more value to the customer through the
development of FSBs to address each customer's requirements. Customers have a
choice of using proprietary solutions, standard solutions that are shared among
multiple customers, or a combination of both.
FSB library elements consist of system-level blocks that provide a higher
level of integration than in a traditional design library. These blocks are
designed to be combined with other FSB blocks, random logic and compiled
elements to provide the optimum silicon circuit with minimum customer design
time. FSB cells are intended to speed the development of integrated circuits,
resulting in faster time to market for customers.
WIRELESS COMMUNICATIONS
The Company's ASIC and ASSP solutions for the wireless communications
industry include GSM, CDMA, TDMA, PDC and D-Amps for digital cellular phones.
The Company also develops complex algorithms and integrated circuits for
cordless applications such as DECT and PHS. Wireless revenues are primarily
generated in non-U.S. markets. Customers in this market include Ericsson,
Samsung and Lucent.
NETWORKING COMMUNICATIONS
To serve the demands for high-speed connections, VLSI creates building
blocks for networking systems in both the Local Area Network (LAN) and the Wide
Area Network (WAN). In LAN, the Company provides solutions in several
applications, such as 10/100 MB Ethernet and Gigabit Ethernet. Customers in this
area include Cisco Systems, 3Com and Cabletron. In WAN, VLSI provides ISDN and
ATM solutions. These solutions are provided for customers such as DSC
Communications, Newbridge and Tellabs.
CONSUMER DIGITAL ENTERTAINMENT
The Company targets high volume entertainment-related markets, including
set-top boxes for satellite and cable TV, digital video disk, terrestrial TV,
cable modem and arcade games. The ViSTA(TM) reference platform is used as a
software development platform for developing cable, satellite and terrestrial
set-top boxes. The Company's customer base for these products includes General
Instruments, Sega, Sony, Thomson Consumer Electronic and Sagem.
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ADVANCED COMPUTING
The Company has successfully completed a major product transition away from
X86 core logic solutions for personal computers. VLSI now utilizes its systems
expertise and technical capability to provide solutions for high performance
workstations, servers, disk storage systems and tape storage systems, as well as
industrial applications including manufacturing and robotics. Customers for the
Company's advanced computing products currently include Apple Computer, Silicon
Graphics, Storage Technology, Stratus Computers and the Allen Bradley Division
of Rockwell International.
MARKETING AND CUSTOMERS
The Company primarily uses a direct sales force and commissioned
representatives to sell its silicon products and services. The direct sales
force is assisted by VLSI engineers located in its 27 Sales/Technology Centers,
consisting of 16 in the United States, six in Europe, four in the Asia-Pacific
region, and one in Canada. These Sales/Technology Centers support the Company's
customers by offering a range of design services. These services include system
definition, complete logic and circuit design and test program generation.
The Company attempts to engage with one to three leading OEM customers in
each of its targeted markets. During 1997, the Company's top 20 customers
represented approximately three-quarters of the Company's net revenues. During
1996 and 1995, the Company's top 20 customers accounted for approximately
two-thirds of the Company's net revenues. Shipments to a single customer in the
communications business, Ericsson, accounted for 29% of net revenues in 1997, as
compared to 17% in 1996 and less than 10% in prior years. Apple accounted for
12% of 1995 net revenues. No other customer accounted for more than 10% of net
revenues in any year. As a result of the concentration of the Company's customer
base, loss of business or cancellation of orders from any of these customers,
significant changes in scheduled deliveries to any of these customers or
decreases in the prices of products sold to any of these customers could have a
material adverse effect on the Company's results of operations. See also
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 of Part II herein.
RESEARCH AND DEVELOPMENT
The Company's research and development (R&D) is focused on continued
investment in the design and development of new products, and in the development
of advanced package and manufacturing process technologies. The Company's R&D
expenditures for the years 1997, 1996 and 1995 have sequentially increased, with
total expenses of $98.4 million, $88.6 million and $70.4 million, respectively.
New product R&D for 1997 included integrated circuits for CDMA handsets, GSM
basebands and front-end and transport products for satellite and cable set-top
box.
The Company's success depends on its continued ability to develop and
introduce new products that compete effectively on the basis of price and
performance and that satisfy customer requirements. The Company expects to
continue to invest selectively in the research and development of new products.
New product development often requires long-term forecasting of markets, market
trends, development and implementation of new processes and technologies and
substantial capital commitments. Semiconductor design and process methodologies
are subject to rapid technological change, requiring large expenditures for
research and development. Decreases in geometries call for sophisticated design
efforts, advanced manufacturing equipment and cleaner fabrication environments.
If the Company is unable to design, develop, manufacture and market new products
successfully and in a timely manner, its operating results will be materially
adversely affected. No assurance can be given that the Company's product and
process development efforts will be successful, that new product introductions
will achieve market acceptance or that the targeted markets in question will
develop.
The Company's process technology development activities in 1997
concentrated on the finalization and implementation of a 0.25-micron CMOS
process and the development of a 0.20-micron CMOS process. R&D
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activities in the packaging area continue to focus on high performance, high
pin-count advanced packages and low-power, small outline packages.
The Company regards technology that is licensed from third parties as a key
component of product development. A few examples include the ARM microprocessor
family, Oak DSP, Ethernet, Fibre Channel, MPEG II, SSA, power management,
communications (including standards such as GSM, DECT and CDMA), signal
converters and forward error correction. Research and development efforts are
ongoing to create products from those technologies and establish them as FSBs
for use in the Company's ASIC or ASSP products.
See also "EMPLOYEES" herein and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Factors Affecting Future
Results" in Item 7 of Part II herein.
MANUFACTURING
The Company has manufacturing locations in San Antonio, Texas, Tempe,
Arizona and San Jose, California. The San Antonio, Texas facility is primarily
dedicated to wafer fabrication utilizing six-inch wafers. The fabrication of
integrated circuits is a capital intensive, extremely complex and precise
process consisting of hundreds of separate steps and requiring production in a
highly controlled, clean environment. The marketplace has placed an ongoing
emphasis on deep sub-micron devices (those geometries under 0.5-micron) and
capital costs have tended to increase significantly as geometries have decreased
in size. During 1997, the Company continued to invest in sub-micron
manufacturing by introducing 0.25- and 0.20-micron technologies in its San
Antonio facility and intends to migrate to an eight-inch wafer production
capability beginning in late 1998. The Company expects to continue a high level
of investment in its manufacturing facility in the future.
The Tempe, Arizona facility contains design, technical support and final
test facilities. Pursuant to an announcement in late 1996, the Company ended
production in the San Jose, California fabrication facility during 1997.
Manufacturing at the San Jose site currently includes test and assembly,
technical development and research and development facilities.
In October 1997, the Company entered into an investment agreement with
Wafer Technology (Malaysia) Sdn Bhd, a Malaysian company (WTM) proposing to
build a subcontract wafer fabrication facility in Malaysia. Under this
agreement, the Company would own less than 20 percent of WTM and would be
expected to fund its investment in WTM starting in 1998. In addition, the
Company would provide certain technology and training and consulting services to
WTM. Upon completion of the WTM facility, the Company would purchase wafers from
WTM and have the right to receive an allocation of the capacity of the WTM
facility. The purchase price for wafers would be a function of the market price.
The companies have agreed in principle to convert and operate the VLSI San Jose
wafer fabrication facility as a prototype and development facility. Under this
arrangement, WTM and VLSI would share the related conversion and future
operational costs.
In addition to its own facility, VLSI has used subcontract wafer foundry
companies located in Taiwan and Singapore. The Company's strategy is to use
outside subcontract foundry providers primarily to supplement internal capacity.
Given the current capacity of the Company's San Antonio facility, the Company
has shifted substantially all of its wafer fabrication to San Antonio. Even with
the closure of the San Jose wafer fabrication facility, there can be no
assurance that the Company will fully utilize its San Antonio facility.
The Company subcontracts substantially all of its integrated circuit
packaging and approximately a third of its final testing to third parties. The
final tested circuits are then shipped directly to the Company's customers or
returned to the Company for shipment to customers. Subcontractors include
companies in Korea, Taiwan, Japan, Hong Kong and the Philippines. Although the
Company has no long-term contractual commitments from these suppliers, the
Company believes that these sources of packaging and testing services are
relatively reliable given their level of interdependence with the Company and
the overall level of availability of worldwide subcontract packaging and testing
capacity.
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The principal raw materials used by the Company in the manufacture of its
products are silicon wafers, processing chemicals and gases, leadframes and
certain precious metals. The Company's operations also depend upon a continuing
adequate supply of electricity, natural and specialty gases and water. Certain
raw materials used for the manufacture of integrated circuits are available from
a limited number of worldwide suppliers. The Company does not generally depend
on long-term fixed-price supply contracts. Shortages could occur in various
essential materials due to interruption of supply or increased demand in the
industry. If VLSI were unable to procure certain of such materials from any
source, it would be required to reduce its manufacturing operations. To date,
the Company has experienced no significant difficulty in obtaining the necessary
raw materials. There can be no assurance that the Company will not experience
significant difficulty obtaining raw materials or that fixed long-term contracts
will not be necessary to ensure supplies of raw materials.
See also "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Factors Affecting Future Results" in Item 7 of Part II
herein.
COMPETITION
The semiconductor industry in general and the markets in which the Company
competes in particular are intensely competitive, exhibiting both rapid
technological change and ongoing price erosion as technologies mature.
Competition is primarily based on design capabilities (including both the design
tool features and the skills of the design team), quality, delivery time and
price. The Company believes that its overall competitive strengths include: a
growing expertise in systems applications in specific markets, its expanding
library of FSBs, its high quality wafer processing technology and fabrication
facilities, its experienced engineering staff, its test capabilities, cost
effectiveness and the technical design services offered through its network of
Sales/Technology Centers.
The Company competes with both domestic and foreign companies, many of whom
have substantially greater financial, technical, marketing and management
resources than the Company. Competition includes companies such as IBM, LSI
Logic, Lucent, Motorola, NEC, Philips, SGS Thomson, TI and Toshiba. There is no
assurance that the Company will be able to compete successfully in the future.
See also "EMPLOYEES" below and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Factors Affecting Future
Results" in Item 7 of Part II herein.
COMPASS DESIGN AUTOMATION, INC.
In September 1997, the Company sold its software business, COMPASS Design
Automation, Inc. (COMPASS) to Avant! Corporation (Avant!). COMPASS was a
majority-owned subsidiary of the Company that provided electronic design
automation (EDA) tools and libraries for deep sub-micron ASICs and ASSPs.
The Company received approximately $27.5 million in cash, inclusive of
settlement of intercompany debt between COMPASS and VLSI, and 470,000 shares of
Avant! common stock in connection with the sale of COMPASS. Additionally, $1.8
million in cash and 52,000 shares of Avant! common stock were deposited in a
one-year escrow account to indemnify Avant! for contingencies and other matters.
VLSI also agreed to a three-year purchase commitment totaling $21.0 million for
software and EDA tools. As a result, the Company recognized an after-tax gain of
approximately $7.7 million in the third quarter of 1997 net of the after-tax
loss from COMPASS for the quarter of $2.9 million.
BACKLOG
The Company's sales are made primarily pursuant to standard purchase orders
for delivery of products, with such purchase orders officially acknowledged by
VLSI according to its own terms and conditions. Due to industry practice with
respect to cancellation of orders, VLSI believes that backlog as of any
particular date is not a reliable indicator of future revenue levels.
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EMPLOYEES
As of December 26, 1997, the Company and its subsidiaries had approximately
2,500 employees worldwide, down from approximately 3,000 from the end of 1996.
The reduction in force was primarily the result of the sale of COMPASS and the
end of production at the San Jose fabrication facility. Management believes that
the future success of VLSI will depend in part on its ability to attract and
retain qualified employees, including management, technical and design
personnel. In particular, the Company currently has numerous open positions,
specifically in the engineering arena. Any significant delays in filling these
positions will lead to delays in the introduction of various products currently
being developed, as well as the research and development associated with
potential new products.
PATENTS AND LICENSES
The Company has filed a number of patent applications and currently holds
numerous patents, expiring from 2003 to 2017, covering inventions in various
areas, including computer-aided engineering, semiconductor manufacturing and
electronic circuitry. The Company expects to file additional patent applications
from time to time, as appropriate. VLSI does not consider the success of its
business to be materially dependent on any single patent or group of patents.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights and positions, which have on occasion
resulted in protracted and expensive litigation. There are many semiconductor
companies substantially larger than VLSI that have product and process
technology rights that VLSI may have infringed. The Company continually
evaluates the adequacy of its reserve for asserted and unasserted patent
matters. The reserve for patent matters is based on the best available
information at that time and it is reasonably possible that the Company's
estimate of the exposure for patent matters could materially change in the near
term.
Periodically, the Company is made aware that technology used by the Company
in the manufacture of some or all of its products may infringe on product or
process technology rights held by others. Resolution of whether the Company's
manufacture of products has infringed on valid rights held by others could have
a material adverse effect on the Company's financial position or results of
operations, and may require material changes in production processes and
products. Several companies, including Motorola, have individually contacted the
Company concerning its alleged use of intellectual property belonging to them.
VLSI has entered into licensing agreements and technology exchange
agreements with various strategic partners and other third parties in order to
allow VLSI access to third party technology, or to allow third parties access to
the Company's technology. The Company is unable to predict whether license
agreements can be obtained or renewed on terms acceptable to the Company or the
magnitude of the costs associated with such terms. Failure to obtain or renew
such licenses could have a material adverse effect on the Company's financial
position or results of operations. See also Item 3 of Part I of this Form 10-K.
WORKING CAPITAL
Information regarding the Company's working capital practices is
incorporated herein by reference from Item 7 of Part II hereof under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
FINANCIAL INFORMATION BY BUSINESS SEGMENT
AND GEOGRAPHIC DATA
This information is included in Note 1 (under the heading "Manufacturing
Concentrations") and Note 13 of Notes to Consolidated Financial Statements,
which information is incorporated herein by reference to Item 8 of Part II
hereof. The Company currently generates approximately 4% of its net revenues
from direct sales into Asia, plus another approximately 7% of its net revenues
from direct sales in Japan. However, certain of the Company's significant
customers generate greater portions of their sales from Asia and Japan. If
recent
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events in Asian and Japanese markets have a significant impact on the Company's
customers that result in declining orders, there could be a material adverse
effect on the Company's results of operations.
SEASONALITY
The Company has shifted its business away from the previously high
concentration of sales to the personal computer industry to a concentration of
sales to the communications and consumer digital entertainment markets. The
communications and consumer digital entertainment markets are rapidly evolving
and are characterized by intense competition among suppliers of integrated
circuits, many of whom have substantially greater experience and resources than
the Company. If the Company, due to competition or other factors, is unable to
capture and maintain significant market share in these areas, there could be a
material adverse effect on the Company's results of operations. Since the
Company's transition to the communications and consumer digital entertainment
markets, the Company's results have followed a seasonal pattern, with stronger
growth in the second half of the year, reflecting the buying patterns of the
Company's customers.
ENVIRONMENTAL ISSUES
The Company is subject to a variety of federal, state and local
governmental regulations related to the storage, use, discharge and disposal of
toxic, volatile or otherwise hazardous chemicals used in its manufacturing
process. Increasing public attention has been focused on the environmental
impact of semiconductor manufacturing operations. The Company's San Antonio and
San Jose facilities are located near residential areas, which could increase the
incidence of environmental complaints or investigations. There can be no
assurance that changes in environmental regulations will not impose the need for
additional capital equipment or other requirements. Any failure by the Company
to control the use of, or adequately to restrict the discharge of, hazardous
substances under present or future regulations could subject VLSI to substantial
liability or could cause its manufacturing operations to be suspended, which
could have a material adverse effect on the Company's operating results.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year, thus rendering them
incapable of properly managing and manipulating data that includes both 20th and
21st century dates (Year 2000 Compliant). The Company is currently installing
various new internal information systems in connection with operating its
business. These systems are believed to be Year 2000 Compliant. The Company is
in the process of determining what other changes to its other information
systems are necessary in order to make them Year 2000 Compliant. While the
Company currently expects that the Year 2000 will not pose significant internal
operational problems, delays in the implementation of new information systems,
or a failure to fully identify all Year 2000 dependencies in the Company's
systems could have a material adverse effect on the Company's results of
operations.
The Company is assessing its products to ensure that they are Year 2000
Compliant. The ongoing assessment has not revealed any significant compliance
issues. However, the inability of these products to properly manage and
manipulate data in the year 2000 could result in a material adverse impact on
the Company, including increased warranty costs, customer satisfaction issues
and potential lawsuits.
The Company has initiated communications with its suppliers and customers
to determine the extent to which the Company's capabilities are vulnerable to
those third parties' failure to remediate their own Year 2000 issues. There is
no guarantee that the systems and products of other companies on which the
Company relies will be timely converted or that they will not have a material
adverse effect on the Company.
While the total cost of the Year 2000 project has not yet been determined,
the current investigation has not identified significant costs to date.
Accordingly, the Company believes it has sufficient resources for the
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Year 2000 project from currently available cash, cash equivalents and liquid
investments, cash flow expected from operations and/or borrowings under the
committed credit agreement.
ITEM 2. PROPERTIES
The Company owns the land and buildings housing its facilities located in
San Antonio, Texas, some of the land and buildings housing its facilities
located in San Jose, California, and the building housing its facilities in
Tempe, Arizona. The Tempe facility is located on land held under a long-term
ground lease, which expires in December 2037. The Company's other properties,
including 27 Sales/Technology Centers and some comprising its San Jose campus,
are occupied under operating leases that expire on various dates through October
2023 with options to renew in most instances.
The Company's San Jose facility, which includes corporate support services
such as its computer center, technology development, assembly and test, a
primary shipping location and a major design center, is located near major
earthquake faults. Should an earthquake or other natural disaster cause an
interruption in operations, operating results could be materially adversely
affected.
The San Antonio facility began qualified production in 1989 and is
primarily dedicated to six-inch wafer fabrication. Currently, the facility is
fully operational and is operating at normal levels for its current equipment
configuration. The Company intends to migrate to an eight-inch wafer production
capability beginning in late 1998. The Company believes that adding equipment to
its existing facilities will satisfy the Company's growth needs in the near
future.
The Tempe site contains the research and development resources supporting
the advanced computing group, test facilities, marketing, sales and Technology
Center functions. This site currently has more than adequate space for its
current operations and anticipated growth.
VLSI expanded into additional leased facilities adjacent to its San Jose
headquarters in each of the three years ending in 1995. By the end of 1996, the
Company had fully occupied its facilities. With the closure of the San Jose
fabrication facility in 1997, no new facilities were added to the San Jose site
in 1997. The Company anticipates that an existing option for additional space
adjacent to its leased facilities in San Jose will satisfy the Company's growth
needs in the near term.
ITEM 3. LEGAL PROCEEDINGS
For information regarding patent matters generally, see "Patents and
Licenses" in Item 1 of Part I of this Form 10-K, which information is
incorporated herein by reference.
Texas Instruments Litigation
Texas Instruments, Inc. (TI) filed a lawsuit in 1990 claiming process
patent infringement by the Company of now expired U.S. patents. In May 1995, a
jury found against the Company in the amount of $19.4 million. Although
contesting the jury verdict, the Company recorded a charge to earnings of $19.4
million in the second quarter of 1995. The trial judge subsequently set aside
the jury verdict and TI appealed. In July 1996, the Court of Appeals for the
Federal Circuit affirmed the trial judge's order. In May 1997, the U.S. Supreme
Court rejected TI's appeal of the Court of Appeals order. No license has been
concluded with TI and there can be no assurance that TI will not assert other
claims against VLSI for patent infringement.
Other Litigation
The Company is currently a party to various other legal actions arising out
of the normal course of business, none of which are expected to have a material
effect on the Company's financial position or results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of fiscal 1997, which ended December 26, 1997.
EXECUTIVE OFFICERS OF THE COMPANY
Information concerning executive officers of the Company who are not also
directors is set forth below:
MR. LARRY L. GRANT, age 52, joined the Company in January 1996 as Vice
President, General Counsel and Secretary. From 1985 until joining VLSI, Mr.
Grant was Vice President and General Counsel of Micron Technology, Inc., a
semiconductor manufacturer.
MR. JOHN S. HODGSON, age 53, joined the Company in May 1997 as Senior Vice
President, Worldwide Sales and Technology Centers. From 1990 until joining VLSI,
Mr. Hodgson was Vice President, Sales and Marketing Electronics Group of Lucent
Technologies (formerly AT&T), a communications company.
MR. BALAKRISHNAN S. IYER, age 41, was elected to the position of Senior
Vice President and Chief Financial Officer in September 1997. In January 1997,
he was appointed Vice President and Chief Financial Officer. Mr. Iyer joined the
Company in April 1993 as Vice President and Controller. From July 1992 until
joining VLSI, Mr. Iyer was Corporate Controller for Cypress Semiconductor
Corporation, a semiconductor manufacturer.
MR. THIERRY M. LAURENT, age 45, who joined the Company in 1981, was elected
to the position of Senior Vice President and General Manager, Communications and
Embedded Products Group in December 1996. From 1995 until 1996, he held the
position of Group Vice President and General Manager of the Communications
Product Group. From 1992 until 1995, he was Vice President and General Manager
of the Wireless Communications Product Division.
MR. VICTOR K. LEE, age 41, joined the Company as Vice President and
Corporate Controller in August 1997. From 1989 until joining VLSI, Mr. Lee was
Director of Finance at Advanced Micro Devices, a semiconductor manufacturer.
MR. DOUGLAS M. MCBURNIE, age 54, joined the Company as Senior Vice
President, Computer and Consumer Products Group in August 1997. From 1996 until
joining the Company, he held the position of Senior Vice President and General
Manager, Communications and Consumer Group at National Semiconductor, a
semiconductor manufacturer. From 1994 until 1996, he was Vice President and
General Manager, Local Area Network Division at National Semiconductor. From
1990 until 1994, he was self-employed.
MR. SUNIL MEHTA, age 45, joined the Company in June 1997 as Vice President
and Treasurer. From 1996 until joining VLSI, he was Corporate Treasurer at
Maxtor Corporation, a disk drive manufacturer. From 1983 until 1996, he was
International Treasurer at Amdahl Corporation, a computer manufacturer.
There are no family relationships among the Company's executive officers
and directors.
9
<PAGE> 11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
FINANCIAL INFORMATION BY QUARTER (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 DEC. 26 SEPT. 26 JUNE 27 MAR. 28
---- -------- -------- --------- --------
<S> <C> <C> <C> <C>
Net revenues(1)........................ $193,017 $181,181 $ 170,977 $167,478
Gross profit(1)........................ $ 87,084 $ 80,939 $ 71,532 $ 68,389
Net income (loss):
Continuing operations................ $ 21,993 $ 20,783 $ 13,266 $ 10,603
Discontinued operation, net of
taxes............................. $ 0 $ 0 $ (933) $ (1,617)
Gain on disposal, net of taxes....... $ 0 $ 7,723 $ 0 $ 0
Total................................ $ 21,993 $ 28,506 $ 12,333 $ 8,986
Net income (loss) per
share -- Basic(2):
Continuing operations................ $ 0.47 $ 0.44 $ 0.29 $ 0.23
Discontinued operation............... $ 0.00 $ 0.18 $ (0.02) $ (0.04)
Total................................ $ 0.47 $ .62 $ 0.27 $ 0.19
Net income (loss) per
share -- Diluted(2):
Continuing operations................ $ 0.45 $ 0.41 $ 0.28 $ 0.22
Discontinued operation............... $ 0.00 $ 0.16 $ (0.02) $ (0.03)
Total................................ $ 0.45 $ 0.57 $ 0.26 $ 0.19
Market price(3):
High................................. $ 37 $ 38 5/16 $ 25 13/16 $ 24 3/4
Low.................................. $ 18 3/4 $ 23 5/8 $ 17 $ 15 1/4
</TABLE>
<TABLE>
<CAPTION>
1996 DEC. 27 SEPT. 27 JUNE 28 MAR. 29
---- -------- -------- --------- --------
<S> <C> <C> <C> <C>
Net revenues(1)........................ $173,995 $170,474 $ 169,848 $154,700
Gross profit(1)........................ $ 68,435 $ 63,356 $ 61,013 $ 51,926
Net income (loss):
Continuing operations................ $(61,706) $ 3,268 $ 9,034 $ 3,446
Discontinued operation, net of
taxes............................. $ (1,917) $ (635) $ (761) (276)
Total................................ $(63,623) $ 2,633 $ 8,273 $ 3,170
Net income (loss) per
share -- Basic(2):
Continuing operations................ $ (1.34) $ 0.07 $ 0.19 $ 0.08
Discontinued operation............... $ (0.04) $ (0.01) $ (0.02) $ (0.01)
Total................................ $ (1.38) $ 0.06 $ 0.17 $ 0.07
Net income (loss) per
share -- Diluted(2):
Continuing operations................ $ (1.34) $ 0.07 $ 0.19 $ 0.08
Discontinued operation............... $ (0.04) $ (0.01) $ (0.02) $ (0.01)
Total................................ $ (1.38) $ 0.06 $ 0.17 $ 0.07
Market price(3):
High................................. $ 28 3/4 $ 16 7/8 $ 20 1/4 $ 16 13/16
Low.................................. $ 15 1/4 $ 10 7/8 $ 12 5/8 $ 11
</TABLE>
- ---------------
(1) Amounts have been reclassified to reflect results from continuing
operations. See Item 8, Note 2 of Notes to Consolidated Financial
Statements.
(2) The net income (loss) per share amounts for each quarter of 1996 and the
first three quarters of 1997 have been restated from those previously
reported to comply with Statement of Financial Accounting
10
<PAGE> 12
Standards No. 128, "Earnings per Share." See Item 8, Note 1 and Note 9 of
Notes to Consolidated Financial Statements.
(3) The Company's Common Stock is traded on the Nasdaq National Market under the
symbol VLSI. The prices per common share represent the highest and lowest
closing prices for the Company's Common Stock in the Nasdaq National Market
during each quarter. On February 20, 1998, there were approximately 1,677
stockholders of record. The Company has not paid cash dividends and has
limitations thereon. See Item 8, Note 5 of Notes to Consolidated Financial
Statements.
The Company did not sell any unregistered securities during fiscal 1997.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996(1) 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net revenues(2)..................... $712,653 $669,017 $670,291 $542,335 $479,024
Operating income (loss)(2).......... $ 95,499 $(69,418) $ 75,965 $ 48,943 $ 29,650
Net income (loss):
Continuing operations............. $ 66,645 $(45,958) $ 46,216 $ 33,411 $ 18,185
Discontinued operation, net of
taxes.......................... $ (2,550) $ (3,589) $ (248) $ (1,714) $ (2,302)
Gain on disposal, net of taxes.... $ 7,723 $ -- $ -- $ -- $ --
Total............................. $ 71,818 $(49,547) $ 45,968 $ 31,697 $ 15,883
Net income (loss) per
share -- Basic(3):
Continuing operations............. $ 1.43 $ (1.00) $ 1.12 $ 0.93 $ 0.54
Discontinued operation............ $ 0.12 $ (0.08) $ (0.01) $ (0.05) $ (0.07)
Total............................. $ 1.55 $ (1.08) $ 1.11 $ 0.88 $ 0.47
Net income (loss) per share --
Diluted(3):
Continuing operations............. $ 1.36 $ (1.00) $ 1.06 $ 0.89 $ 0.51
Discontinued operation............ $ 0.11 $ (0.08) $ (0.01) $ (0.04) $ (0.06)
Total............................. $ 1.47 $ (1.08) $ 1.05 $ 0.85 $ 0.45
Research and development as a
percentage of net revenues(2)..... 13.8% 13.2% 10.5% 11.6% 11.3%
Capital expenditures................ $ 88,949 $245,116 $203,472 $ 94,446 $ 71,615
Cash, cash equivalents and liquid
investments....................... $283,484 $205,759 $365,581 $103,111 $ 72,636
Working capital................... $347,649 $238,016 $400,097 $138,704 $114,423
Long-term debt and non-current
capital lease obligations......... $182,999 $209,973 $218,847 $ 96,804 $ 85,855
Stockholders' equity................ $516,395 $470,479 $530,629 $255,430 $212,508
Total assets........................ $922,078 $890,942 $959,887 $490,216 $412,223
Employees........................... 2,483 2,948 2,986 2,728 2,659
</TABLE>
- ---------------
Selected financial data should be read in conjunction with the Company's
Consolidated Financial Statements and related Notes contained in Item 8.
(1) Included in continuing operations for the fourth quarter of 1996 are special
charges of $114.4 million, primarily related to the Company's decision to
close the San Jose, California wafer fabrication facility. See Item 8, Note
3 of Notes to Consolidated Financial Statements.
(2) Amounts have been reclassified to reflect results from continuing
operations. See Item 8, Note 2 of Notes to Consolidated Financial
Statements.
(3) The net income (loss) per share amounts prior to 1997 have been restated
from those previously reported to comply with Statement of Financial
Accounting Standards No. 128, "Earnings per Share." See Item 8, Note 1 and
Note 9 of Notes to Consolidated Financial Statements.
11
<PAGE> 13
The Company has never paid any cash dividends and has limitations thereon. See
Item 8, Note 5 of Notes to Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations (MDA) should be read in conjunction with the 1997
Consolidated Financial Statements and Notes thereto in Item 8 of Part II herein.
This MDA contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Actual results could differ materially from those projected in the
forward-looking statements as a result of various risks and uncertainties,
including those set forth in "Factors Affecting Future Results" below and
elsewhere in this Form 10-K. Statements made herein are as of the date of filing
of this Form 10-K with the Securities and Exchange Commission. VLSI (the
Company) disclaims any obligation to update the contents of those statements
subsequent to the filing of this Form 10-K.
The Company's fiscal year ends on the last Friday in December. Fiscal years
1997, 1996 and 1995 ended December 26, 27 and 29, respectively. All years
presented herein consisted of 52 weeks. References to 1997, 1996 and 1995 shall
be to the respective fiscal year unless otherwise stated or the context
otherwise requires.
OVERVIEW
In September 1997, the Company sold its software business, COMPASS Design
Automation, Inc. (COMPASS) to Avant! Corporation (Avant!). The results for
COMPASS have been segregated on the Consolidated Statements of Income and
accounted for as a discontinued operation, as the software subsidiary
represented a separate line of business for the Company. Prior period
Consolidated Statements of Income and all components of income from the
discontinued operation have been reclassified accordingly.
In 1997, the Company reported a net revenue increase of 7% and a gross
profit increase of 26% from continuing operations as compared to 1996. These
increases primarily reflect growth in the communications business. Operating
profits from continuing operations were 13% of net revenues in 1997 as compared
to a net operating loss in 1996.
Income from continuing operations in 1997 was $66.6 million on net revenues
of $712.7 million compared to loss from continuing operations of $46.0 million
on net revenues of $669.0 million in 1996 and income from continuing operations
of $46.2 million on net revenues of $670.3 million in 1995. In the fourth
quarter of 1996, the Company recorded special charges of $114.4 million,
primarily relating to the closure of its San Jose, California fabrication
facility. In October 1997, production ceased at the facility. See Note 3 of
Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
The Company derives its net revenues primarily from sales of integrated
circuits (ICs) for particular markets.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Net revenues............................... $712,653 $669,017 $670,291
Percentage increase (decrease) over
preceding year........................... 7% (*) 24%
</TABLE>
- ---------------
* Less than 0.5%
Net revenues for 1997 increased 7% as compared to 1996. The increase over
1996 primarily reflects a significant increase in unit volume for the Company's
communications products, as units shipped in 1997 more than doubled from the
1996 levels. This increase was offset in part by a decrease in shipments to the
12
<PAGE> 14
Company's personal computing customers. Net revenues in 1997 of the Company's
products for personal computers (PC) were less than 10% of total net revenues.
During the first quarter of 1998, shipments for the Company's products have
slowed primarily in wireless communications and consumer digital entertainment
due to the seasonality of these consumer-oriented markets, the business
uncertainties associated with the current economic situation in the Asia-Pacific
region and inventory adjustments underway at a range of customers. The Company
expects revenues and earnings for the first quarter to decline from the first
quarter of 1997 as well as from the fourth quarter of 1997.
The Company's net revenues in 1996 were down slightly from 1995 levels as
strong demand for products designed for communications, consumer digital
entertainment and advanced computing devices nearly offset declines in net
revenues for products sold to the PC market. In 1996, net revenues from
communications markets grew considerably over 1995, reflecting increased units
shipped. In 1995, net revenues from the communications market increased as units
shipped in that market during 1995 approximately doubled from 1994. Net revenues
from consumer digital entertainment products grew in 1996 and 1995, reflecting
continued increases of unit shipments for this market. This increase in 1996 was
due to new business in the video arcade arena and an increased demand for
set-top boxes for satellite and cable TV products.
International net revenues (including export sales) increased, accounting
for 56% of net revenues for 1997 compared to approximately 47% of net revenues
for 1996 and approximately 50% for 1995. The 1997 increase was primarily due to
increases in sales to Europe. The growth in European net revenues reflects
increased sales to the Company's major customers for communications devices and
the success of GSM in becoming the leading digital wireless standard in Europe.
Export sales to the Asia-Pacific area decreased in 1997 compared to 1996, due to
reduced shipments of devices for the PC market.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Gross profit............................... $307,944 $244,730 $246,674
Percentage of net revenues................. 43% 37% 37%
</TABLE>
Gross profit as a percentage of net revenues increased to 43% in 1997 as
compared to 37% in both 1996 and 1995. The increase reflects improved
manufacturing performance, including increased capacity utilization and changes
in product mix. Gross profit margin for 1996 was negatively affected by
inventory charges taken for personal computer devices and manufacturing
inefficiencies due to capacity under-utilization. Improvements made in
manufacturing efficiencies and yields that led to lower costs were masked in
1996 by costs associated with under-utilization of wafer fabrication capacity.
See the discussion of "Special Charges" below. The 1995 gross profit margin was
adversely affected by manufacturing inefficiencies associated with the
conversion of the San Jose, California facility to a six-inch CMOS wafer process
and the transition of the San Antonio, Texas facility to 0.6-micron and smaller
geometry processes. For further discussion of factors affecting gross profit
margins, see "Factors Affecting Future Results" below.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Operating expenses (excluding special
charges)................................. $212,445 $199,784 $170,709
Percentage of net revenues (excluding
special charges)......................... 30% 30% 25%
</TABLE>
Operating expenses for continuing operations grew at approximately the same
rate as revenues in 1997 and were approximately 30% of net revenues in 1997 and
1996. Operating expenses were 25% of net revenues in 1995. The 1997 increase in
operating expenses reflects increasing R&D investment and a slower growth of
marketing, general and administrative expenses. The increase from 1995 to 1996
reflects the lack of revenue growth during a period of increasing R&D investment
for new products and increases in marketing, general and administrative
expenses.
Increased R&D expenses in each of the last three years reflect the
Company's continuing investment in new products and package and process
technologies. R&D expenditures over the last three years have focused
13
<PAGE> 15
on development of products for the communications and consumer digital
entertainment markets and process development.
As a result of the sale of COMPASS, the Company has re-evaluated its
electronic design automation (EDA) resources and expects to increase its
licensing of EDA tools from several vendors. While the reclassified consolidated
financial statements reflect the annual payments in continuing operations to
COMPASS for licensing its products, the Company expects to increase its spending
for EDA tools over the next several years.
Marketing, general and administrative expenses have increased in amount
each year from 1995 to 1997; however, these expenses decreased slightly as a
percentage of net revenues in 1997 and 1995. These expenses grew faster than net
revenues in 1996 as a result of the transition from PC to consumer markets. The
Company continues to refocus these functions to better support the markets it
serves.
SPECIAL CHARGES
The Company recorded total special charges of $115.6 million in 1996
primarily reflecting the Company's decision in the fourth quarter to close its
San Jose, California wafer fabrication facility. The special charges also
included costs associated with a change in estimate for settling lease
terminations previously accrued in the Company's 1992 special charge and
adjustments of the net book value of excess assets acquired to expand the San
Antonio wafer fabrication facility. Also included in special charges was $1.3
million related to COMPASS.
The reserve for special charges was used primarily in 1996 for writing down
assets associated with the San Jose fabrication facility, while in 1997 it was
used primarily for cash outflows for employee severance costs and losses
associated with sales commitments and customer accommodations as the Company
ceased production at the San Jose facility in October 1997. The Company
continues to have reserves for estimated losses on sales commitments and
customer accommodations, which are expected to occur in 1998 and 1999. Charges
against the reserve for special charges in 1997 and subsequent years were and
are expected to be primarily made from currently available cash, cash
equivalents, liquid investments and cash flows from operations.
The Company has determined its original estimates for the special charges
continue to be reasonable. However, actual costs may differ materially. In
particular, the costs associated with estimating losses on sales commitments and
customer accommodations are difficult to ascertain. Therefore, the Company may,
in future periods, need to change its estimated costs associated with the
special charges as more information becomes available. See also Note 3 of Notes
to Consolidated Financial Statements.
IMPACT OF CHANGES IN VALUES OF FOREIGN CURRENCIES/IMPACT OF INFLATION
Net revenues and cost of sales of foreign subsidiaries are primarily U.S.
dollar-based. Operating expenditures of foreign subsidiaries are based in local
currency. As a result, fluctuations in currency rates have historically affected
operating expenses. Although the U.S. dollar has fluctuated against the Japanese
Yen and major European currencies in the last three years, the Company has been
able to maintain an approximately offsetting balance between local currency
based net revenues and operating expenses. In periods where there may be a
negative impact on operating expenses, the Company generally has offsetting
favorable currency-related results on net revenues. Conversely, when net
revenues are negatively impacted, there are generally offsetting favorable
impacts on operating expense. These offsetting tendencies resulted in currency
fluctuations having an immaterial net effect on the operations of the Company
over the last three years.
The Company anticipates the difference between foreign currency net
revenues and foreign currency operating expenses could become material in 1998,
particularly with respect to the Japanese Yen and possibly certain European
currencies. The Company has a program of entering into foreign currency hedges
in an attempt to reduce the impact of currency fluctuations on the results of
operations. There can be no assurance that such hedging activity will be
successful in eliminating the effect of foreign currency fluctuations on results
of operations.
14
<PAGE> 16
The Company believes that its consolidated financial statements accurately
reflect the impact that inflation has, if any, on the results of operations of
the Company and considers such impact to be immaterial for all periods
presented.
PATENT MATTERS
During the third quarter of 1996, the Company concluded a patent licensing
agreement with IBM and recorded a charge against earnings of $7.5 million for
the release of alleged infringement claims incurred prior to 1996. The Company
recorded a charge of $19.4 million in the second quarter of 1995 associated with
claims on patent matters by TI. See Note 7 of Notes to Consolidated Financial
Statements.
INTEREST EXPENSE AND OTHER, NET
Interest expense increased in 1997, as compared to 1996, primarily due to a
decrease in capital expenditures and therefore lower capitalized interest.
Interest expense in 1996 was higher than 1995 reflecting a full year of interest
expense associated with the Company's 8.25% Convertible Subordinated Notes (the
Notes) issued in September 1995. During periods of significant capital
expansion, total interest expense is reduced through higher levels of interest
capitalization; see "Liquidity and Capital Resources" below.
Interest income, net increased in 1997 from 1996 reflecting lower interest
rates on higher balances of cash, cash equivalents and liquid investments.
Interest income, net decreased in 1996 from 1995 as cash was used to fund
expansion of the Company's manufacturing facilities. The cash had been generated
in 1995 from the June 1995 public offering of Common Stock and September 1995
offering of the Notes.
The Company incurred immaterial foreign exchange gains and losses in 1997,
1996 and 1995.
PROVISION FOR TAXES ON INCOME
The 1997 tax provision of 27% of income from continuing operations before
taxes (pre-tax income) reflects more pre-tax income flowing through lower tax
jurisdictions and the utilization of certain tax credits. The Company's 1996 tax
benefit of 41% of pre-tax loss reflects U.S. federal and state tax benefits of
the Company's loss and the utilization of foreign net operating loss
carryforwards offset by other individually immaterial items. The 1995 tax
provision of 26% of pre-tax income reflects the impact of foreign income taxes
in excess of U.S. rates offset by state tax benefits and changes in the tax
valuation reserve.
The Company estimates that its overall effective tax rate will approximate
27% in 1998; however, the 1998 and future tax rates may vary depending on the
Company's overall operating results, the mix of income among tax jurisdictions
and the Company's ability to use the tax carryforward benefits.
Realization of the Company's deferred tax assets is dependent on generating
sufficient U.S. taxable income in the future. Although realization is not
assured, management believes it is more likely than not that all net deferred
tax assets will be realized. The amount of the deferred tax assets considered
realizable could be reduced in the near term if estimates of future taxable
income during the carryforward period are reduced.
SALE OF SUBSIDIARY
In September 1997, the Company sold its software business, COMPASS, to
Avant!. The Company received approximately $27.5 million in cash, inclusive of
settlement of intercompany debt between COMPASS and VLSI, and 470,000 shares of
Avant! common stock in connection with the sale of COMPASS. Additionally, $1.8
million in cash and 52,000 shares of Avant! common stock were deposited into a
one-year escrow account to indemnify Avant! for contingencies and other matters.
VLSI also agreed to a three-year purchase commitment totaling $21.0 million for
software and EDA tools. As a result, the Company recognized an after-tax gain of
approximately $7.7 million in the third quarter of 1997, net of the after-tax
loss from COMPASS for the quarter of $2.9 million.
Under the terms of the agreement, Avant! has registered the restricted
stock issued to VLSI for resale into the public market, but the Company remains
at risk for market price fluctuations until the Company
15
<PAGE> 17
actually disposes of the stock in either a public or private sale. At December
26, 1997, the market value of Avant! common stock was significantly lower than
the value used to compute the $7.7 million after-tax gain on the sale of
COMPASS. As of December 26, 1997, the Company had not determined when it might
sell the Avant! common stock and concluded this to be a temporary decline in
value. The reduction in market value of these securities identified as
available-for-sale has been reflected as a reduction in stockholders' equity,
net of tax. There can be no assurance the market value of the Avant! common
stock will recover to the value used to compute the gain on sale of COMPASS. If
the Company sells the Avant! common stock prior to the stock recovering its
value, VLSI will realize a loss on sale as a part of future operations. See
Notes 2 and 4 of Notes to Consolidated Financial Statements.
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (FAS 128) during 1997. This pronouncement changed the
method used to compute net income per share and all prior period net income per
share figures have been restated. The new requirements include a calculation of
basic income per share from which the dilutive effect of stock options, warrants
and convertible securities have been excluded. Diluted income per share for VLSI
is very similar to the previously reported income per share. See Notes 1 and 9
of Notes to Consolidated Financial Statements.
In December 1997, the Financial Accounting Standards Board issued Technical
Bulletin No. 97-1, "Accounting under Statement 123 for Certain Employee Stock
Purchase Plans with a Look-Back Option" (FASTB 97-1). FASTB 97-1 is effective
for stock-based awards granted on or after January 1, 1998. The provisions of
FASTB 97-1 may affect future year's pro forma disclosures for Stock-Based
Compensation (see Note 10 of Notes to Consolidated Financial Statements).
Other recent literature affecting the Company's financial statements
includes Emerging Issues Task Force of the Financial Accounting Standards Board
(EITF) conclusions on accounting for the costs associated with addressing the
Year 2000 Issue (see "Factors Affecting Future Results" below) and reengineering
costs incurred during substantial changes to computerized information systems.
EITF Issue 96-14, "Accounting for the Costs Associated with Modifying Computer
Software for the Year 2000" and EITF Issue 97-13, "Accounting for Costs Incurred
in Connection with a Consulting Contract or an Internal Project that Combines
Business Process Reengineering and Information Technology Transformation" state
that costs incurred to modify computer programs for the Year 2000 and costs
associated with reengineering business processes as part of changing software
applications shall be expensed as incurred. The Company has conformed its
accounting practices to these requirements retroactively. While the cumulative
effect of adoption was not material, the Company anticipates costs and expenses
in 1998 and future years will increase more rapidly than had Year 2000 and
reengineering costs been capitalizable and subsequently amortized.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS
130) and Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information" (FAS 131). The statements are
effective for 1998. FAS 130 requires comprehensive income to be reported with
the same prominence as other financial statements. Comprehensive income will
include any unrealized gains or losses on available-for-sale securities and
foreign currency translation adjustments. FAS 131 changes the definition and
reporting of segments and geographic information. FAS 131 requires disclosure by
operating segment of information such as profit and loss, assets and capital
expenditures, major customers and types of products from which revenues are
derived. Adoption of these Statements is expected to have no material impact on
the Company's consolidated financial position, results of operations or cash
flows.
FACTORS AFFECTING FUTURE RESULTS
The Company's stock price, like that of other technology companies, is
subject to significant volatility. If revenue or earnings in any quarter fail to
meet the investment community's expectations, there could be an immediate impact
on the Company's stock price. The stock price may also be affected by broader
market trends unrelated to the Company's performance. Past financial performance
should not be considered a
16
<PAGE> 18
reliable indicator of future performance, and investors should not use
historical trends to anticipate results or trends in future periods.
During 1997, the Company's top 20 customers represented approximately
three-quarters of the Company's net revenues. During 1996 and 1995, the
Company's top 20 customers represented approximately two-thirds of net revenues.
The Company's largest customer in 1997, Ericsson, accounted for approximately
29% of net revenues. As a result of the concentration of the Company's customer
base, loss of business or cancellation of orders from any of these customers,
significant changes in scheduled deliveries to any of these customers or
decreases in the prices of products sold to any of these customers could have a
material adverse effect on the Company's results of operations.
The Company has shifted its business away from the previously high
concentration of sales to the personal computer industry to a concentration of
sales to the communications and consumer digital entertainment markets. The
communications and consumer digital entertainment markets are rapidly evolving
and are characterized by intense competition among suppliers of integrated
circuits, many of whom have substantially greater experience and resources than
the Company. If the Company, due to competition or other factors, is unable to
capture and maintain significant market share in these areas, there could be a
material adverse effect on the Company's results of operations. Since the
Company's transition to the communications and consumer digital entertainment
markets, the Company's results have followed a seasonal pattern, with stronger
growth in the second half of the year, reflecting the buying pattern of the
Company's customers.
The Company currently generates approximately 4% of its net revenues from
direct sales into Asia, plus another approximately 7% of its net revenues from
direct sales in Japan. However, certain of the Company's significant customers
generate greater portions of their sales from Asia and Japan. If recent events
in Asian and Japanese markets have a significant impact on the Company's
customers that result in declining orders, there could be a material adverse
effect on the Company's results of operations.
The Company's success depends on its ability to continue to develop and
introduce new products that compete effectively on the basis of price and
performance and that satisfy customer requirements. New product development
often requires long-term forecasting of markets, market trends, development and
implementation of new processes and technologies and substantial capital
commitments. Semiconductor design and process methodologies are subject to rapid
technological change. Decreases in geometries call for sophisticated design
efforts, advanced manufacturing equipment and cleaner fabrication environments.
If the Company is unable to design, develop, manufacture and market new products
successfully in a timely manner, its operating results will be materially
adversely affected. No assurance can be given that the Company's product and
process development efforts will be successful, that new product introductions
will achieve market acceptance or that the markets in question will develop.
The Company's products are susceptible to severe pricing pressures and the
Company continually attempts to pursue cost reductions, including process
enhancements, in order to maintain acceptable gross profit margins. Gross profit
margins also vary reflecting the impact of changes in the general condition of
the economy, capacity utilization levels in the semiconductor industry, customer
acceptance of new technologies and products, product functionality and
capabilities, shifts in product mix, manufacturing yields and the effect of
ongoing manufacturing cost reduction activities.
The Company sells its products under terms and conditions customarily found
in the semiconductor industry. Sales of these products are subject to customer
cancellation with limited advance notice to the Company prior to scheduled
shipment. Due to the Company's relatively narrow customer base for certain
devices and the short product life cycles of such products, such cancellations
can leave the Company with significant inventory exposure, which could have a
material adverse effect on the Company's operating results.
The semiconductor industry has a history of cyclicality and is
characterized by short product life cycles, continuous evolution of process
technology, high fixed costs, additions of manufacturing capacity in large
increments and wide fluctuations in product supply and demand. These product
supply and demand fluctuations have historically been characterized by periods
of manufacturing capacity shortages immediately
17
<PAGE> 19
followed by periods of overcapacity, which are caused by the previously
mentioned additions of manufacturing capacity in large increments. The industry
has moved from a period of capacity shortages in 1995 to what appears to be a
current period of excess capacity for the immediate future. During a period of
industry overcapacity, profitability can drop sharply as factory utilization
declines and high fixed costs of operating a wafer fabrication facility are
spread over a lower net revenue base. Despite industry overcapacity, there can
be no assurance that the Company can achieve timely, cost-effective access to
such capacity when needed.
The fabrication of integrated circuits is an extremely complex and precise
process consisting of hundreds of separate steps and requiring production in a
highly controlled, clean environment. Minute impurities, errors in any step of
the fabrication process, defects in the masks used to print circuits on a wafer
or a number of other factors can cause a substantial percentage of wafers to be
rejected or numerous die on each wafer to be non-functional.
Semiconductor manufacturing also requires a constant upgrading of process
technology to remain competitive. The Company has decided to convert its San
Antonio facility from six-inch to eight-inch wafer capability in late 1998. Any
significant expansion or upgrade of semiconductor manufacturing capacity has
attendant risks. Inefficiencies caused by the work associated with the
modifications of the manufacturing facilities could adversely affect the
Company's results of operations. This risk is increased as the Company has
shifted an even greater percentage of its manufacturing to its own facilities
(in 1997 and 1996, VLSI produced more than 95% of its wafer requirements
internally versus approximately 80% in 1995).
The Company relies on outside suppliers for a significant portion of its
assembly and test operations. Allocations by these suppliers of assembly and
test capacity to the Company depend on the Company's needs, supply availability
during periods of capacity shortages and excesses and pricing. The Company has
no long-term contractual commitments from these suppliers. Any reduction in
allocation from these suppliers could adversely affect the Company's results of
operations. The Company's foreign subcontract manufacturing arrangements are
subject to risks such as changes in government policies, transportation delays,
fluctuations in foreign exchange rates and export and tax controls. While the
Company has not experienced any supply issues as a result of recent economic
events in Asia, there can be no assurances that changes in the Asian economy
will not affect its Asia-based suppliers thereby materially adversely affecting
the Company's results of operations.
Lengthy or recurring disruptions of operations at either the Company's
production facilities or those of its subcontractors for any reason, such as
fire, could cause significant delays in shipments until the Company could shift
the products from an affected facility or subcontractor to another facility. The
Company's San Jose facility, which includes a primary shipping location and its
computer center, is located near major earthquake faults. Should an earthquake
or other natural disaster cause an interruption in operations, operating results
could be materially adversely affected.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights and positions, which have on occasion
resulted in protracted and expensive litigation. There are many semiconductor
companies substantially larger than VLSI that have product and process
technology rights that VLSI may have infringed. The Company continually
evaluates the adequacy of its reserve for asserted and unasserted patent
matters. The reserve for patent matters is based on the best available
information at that time and it is reasonably possible that the Company's
estimate of the exposure for patent matters could materially change in the near
term.
Periodically, the Company is made aware that technology used by the Company
in the manufacture of some or all of its products may infringe on product or
process technology rights held by others. Resolution of whether the Company's
manufacture of products has infringed on valid rights held by others could have
a material adverse effect on the Company's financial position or results of
operations and may require material changes in production processes and
products. Several companies, including Motorola, have individually contacted the
Company concerning its alleged use of intellectual property belonging to them.
VLSI has entered into licensing agreements and technology exchange
agreements with various strategic partners and other third parties in order to
allow VLSI access to third party technology or to allow third parties
18
<PAGE> 20
access to the Company's technology. The Company is unable to predict whether
license agreements can be obtained or renewed on terms acceptable to the Company
or the magnitude of the costs associated with such terms. Failure to obtain or
renew such licenses could have a material adverse effect on the Company's
financial position or results of operations.
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year, thus rendering them
incapable of properly managing and manipulating data that includes both 20th and
21st century dates (Year 2000 Compliant). The Company is currently installing
various new internal information systems in connection with operating its
business. These systems are believed to be Year 2000 Compliant. The Company is
in the process of determining what other changes to its other information
systems are necessary in order to make them Year 2000 Compliant. While the
Company currently expects that the Year 2000 will not pose significant internal
operational problems, delays in the implementation of new information systems,
or a failure to fully identify all Year 2000 dependencies in the Company's
systems could have a material adverse effect on the Company's results of
operations.
The Company is assessing its products to ensure that they are Year 2000
Compliant. The ongoing assessment has not revealed any significant compliance
issues. However, the inability of these products to properly manage and
manipulate data in the year 2000 could result in a material adverse impact on
the Company, including increased warranty costs, customer satisfaction issues
and potential lawsuits.
The Company has initiated communications with its suppliers and customers
to determine the extent to which the Company's capabilities are vulnerable to
those third parties' failure to remediate their own Year 2000 issues. There is
no guarantee that the systems and products of other companies on which the
Company relies will be timely converted or that they will not have a material
adverse effect on the Company.
While the total cost of the Year 2000 project has not yet been determined,
the current investigation has not identified significant costs to date.
Accordingly, the Company believes it has sufficient resources for the Year 2000
project from currently available cash, cash equivalents, liquid investments,
cash flow expected from operations and/or borrowings under the committed credit
agreement.
Management believes that the future success of VLSI will depend in part on
its ability to attract and retain qualified employees, including management and
technical and design personnel. In particular, the Company currently has
numerous open positions, specifically in the engineering arena. Any significant
delays in filling these positions will lead to delays in the introduction of
various products currently being developed, as well as the research and
development associated with potential new products.
The Company is subject to a variety of federal, state and local
governmental regulations related to the storage, use, discharge and disposal of
toxic, volatile or otherwise hazardous chemicals used in its manufacturing
process. Increasing public attention has been focused on the environmental
impact of semiconductor manufacturing operations. The Company's San Antonio and
San Jose facilities are located near residential areas, which could increase the
incidence of environmental complaints or investigations. There can be no
assurance that changes in environmental regulations will not impose the need for
additional capital equipment or other requirements. Any failure by the Company
to control the use of, or adequately to restrict the discharge of, hazardous
substances under present or future regulations could subject VLSI to substantial
liability or could cause its manufacturing operations to be suspended, which
could have a material adverse effect on the Company's operating results.
19
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
VLSI generates cash from operations, debt and equipment financings and
sales of its securities. Principal uses of cash include purchases of capital
equipment needed for semiconductor manufacturing and engineering, the repurchase
of common stock and payments of debt and lease obligations. In 1997, the Company
received approximately $27.5 million in cash, inclusive of settlement of
intercompany debt between COMPASS and VLSI, and 470,000 shares of Avant! stock
in connection with the sale of COMPASS.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Cash, cash equivalents and liquid
investments.................................. $283,484 $205,759 $365,581
Working capital................................ $347,649 $238,016 $400,097
Stockholders' equity........................... $516,395 $470,479 $530,629
</TABLE>
At December 26, 1997, total cash, cash equivalents and liquid investments
increased $77.7 million from year end 1996 due primarily to net income and
proceeds received on the sale of COMPASS. During 1996, total cash, cash
equivalents and liquid investments decreased $159.8 million from year end 1995
due primarily to the ongoing capital expansion of the Company's San Antonio
fabrication facilities and the repurchase of Common Stock. During 1995, total
cash, cash equivalents and liquid investments increased $262.5 million from year
end 1994 due primarily to the receipt of proceeds from an equity offering late
in the second quarter of 1995, proceeds from a convertible debt offering in
September 1995, proceeds from the exercise by Intel in August 1995 of its
warrant to purchase VLSI Common Stock and net income, offset by purchases of
property, plant and equipment and payments of debt and capital leases during
1995. Working capital was $347.6 million compared to $238.0 million at December
27, 1996 and $400.1 million at December 29, 1995.
During 1997, the Company generated $164.1 million of cash from operations,
a 22% increase over the $134.6 million of cash generated from operations for
1996 and a 33% increase over the $123.5 million of cash generated from
operations for 1995. Accounts receivable increased $2.9 million in 1997
(adjusted for the disposal of COMPASS) while having decreased $7.1 million in
1996 and increased $39.1 million in 1995. Inventory levels decreased $4.5
million in 1997 as a result of closing the San Jose fabrication facility.
Inventory decreased $4.5 million in 1996, reflecting product mix changes from
computer to communications and consumer products. Inventory levels in 1995
increased $1.2 million due to a build-up of custom products primarily for the
communications markets. Accounts payable, income taxes payable and accrued
liabilities decreased $20.4 million in 1997 (adjusted for the disposal of
COMPASS) primarily due to cash outlay for employee and severance costs and
losses associated with sales commitments and customer accommodations included in
the reserve for special charges offset by increases in other accrued
liabilities. Accounts payable, income taxes payable and accrued liabilities
decreased $13.5 million in 1996 due to less volume with outside wafer suppliers
and assembly and test operations. Accounts payable, income taxes payable and
accrued liabilities contributed approximately $79.5 million to cash from
operations in 1995, reflecting increased spending levels associated with
increases in production volumes and the tax benefit associated with the exercise
of stock options by employees and the exercise by Intel of its warrant. The
effect of deferred income taxes on cash generated by operations was unusually
high in 1996 due to the special charges recorded in the fourth quarter of 1996.
Cash used for investing activities was $48.1 million for 1997, as compared
to $155.3 million for 1996 and $326.7 million for 1995. VLSI invested $88.9
million in property, plant and equipment during 1997 compared to $245.1 million
in 1996 and $203.5 million in 1995. Capital additions during 1997, 1996 and 1995
were financed primarily by cash. The 1996 and 1995 investments in property,
plant and equipment focused on facilitization and equipment for expansion of the
San Antonio facility. Investments during each of the three years through 1997
also included acquisition of equipment for sub-micron wafer fabrication,
upgrades to manufacturing and office facilities and computers and software to
support research and development activity. As part of the 1995 capital
purchases, VLSI acquired land and buildings at its San Jose headquarters for
approximately $9.6 million. During 1997, the Company sold $26.6 million of
property, plant and equipment in connection with sale-leaseback arrangements,
which resulted in the related equipment now being subject to operating leases.
This refinancing reduced effective interest rates by approximately 30%. Gains
realized on the
20
<PAGE> 22
sale-leasebacks are deferred and amortized against future rent expense. The
Company realized net cash proceeds of $25.5 million from the sale of COMPASS
during 1997. The Company's purchases of liquid investments exceeded proceeds
from maturities of liquid investments in 1997, while in 1996 proceeds on
maturities exceeded purchases. This change reflects reduced capital expenditures
in 1997.
Cash used for financing activities was $61.2 million in 1997 compared to
$23.4 million in 1996 and cash provided by financing activities of $293.1
million in 1995. During 1997, the Company accelerated repayment of certain
secured equipment loans in conjunction with the sale-leaseback of equipment. As
further described below, the Company repurchased shares of the Company's Common
Stock in 1997 and 1996 for a total cost of $49.8 million and $27.2 million,
respectively. The source of cash in 1995 reflects proceeds from the issuance of
the Company's securities in 1995, including the Company's June 1995 equity
offering (3.4 million shares for net proceeds to the Company of approximately
$94 million), the August 1995 exercise by Intel of a warrant for 2.7 million
shares (for net proceeds of approximately $31 million) and a September 1995 debt
offering of $172.5 million of 8.25% Convertible Subordinated Notes due 2005 (for
net proceeds of approximately $168 million). Additionally, the Company completed
the conversion of its $57.5 million Convertible Subordinated Debentures into
Common Shares in August 1995.
In January 1996, the Board of Directors of the Company (the Board)
authorized the Company to repurchase shares of the Company's Common Stock on the
open market or in privately negotiated transactions. The Board authorized the
Company to re-issue those shares at a later date through certain of its employee
stock plans and/or to fund stock or asset acquisitions authorized by the Board.
During 1996, the Company repurchased 1.8 million shares at an average per share
price of $15.10 and re-issued 1.2 million of these shares as part of employee
stock option and stock purchase plan activities. The remaining 0.6 million
shares were re-issued during the first half of 1997. During 1997, the Company
repurchased 2.5 million shares at an average per share price of $19.91 and
re-issued 1.0 million of these shares under employee stock plans. The Company
may, from time to time, continue to repurchase additional shares.
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Capital expenditures........................ $88,949 $245,116 $203,472
</TABLE>
VLSI currently estimates that total budgeted capital expenditures for 1998
will be approximately $200 million, primarily including expenditures for
converting from six-inch to eight-inch wafer technology at the San Antonio
fabrication facility, sub-micron wafer fabrication capability, EDA tools
deployment and other equipment upgrades. As VLSI pursues large manufacturing
capital projects in increasingly complex technologies, more time is needed to
bring manufacturing capabilities on-line. Accordingly, VLSI will continue to
capitalize interest on these capital projects. Of such planned 1998 capital
expenditures, the level of which could change as necessary during the year, VLSI
had outstanding commitments for purchases of equipment and EDA licenses of
approximately $94.2 million at December 26, 1997.
In October 1997, the Company entered into an agreement with Wafer
Technology (Malaysia) Sdn Bhd, a Malaysian company (WTM), proposing to build a
subcontract wafer fabrication facility in Malaysia. Under this agreement, the
Company would own less than 20 percent of WTM and would be expected to fund its
investment starting in 1998. In addition, the Company would provide certain
technology and training and consulting services to WTM. Upon completion of the
WTM facility, the Company would purchase wafers from WTM and have the right to
receive an allocation of the capacity of the WTM facility. The purchase price
for wafers would be a function of the market price. The companies have agreed in
principle to convert and operate the VLSI San Jose wafer fabrication facility as
a prototype and development facility. Under this arrangement, WTM and VLSI would
share the related conversion and future operational costs. Such payments are
expected to be made with available cash, cash equivalents, liquid investments,
cash flow expected from operations and/or borrowings under the committed credit
agreement.
21
<PAGE> 23
The Company has a committed credit agreement for $100.0 million, expiring
in December 2000. While the Company believes that its current capital resources
are sufficient to meet its near-term needs, in order to meet its longer-term
needs, VLSI continues to investigate the possibility of generating financial
resources through technology or manufacturing partnerships, additional equipment
financings and offerings of debt or equity securities.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
22
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The chart entitled "Financial Information by Quarter (Unaudited)" contained
in Item 5 of Part II hereof is hereby incorporated by reference into this Item 8
of Part II of this Form 10-K.
VLSI TECHNOLOGY, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 26, 1997
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITEM 8:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... 24
Consolidated Statements of Income for each of the three
years in the period ended December 26, 1997............... 25
Consolidated Balance Sheets at December 26, 1997 and
December 27, 1996......................................... 26
Consolidated Statements of Stockholders' Equity for each of
the three years in the period ended December 26, 1997..... 27
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 26, 1997............... 28
Notes to Consolidated Financial Statements.................. 29
Consent of Ernst & Young LLP, Independent Auditors.......... 51
Schedule for each of the three years in the period ended
December 26, 1997 included in Item 14(a):
II -- Valuation and Qualifying Accounts and Reserves... 52
</TABLE>
Schedules other than those listed above have been omitted since the
required information is not present or not present in amounts sufficient to
require submission of the schedule, or because the information required is
included in the consolidated financial statements or the notes thereto.
23
<PAGE> 25
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
of VLSI Technology, Inc.
We have audited the accompanying consolidated balance sheets of VLSI
Technology, Inc. as of December 26, 1997 and December 27, 1996 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three fiscal years in the period ended December 26, 1997. Our audits also
included the financial statement schedule listed in the index at Item 14(a)(2).
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of VLSI
Technology, Inc. at December 26, 1997 and December 27, 1996, and the
consolidated results of its operations and its cash flows for each of the three
fiscal years in the period ended December 26, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
San Jose, California
January 13, 1998
24
<PAGE> 26
VLSI TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE YEARS ENDED DECEMBER 26, 1997
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net revenues............................................... $712,653 $669,017 $670,291
Cost of sales.............................................. 404,709 424,287 423,617
-------- -------- --------
Gross profit............................................... 307,944 244,730 246,674
-------- -------- --------
Operating expenses:
Research and development................................. 98,434 88,617 70,363
Marketing, general and administrative.................... 114,011 111,167 100,346
Special charges.......................................... -- 114,364 --
-------- -------- --------
Operating income (loss).................................... 95,499 (69,418) 75,965
Patent matters............................................. -- (7,500) (19,400)
Interest income and other expenses, net.................... 13,581 12,065 14,046
Interest expense........................................... (17,785) (13,036) (8,025)
-------- -------- --------
Income (loss) from continuing operations before provision
(benefit) for taxes on income (loss)..................... 91,295 (77,889) 62,586
Provision (benefit) for taxes on income (loss)............. 24,650 (31,931) 16,370
-------- -------- --------
Income (loss) from continuing operations................... 66,645 (45,958) 46,216
Loss from discontinued operation, net of taxes............. (2,550) (3,589) (248)
Gain on disposal, net of taxes............................. 7,723 -- --
-------- -------- --------
Net income (loss).......................................... $ 71,818 $(49,547) $ 45,968
======== ======== ========
Net income (loss) per share -- Basic:
Continuing operations.................................... $ 1.43 $ (1.00) $ 1.12
Discontinued operation................................... 0.12 (0.08) (0.01)
-------- -------- --------
Total.................................................... $ 1.55 $ (1.08) $ 1.11
======== ======== ========
Net income (loss) per share -- Diluted:
Continuing operations.................................... $ 1.36 $ (1.00) $ 1.06
Discontinued operation................................... 0.11 (0.08) (0.01)
-------- -------- --------
Total.................................................... $ 1.47 $ (1.08) $ 1.05
======== ======== ========
Weighted-average common shares outstanding -- Basic........ 46,479 45,877 41,513
======== ======== ========
Weighted-average common shares outstanding and assumed
conversions -- Diluted................................... 48,978 45,877 43,890
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
25
<PAGE> 27
VLSI TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 26, DECEMBER 27,
1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 193,899 $ 139,074
Liquid investments........................................ 89,585 66,685
Accounts receivable, net of allowance for doubtful
accounts and customer returns of $2,000 ($2,200 in
1996).................................................. 110,869 112,508
Inventories:
Raw materials.......................................... 2,565 3,095
Work-in-process........................................ 40,796 42,947
Finished goods......................................... 8,514 10,319
--------- ---------
Total inventories................................. 51,875 56,361
Deferred and refundable income taxes...................... 82,870 68,638
Prepaid expenses and other current assets................. 4,779 5,240
--------- ---------
Total current assets................................... 533,877 448,506
--------- ---------
Property, plant and equipment:
Land...................................................... 17,764 17,403
Buildings and leasehold improvements...................... 106,174 101,498
Machinery and equipment................................... 632,480 635,340
Construction-in-progress.................................. 20,898 18,324
--------- ---------
777,316 772,565
Accumulated depreciation and amortization................. (396,412) (345,301)
--------- ---------
Net property, plant and equipment...................... 380,904 427,264
Deferred income taxes....................................... -- 7,621
Other assets................................................ 7,297 7,551
--------- ---------
$ 922,078 $ 890,942
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 57,469 $ 61,586
Accrued compensation and benefits......................... 31,091 23,762
Income taxes.............................................. 11,436 5,777
Patent matters............................................ 23,738 22,028
Reserve for special charges............................... 10,811 50,990
Other accrued liabilities................................. 48,809 38,584
Current portion of long-term debt......................... 2,874 7,763
--------- ---------
Total current liabilities.............................. 186,228 210,490
--------- ---------
Long-term debt.............................................. 182,039 207,627
Other long-term obligations................................. 24,960 2,346
Deferred income taxes....................................... 12,456 --
Commitments and contingencies
Stockholders' equity:
Preferred Shares, $0.01 par value; 2,000 shares
authorized............................................. -- --
Common Stock, $0.01 par value; 99,000 shares authorized,
47,301 shares issued (47,240 in 1996).................. 473 472
Treasury Stock, at cost, 1,495 shares (553 in 1996)....... (32,653) (8,349)
Junior Common Stock, $0.01 par value; 1,000 shares
authorized............................................. -- --
Additional paid-in capital................................ 459,539 458,774
Retained earnings......................................... 91,400 19,582
Unrealized loss on available-for-sale securities.......... (2,364) --
--------- ---------
Total stockholders' equity............................. 516,395 470,479
--------- ---------
$ 922,078 $ 890,942
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
26
<PAGE> 28
VLSI TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 26, 1997
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
COMMON SHARES TREASURY SHARES ADDITIONAL LOSS ON TOTAL
--------------- ----------------- PAID-IN RETAINED AVAILABLE-FOR-SALE STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SECURITIES EQUITY
------ ------ ------ -------- ---------- -------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 30,
1994......................... 36,685 $367 -- $ -- $231,902 $ 23,161 $ -- $255,430
------ ---- ------ -------- -------- -------- ------- --------
Issuance of Common Shares
under:
Public offering.............. 3,450 35 -- -- 93,605 -- -- 93,640
Exercise of warrant by
Intel...................... 2,678 27 -- -- 31,217 -- -- 31,244
Conversion of long-term
debt....................... 2,614 26 -- -- 56,476 -- -- 56,502
Employee stock purchase
plan....................... 739 7 -- -- 8,206 -- -- 8,213
Stock option plans........... 1,028 10 -- -- 7,018 -- -- 7,028
Tax benefits related to stock
plans and Intel warrant...... -- -- -- -- 32,604 -- -- 32,604
Net income..................... -- -- -- -- -- 45,968 -- 45,968
------ ---- ------ -------- -------- -------- ------- --------
BALANCES AT DECEMBER 29,
1995......................... 47,194 472 -- -- 461,028 69,129 -- 530,629
------ ---- ------ -------- -------- -------- ------- --------
Treasury Shares acquired....... -- -- (1,800) (27,181) -- -- -- (27,181)
Issuance of Common and Treasury
Shares under:
Employee stock purchase
plan....................... -- -- 628 9,489 (851) -- -- 8,638
Stock option plans........... 46 -- 619 9,343 (5,003) -- -- 4,340
Tax benefits related to stock
plans........................ -- -- -- -- 3,600 -- -- 3,600
Net loss....................... -- -- -- -- -- (49,547) -- (49,547)
------ ---- ------ -------- -------- -------- ------- --------
BALANCES AT DECEMBER 27,
1996......................... 47,240 472 (553) (8,349) 458,774 19,582 -- 470,479
------ ---- ------ -------- -------- -------- ------- --------
Treasury Shares acquired....... -- -- (2,500) (49,770) -- -- -- (49,770)
Issuance of Common and Treasury
Shares under:
Employee stock purchase
plan....................... 54 1 514 11,830 (3,055) -- -- 8,776
Stock option plans........... 7 -- 1,044 13,636 (2,480) -- -- 11,156
Tax benefits related to stock
plans........................ -- -- -- -- 6,300 -- -- 6,300
Change in unrealized loss on
available-for-sale
securities, net of tax....... -- -- -- -- -- -- (2,364) (2,364)
Net income..................... -- -- -- -- -- 71,818 -- 71,818
------ ---- ------ -------- -------- -------- ------- --------
BALANCES AT DECEMBER 26,
1997......................... 47,301 $473 (1,495) $(32,653) $459,539 $ 91,400 $(2,364) $516,395
====== ==== ====== ======== ======== ======== ======= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
27
<PAGE> 29
VLSI TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 26, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents
Operating activities:
Net income (loss)......................................... $ 71,818 $ (49,547) $ 45,968
Adjustments to reconcile net income (loss) to cash
generated by operations:
Depreciation and amortization.......................... 108,995 113,674 73,683
Gain on sale of COMPASS, before loss from discontinued
operation............................................. (10,592) -- --
Special charges........................................ -- 115,620 --
Deferred income taxes.................................. 15,953 (45,287) (11,709)
Changes in operating assets and liabilities:
Accounts receivable.................................. (2,920) 7,130 (39,137)
Inventories.......................................... 4,486 4,488 (1,152)
Refundable income taxes.............................. (2,035) 4,361 (16,111)
Accounts payable, income taxes payable and accrued
liabilities......................................... (20,446) (13,452) 79,501
Other................................................ (1,130) (2,373) (7,513)
--------- --------- ---------
Cash generated by operations...................... 164,129 134,614 123,530
--------- --------- ---------
Investing activities:
Purchases of liquid investments........................... (235,787) (161,968) (329,198)
Proceeds from maturities of liquid investments............ 221,140 277,685 156,633
Purchases of property, plant and equipment................ (85,551) (270,466) (153,573)
Sale of property, plant and equipment..................... 26,600 -- --
Proceeds from sale of COMPASS, net of cash sold........... 25,516 -- --
Other..................................................... -- (600) (600)
--------- --------- ---------
Net cash used for investing activities............ (48,082) (155,349) (326,738)
--------- --------- ---------
Financing activities:
Payments on debt and capital lease obligations............ (31,595) (9,153) (18,790)
Issuance of long-term debt................................ -- -- 172,500
Conversion of long-term debt to equity.................... -- -- (845)
Purchase of Treasury Shares............................... (49,770) (27,181) --
Issuance of Common and Treasury Shares, net of issuance
costs.................................................. 20,143 12,978 140,198
--------- --------- ---------
Net cash provided by (used for) financing
activities..................................... (61,222) (23,356) 293,063
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ 54,825 (44,091) 89,855
Cash and cash equivalents, beginning of period.............. 139,074 183,165 93,310
--------- --------- ---------
Cash and cash equivalents, end of period.................... $ 193,899 $ 139,074 $ 183,165
========= ========= =========
Supplemental disclosure:
Cash outflows for property, plant and equipment........... $ 85,551 $ 270,466 $ 153,573
Add: Secured equipment loans........................... -- -- 19,341
Add/(Less): Change in accrued property, plant and
equipment additions................................... 3,398 (25,350) 30,558
--------- --------- ---------
Property, plant and equipment additions................... $ 88,949 $ 245,116 $ 203,472
========= ========= =========
Interest paid............................................. $ 19,353 $ 20,496 $ 8,732
========= ========= =========
Income taxes paid, net.................................... $ 10,510 $ 4,558 $ 6,533
========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
28
<PAGE> 30
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 26, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The consolidated financial statements include the
accounts of VLSI Technology, Inc. (VLSI or the Company) and its majority-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
Reclassifications. Certain prior year amounts previously reported have been
reclassified to reflect the sale of a subsidiary (see Note 2) and to conform to
the 1997 presentation.
Fiscal Year. The Company's fiscal year ends on the last Friday in December.
Fiscal years 1997, 1996 and 1995 ended December 26, 27 and 29, respectively. All
years presented herein consisted of 52 weeks. References to 1997, 1996 and 1995
shall be to the respective fiscal year unless otherwise stated or the context
otherwise requires.
Cash Equivalents and Liquid Investments. Cash equivalents reflect highly
liquid short-term investments with maturities at date of purchase of three
months or less. These investments are readily convertible to known amounts of
cash, while equity securities and investments with maturities of between three
and twelve months are considered liquid investments.
Concentrations of Credit Risk. Financial instruments that potentially
subject VLSI to concentration of credit risk consist principally of cash
equivalents, liquid investments and trade receivables. VLSI invests cash through
high-credit-quality financial institutions. The Company's trade receivables
primarily are derived from sales to manufacturers of communications products,
consumer products and computer systems. Management believes that any risk of
accounting loss is reduced due to the diversity of its products, end customers
and geographic sales areas. VLSI performs ongoing credit evaluations of its
customers' financial condition and requires collateral, such as letters of
credit and bank guarantees, whenever deemed necessary.
In 1997, VLSI adopted a program to sell its material promissory notes
associated with certain customers on a non-recourse basis. During 1997, the
Company sold approximately $7.2 million (discounted at short-term yen borrowing
rates) of its Japanese sales affiliate's accounts receivable through financing
programs with a certain Japanese bank. The transactions have been accounted for
in accordance with Financial Accounting Standards Board Statement No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" (FAS 125). Related losses were immaterial.
Manufacturing Concentrations. While VLSI operates and maintains its own
wafer manufacturing facility, the Company relies on outside suppliers for a
significant portion of its assembly and test operations. Allocations by these
suppliers of assembly and test capacity to the Company depend on the Company's
needs, supply availability during periods of capacity shortages and excesses and
pricing. The Company has no long-term contractual commitments from these
suppliers. Any reduction in allocation from these suppliers could adversely
affect the Company's results of operations. The Company's foreign subcontract
manufacturing arrangements are subject to risks such as changes in government
policies, transportation delays, fluctuations in foreign exchange rates and
export and tax controls. While the Company has not experienced any supply issues
as a result of recent economic events in Asia, there can be no assurances that
changes in the Asian economy will not affect its Asia-based suppliers thereby
materially adversely affecting the Company's results of operations.
Inventories. Inventories are stated at the lower of cost or market. Cost is
computed on a currently adjusted standard basis (which approximates average
cost); market is based upon estimated net realizable value. The valuation of
inventory at the lower of cost or market requires the use of estimates as to the
amounts of current inventory that will be sold. These estimates are dependent on
the Company's assessment of current and expected orders from its customers,
given that orders, particularly of standard products, such as devices for
cellular handsets, are subject to cancellation with limited advance notice prior
to shipment. In most
29
<PAGE> 31
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 26, 1997
instances, inventory is reserved if the units in inventory exceed six months of
estimated demand for that product. It is reasonably possible that the
recoverability of the Company's investment in inventory will change in the near
term. No estimate can be made of a range of amounts of customer cancellations
that would materially affect the consolidated financial statements.
Property, Plant and Equipment. Property, plant and equipment are stated at
cost. Depreciation and amortization are provided on the straight-line method for
financial reporting purposes and on accelerated methods for tax purposes. The
valuation of property, plant and equipment at depreciated cost requires use of
estimates as to the useful lives and salvage value of these assets. As the
Company competes in an industry that relies on rapidly changing technology and
manufacturing developments, the actual useful lives and salvage values may
eventually prove to be lower than those estimated. No estimate can be made of a
range of amounts of loss that are reasonably possible should actual lives prove
lower than estimated.
Revenues. Revenues from silicon product sales to customers are recognized
upon shipment. Revenues relating to the licensing of technology are generally
recognized when the significant contractual obligations have been fulfilled and
the fees are billable.
Translation of Foreign Currencies. The functional currency of the majority
of the Company's larger foreign subsidiaries is U.S. dollar-based. Results from
foreign operations are subject to exchange rate fluctuations and foreign
currency transaction costs. Net foreign currency transaction losses included in
interest income and other expenses, net, were not material in 1997, 1996 and
1995. Foreign translation gains and losses and the effect of foreign currency
exchange rate fluctuations on cash flows in all years have not been material.
Derivatives and Foreign Currency Hedging. The Company's policy is to use
derivatives only to hedge all material monetary assets, liabilities, commitments
and economic exposures denominated in currencies other than the functional
currency of the Company and its subsidiaries. This activity is primarily
performed using forward contracts (under which the Company is obligated to
exchange predetermined amounts of specified foreign currency at specified
exchange rates on specified dates) for monetary assets and liabilities and
options (under which the Company may, but is not required to, exchange specified
foreign currency at specified exchange rates on specified dates, for a
predetermined fee) for commitments and economic exposures. This policy of
hedging is intended to minimize the effect of fluctuating foreign currencies on
reported income on a going-forward basis. All currency risks are hedged with
instruments using the same currency in which there is a material risk.
The forward contracts and options qualify as hedges for financial reporting
purposes. Forward contracts are reported at market value in other current assets
or accrued liabilities. Gains and losses on hedges of monetary assets and
liabilities are included in other income against foreign exchange gains or
losses on the exposures hedged. Premium costs of purchased foreign exchange
options are deferred until the hedged item is realized and then netted against
the hedged item. Unrealized changes in fair value and deferred option premiums
of contracts are recognized in other income when the contracts are no longer
effective as hedges.
The forward contracts and options position at December 26, 1997 relates to
hedging foreign currency net asset and liability positions as well as foreign
currency revenue and purchase orders through 1998 and consists of foreign
exchange forward contracts to sell $24.0 million in foreign currency, buy $21.2
million in foreign currency and options to purchase $20.2 million in foreign
currency and sell $23.5 million in foreign currency. These contracts mature
through December 1998 and are with major international financial institutions.
The contracts that matured in January 1998 resulted in a net gain of $0.5
million and substantially equaled the offsetting loss of the underlying
exposure.
Capitalized Interest. Of total interest expenditures in 1997, 1996 and 1995
of $19.4 million, $19.6 million and $12.3 million, respectively, the Company
capitalized $1.6 million, $6.6 million and $4.3 million.
30
<PAGE> 32
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 26, 1997
Stock-Based Compensation. The Company accounts for stock-based compensation
to employees and outside directors using the intrinsic value method, in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations (APB 25). See Note 10 for
the pro forma disclosure required in accordance with Financial Accounting
Standards Board Statement No. 123, "Accounting for Stock-Based Compensation"
(FAS 123) had the Company used the fair value method to account for its
stock-based compensation awards granted subsequent to December 30, 1994.
In December 1997, the Financial Accounting Standards Board issued Technical
Bulletin No. 97-1, "Accounting under Statement 123 for Certain Employee Stock
Purchase Plans with a Look-Back Option" (FASTB 97-1). FASTB 97-1 is effective
for stock-based awards granted on or after January 1, 1998. Accordingly, FASTB
97-1 has not affected the disclosures in Note 10. The provisions of FASTB 97-1
may affect future year's pro forma disclosures for Stock-Based Compensation.
Net Income (Loss) Per Share. In 1997, the Financial Accounting Standards
Board issued Statement No. 128, "Earnings per Share" (FAS 128). FAS 128 replaced
the calculation of primary and fully diluted net income (loss) per share with
basic and diluted net income (loss) per share. Unlike primary net income (loss)
per share, basic net income (loss) per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted net income (loss) per
share for VLSI is very similar to the previously reported fully diluted net
income (loss) per share. The effect of replacing primary net income (loss) per
share by basic net income (loss) per share was $0.00 in 1996 due to the net loss
for the year and an increase of $0.06 in 1995. See Note 9.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ materially from
those estimates.
2. SALE OF SUBSIDIARY
In September 1997, the Company sold its software business, COMPASS Design
Automation, Inc. (COMPASS), to Avant! Corporation (Avant!). COMPASS was a
majority-owned subsidiary of the Company that provided electronic design
automation (EDA) tools and libraries for deep sub-micron ASICs and ASSPs.
The Company received approximately $27.5 million in cash, inclusive of
settlement of intercompany debt between COMPASS and VLSI, and 470,000 shares of
Avant! common stock in connection with the sale of COMPASS. Additionally, $1.8
million in cash and 52,000 shares of Avant! common stock were deposited into a
one-year escrow account to indemnify Avant! for contingencies and other matters.
VLSI also agreed to a three-year purchase commitment totaling $21.0 million for
software and EDA tools. As a result, the Company recognized an after-tax gain of
approximately $7.7 million in the third quarter of 1997, net of the after-tax
loss from COMPASS for the quarter of $2.9 million. Net loss from COMPASS for the
nine months ended September 26, 1997 was $5.4 million, of which $2.5 million was
in the first six months of 1997 and not included in the third quarter gain
calculation.
Under the terms of the agreement, Avant! has registered the restricted
stock issued to VLSI for resale into the public market, but the Company remains
at risk for market price fluctuations until the Company actually disposes of the
stock in either a public or private sale. At December 26, 1997, the market value
of Avant! common stock was significantly lower than the value used to compute
the $7.7 million after-tax gain on the sale of COMPASS. As of December 26, 1997,
the Company had not determined when it might sell the Avant! common stock and
concluded this to be a temporary decline in value. The reduction in market value
of these securities identified as available-for-sale has been reflected as a
reduction in stockholders' equity, net of
31
<PAGE> 33
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 26, 1997
tax. There can be no assurance the market value of the Avant! common stock will
recover to the value used to compute the gain on sale of COMPASS. If the Company
sells the Avant! common stock prior to the stock recovering its value, VLSI will
realize a loss on sale as a part of future operations. See Note 4.
The results for COMPASS have been segregated on the Consolidated Statements
of Income and accounted for as a discontinued operation, as the software
subsidiary represented a separate line of business for the Company. Prior period
Consolidated Statements of Income and related Notes to Consolidated Financial
Statements have been reclassified accordingly. COMPASS revenues were $28.2
million, $47.8 million and $49.6 million for 1997, 1996 and 1995, respectively.
3. SPECIAL CHARGES
During the fourth quarter of 1996, the Company decided to close its San
Jose, California wafer fabrication facility. The Company's decision to shift to
its newer markets late in 1995 combined with the loss of the PC core logic
business early in 1996 substantially reduced the demand for the facility's
capacity. The decision to close this facility in the fourth quarter of 1996 came
only after VLSI had unsuccessfully attempted to increase facility utilization by
marketing the plant as a foundry and by searching for potential buyers or
investors.
The special charges also included costs associated with a change in
estimate for settling lease terminations previously accrued in the Company's
1992 special charge and adjustments of the net book value of excess assets
acquired to expand the San Antonio wafer fabrication facility. Also included in
special charges was $1.3 million related to COMPASS.
The Company estimated the costs associated with the decision to close the
San Jose facility and these other matters based on the best information
available when the decision was made to close the facility. Reserves are
utilized when specific criteria are met indicating the planned action has
occurred. Although the Company believes its estimates to be reasonable, actual
costs may differ materially. Particularly, the costs associated with estimating
losses on sales commitments and accommodating customers are difficult to
ascertain. Therefore, the Company may, in future periods, need to change its
estimated costs associated with the special charges as more information becomes
available.
The components of the special charges to operations taken in the fourth
quarter of 1996 and utilization in 1996 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1997
ORIGINAL 1996 BALANCE AT AMOUNTS BALANCE AT
CHARGE WRITE-OFFS 12/27/96 UTILIZED 12/26/97
-------- ---------- ---------- -------- ----------
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Equipment, facilities, leases and
manufacturing commitments........... $ 71,858 $64,630 $ 7,228 $ 7,228 $ --
Work-force-related.................. 12,215 -- 12,215 12,215 --
Losses on sales commitments and
customer accommodations.......... 31,547 -- 31,547 20,736 10,811
-------- ------- ------- ------- -------
Total............................ $115,620 $64,630 $50,990 $40,179 $10,811
======== ======= ======= ======= =======
</TABLE>
In October 1997, the Company ceased production at the San Jose facility. As
a result, the costs associated with termination of employees who worked in the
facility and related lease and manufacturing commitments were paid out in the
fourth quarter of 1997. Efforts were made during 1997 to accommodate those
customers affected by the closure of the facility. Costs associated with these
efforts are reflected against the special charges as indicated in the table
above. A significant amount of the inventory produced at the facility was
shipped to customers by December 26, 1997. The Company expects estimated losses
on sales commitments and customer accommodations to occur in 1998 and 1999.
32
<PAGE> 34
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 26, 1997
4. FAIR VALUE DISCLOSURES
The following estimated fair values have been determined by the Company
using available market information and appropriate valuation methodologies:
Cash, cash equivalents and liquid investments -- The carrying amounts of
these items are their fair values.
Debt (See Note 5) -- Quoted market prices of the Company's convertible debt
are currently available. Interest rates that management believes are currently
available to the Company for issuance of debt similar to existing secured
equipment loans are used to estimate the fair value of remaining maturities of
existing secured equipment loans.
Foreign currency contracts and options -- The estimated fair value of
foreign currency contracts and options is based on quoted market prices obtained
from dealers.
The carrying amount and fair value of the Company's financial instruments
at December 26, 1997 and December 27, 1996 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
1997 AMOUNT VALUE
---- -------- --------
(THOUSANDS)
<S> <C> <C>
Cash and cash equivalents...................... $193,899 $193,899
Liquid investments............................. $ 89,585 $ 89,585
Short-term debt................................ $ 2,874 $ 3,045
Long-term debt................................. $182,039 $177,836
Foreign currency contracts..................... $ 1,200 $ 1,173
Options........................................ $ 853 $ 862
</TABLE>
<TABLE>
<CAPTION>
CARRYING FAIR
1996 AMOUNT VALUE
---- -------- --------
(THOUSANDS)
<S> <C> <C>
Cash and cash equivalents...................... $139,074 $139,074
Liquid investments............................. $ 66,685 $ 66,685
Promissory notes receivable.................... $ 12,557 $ 12,557
Short-term debt................................ $ 7,763 $ 7,873
Long-term debt................................. $207,627 $207,477
Foreign currency contracts..................... $ 1,058 $ 947
Options........................................ $ -- $ 97
</TABLE>
The fair value estimates presented are based on pertinent information
available to management as of December 26, 1997 and December 27, 1996,
respectively. Although management is not aware of any factors that would
significantly affect the estimated fair value amounts, such amounts have not
been comprehensively revalued for purposes of these financial statements since
such dates, and current estimates of fair value may differ significantly from
the amounts presented.
The Company classifies liquid investments as available-for-sale or
held-to-maturity at the time of purchase and re-evaluates such designation as of
each balance sheet date in accordance with the nature of the securities and the
intent and investment goals of the Company. Debt securities are classified as
held-to-maturity when the Company has the positive intent and ability to hold
the securities to maturity. Held-to-maturity securities are stated at amortized
cost with corresponding premiums or discounts amortized over the life of the
investment to interest income. Marketable equity securities, and debt securities
not classified as held-to-maturity, are classified as available-for-sale and
reported at fair value. Unrealized gains or losses on
33
<PAGE> 35
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 26, 1997
available-for-sale securities are included, net of tax, in stockholders' equity
until their disposition. Realized gains and losses and declines in value judged
to be other-than-temporary on available-for-sale securities are included in
interest income. The cost of securities sold is based on the specific
identification method.
All liquid investments at December 26, 1997 were classified as
available-for-sale securities and are categorized in the following table. Debt
investments mature through 1998.
<TABLE>
<CAPTION>
AMORTIZED GROSS ESTIMATED
COST UNREALIZED LOSSES FAIR VALUE
--------- ----------------- ----------
(THOUSANDS)
<S> <C> <C> <C>
Cash equivalents:
Commercial paper.................... $ 37,909 $ 3 $ 37,906
Certificates of deposit............. 7,010 -- 7,010
Governmental securities............. 9,795 4 9,791
Money market funds.................. 32,417 -- 32,417
Liquid investments:
Commercial paper.................... 68,319 8 68,311
Governmental securities............. 8,000 5 7,995
Certificates of deposit............. 4,001 1 4,000
Bankers' acceptance................. 975 -- 975
Common stock........................ 12,090 3,786 8,304
-------- ------ --------
Total................................. $180,516 $3,807 $176,709
======== ====== ========
</TABLE>
All liquid investments at December 27, 1996 were classified as
available-for-sale securities and are categorized in the following table. Debt
investments matured through December 1997.
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ----------------- ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ------ ------- ----------
(THOUSANDS)
<S> <C> <C> <C> <C>
Cash equivalents:
Bankers' acceptance................. $ 7,826 $ 1 $-- $ 7,827
Commercial paper.................... 69,487 -- 6 69,481
Certificates of deposit............. 5,800 -- 1 5,799
Asset-backed securities............. 12,331 -- 1 12,330
Money market funds.................. 19,689 -- -- 19,689
Liquid investments:
Commercial paper.................... 52,737 -- 7 52,730
Governmental securities............. 7,000 45 3 7,042
Certificates of deposit............. 3,002 2 -- 3,004
Bankers' acceptance................. 3,909 1 -- 3,910
-------- --- --- --------
Total................................. $181,781 $49 $18 $181,812
======== === === ========
</TABLE>
There were no material gains or losses realized on sales of
available-for-sale securities during 1997 or 1996. Unrealized holding losses on
available-for-sale securities, included in stockholders' equity, in 1996 were
immaterial.
34
<PAGE> 36
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 26, 1997
5. LONG-TERM DEBT
Total debt at December 26, 1997 and December 27, 1996 consists of the
following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(THOUSANDS)
<S> <C> <C>
8.25% Convertible Subordinated Notes, due 2005......... $172,500 $172,500
Other.................................................. 12,413 42,890
-------- --------
Total debt............................................. 184,913 215,390
Less current portion................................... 2,874 7,763
-------- --------
Long-term portion...................................... $182,039 $207,627
======== ========
</TABLE>
Interest on the 8.25% Convertible Subordinated Notes (Notes) is payable on
April 1 and October 1 of each year commencing April 1, 1996. The Notes are
convertible into shares of VLSI Common Stock at any time on or before the close
of business on the last trading day prior to maturity, unless previously
redeemed, at a conversion price of $54.80 per share, subject to adjustment in
certain events. The Notes are redeemable, in whole or in part, at the option of
the Company, upon at least 15 days' notice, at redemption prices starting at
102.9% and at diminishing prices thereafter, plus accrued interest, except that
the Notes may not be redeemed prior to October 3, 1999 unless the closing price
of the Common Stock is at least 125% of the conversion price for at least 20
trading days within a period of 30 consecutive trading days ending on the fifth
trading day prior to the notice of redemption. The Notes are unsecured and
subordinated in right of payment in full to all existing and future Senior Debt
of the Company (as defined). The Company expects from time to time to incur
indebtedness constituting Senior Debt.
In December 1997, VLSI entered into a three-year, unsecured, Revolving
Credit Facility (Credit Facility) with a syndicate of banks, providing for
borrowings of up to $100.0 million at variable interest rates, based on various
domestic and international indexes. The Credit Facility contains covenants that
limit the payment of dividends. The Company is also required to maintain certain
financial ratios relating to tangible net worth, debt-to-equity and fixed
charges. Other covenants include financial reporting compliance and limits on
such items as future debt or cash commitments, mergers and acquisitions, capital
asset sales and purchases and redemption of debt. The Company believes that none
of the covenants will preclude its future operations or business plan. There are
annual commitment fees, which the Company believes to be immaterial, on the
unused portion of the committed Credit Facility. At December 26, 1997, the
Company had no outstanding borrowings on the Credit Facility.
Maturities of other debt are as follows (in millions): 1998 -- $2.9;
1999 -- $3.1; 2000 -- $3.4; and 2001 -- $3.0.
6. LEASES AND OTHER COMMITMENTS
Leases. The Company rents certain equipment and manufacturing and office
facilities under operating lease agreements that contain renewal options and
provisions adjusting the lease payments, based upon changes in the Consumer
Price Index or in fixed increments. VLSI is generally responsible for taxes,
insurance and utilities under these leases.
In the fourth quarter of 1997, the Company sold certain manufacturing
equipment for $22.4 million under sale-leaseback arrangements. The new lease
arrangements are accounted for as operating leases. They have terms of five
years with net quarterly rental expenses of $1.1 million.
Future minimum annual rental commitments under noncancelable operating
leases as of December 26, 1997, were as follows (in millions): 1998 -- $11.6;
1999 -- $11.5; 2000 -- $10.3; 2001 -- $10.1; 2002 -- $8.9;
35
<PAGE> 37
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 26, 1997
and $17.5 thereafter. Rental expense was approximately (in millions):
1997 -- $9.2; 1996 -- $8.7; and 1995 -- $10.2.
Other Commitments. The Company had commitments for the purchase of
equipment and EDA licenses totaling approximately $94.2 million at December 26,
1997, as well as various other long-term committed contracts.
In October 1997, the Company entered into an agreement with Wafer
Technology (Malaysia) Sdn Bhd, a Malaysian company (WTM), proposing to build a
subcontract wafer fabrication facility in Malaysia. Under this agreement, the
Company would own less than 20 percent of WTM and would be expected to fund its
investment starting in 1998. In addition, the Company would provide certain
technology and training and consulting services to WTM. Upon completion of the
WTM facility, the Company would purchase wafers from WTM and have the right to
receive an allocation of the capacity of the WTM facility. The purchase price
for wafers would be a function of the market price. The companies have agreed in
principle to convert and operate the VLSI San Jose wafer fabrication facility as
a prototype and development facility. Under this arrangement, WTM and VLSI would
share the related conversion and future operational costs.
7. PATENT MATTERS
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights and positions, which have on occasion
resulted in protracted and expensive litigation. There are many semiconductor
companies substantially larger than VLSI that have product and process
technology rights that VLSI may have infringed. The Company continually
evaluates the adequacy of its reserve for asserted and unasserted patent
matters. The reserve for patent matters is based on the best available
information at that time and it is reasonably possible that the Company's
estimate of the exposure for patent matters could materially change in the near
term.
Periodically, the Company is made aware that technology used by the Company
in the manufacture of some or all of its products may infringe on product or
process technology rights held by others. Resolution of whether the Company's
manufacture of products has infringed on valid rights held by others could have
a material adverse effect on the Company's financial position or results of
operations and may require material changes in production processes and
products. Several companies, including Motorola, have individually contacted the
Company concerning its alleged use of intellectual property belonging to them.
VLSI has entered into licensing agreements and technology exchange
agreements with various strategic partners and other third parties in order to
allow VLSI access to third party technology or to allow third parties access to
the Company's technology. The Company is unable to predict whether license
agreements can be obtained or renewed on terms acceptable to the Company or the
magnitude of the costs associated with such terms. Failure to obtain or renew
such licenses could have a material adverse effect on the Company's financial
position or results of operations.
Texas Instruments, Inc. (TI) filed a lawsuit in 1990 claiming process
patent infringement by the Company of now expired U.S. patents. In May 1995, a
jury found against the Company in the amount of $19.4 million. Although
contesting the jury verdict, the Company recorded a charge to earnings of $19.4
million in the second quarter of 1995. The trial judge subsequently set aside
the jury verdict and TI appealed. In July 1996, the Court of Appeals for the
Federal Circuit affirmed the trial judge's order. In May 1997, the U.S. Supreme
Court rejected TI's appeal of the Court of Appeals order. No license has been
concluded with TI and there can be no assurance that TI will not assert other
claims against VLSI for patent infringement.
During the third quarter of 1996, in response to a claim by IBM of
infringement by VLSI, the Company concluded a patent licensing agreement with
IBM. As a result of that agreement, the Company recorded a
36
<PAGE> 38
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 26, 1997
charge against earnings of $7.5 million for the release of alleged infringement
claims incurred prior to 1996. The Company will also pay an on-going royalty
through the five-year term of the agreement in amounts not considered material
to the results of any one quarter.
8. STOCKHOLDERS' EQUITY
The Company's amended certificate of incorporation authorizes 102,000,000
shares of Capital Stock for issuance, 100,000,000 shares of which are designated
Common Shares and 2,000,000 shares of which are designated Preferred Shares. The
Common Shares are authorized to be issued in series, with the first series
designated Common Stock and consisting of 99,000,000 shares. All other series of
Common Shares (other than Common Stock) are designated, as a group, Junior
Common Stock and consist of 1,000,000 shares. The Board of Directors (Board) has
the authority to issue the Preferred Shares and the Common Shares (other than
Common Stock) in series, the rights, preferences and privileges of which can be
determined by the Board without stockholder approval.
In June 1995, the Company completed the public offering of an aggregate of
3,450,000 shares of its Common Stock at a price to the public of $28.625 per
share, for net proceeds to the Company of approximately $94 million.
In July 1995, the Company called for redemption of its 7% Convertible
Subordinated Debentures due 2012 (Debentures). Of the $57,500,000 in principal
amount of Debentures, $57,364,000 were converted into 2,607,359 shares of the
Company's Common Stock. The Debentures not converted, which amounted to
$136,000, were redeemed by the Company at a price of $1,032.86 for each $1,000
in principal amount of Debentures redeemed. This resulted in the issuance of
6,181 shares of the Company's Common Stock under an underwritten call agreement
that the Company had entered into with Bear, Stearns & Co. Inc. and Hambrecht &
Quist LLC.
In January 1996, the Board authorized the Company to repurchase shares of
the Company's Common Stock on the open market or in privately negotiated
transactions. The Board authorized the Company to re-issue those shares at a
later date through certain of its employee stock plans and/or to fund stock or
asset acquisitions authorized by the Board. During 1996, the Company repurchased
1.8 million shares at an average per share price of $15.10 and re-issued 1.2
million of these shares under employee stock plans. The remaining 0.6 million
shares were re-issued during the first half of 1997. During 1997, the Company
repurchased 2.5 million shares at an average per share price of $19.91 and
re-issued 1.0 million of these shares under employee stock plans. The Company
may, from time to time, continue to repurchase additional shares.
Intel Agreements. Pursuant to the Intel/VLSI Stock and Warrant Purchase
Agreement (Equity Agreement) entered into on July 8, 1992, Intel invested $50
million in VLSI to acquire 5,355,207 shares of the Company's Common Stock (Intel
Shares) plus a warrant (Warrant) to purchase an additional 2,677,604 shares of
the Company's Common Stock (Warrant Shares) at $11.69 per share. In January and
February 1995, Intel sold all of the Intel Shares. In August 1995, Intel
exercised its Warrant, resulting in net proceeds to the Company of approximately
$31 million. In 1997, Intel sold all of the Warrrant Shares. Therefore, all
rights of, and restrictions on, Intel under the Equity Agreement have
terminated.
Stockholders' Rights Plan. In August 1992, the Board approved the adoption
of the First Amended and Restated Rights Agreement (Restated Rights Agreement),
which replaces the Common Shares Rights Agreement dated as of November 7, 1989
(Prior Rights Agreement) and amends the outstanding rights issued pursuant to
the Prior Rights Agreement (Rights). Among other things, the Restated Rights
Agreement provides that each Right will now relate to a fraction of a share of
Series A Participating Preferred Stock of the Company (Unit), which is
economically equivalent to one share of Common Stock. The Rights can be
transferred or exercised, initially at a price of $45 per Unit, only upon the
occurrence of certain events
37
<PAGE> 39
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 26, 1997
involving substantial transfers of ownership of Common Shares. The Rights are
redeemable, in whole but not in part, at the Company's option at $0.01 per
Right, at any time prior to becoming exercisable and in certain other
circumstances. The Rights expire no later than November 7, 1999.
9. NET INCOME (LOSS) PER SHARE
In 1997, the Company adopted FAS 128, "Earnings per Share." All net income
(loss) per share figures have been restated as required by FAS 128. Net income
(loss) per share, Basic and Diluted, including the effect of dilutive
securities, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- ----------
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income (loss):
Continuing operations...................... $66,645 $(45,958) $46,216
Discontinued operation..................... 5,173 (3,589) (248)
------- -------- -------
Total...................................... $71,818 $(49,547) $45,968
======= ======== =======
Weighted-average common shares -- Basic...... 46,479 45,877 41,513
Dilutive options, including Warrant Shares in
1995....................................... 2,499 -- 2,377
------- -------- -------
Adjusted weighted-average common shares and
assumed conversions -- Diluted............. 48,978 45,877 43,890
======= ======== =======
Net income (loss) per share -- Basic:
Continuing operations...................... $ 1.43 $ (1.00) $ 1.12
Discontinued operation..................... 0.12 (0.08) (0.01)
------- -------- -------
Total...................................... $ 1.55 $ (1.08) $ 1.11
======= ======== =======
Net income (loss) per share -- Diluted:
Continuing operations...................... $ 1.36 $ (1.00) $ 1.06
Discontinued operation..................... 0.11 (0.08) (0.01)
------- -------- -------
Total...................................... $ 1.47 $ (1.08) $ 1.05
======= ======== =======
</TABLE>
In 1996, options outstanding would have been antidilutive; therefore, Basic
and Diluted net income (loss) per share are the same. The effect of convertible
Notes and Debentures are excluded in all years from income available for
shareholders and adjusted weighted-average common shares because they would have
been antidilutive. The following amounts related to convertible debt and 1996
options have been excluded:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
(THOUSANDS)
<S> <C> <C> <C>
Income available to shareholders, net of tax.... $10,389 $9,962 $4,930
======= ====== ======
Potentially dilutive shares..................... 3,148 4,449 2,496
======= ====== ======
</TABLE>
10. STOCK-BASED COMPENSATION
At December 26, 1997, the Company had three stock-based compensation plans.
VLSI uses the intrinsic value method in accordance with APB 25 to account for
its plans. Accordingly, no compensation cost has been recognized for its stock
purchase plan. Compensation cost applicable to the Company's fixed stock plans
was immaterial for each of the three years presented. Pro forma information
regarding net income (loss) and net income (loss) per share is required by FAS
123, which requires that the information be determined as if VLSI had used the
fair value method to account for its stock-based compensation awards granted
subsequent to December 30, 1994. Had compensation cost for the Company's
stock-based compensation awards been
38
<PAGE> 40
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 26, 1997
determined at the grant dates (subsequent to December 30, 1994) using the fair
value method in accordance with FAS 123, the Company's net income (loss) and net
income (loss) per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- ----------
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income (loss):
As reported
Continuing operations................... $66,645 $(45,958) $46,216
Discontinued operation.................. 5,173 (3,589) (248)
------- -------- -------
Total................................... $71,818 $(49,547) $45,968
======= ======== =======
Pro forma(1)
Continuing operations................... $53,650 $(53,402) $42,222
Discontinued operation.................. 5,064 (4,099) (672)
------- -------- -------
Total................................... $58,714 $(57,501) $41,550
======= ======== =======
Net income (loss) per share -- Basic(2):
As reported
Continuing operations................... $ 1.43 $ (1.00) $ 1.12
Discontinued operation.................. 0.12 (0.08) (0.01)
------- -------- -------
Total................................... $ 1.55 $ (1.08) $ 1.11
======= ======== =======
Pro forma(1)
Continuing operations................... $ 1.15 $ (1.16) $ 1.02
Discontinued operation.................. 0.11 (0.09) (0.02)
------- -------- -------
Total................................... $ 1.26 $ (1.25) $ 1.00
======= ======== =======
Net income (loss) per share -- Diluted(2):
As reported
Continuing operations................... $ 1.36 $ (1.00) $ 1.06
Discontinued operation.................. 0.11 (0.08) (0.01)
------- -------- -------
Total................................... $ 1.47 $ (1.08) $ 1.05
======= ======== =======
Pro forma(1)
Continuing operations................... $ 1.11 $ (1.16) $ 0.99
Discontinued operation.................. 0.11 (0.09) (0.02)
------- -------- -------
Total................................... $ 1.22 $ (1.25) $ 0.97
======= ======== =======
</TABLE>
- ---------------
(1) Because FAS 123 is applicable only to awards granted subsequent to December
30, 1994, its pro forma effect will not be fully reflected until 1998.
(2) All net income (loss) per share figures have been restated as required by
FAS 128.
Fixed Stock Option Plans. At December 26, 1997, the Company has two fixed
stock option plans. Under the 1986 Directors' Stock Option Plan, which expires
in 2001, a total of 300,000 shares of the Company's Common Stock has been
authorized for issuance pursuant to nonstatutory options having ten-year terms
that are automatically granted annually to outside directors. Under the
Company's 1992 Stock Plan (1992 Plan), which expires in 2002, a total of
9,500,000 shares of the Company's Common Stock have been authorized for issuance
pursuant to options (incentive or nonstatutory), as well as certain other
awards, which may be granted to employees and consultants. In addition,
employees and consultants may exercise options to
39
<PAGE> 41
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 26, 1997
purchase shares of the Company's Common Stock previously granted under the 1982
Incentive Stock Option Plan, which expired in 1992. Generally, outstanding
options under the 1992 Plan expire ten years from date of grant and become
exercisable at a rate of 25% per year from date of grant. The total number of
shares that may be granted under the 1992 Plan to any one individual is
1,500,000 shares per annum for both new and existing employees. In addition,
certain options granted in 1997 and 1996 to certain key employees under the 1992
Plan are subject to a long-term incentive program that provides for an
acceleration of vesting terms in the event of specific increases in the market
price of the Company's Common Stock. As of December 26, 1997, the market price
of the Company's Common Stock had achieved the first of three hurdles related to
the certain options granted in 1996, which resulted in the accelerated vesting
of these options. During 1996, the Company repriced certain outstanding options
pursuant to an option exchange program. Under the program, options to purchase
1,419,575 shares of the Company's Common Stock that had originally been issued
in 1995 at prices ranging from $16.25-$32.50 were regranted at the exercise
price of $11.00 per share. In addition, the vesting schedule of each of the
repriced options was delayed by at least 11 months. As of December 26, 1997,
100,000 and 1,167,019 shares were available for grant under the 1986 Directors'
Stock Option Plan and the 1992 Plan, respectively.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model. The following weighted-average
assumptions were used for grants in 1997, 1996 and 1995: risk-free interest
rates of 6.3 percent, expected lives of 4 years, expected volatility of 0.61 and
dividend yield of 0.
The Black-Scholes model used by the Company to calculate option values for
purposes of this note, as well as other currently accepted option valuation
models (as called for in accordance with FAS 123), were developed to estimate
the fair value of stock options that are freely tradable and fully transferable
and that have no vesting restrictions, which options are significantly different
from the Company's stock option awards. These models also require highly
subjective assumptions, including future stock price volatility and expected
time until exercise, which greatly affect the calculated values. Accordingly,
management believes that this model does not necessarily provide a reliable
measure of the fair value of the Company's option awards.
Additional information relative to the Company's fixed stock option plans
is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- ------------------------- -------------------------
# OF WEIGHTED-AVERAGE # OF WEIGHTED-AVERAGE # OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ ---------------- ------ ---------------- ------ ----------------
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Outstanding options at
beginning of year........ 6,587 $11.45 4,316 $13.13 3,898 $ 7.98
Granted.................... 3,159 21.28 5,097 12.53 1,719 20.95
Exercised.................. (1,051) 8.72 (665) 6.97 (1,028) 6.84
Canceled................... (1,141) 13.84 (2,161) 18.74 (273) 12.51
------ ------ ------ ------ ------ ------
Outstanding options at end
of year.................. 7,554 $15.59 6,587 $11.45 4,316 $13.13
------ ------ ------ ------ ------ ------
Options exercisable at end
of year.................. 1,697 1,393 1,557
------ ------ ------
Weighted-average fair value
of options granted during
the year, computed for
purposes of determining
pro forma net income
(loss) and net income
(loss) per share......... $11.59 $ 5.99 $10.93
------ ------ ------
</TABLE>
40
<PAGE> 42
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 26, 1997
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ --------------------------
WEIGHTED- WEIGHTED- NUMBER WEIGHTED-
RANGE OF NUMBER AVERAGE AVERAGE EXERCISABLE AVERAGE
EXERCISE OUTSTANDING REMAINING EXERCISE AT EXERCISE
PRICES AT 12/26/97 CONTRACTUAL LIFE PRICE 12/26/97 PRICE
- --------------------- ----------- ---------------- --------- ----------- ---------
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
$ 4.50 - $ 7.00 503 4.3 years $ 6.59 503 $ 6.59
7.12 - 11.00 2,507 8.0 10.89 600 10.57
12.00 - 16.31 1,488 8.2 14.15 509 13.66
16.50 - 18.00 1,574 9.3 17.93 37 17.65
18.13 - 36.63 1,482 9.5 25.54 48 20.36
----- --------- ------ ----- ------
$ 4.50 - $36.63 7,554 8.4 years $15.59 1,697 $10.75
----- --------- ------ ----- ------
</TABLE>
During 1997, VLSI recorded a tax benefit related to options exercised under
the plans, resulting in a $6.3 million increase in stockholders' equity ($3.6
million in 1996 and $10.3 million in 1995).
In January 1998, the Company adopted the 1998 Nonstatutory Stock Option
Plan (1998 Plan). Under the 1998 Plan, which expires in 2008, a total of
6,000,000 shares of VLSI Common Stock have been authorized for issuance pursuant
to nonstatutory options, which may be granted to employees and consultants.
Directors and SEC reporting officers are excluded from participation in the 1998
Plan.
Employee Stock Purchase Plan. Under the Company's Employee Stock Purchase
Plan, qualified employees may have withholdings of their earnings to purchase
shares of the Company's Common Stock at 85% of the fair market value at certain
specified dates. Of the 9,000,000 shares authorized to be sold under this Plan,
568,286, 628,434 and 739,932 shares have been sold in 1997, 1996 and 1995,
respectively, with a total of 8,012,814 shares having been sold through December
26, 1997.
The fair value of each employee purchase right is estimated on the date of
grant using the Black-Scholes option-pricing model. The following assumptions
were used for employee purchase rights in 1997, 1996 and 1995: risk-free
interest rates of 5.8 percent, expected lives of 6 months, expected volatility
of 0.61 and dividend yield of 0.
11. EMPLOYEE BENEFIT PLANS
The Company accrued approximately $8.3 million, $5.0 million and $7.6
million in 1997, 1996 and 1995, respectively, for its Employee Profit Sharing
Plan, Executive Performance Incentive Plan and Performance Recognition Plan. The
Company's contribution expenses associated with its 401(k) plan were
approximately $3.1 million, $3.2 million and $1.4 million in 1997, 1996 and
1995, respectively.
Effective June 1997, the Company adopted the VLSI Technology, Inc.
Non-Qualified Deferred Compensation Plan (NQDC Plan), which allows, as now
amended, vice presidents and more senior employees to defer up to 100% of their
salary and up to 100% of other compensation, as defined in the NQDC Plan.
Company contributions are discretionary, as determined by the Board. During
1997, the Company made no material contributions associated with the NQDC Plan.
41
<PAGE> 43
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 26, 1997
12. TAXES
The provision (benefit) for taxes on income (loss) from continuing
operations is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- -------
(THOUSANDS)
<S> <C> <C> <C>
Federal:
Current.................................... $ 4,324 $ 9,700 $23,690
Deferred................................... 12,163 (37,429) (6,982)
------- -------- -------
Total...................................... 16,487 (27,729) 16,708
------- -------- -------
State:
Current.................................... 76 948 1,107
Deferred................................... (1,462) (7,859) (4,622)
------- -------- -------
Total...................................... (1,386) (6,911) (3,515)
------- -------- -------
Foreign:
Current.................................... 12,373 2,709 3,282
Deferred................................... (2,824) -- (105)
------- -------- -------
Total...................................... 9,549 2,709 3,177
------- -------- -------
Provision (benefit) for taxes on income
(loss) from continuing operations.......... $24,650 $(31,931) $16,370
======= ======== =======
</TABLE>
Pre-tax income from continuing operations of foreign operations was $41.9
million, $13.9 million and $8.8 million in 1997, 1996 and 1995, respectively.
The provision (benefit) for taxes reconciles with the amount computed by
applying the U.S. statutory rate to income (loss) from continuing operations
before provision (benefit) for taxes as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- -------
(THOUSANDS)
<S> <C> <C> <C>
Income (loss) from continuing operations
before provision (benefit) for taxes....... $91,295 $(77,889) $62,586
U.S. statutory rates......................... 35% 35% 35%
Computed expected tax........................ 31,953 (27,261) 21,905
State taxes, net of federal effects.......... (901) (4,492) (2,284)
Utilization of foreign net operating loss
carryforwards.............................. (285) (1,980) --
Change in valuation allowance................ -- -- (8,325)
Foreign income taxes in excess of (less than)
U.S. statutory rates....................... (5,127) -- 4,641
R&D credits.................................. (1,985) (238) --
Other, net................................... 995 2,040 433
------- -------- -------
Provision (benefit) for taxes on income
(loss) from continuing operations.......... $24,650 $(31,931) $16,370
======= ======== =======
Total effective tax rate..................... 27.0% 41.0% 26.2%
======= ======== =======
</TABLE>
Deferred income taxes reflect tax credits and loss carryforwards and the
tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes.
42
<PAGE> 44
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 26, 1997
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- -------
(THOUSANDS)
<S> <C> <C>
Deferred tax liabilities -- depreciation and
amortization expense.................................. $(12,456) $ --
-------- -------
Deferred tax assets:
Depreciation and amortization expense................. -- 7,621
Tax credit and loss carryforwards..................... 28,144 16,263
Special charges and other reserves.................... 34,827 38,262
Inventory reserves and adjustment..................... 15,892 17,023
Warranty and deferred revenues........................ 2,919 3,154
-------- -------
Total......................................... 81,782 82,323
-------- -------
Valuation allowance for deferred tax assets............. (1,867) (6,987)
-------- -------
Net deferred taxes............................ $ 67,459 $75,336
======== =======
</TABLE>
Realization of the Company's deferred tax assets is dependent on generating
sufficient U.S. taxable income prior to expiration of the carryforwards.
Although realization is not assured, management believes it is more likely than
not that all net deferred tax assets will be realized. The amount of the
deferred tax assets considered realizable could be reduced in the near term if
estimates of future taxable income during the carryforward period are reduced.
For U.S. and state tax purposes, at December 26, 1997, VLSI has tax credit
carryforwards of approximately $18.0 million and $5.5 million, respectively.
Foreign subsidiaries have tax loss and credit carryforwards of approximately
$3.6 million and $2.7 million, respectively. The loss carryforwards expire in
1999. Some of these credit carryforwards expire in various years between 2002
and 2010, while the others have no carryover expiration period. The Company's
federal income tax returns have been examined by the Internal Revenue Service
(IRS) for all years through 1993. All issues have been resolved with no material
effect, and the IRS has closed those years. Certain foreign subsidiaries have
accumulated earnings of $50.5 million, on which no U.S. deferred taxes have been
provided. There is no intention to distribute these earnings.
13. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
VLSI operates in a single industry segment and designs, manufactures and
markets custom and semi-custom integrated circuits of high complexity. The
Company focuses its products for the communications, consumer digital
entertainment and advanced computing applications and distributes its products
through worldwide direct sales, commissioned representatives and distributors.
In 1997 and 1996, Ericsson accounted for 29% and 17% of net revenues,
respectively. In 1995, Apple accounted for 12% of net revenues.
Major operations outside the United States include sales offices and
technology centers in Western Europe, Japan and Asia-Pacific, as well as,
subcontract assembly and test operations in Asia-Pacific. Foreign operations are
subject to risks of economic and political instability and foreign currency
exchange rate fluctuations. See also Note 1 "Manufacturing Concentrations."
Transfers between geographic areas are accounted for at amounts that are
generally above cost and consistent with the rules and regulations of governing
tax authorities. Such transfers are eliminated in the consolidated financial
statements. Identifiable assets are those assets that can be directly associated
with a particular geographic area and thus do not include assets used for
general corporate purposes, such as cash,
43
<PAGE> 45
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE YEARS ENDED DECEMBER 26, 1997
cash equivalents, liquid investments and inventories. Inventories for 1996 and
1995 have been reclassified from the various geographical areas to Corporate.
The following is a summary of continuing operations located within the
indicated geographic areas for the three years ended December 26, 1997:
<TABLE>
<CAPTION>
NET REVENUES TRANSFERS
FROM BETWEEN OPERATING
UNAFFILIATED GEOGRAPHICAL NET INCOME IDENTIFIABLE
CUSTOMERS AREAS REVENUES (LOSS) ASSETS
------------ ------------ --------- --------- ------------
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
1997
United States.............. $374,436 $ 322,870 $ 697,306 $ 60,607 $513,651
Europe..................... 290,311 95,954 386,265 35,889 58,809
Japan...................... 47,906 -- 47,906 1,242 13,169
Asia-Pacific............... -- -- -- 222 288
Corporate.................. -- -- -- -- 336,161
Eliminations............... -- (418,824) (418,824) (2,461) --
-------- --------- --------- -------- --------
Consolidated............... $712,653 $ -- $ 712,653 $ 95,499 $922,078
======== ========= ========= ======== ========
1996
United States.............. $414,533 $ 169,010 $ 583,543 $(82,080) $551,447
Europe..................... 191,911 -- 191,911 8,712 47,925
Japan...................... 62,573 -- 62,573 3,903 31,564
Asia-Pacific............... -- -- -- 86 584
Corporate.................. -- -- -- -- 259,422
Eliminations............... -- (169,010) (169,010) (39) --
-------- --------- --------- -------- --------
Consolidated............... $669,017 $ -- $ 669,017 $(69,418) $890,942
======== ========= ========= ======== ========
1995
United States.............. $473,424 $ 137,897 $ 611,321 $ 67,476 473,318
Europe..................... 157,831 -- 157,831 5,481 45,501
Japan...................... 38,919 -- 38,919 2,359 15,806
Asia-Pacific............... 117 -- 117 154 643
Corporate.................. -- -- -- -- 424,619
Eliminations............... -- (137,897) (137,897) 495 --
-------- --------- --------- -------- --------
Consolidated............... $670,291 $ -- $ 670,291 $ 75,965 $959,887
======== ========= ========= ======== ========
</TABLE>
U.S. export revenues were approximately $61.9 million, $58.3 million and
$140.5 million in 1997, 1996 and 1995, respectively. Export revenues in 1997
were primarily to the Asia-Pacific region and Canada, while in 1996 and 1995
they were primarily to the Asia-Pacific region.
44
<PAGE> 46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors appearing under the caption "Election of
Directors -- Nominees for Director" in the Proxy Statement is hereby
incorporated herein by reference.
Information regarding executive officers who are not also directors is
incorporated herein by reference from Part I hereof under the heading "Executive
Officers of the Company" immediately following Item 4 in Part I hereof.
Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934, as amended, is hereby incorporated herein by reference
from the section entitled "Information Concerning Solicitation and
Voting -- Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Proxy Statement under the
captions "Election of Directors -- Nominees for Director", "Election of
Directors -- Director Compensation" and "Executive Officer Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the Proxy Statement under the caption
"Information Concerning Solicitation and Voting -- Security Ownership."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Proxy Statement under the
captions "Election of Directors -- Certain Transactions" and "Executive Officer
Compensation."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The financial statements (including the notes thereto) listed in the Index
to Consolidated Financial Statements and Financial Statement Schedule (set forth
in Item 8 of Part II of this Form 10-K) are filed as part of this Annual Report
on Form 10-K.
2. FINANCIAL STATEMENT SCHEDULE
The financial statement schedule listed in the Index to Consolidated
Financial Statements and Financial Statement Schedule (set forth in Item 8 of
Part II of this Form 10-K) is filed as part of this Annual Report on Form 10-K.
3. EXHIBITS
The exhibits listed under Item 14(c) hereof are filed as part of this
Annual Report on Form 10-K.
45
<PAGE> 47
(b) REPORTS ON FORM 8-K
The Company did not file any Current Reports on Form 8-K during the fourth
quarter ended December 26, 1997.
On February 9, 1998, the Company filed a Form 8-K dated February 9, 1998
disclosing the effect of adoption of FAS 128, "Earnings per Share" on the Annual
Report on Form 10-K for the fiscal year ended December 27, 1996 and the related
restatement of earnings per share thereon, so that such information may be
incorporated by reference into a Registration Statement on Form S-8.
(c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 See Exhibit 10.44.
3.1 Restated Certificate of Incorporation filed with the
Secretary of State of the State of Delaware on September 16,
1987. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 27,
1987.
3.2 Certificate of Designation of Rights, Preferences and
Privileges of Series A Participating Preferred Stock filed
with the Secretary of State of the State of Delaware on
August 12, 1992. Incorporated by reference from Exhibit to
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 26, 1992.
3.3 Certificate of Amendment of Restated Certificate of
Incorporation filed with the Secretary of State of the State
of Delaware on August 20, 1992. Incorporated by reference
from Exhibit to Quarterly Report on Form 10-Q for the fiscal
quarter ended September 26, 1992.
3.4 Certificate of Amendment of Restated Certificate of
Incorporation filed with the Secretary of State of the State
of Delaware on May 5, 1995. Incorporated by reference from
Exhibit to Registration Statement on Form S-3, No. 33-60049.
3.5 Composite Certificate of Incorporation. Incorporated by
reference from Exhibit to Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1995.
3.6 Restated Bylaws of the Company, as amended, effective March
12, 1996. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 29,
1995.
4.1 The Company hereby agrees to file upon request of the
Commission a copy of all instruments, not otherwise filed,
with respect to long-term debt of the Company or any of its
subsidiaries for which the total amount of debt authorized
under such instrument does not exceed 10% of the total
assets of the Company and its subsidiaries on a consolidated
basis.
4.2 See Exhibits 3.1, 3.2, 3.3, 3.4, 3.5 and 3.6.
4.3 Indenture, dated as of May 1, 1987, between the Company and
Citibank N.A., Trustee, with respect to issuance of
$57,500,000 of 7% Convertible Subordinated Debentures due
May 1, 2012. Incorporated by reference from Exhibit to
Registration Statement on Form S-3, No. 33-13463.
4.4 Form of 7% Convertible Subordinated Debenture due May 1,
2012. Incorporated by reference from Exhibit to Registration
Statement on Form S-3, No. 33-13463.
4.5 Common Shares Rights Agreement, dated as of November 7,
1989, by and between the Company and the First National Bank
of Boston, as Rights Agent, including the form of Rights
Certificate attached as Exhibit A thereto. Incorporated by
reference from Exhibit to Registration Statement on Form 8-A
filed with the Securities and Exchange Commission on
November 20, 1989.
</TABLE>
46
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.6 First Amended and Restated Rights Agreement (the "Restated
Rights Agreement") by and between the Company and First
National Bank of Boston, dated August 12, 1992, including
form of Rights Certificate. Incorporated by reference from
Exhibit to Quarterly Report on Form 10-Q for the fiscal
quarter ended September 26, 1992.
4.7 Amendment Number 1 to the Restated Rights Agreement, dated
August 24, 1992. Incorporated by reference from Exhibit to
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 26, 1992.
4.8 Indenture, dated as of September 1, 1995, between the
Company and Harris Trust and Savings Bank, as Trustee, with
respect to issuance of $172,500,000 of 8.25% Convertible
Subordinated Notes due October 1, 2005. Incorporated by
reference from Exhibit to Quarterly Report on Form 10-Q for
the fiscal quarter ended September 29, 1995.
4.9 Form of 8.25% Convertible Subordinated Note due October 1,
2005. Incorporated by reference from Exhibit to Quarterly
Report on Form 10-Q for the fiscal quarter ended September
29, 1995.
10.1* Letter Agreement between the Company and Alfred J. Stein,
dated February 12, 1982. Incorporated by reference from
Exhibit to Registration Statement on Form S-1, No. 2-81485.
10.2* Agreement between the Company and Alfred J. Stein, dated
March 8, 1996. Incorporated by reference from Exhibit to
Annual Report on Form 10-K for the fiscal year ended
December 29, 1995.
10.3* 1982 Incentive Stock Option Plan, as amended May 9, 1991,
and form of option agreement used thereunder. Incorporated
by reference from Exhibit to Annual Report on Form 10-K for
the fiscal year ended December 28, 1991.
10.4* Registration Rights Agreement dated as of January 16, 1984
among the Company and certain security holders of the
Company. Incorporated by reference from Exhibit to
Registration Statement on Form S-1, No. 2-81485.
10.5* Executive Performance Incentive Plan. Incorporated by
reference from Exhibit to Annual Report on Form 10-K for the
fiscal year ended December 29, 1985.
10.6* 1986 Directors' Stock Option Plan, as amended, and Forms of
Option Agreement for use with such plan. Incorporated by
reference from Exhibit to Annual Report on Form 10-K for the
fiscal year ended December 30, 1994.
10.7* 1992 Stock Plan, as amended, and form of option agreement
used thereunder. Said document is included as an Exhibit to
this Annual Report on Form 10-K for the fiscal year ended
December 26, 1997.
10.8 COMPASS Design Automation, Inc. Series A Preferred Stock and
Common Stock Purchase Agreement, dated December 27, 1991.
Incorporated by reference from Exhibit to Annual Report on
Form 10-K for the fiscal year ended December 28, 1991.
10.9* Amended and Restated Employee Stock Purchase Plan, as
amended. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 30,
1994.
10.10 * COMPASS Design Automation, Inc. 1992 Stock Option Plan, as
amended. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 30,
1994.
10.11 Reserved.
</TABLE>
47
<PAGE> 49
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.12 Joint Venture and Shareholder Agreement, dated as of
November 28, 1990, between Advanced RISC Machines Holdings
Limited, Acorn Computers Limited, Apple Computer (UK)
Limited and the Company. Incorporated by reference from
Exhibit to Annual Report on Form 10-K for the fiscal year
ended December 29, 1990.
10.13 Intercompany Agreement between COMPASS Design Automation,
Inc. and the Company, dated July 1, 1991. Incorporated by
reference from Exhibit to Annual Report on Form 10-K for the
fiscal year ended December 28, 1991.
10.14 Intel/VLSI Stock and Warrant Purchase Agreement between the
Company and Intel Corporation ("Intel"), dated July 8, 1992,
including form of Warrant. Incorporated by reference from
Exhibit to Quarterly Report on Form 10-Q for the fiscal
quarter ended September 26, 1992.
10.15 ** Technology and Manufacturing Agreement between Intel
Corporation and the Company, dated July 8, 1992, as amended
by Addendum Number 1. Incorporated by reference from Exhibit
to Amendment Number 1 to Annual Report on Form 10-K for the
fiscal year ended December 26, 1992.
10.16 ** Amendment Number 2 to the Technology and Manufacturing
Agreement between Intel Corporation and the Company, dated
December 2, 1993. Incorporated by reference from Exhibit to
Annual Report on Form 10-K for the fiscal year ended
December 25, 1993.
10.17 Letter dated July 18, 1994 from Intel Corporation to the
Company waiving certain rights under the Intel/VLSI Stock
and Warrant Purchase Agreement dated July 8, 1992.
Incorporated by reference from Exhibit to Quarterly Report
on Form 10-Q for the fiscal quarter ended July 1, 1994.
10.18 Termination Agreement dated November 7, 1994 between Intel
Corporation and the Company. Incorporated by reference from
Exhibit to Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1994.
10.19 Acquisition and Participation Agreement and Escrow
Instructions dated April 22, 1994 between Brazos Asset
Management, Inc. and the Company. Incorporated by reference
from Exhibit to Quarterly Report on Form 10-Q for the fiscal
quarter ended July 1, 1994.
10.20 Net Building Space Lease dated February 15, 1985 between
Mariani Financial Company and the Company for a property
located at 1865 Lundy Drive, San Jose, California.
Incorporated by reference from Exhibit to Annual Report on
Form 10-K for the fiscal year ended December 30, 1984.
10.21 Ground Sublease between Price-Elliott Research Park, Inc.,
and ADIMIC Limited Partnership, dated October 1, 1986, for
property in Tempe, Arizona. Incorporated by reference from
Exhibit to Annual Report on Form 10-K for the fiscal year
ended December 27, 1987.
10.22 Ground Sublease between Price-Elliott Research Park, Inc.,
and ADIMIC Limited Partnership, dated July 1, 1987, for
property in Tempe, Arizona. Incorporated by reference from
Exhibit to Annual Report on Form 10-K for the fiscal year
ended December 27, 1987.
10.23 Agreement between ADIMIC Limited Partnership and the Company
assigning interest of lessee under the two Ground Subleases
referred to in Exhibits 10.21 and 10.22. Incorporated by
reference from Exhibit to Annual Report on Form 10-K for the
fiscal year ended December 27, 1987.
10.24 ASU Research Park Ground Sublease, dated as of December 18,
1990, between Price-Elliott Research Park, Inc. and the
Company. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 29,
1990.
</TABLE>
48
<PAGE> 50
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.25 Lease dated as of August 12, 1991, between Callahan-Pentz
Properties, Ringwood Court One and the Company for property
located at 1110 Ringwood Court, San Jose, California.
Incorporated by reference from Exhibit to Annual Report on
Form 10-K for the fiscal year ended December 28, 1991.
10.26 Reserved.
10.27 Lease dated as of July 20, 1993, between Callahan-Pentz
Properties and the Company for property located at 1120
Ringwood Court, San Jose, California. Incorporated by
reference from Exhibit to Annual Report on Form 10-K for the
fiscal year ended December 25, 1993.
10.28 Leasing Agreement dated September 21, 1994 between
Sobrato-Sobrato Interests, as Lessor, and the Company, as
lessee, for property located at 1240 McKay Drive, San Jose,
California. Incorporated by reference from Exhibit to
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1994.
10.29 Reserved.
10.30 Equipment Financing Agreement between New England Capital
Corporation and the Company, dated August 12, 1991.
Incorporated by reference from Exhibit to Annual Report on
Form 10-K for the fiscal year ended December 28, 1991.
10.31 Master Security Agreement between The CIT Group/Equipment
Financing, Inc. and the Company, dated December 19, 1991.
Incorporated by reference from Exhibit to Annual Report on
Form 10-K for the fiscal year ended December 28, 1991.
10.32 Loan and Security Agreement between AT&T and the Company,
dated September 24, 1993. Incorporated by reference from
Exhibit to Annual Report on Form 10-K for the fiscal year
ended December 25, 1993.
10.33 Loan and Security Agreement and Promissory Note between CIT
Group and the Company, dated December 15, 1993. Incorporated
by reference from Exhibit to Annual Report on Form 10-K for
the fiscal year ended December 25, 1993.
10.34 Term Loan and Security Agreement dated June 17, 1994 and
Promissory Notes dated June 17 and June 30, 1994 between
Heller Financial, Inc. and the Company. Incorporated by
reference from Exhibit to Form 10-Q/A Amendment Number 1 to
Quarterly Report on Form 10-Q for the fiscal quarter ended
July 1, 1994.
10.35 Reserved.
10.36 Reserved.
10.37 Master Lease 2094759 Lease Renewal Contracts with Guaranteed
Purchase Options between Ellco Leasing Corporation and the
Company, each dated December 30, 1992, relating to Schedules
034, 037, 038, 041 & 043 and Schedules 044, 045, 046, 048,
049, 050, 051, 052 & 053, respectively. Incorporated by
reference from Exhibit to Annual Report on Form 10-K for the
fiscal year ended December 26, 1992.
10.38 Master Lease 2304202 Lease Renewal Contract with Guaranteed
Purchase Option between GE Capital Corp. and the Company,
dated December 30, 1992, relating to Schedules 002, 003, 004
& 007. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 26,
1992.
10.39 Reserved.
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.40* Form of Executive Change in Control Agreement by and between
the Company and each of the following executive officers of
the Company: Richard M. Beyer, John S. Hodgson, Balakrishnan
S. Iyer, Thierry M. Laurent, Douglas M. McBurnie and Alfred
J. Stein. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 27,
1996.
10.41* Executive Salary Continuation Agreement dated December 20,
1996 by and between the Company and Alfred J. Stein.
Incorporated by reference from Exhibit to Annual Report on
Form 10-K for the fiscal year ended December 27, 1996.
10.42* Long Term Incentive Plan adopted October 8, 1996.
Incorporated by reference from Exhibit to Annual Report on
Form 10-K for the fiscal year ended December 27, 1996.
10.43 1998 Nonstatutory Stock Option Plan and form of option
agreement used thereunder. Said document is included as an
Exhibit to this Annual Report on Form 10-K for the fiscal
year ended December 26, 1997.
10.44 Agreement and Plan of Reorganization dated as of July 31,
1997 among Avant! Corporation, GB Acquisition Corporation,
COMPASS Design Automation, Inc. and VLSI Technology, Inc.
and Amendment to Agreement and Plan of Reorganization dated
as of August 27, 1997. Incorporated by reference from
Exhibit to Current Report on Form 8-K filed September 26,
1997 by Avant! Corporation (SEC File No. 0-25864).
10.45 Credit Agreement dated December 23, 1997 between Bank of
America National Trust and Savings Association and the
Company. Said document is included as an Exhibit to this
Annual Report on Form 10-K for the fiscal year ended
December 26, 1997.
10.46 * Nonqualified Deferred Compensation Plan adopted effective
June 1, 1997 and as amended March 4, 1998. Said document is
included as an Exhibit to this Annual Report on Form 10-K
for the fiscal year ended December 26, 1997.
10.47 Letter Agreement (and Addendum) between the Company and John
S. Hodgson, dated March 21, 1997. Said document is included
as an Exhibit to this Annual Report on Form 10-K for the
fiscal year ended December 26, 1997.
10.48 Letter Agreement between the Company and Douglas M.
McBurnie, dated August 6, 1997. Said document is included as
an Exhibit to this Annual Report on Form 10-K for the fiscal
year ended December 26, 1997.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP, Independent Auditors (see page
51).
24 Power of Attorney (see page 53).
27.1 Financial Data Schedule for the fiscal year ended December
26, 1997.
27.2 Financial Data Schedules restated for the fiscal years ended
December 27, 1996 and December 29, 1995.
27.3 Financial Data Schedules restated for the nine months ended
September 26, 1997, the six months ended June 27, 1997 and
the three months ended March 28, 1997.
27.4 Financial Data Schedules restated for the nine months ended
September 27, 1996, the six months ended June 28, 1996 and
the three months ended March 29, 1996.
</TABLE>
- ---------------
* Denotes a management contract or compensatory plan or arrangement in which an
executive officer participates.
** Denotes a document for which confidential treatment has been granted for
selected portions.
(d) FINANCIAL STATEMENT SCHEDULES
See Item 14(a)(2) above.
50
<PAGE> 52
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 Nos. 2-86600, 2-90890, 33-4797, 33-12909, 33-21116, 33-27872,
33-39653, 33-52908, 33-62068, 33-57433, 33-57991, 333-10589 and 333-45911)
pertaining to the Employee Stock Purchase Plan, 1992 Stock Plan, 1982 Incentive
Stock Option Plan, 1986 Directors' Stock Option Plan and 1998 Nonstatutory Stock
Option Plan of VLSI Technology, Inc. and in the related Prospectuses, of our
report dated January 13, 1998, with respect to the consolidated financial
statements and schedule of VLSI Technology, Inc. included in this Annual Report
(Form 10-K) for the year ended December 26, 1997.
/s/ ERNST & YOUNG LLP
--------------------------------------
Ernst & Young LLP
San Jose, California
March 20, 1998
51
<PAGE> 53
VLSI TECHNOLOGY, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED END
OF YEAR TO INCOME DEDUCTIONS OF YEAR
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts and customer
returns(1):
Year ended December 29, 1995.................... $ 2,300 $ (108) $ (92) $ 2,100
Year ended December 27, 1996.................... $ 2,100 $ 270 $ (170) $ 2,200
Year ended December 26, 1997.................... $ 2,200 $ (28) $ (172) $ 2,000
Reserve for special charges(2):
Year ended December 29, 1995.................... $ 7,335 $ -- $(7,335) $ --
Year ended December 27, 1996.................... $ -- $115,620 $64,630 $50,990
Year ended December 26, 1997.................... $50,990 $ -- $40,179 $10,811
Reserve for patent matters(2):
Year ended December 29, 1995.................... $ -- $ 19,400 $ (857) $18,543
Year ended December 27, 1996.................... $18,543 $ 7,500 $(4,015) $22,028
Year ended December 26, 1997.................... $22,028 $ 3,460 $(1,750) $23,738
</TABLE>
- ---------------
(1) Deductions represent amounts written off against the allowance for doubtful
accounts and customer returns.
(2) Deductions represent payments made and amounts written off against the
reserves.
52
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
VLSI TECHNOLOGY, INC.
(Registrant)
By: /s/ ALFRED J. STEIN
------------------------------------
Alfred J. Stein,
Chairman of the Board and
Chief Executive Officer
Date: March 4, 1998
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Alfred J. Stein and Balakrishnan S. Iyer,
and each of them his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Annual Report on
Form 10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ALFRED J. STEIN Chairman of the Board, Chief March 4, 1998
- -------------------------------------------------------- Executive Officer (Principal
(Alfred J. Stein) Executive Officer) and
Director
/s/ RICHARD M. BEYER President, Chief Operating March 4, 1998
- -------------------------------------------------------- Officer and Director
(Richard M. Beyer)
/s/ BALAKRISHNAN S. IYER Senior Vice President and March 4, 1998
- -------------------------------------------------------- Chief Financial Officer
(Balakrishnan S. Iyer) (Principal Financial Officer)
/s/ VICTOR K. LEE Vice President and Controller March 4, 1998
- -------------------------------------------------------- (Principal Accounting
(Victor K. Lee) Officer)
/s/ PIERRE S. BONELLI Director March 4, 1998
- --------------------------------------------------------
(Pierre S. Bonelli)
/s/ ROBERT P. DILWORTH Director March 4, 1998
- --------------------------------------------------------
(Robert P. Dilworth)
/s/ WILLIAM G. HOWARD Director March 4, 1998
- --------------------------------------------------------
(William G. Howard)
/s/ PAUL R. LOW Director March 4, 1998
- --------------------------------------------------------
(Paul R. Low)
/s/ HORACE H. TSIANG Director March 4, 1998
- --------------------------------------------------------
(Horace H. Tsiang)
</TABLE>
53
<PAGE> 55
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.1 See Exhibit 10.44.
3.1 Restated Certificate of Incorporation filed with the
Secretary of State of the State of Delaware on September 16,
1987. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 27,
1987.
3.2 Certificate of Designation of Rights, Preferences and
Privileges of Series A Participating Preferred Stock filed
with the Secretary of State of the State of Delaware on
August 12, 1992. Incorporated by reference from Exhibit to
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 26, 1992.
3.3 Certificate of Amendment of Restated Certificate of
Incorporation filed with the Secretary of State of the State
of Delaware on August 20, 1992. Incorporated by reference
from Exhibit to Quarterly Report on Form 10-Q for the fiscal
quarter ended September 26, 1992.
3.4 Certificate of Amendment of Restated Certificate of
Incorporation filed with the Secretary of State of the State
of Delaware on May 5, 1995. Incorporated by reference from
Exhibit to Registration Statement on Form S-3, No. 33-60049.
3.5 Composite Certificate of Incorporation. Incorporated by
reference from Exhibit to Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1995.
3.6 Restated Bylaws of the Company, as amended, effective March
12, 1996. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 29,
1995.
4.1 The Company hereby agrees to file upon request of the
Commission a copy of all instruments, not otherwise filed,
with respect to long-term debt of the Company or any of its
subsidiaries for which the total amount of debt authorized
under such instrument does not exceed 10% of the total
assets of the Company and its subsidiaries on a consolidated
basis.
4.2 See Exhibits 3.1, 3.2, 3.3, 3.4, 3.5 and 3.6.
4.3 Indenture, dated as of May 1, 1987, between the Company and
Citibank N.A., Trustee, with respect to issuance of
$57,500,000 of 7% Convertible Subordinated Debentures due
May 1, 2012. Incorporated by reference from Exhibit to
Registration Statement on Form S-3, No. 33-13463.
4.4 Form of 7% Convertibl Subordinated Debenture due May 1,
2012. Incorporated by reference from Exhibit to Registration
Statement on Form S-3, No. 33-13463.
4.5 Common Shares Rights Agreement, dated as of November 7,
1989, by and between the Company and the First National Bank
of Boston, as Rights Agent, including the form of Rights
Certificate attached as Exhibit A thereto. Incorporated by
reference from Exhibit to Registration Statement on Form 8-A
filed with the Securities and Exchange Commission on
November 20, 1989.
4.6 First Amended and Restated Rights Agreement (the "Restated
Rights Agreement") by and between the Company and First
National Bank of Boston, dated August 12, 1992, including
form of Rights Certificate. Incorporated by reference from
Exhibit to Quarterly Report on Form 10-Q for the fiscal
quarter ended September 26, 1992.
4.7 Amendment Number 1 to the Restated Rights Agreement, dated
August 24, 1992. Incorporated by reference from Exhibit to
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 26, 1992.
4.8 Indenture, dated as of September 1, 1995, between the
Company and Harris Trust and Savings Bank, as Trustee, with
respect to issuance of $172,500,000 of 8.25% Convertible
Subordinated Notes due October 1, 2005. Incorporated by
reference from Exhibit to Quarterly Report on Form 10-Q for
the fiscal quarter ended September 29, 1995.
</TABLE>
<PAGE> 56
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
4.9 Form of 8.25% Convertible Subordinated Note due October 1,
2005. Incorporated by reference from Exhibit to Quarterly
Report on Form 10-Q for the fiscal quarter ended September
29, 1995.
10.1* Letter Agreement between the Company and Alfred J. Stein,
dated February 12, 1982. Incorporated by reference from
Exhibit to Registration Statement on Form S-1, No. 2-81485.
10.2* Agreement between the Company and Alfred J. Stein, dated
March 8, 1996. Incorporated by reference from Exhibit to
Annual Report on Form 10-K for the fiscal year ended
December 29, 1995.
10.3* 1982 Incentive Stock Option Plan, as amended May 9, 1991,
and form of option agreement used thereunder. Incorporated
by reference from Exhibit to Annual Report on Form 10-K for
the fiscal year ended December 28, 1991.
10.4* Registration Rights Agreement dated as of January 16, 1984
among the Company and certain security holders of the
Company. Incorporated by reference from Exhibit to
Registration Statement on Form S-1, No. 2-81485.
10.5* Executive Performance Incentive Plan. Incorporated by
reference from Exhibit to Annual Report on Form 10-K for the
fiscal year ended December 29, 1985.
10.6* 1986 Directors' Stock Option Plan, as amended, and Forms of
Option Agreement for use with such plan. Incorporated by
reference from Exhibit to Annual Report on Form 10-K for the
fiscal year ended December 30, 1994.
10.7* 1992 Stock Plan, as amended, and form of option agreement
used thereunder. Said document is included as an Exhibit to
this Annual Report on Form 10-K for the fiscal year ended
December 26, 1997.
10.8 COMPASS Design Automation, Inc. Series A Preferred Stock and
Common Stock Purchase Agreement, dated December 27, 1991.
Incorporated by reference from Exhibit to Annual Report on
Form 10-K for the fiscal year ended December 28, 1991.
10.9* Amended and Restated Employee Stock Purchase Plan, as
amended. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 30,
1994.
10.10 * COMPASS Design Automation, Inc. 1992 Stock Option Plan, as
amended. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 30,
1994.
10.11 Reserved.
10.12 Joint Venture and Shareholder Agreement, dated as of
November 28, 1990, between Advanced RISC Machines Holdings
Limited, Acorn Computers Limited, Apple Computer (UK)
Limited and the Company. Incorporated by reference from
Exhibit to Annual Report on Form 10-K for the fiscal year
ended December 29, 1990.
10.13 Intercompany Agreement between COMPASS Design Automation,
Inc. and the Company, dated July 1, 1991. Incorporated by
reference from Exhibit to Annual Report on Form 10-K for the
fiscal year ended December 28, 1991.
10.14 Intel/VLSI Stock and Warrant Purchase Agreement between the
Company and Intel Corporation ("Intel"), dated July 8, 1992,
including form of Warrant. Incorporated by reference from
Exhibit to Quarterly Report on Form 10-Q for the fiscal
quarter ended September 26, 1992.
10.15 ** Technology and Manufacturing Agreement between Intel
Corporation and the Company, dated July 8, 1992, as amended
by Addendum Number 1. Incorporated by reference from Exhibit
to Amendment Number 1 to Annual Report on Form 10-K for the
fiscal year ended December 26, 1992.
10.16 ** Amendment Number 2 to the Technology and Manufacturing
Agreement between Intel Corporation and the Company, dated
December 2, 1993. Incorporated by reference from Exhibit to
Annual Report on Form 10-K for the fiscal year ended
December 25, 1993.
</TABLE>
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.17 Letter dated July 18, 1994 from Intel Corporation to the
Company waiving certain rights under the Intel/VLSI Stock
and Warrant Purchase Agreement dated July 8, 1992.
Incorporated by reference from Exhibit to Quarterly Report
on Form 10-Q for the fiscal quarter ended July 1, 1994.
10.18 Termination Agreement dated November 7, 1994 between Intel
Corporation and the Company. Incorporated by reference from
Exhibit to Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1994.
10.19 Acquisition and Participation Agreement and Escrow
Instructions dated April 22, 1994 between Brazos Asset
Management, Inc. and the Company. Incorporated by reference
from Exhibit to Quarterly Report on Form 10-Q for the fiscal
quarter ended July 1, 1994.
10.20 Net Building Space Lease dated February 15, 1985 between
Mariani Financial Company and the Company for a property
located at 1865 Lundy Drive, San Jose, California.
Incorporated by reference from Exhibit to Annual Report on
Form 10-K for the fiscal year ended December 30, 1984.
10.21 Ground Sublease between Price-Elliott Research Park, Inc.,
and ADIMIC Limited Partnership, dated October 1, 1986, for
property in Tempe, Arizona. Incorporated by reference from
Exhibit to Annual Report on Form 10-K for the fiscal year
ended December 27, 1987.
10.22 Ground Sublease between Price-Elliott Research Park, Inc.,
and ADIMIC Limited Partnership, dated July 1, 1987, for
property in Tempe, Arizona. Incorporated by reference from
Exhibit to Annual Report on Form 10-K for the fiscal year
ended December 27, 1987.
10.23 Agreement between ADIMIC Limited Partnership and the Company
assigning interest of lessee under the two Ground Subleases
referred to in Exhibits 10.21 and 10.22. Incorporated by
reference from Exhibit to Annual Report on Form 10-K for the
fiscal year ended December 27, 1987.
10.24 ASU Research Park Ground Sublease, dated as of December 18,
1990, between Price-Elliott Research Park, Inc. and the
Company. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 29,
1990.
10.25 Lease dated as of August 12, 1991, between Callahan-Pentz
Properties, Ringwood Court One and the Company for property
located at 1110 Ringwood Court, San Jose, California.
Incorporated by reference from Exhibit to Annual Report on
Form 10-K for the fiscal year ended December 28, 1991.
10.26 Reserved.
10.27 Lease dated as of July 20, 1993, between Callahan-Pentz
Properties and the Company for property located at 1120
Ringwood Court, San Jose, California. Incorporated by
reference from Exhibit to Annual Report on Form 10-K for the
fiscal year ended December 25, 1993.
10.28 Leasing Agreement dated September 21, 1994 between
Sobrato-Sobrato Interests, as Lessor, and the Company, as
lessee, for property located at 1240 McKay Drive, San Jose,
California. Incorporated by reference from Exhibit to
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1994.
10.29 Reserved.
10.30 Equipment Financing Agreement between New England Capital
Corporation and the Company, dated August 12, 1991.
Incorporated by reference from Exhibit to Annual Report on
Form 10-K for the fiscal year ended December 28, 1991.
10.31 Master Security Agreement between The CIT Group/Equipment
Financing, Inc. and the Company, dated December 19, 1991.
Incorporated by reference from Exhibit to Annual Report on
Form 10-K for the fiscal year ended December 28, 1991.
</TABLE>
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.32 Loan and Security Agreement between AT&T and the Company,
dated September 24, 1993. Incorporated by reference from
Exhibit to Annual Report on Form 10-K for the fiscal year
ended December 25, 1993.
10.33 Loan and Security Agreement and Promissory Note between CIT
Group and the Company, dated December 15, 1993. Incorporated
by reference from Exhibit to Annual Report on Form 10-K for
the fiscal year ended December 25, 1993.
10.34 Term Loan and Security Agreement dated June 17, 1994 and
Promissory Notes dated June 17 and June 30, 1994 between
Heller Financial, Inc. and the Company. Incorporated by
reference from Exhibit to Form 10-Q/A Amendment Number 1 to
Quarterly Report on Form 10-Q for the fiscal quarter ended
July 1, 1994.
10.35 Reserved.
10.36 Reserved.
10.37 Master Lease 2094759 Lease Renewal Contracts with Guaranteed
Purchase Options between Ellco Leasing Corporation and the
Company, each dated December 30, 1992, relating to Schedules
034, 037, 038, 041 & 043 and Schedules 044, 045, 046, 048,
049, 050, 051, 052 & 053, respectively. Incorporated by
reference from Exhibit to Annual Report on Form 10-K for the
fiscal year ended December 26, 1992.
10.38 Master Lease 2304202 Lease Renewal Contract with Guaranteed
Purchase Option between GE Capital Corp. and the Company,
dated December 30, 1992, relating to Schedules 002, 003, 004
& 007. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 26,
1992.
10.39 Reserved.
10.40* Form of Executive Change in Control Agreement by and between
the Company and each of the following executive officers of
the Company: Richard M. Beyer, John S. Hodgson, Balakrishnan
S. Iyer, Thierry M. Laurent, Douglas M. McBurnie and Alfred
J. Stein. Incorporated by reference from Exhibit to Annual
Report on Form 10-K for the fiscal year ended December 27,
1996.
10.41* Executive Salary Continuation Agreement dated December 20,
1996 by and between the Company and Alfred J. Stein.
Incorporated by reference from Exhibit to Annual Report on
Form 10-K for the fiscal year ended December 27, 1996.
10.42* Long Term Incentive Plan adopted October 8, 1996.
Incorporated by reference from Exhibit to Annual Report on
Form 10-K for the fiscal year ended December 27, 1996.
10.43 1998 Nonstatutory Stock Option Plan and form of option
agreement used thereunder. Said document is included as an
Exhibit to this Annual Report on Form 10-K for the fiscal
year ended December 26, 1997.
10.44 Agreement and Plan of Reorganization dated as of July 31,
1997 among Avant! Corporation, GB Acquisition Corporation,
COMPASS Design Automation, Inc. and VLSI Technology, Inc.
and Amendment to Agreement and Plan of Reorganization dated
as of August 27, 1997. Incorporated by reference from
Exhibit to Current Report on Form 8-K filed September 26,
1997 by Avant! Corporation (SEC File No. 0-25864).
10.45 Credit Agreement dated December 23, 1997 between Bank of
America National Trust and Savings Association and the
Company. Said document is included as an Exhibit to this
Annual Report on Form 10-K for the fiscal year ended
December 26, 1997.
10.46 * Nonqualified Deferred Compensation Plan adopted effective
June 1, 1997 and as amended March 4, 1998. Said document is
included as an Exhibit to this Annual Report on Form 10-K
for the fiscal year ended December 26, 1997.
</TABLE>
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.47 Letter Agreement (and Addendum) between the Company and John
S. Hodgson, dated March 21, 1997. Said document is included
as an Exhibit to this Annual Report on Form 10-K for the
fiscal year ended December 26, 1997.
10.48 Letter Agreement between the Company and Douglas M.
McBurnie, dated August 6, 1997. Said document is included as
an Exhibit to this Annual Report on Form 10-K for the fiscal
year ended December 26, 1997.
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP, Independent Auditors (see page
51).
24 Power of Attorney (see page 53).
27.1 Financial Data Schedule for the fiscal year ended December
26, 1997.
27.2 Financial Data Schedules restated for the fiscal years ended
December 27, 1996 and December 29, 1995.
27.3 Financial Data Schedules restated for the nine months ended
September 26, 1997, the six months ended June 27, 1997 and
the three months ended March 28, 1997.
27.4 Financial Data Schedules restated for the nine months ended
September 27, 1996, the six months ended June 28, 1996 and
the three months ended March 29, 1996.
</TABLE>
- ---------------
* Denotes a management contract or compensatory plan or arrangement in which an
executive officer participates.
** Denotes a document for which confidential treatment has been granted for
selected portions.
(d) FINANCIAL STATEMENT SCHEDULES
See Item 14(a)(2) above.
<PAGE> 1
EXHIBIT 10.7
VLSI TECHNOLOGY, INC.
1992 STOCK PLAN
(As adopted by the Board of Directors on May 1, 1992 and
as amended on November 17, 1994, March 12, 1996, March 21, 1997
and May 4, 1998, and approved by the stockholders on August
20, 1992, April 27, 1995, May 31, 1996, May 7, 1997 and
________________, 1998)
1. Purposes of the Plan. The purpose of this 1992 Stock Plan is to
enable the Company to provide an incentive to Employees and Consultants whose
present and potential contributions are important to the continued success of
the Company, to afford these individuals the opportunity to acquire a
proprietary interest in the Company, and to enable the Company to enlist and
retain the best available talent for positions of substantial responsibility. It
is intended that this purpose will be effected through the granting of Incentive
Stock Options, Nonstatutory Stock Options, Stock Appreciation Rights, Stock
Purchase Rights, Stock Bonus Awards and Long-Term Performance Awards.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Affiliated Company" means a corporation, whether now or
hereafter existing, which is not a Subsidiary but with respect to which the
Company owns, directly or indirectly through one or more Subsidiaries, at least
20% of the total voting power of all classes of stock.
(c) "Applicable Laws" means the legal requirements relating to the
administration of stock option and equity incentive plans under applicable state
corporate and securities laws and under the Code.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means a Committee appointed by the Board in
accordance with Section 4 of the Plan.
(g) "Common Stock" means the Common Stock of the Company.
(h) "Company" means VLSI Technology, Inc., a Delaware corporation.
1
<PAGE> 2
(i) "Consultant" means (i) any person, including an advisor, who is
engaged by the Company or by a Parent or Subsidiary of the Company to render
consulting services to it and who is compensated for such services, provided
that the term "Consultant" shall not include Directors who are compensated,
through a director's fee or other standard director compensation, only for their
services as Directors of the Company, (ii) any currently authorized
manufacturer's representative or sales representative firm which sells products
of the Company or of a Parent or Subsidiary of the Company, as designated by the
Company in its sole discretion (which designation shall be subject to withdrawal
at any time for any or no reason), whether compensated by the Company for
service as such or not, or (iii) any individual who is employed by such a
manufacturer's representative or sales representative firm to perform services
which include the sale of products of the Company or of a Parent or Subsidiary
of the Company, whether compensated by the Company for such services or not.
(j) "Continuous Status as an Employee or Consultant" means the
absence of any interruption or termination of service as an Employee or
Consultant, provided, however, that Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of: (i) any leave of
absence approved by the Administrator, including sick leave, military leave, or
any other personal leave; provided, however, that for purposes of Incentive
Stock Options, any such leave may not exceed ninety (90) days, unless
reemployment upon the expiration of such leave is guaranteed by contract
(including certain Company policies) or statute; or (ii) transfers between
locations of the Company or between the Company, its Parent, its Subsidiaries,
its Affiliated Companies or its successor. In the case of a leave of absence
which extends for more than ninety (90) days and after which there is no
contractual or statutory guaranty of reemployment, the Employee's employment or
Consultant's service as such shall be deemed to have terminated on the
ninety-first (91st) day of such leave of absence.
(k) "Director" means a member of the Board.
(l) "Disability" means total and permanent disability, as defined in
Section 22(e)(3) of the Code.
(m) "Employee" means any person, including Officers and Directors,
employed by the Company or by any Parent or Subsidiary of the Company, as such
term is defined under common law and interpreted by the rules and regulations
under the Code. Neither service as a Director nor the payment of a director's
fee by the Company shall be sufficient to constitute "employment" by the
Company.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(o) "Fair Market Value" means, as of a specified date, the value of
Common Stock determined by the Administrator as follows:
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<PAGE> 3
(i) If the Common Stock is listed on any established stock
exchange or quoted on a national market system, including without limitation the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, the Fair Market Value of a Share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such exchange (or, if listed on
more than one exchange, the exchange with the greatest volume of trading in
Common Stock) or system on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Administrator deems reliable; or
(ii) If the Common Stock is quoted on the NASDAQ System (but is
not included on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the closing
bid and closing asked prices for the Common Stock on the last market trading day
prior to the day of determination, as reported in the Wall Street Journal or
such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(p) "Incentive Stock Option" means an Option that satisfies the
provisions of Section 422 of the Code.
(q) "Insider" means an Officer or Director.
(r) "Long-Term Performance Award" means an award granted pursuant to
Section 10 of the Plan.
(s) "Nonstatutory Stock Option" means an Option that is not an
Incentive Stock Option.
(t) "Notice of Grant" means a written notice evidencing certain terms
and conditions of an individual Option, Stock Purchase Right, SAR, Long-Term
Performance Award or Stock Bonus Award grant. The Notice of Grant is part of the
Option Agreement, the Restricted Stock Purchase Agreement, the SAR Agreement,
the Long-Term Performance Award agreement or the Stock Bonus Award agreement, as
the case may be.
(u) "Officer" means an officer of the Company within the meaning of
Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder.
(v) "Option" means a stock option granted pursuant to the Plan.
(w) "Option Agreement" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
3
<PAGE> 4
grant. The Option Agreement is subject to the terms and conditions of the Plan
and the Notice of Grant.
(x) "Optioned Stock" means the Common Stock subject to an Option or
Right.
(y) "Optionee" means an Employee or Consultant who holds an
outstanding Option or Right.
(z) "Option Exchange Program" means a program whereby outstanding
options (whether originally granted under this Plan or under other plans of the
Company) are surrendered in exchange for Options with a lower exercise price.
(aa) "Outside Director" shall mean a Director who is not an Employee.
(bb) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(cc) "Plan" means this 1992 Stock Plan.
(dd) "Restricted Stock" means shares of Common Stock purchased
pursuant to Stock Purchase Rights granted under Section 8 of the Plan.
(ee) "Restricted Stock Purchase Agreement" means a written agreement
between the Company and an Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(ff) "Right" means and includes SARs, Long-Term Performance Awards,
Stock Purchase Rights and Stock Bonus Awards granted pursuant to the Plan.
(gg) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act
(or any successor to Rule 16b-3), as in effect when discretion is being
exercised with respect to the Plan.
(hh) "SAR" means a stock appreciation right granted pursuant to
Section 7 of the Plan.
(ii) "SAR Agreement" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The SAR Agreement is subject to the terms and conditions of the Plan and
the Notice of Grant.
(jj) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
4
<PAGE> 5
(kk) "Stock Bonus Award" means an award granted pursuant to Section 9
of the Plan.
(ll) "Stock Purchase Right" means a right to purchase Common Stock
granted pursuant to Section 8 of the Plan.
(mm) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
In addition, the term "waiting period", the term "Performance Period",
the terms "Change in Control" and "Incumbent Directors" and the term "Tax Date"
shall have the meanings set forth in Sections 7, 10, 12 and 13 of the Plan,
respectively.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the total number of Shares reserved and available for distribution
pursuant to awards made under the Plan shall be 11,500,000, subject to
stockholder approval at the 1998 Annual Meeting of Stockholders. The Shares may
be authorized but unissued or reacquired stock.
If an Option or Right should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares which were
subject thereto shall, unless the Plan shall have been terminated, become
available for other Options or Rights granted under the Plan.
Notwithstanding any other provision of the Plan, Shares issued upon
exercise of Options or Rights under the Plan and later repurchased by the
Company shall not become available for future grant or sale under the Plan.
4. Administration of the Plan.
(a) Multiple Administrative Bodies. If permitted by Rule 16b-3, the
Plan may be administered by different bodies with respect to Outside Directors,
Directors who are Employees, Officers who are not Directors, and Employees and
Consultants who are neither Directors nor Officers.
(b) Administration With Respect to Directors and Officers. With
respect to grants of Options or Rights to Employees or Consultants who are also
Officers or Directors, the Plan shall be administered by (A) the Board, if the
Board may administer the Plan in compliance with the rules governing a plan
intended to qualify as a discretionary grant or award plan under Rule 16b-3, or
(B) a Committee designated by the Board to administer the Plan, which Committee
shall be constituted (I) in such a manner as to permit the Plan to comply with
the rules governing a plan intended to qualify as a discretionary grant or award
plan under Rule 16b-3 and (II) in such a manner as to satisfy the Applicable
Laws.
5
<PAGE> 6
(c) Administration With Respect to Other Persons. With respect to
grants of Options or Rights or to Employees or Consultants who are neither
Directors nor Officers, the Plan shall be administered by (A) the Board or (B) a
Committee designated by the Board, which Committee shall be constituted in such
a manner as to satisfy the Applicable Laws.
(d) Committee Composition. Once a Committee has been appointed
pursuant to subsection (b) or (c) of this Section 4, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of any Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies (however caused) or
remove all members of the Committee and thereafter directly administer the Plan,
all to the extent permitted by the Applicable Laws and, in the case of a
Committee appointed under subsection (b), to the extent permitted by Rule 16b-3
as it applies to a plan intended to qualify thereunder as a discretionary grant
or award plan.
(e) Powers of the Administrator. Subject to the provisions of the
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to grant Incentive Stock Options, Nonstatutory Stock Options,
SARs, Stock Purchase Rights, Stock Bonus Awards and Long-Term Performance
Awards;
(ii) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(o) of the Plan;
(iii) to select the Employees and Consultants to whom Options and
Rights may from time to time be granted hereunder;
(iv) to determine whether and to what extent Options and Rights,
or any combination thereof, are granted hereunder;
(v) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(vi) to approve forms of agreements for use under the Plan;
(vii) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder and of the Options or
Rights so awarded (including, but not limited to, the exercise or purchase price
and any restriction or limitation regarding any Option or Right and/or the
shares of Common Stock relating thereto, based in each case on such factors as
the Administrator shall determine, in its sole discretion);
6
<PAGE> 7
(viii) to determine whether and under what circumstances an
Option or Right may be settled in cash instead of Common Stock;
(ix) to reduce the exercise price of any Option or Right to the
then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option or Right shall have declined since the date the Option
was granted;
(x) to modify or amend the terms and conditions of any Option or
Right, subject to Section 15 of the Plan (including, but not limited to,
accelerating vesting or waiving forfeiture restrictions);
(xi) to institute an Option Exchange Program;
(xii) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option or Right previously
granted by the Administrator;
(xiii) to interpret the Plan and to prescribe, amend and rescind
rules and regulations relating to the Plan; and
(xiv) to make all other determinations deemed necessary or
advisable for administering the Plan.
(f) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding.
(g) Suspension or Termination of Option or Right. If the Chief
Executive Officer or his or her designee reasonably believes that an Optionee
has committed an act of misconduct, the Chief Executive Officer may suspend the
Optionee's right to exercise any Option or Right or to receive any benefits
relating thereto pending a determination by the Administrator. If the
Administrator determines that an Optionee has committed an act of embezzlement,
fraud, dishonesty, nonpayment of an obligation owed to the Company, breach of
fiduciary duty or deliberate disregard of the Company's rules resulting in loss,
damage or injury to the Company, or if an Optionee makes an unauthorized
disclosure of any Company trade secret or confidential information, engages in
any conduct constituting unfair competition, induces any Company customer to
breach a contract with the Company or induces any principal for whom the Company
acts as agent to terminate such agency relationship, neither the Optionee nor
his or her estate shall be entitled to exercise any Option or Right or to
receive any benefits relating to Options or Rights whatsoever. In making such
determination, the Administrator shall act fairly and shall give the Optionee an
opportunity to appear and present evidence on Optionee's behalf at a hearing
before the Administrator.
5. Eligibility. Nonstatutory Stock Options and Rights may be granted to
Employees and Consultants. Incentive Stock Options may be granted only to
Employees.
7
<PAGE> 8
An Employee or Consultant who has been granted an Option or Right may, if he or
she is otherwise eligible, be granted additional Options or Rights.
6. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
become effective upon the earlier to occur of its adoption by the Board or its
approval by the stockholders of the Company as described in Section 19. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 15 of the Plan.
7. Options and SARs.
(a) Options. The Administrator, in its discretion, may grant Options
to eligible participants and shall determine whether such Options shall be
Incentive Stock Options or Nonstatutory Stock Options. Each Option shall be
evidenced by a Notice of Grant, which shall expressly identify the Options as
either Incentive Stock Options or as Nonstatutory Stock Options and which shall
be in such form and contain such provisions as the Administrator shall from time
to time deem appropriate. Without limiting the foregoing, the Administrator may,
at any time, or from time to time, authorize the Company, with the consent of
the respective holders of outstanding options or rights, to issue Options or
Rights in exchange for the surrender and cancellation of any or all outstanding
options or rights held by such person. Option agreements shall contain the
following terms and conditions:
(i) Exercise Price; Number of Shares. The Notice of Grant shall
specify the per Share exercise price for the Shares issuable pursuant to an
Option, which shall be such price as is determined by the Administrator. The
Notice of Grant shall also specify the number of Shares which are subject to the
Option.
(ii) Waiting Period, Exercise Dates and Term. At the time an
Option is granted, the Administrator will determine the terms and conditions to
be satisfied before Shares may be purchased upon exercise of the Option,
including the date or dates on which Shares subject to the Option first become
available for purchase. The Administrator may specify that an Option may not be
exercised until the completion of a specified service period or until certain
Company, Subsidiary, Affiliated Company or individual performance objectives are
met. Any such period is referred to herein as the "waiting period". At the time
an Option is granted, the Administrator shall fix the period within which the
Option may be exercised, which shall not be earlier than the end of the waiting
period, if any, nor, in the case of an Incentive Stock Option, later than ten
(10) years, from the date of grant. The Notice of Grant shall specify the term
of the Option.
(iii) Form of Payment. The form of payment acceptable to the
Company in payment by an Optionee of the exercise price of Shares to be issued
upon exercise of an Option shall be determined by the Administrator (and, in the
case of an Incentive Stock Option, shall be determined at the time of grant)
and, subject to compliance with the Delaware General Corporation Law, may
consist entirely of:
8
<PAGE> 9
(a) cash;
(b) check (personal, cashier's or certified) or money order;
(c) promissory note;
(d) other Shares which (I) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender and (II) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which the
Option is being exercised;
(e) delivery to the Company of (I) a properly executed
exercise notice, (II) irrevocable instructions to a broker to sell a sufficient
number of the Shares being exercised to cover the exercise price and to promptly
deliver to the Company the amount of sale proceeds required to pay the exercise
price and any required tax withholding relating to the exercise, and (III) such
other documentation as the Administrator and the broker shall require to effect
a same-day exercise and sale;
(f) delivery to the Company of (I) a properly executed
exercise notice, (II) irrevocable instructions to a broker or other third party
acceptable to the Company to hold the Shares being exercised as collateral for a
loan to the Optionee of an amount sufficient to cover the exercise price and to
promptly deliver to the Company the amount of loan proceeds required to pay the
exercise price and any required tax withholding relating to the exercise and
(III) such other documentation as the Administrator and the broker or other
third party shall require to effect the transaction;
(g) delivery of an irrevocable subscription agreement for
the Shares which irrevocably obligates the Optionee to take and pay for the
Shares not more than twelve months after the date of delivery of such
subscription agreement;
(h) any combination of the foregoing methods of payment; or
(i) such other method of payment for the issuance of Shares
as is permitted by the Applicable Laws.
(iv) Special Incentive Stock Option Provisions. In addition to
the foregoing, Options granted under the Plan which are intended to be Incentive
Stock Options under Section 422 of the Code shall be subject to the following
terms and conditions:
(a) Exercise Price. The per share exercise price of an
Incentive Stock Option shall be no less than 100% of the Fair Market Value per
Share on the date of grant.
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<PAGE> 10
(b) Dollar Limitation. If an Option granted hereunder to an
Optionee is intended to be an Incentive Stock Option, then to the extent that
such Option, when considered together with all other incentive stock options
held by Optionee (whether granted hereunder or under other plans of the Company
or its Parent or Subsidiaries), would cause the Fair Market Value of all shares
of stock of the Company, its Parent and Subsidiaries first becoming exercisable
by the Optionee during any calendar year to exceed $100,000, such Option shall
be treated as a Nonstatutory Stock Option. For purposes of the preceding
sentence, (1) options shall be taken into account in the order in which they
were granted, and (2) the Fair Market Value of the shares subject to the option
shall be determined as of the time the Option or other incentive stock option is
granted.
(c) 10% Stockholder. If any Optionee to whom an Incentive
Stock Option is to be granted pursuant to the provisions of the Plan is, on the
date of grant, the owner (as determined under Section 424(d) of the Code) of
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company or of a Parent or Subsidiary of the Company, then the
following special provisions shall be applicable to the Incentive Stock Option
granted to such individual:
(1) The per Share Option price of Shares subject to such
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
Common Stock on the date of grant; and
(2) The Option shall not have a term in excess of five
(5) years from the date of grant.
Except as modified by the preceding provisions of this subsection 7(a)(iv) and
except as otherwise limited by Section 422 of the Code, all of the provisions of
the Plan shall be applicable to the Incentive Stock Options granted hereunder.
(v) Other Provisions. Each Option granted under the Plan may
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator.
(vi) Buy-out Provisions. The Administrator may at any time offer
on behalf of the Company to buy out, for a payment in cash or Shares, an Option
previously granted, based on such terms and conditions as the Administrator
shall establish and communicate to the Optionee at the time that such offer is
made, provided, however, that buy-out offers made to Insiders may only be
payable in cash. Any such cash offer made to an Officer or Director shall comply
with the applicable provisions of Rule 16b-3, if any.
(b) SARs.
(i) In Connection with Options. At the sole discretion of the
Administrator, SARs may be granted in connection with all or any part of an
Option, either concurrently with the grant of the Option or at any time
thereafter during the term of the
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Option. The following provisions apply to SARs that are granted in connection
with Options:
(a) The SAR shall entitle the Optionee to exercise the
SAR by surrendering to the Company unexercised a portion of the related Option.
The Optionee shall receive in exchange from the Company an amount equal to the
excess of (1) the Fair Market Value, on the date of exercise of the SAR, of the
Common Stock covered by the surrendered portion of the related Option over (2)
the exercise price of the Common Stock covered by the surrendered portion of the
related Option. Notwithstanding the foregoing, the Administrator may place
limits on the amount that may be paid upon exercise of an SAR; provided,
however, that such limit shall not restrict the exercisability of the related
Option.
(b) When an SAR is exercised, the related Option, to the
extent surrendered, shall be cancelled and shall cease to be exercisable.
(c) An SAR shall be exercisable only when and to the
extent that the related Option is exercisable and shall expire no later than the
date on which the related Option expires.
(d) An SAR may only be exercised at a time when the Fair
Market Value of the Common Stock covered by the related Option exceeds the
exercise price of the Common Stock covered by the related Option.
(ii) Independent of Options. At the sole discretion of the
Administrator, SARs may be granted independently without related Options. The
following provisions apply to SARs that are not granted in connection with
Options:
(a) The SAR shall entitle the Optionee, by exercising
the SAR, to receive from the Company an amount equal to the excess of (1) the
Fair Market Value of the Common Stock covered by the exercised portion of the
SAR, as of the date of such exercise, over (2) the Fair Market Value of the
Common Stock covered by the exercised portion of the SAR, as of the date on
which the SAR was granted; provided, however, that the Administrator may place
limits on the aggregate amount that may be paid upon exercise of an SAR.
(b) To the extent that an SAR is exercised, it shall be
cancelled and shall cease to be exercisable.
(c) SARs shall be exercisable, in whole or in part, at
such times as the Administrator shall specify in the Optionee's SAR Agreement.
(d) An SAR may only be exercised at a time when the
Fair Market Value of the Common Stock on the exercise date exceeds the Fair
Market Value of the Common Stock on the date of grant of the SAR.
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(iii) Form of Payment. Unless otherwise specified in the SAR
Agreement, the Company's obligation arising upon the exercise of an SAR may be
paid in Common Stock or in cash, or in any combination of Common Stock and cash,
as the Administrator, in its sole discretion, may determine. Shares issued upon
the exercise of an SAR shall be valued at their Fair Market Value as of the date
of exercise.
(iv) Rule 16b-3. SARs granted to Insiders shall be subject
to any additional restrictions of Rule 16b-3 applicable to SARs granted to such
persons. An Insider may only exercise an SAR during such time or times as are
permitted by Rule 16b-3.
(c) Exercise of Options and SARs.
(i) Right to Exercise. Any Option or SAR granted hereunder
shall be exercisable at such times and under such conditions as are determined
by the Administrator and as shall be permissible under the terms of the Plan.
(ii) No Fractional Shares. An Option or SAR may not be
exercised for a fraction of a Share.
(iii) Procedure for Exercise. An Option or SAR shall be
deemed to be exercised when written notice of such exercise has been given to
the Company in accordance with the terms of the Option or SAR by the person
entitled to exercise the Option or SAR and full payment for the Shares with
respect to which the Option or SAR is being exercised has been received by the
Company. Full payment may, as authorized by the Administrator (and, in the case
of an Incentive Stock Option, determined at the time of grant) and permitted by
the Option Agreement, consist of any consideration and method of payment
allowable under the Plan.
(iv) Rights as a Stockholder. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in Section 12 of the Plan.
(v) Effect of Exercise. Exercise of an Option in any manner
shall result in a decrease in the number of Shares which thereafter shall be
available, both for purposes of the Plan and for sale under the Option, by the
number of Shares as to which the Option is exercised. Exercise of an SAR in any
manner shall, to the extent the SAR is exercised, result in a decrease in the
number of Shares which thereafter shall be available for purposes of the Plan,
and the SAR (and the related Option, if any) shall cease to be exercisable to
the extent it has been exercised.
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(vi) Leave of Absence. Options and SARs held by an Optionee
shall not be exercisable during the Optionee's leave of absence from his or her
employment or consulting relationship with the Company, any Parent or Subsidiary
or any Affiliated Company, regardless of the length of such leave, except as
otherwise required by law. With respect to an Optionee's leave of absence which
is ninety (90) days or less in duration, vesting of all Options and SARs held by
the Optionee shall continue uninterrupted during such leave unless otherwise
provided in the Option or SAR Agreement. With respect to an Optionee's leave of
absence which is more than ninety (90) days in duration, vesting of any or all
Options and SARs held by such Optionee shall be suspended until the end of such
leave unless (i) otherwise expressly provided in the Option or SAR Agreement or
(ii) prohibited by an applicable law or regulation. The employment of an
Optionee who takes a leave of absence of more than 90 days after which such
Optionee is not guaranteed re-employment by contract or statute shall be deemed
to have terminated for purposes of the Plan on the ninety-first (91st) day of
such leave of absence.
(d) Rule 16b-3. Options and SARs granted to Insiders must comply
with the applicable provisions of Rule 16b-3 and shall contain such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
(e) Effect of Termination.
(i) Termination of Employment or Consulting Relationship. In
the event an Optionee's Continuous Status as an Employee or Consultant
terminates (other than upon the Optionee's death or Disability), such Optionee
may exercise his or her Option or SAR, but (A) only to the extent that the
Optionee was entitled to exercise it at the date of such termination, unless
otherwise permitted by the Administrator, and (B) only within such period of
time following the date of such termination not exceeding five (5) years as is
determined by the Administrator (with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option and not
exceeding three (3) months) and in no event later than the expiration of the
term of such Option or SAR as set forth in the Option or SAR Agreement. To the
extent that Optionee was not entitled to exercise an Option or SAR at the date
of such termination, and to the extent that the Optionee does not exercise such
Option or SAR (to the extent otherwise so entitled) within the time specified
herein, the Option or SAR shall terminate.
(ii) Disability of Optionee. In the event an Optionee's
Continuous Status as an Employee or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option or SAR, but
(A) only to the extent that the Optionee was entitled to exercise it at the date
of such termination, unless otherwise permitted by the Administrator, and (B)
only within such period of time following the date of termination due to
Disability not exceeding ten (10) years as is determined by the Administrator
(with such determination being made at the time of grant of the Option in the
case of an Incentive Stock Option and not exceeding one (1) year) and in no
event later than the expiration of the term of such Option or SAR as set forth
in the Option or SAR
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<PAGE> 14
Agreement. To the extent that Optionee was not entitled to exercise an
Option or SAR at the date of such termination, and to the extent that the
Optionee does not exercise such Option or SAR (to the extent otherwise so
entitled) within the time specified herein, the Option or SAR shall terminate.
(iii) Death of Optionee. In the event of an Optionee's death
during the term of an Option or SAR, the Optionee's estate or a person who
acquired the right to exercise the deceased Optionee's Option or SAR by bequest
or inheritance may exercise the Option or SAR, but (A) only to the extent that
the Optionee was entitled to exercise it at the date of death, unless otherwise
permitted by the Administrator and (B) only within such period of time following
the date of death not exceeding ten (10) years as is determined by the
Administrator, and in no event later than the expiration of the term of such
Option or SAR as set forth in the Option or SAR Agreement. To the extent that
Optionee was not entitled to exercise an Option or SAR at the date of death, and
to the extent that the Optionee's estate or a person who acquired the right to
exercise such Option does not exercise such Option or SAR (to the extent
otherwise so entitled) within the time specified herein, the Option or SAR shall
terminate.
8. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to or in tandem with other awards granted under the Plan
and/or awards made outside of the Plan. After the Administrator determines that
it will offer Stock Purchase Rights under the Plan, it shall advise the offeree
in a written Notice of Grant of the terms, conditions and restrictions related
to the offer, including the number of Shares that the offeree shall be entitled
to purchase, the price to be paid, the form of payment that is acceptable (which
may, in the discretion of the Administrator, include any form of payment
enumerated in Section 7(a)(iii) hereof), and the time within which the offeree
must accept such offer, which shall in no event exceed sixty (60) days from the
date upon which the Administrator made the determination to grant the Stock
Purchase Right. The offer shall be accepted by execution of a Restricted Stock
Purchase Agreement in the form determined by the Administrator and payment of
the purchase price. Shares purchased pursuant to a Stock Purchase Right shall be
referred to herein as "Restricted Stock".
(b) Repurchase Option. Unless the Administrator determines otherwise,
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's Continuous Status as an Employee or Consultant for any reason
(including death or Disability). The purchase price for Shares repurchased by
the Company pursuant to the provisions of the Restricted Stock Purchase
Agreement shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company, whether or not
such indebtedness is related to the original purchase of the Shares being
repurchased by the Company. The repurchase option shall lapse at such rate as
the Administrator may determine.
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<PAGE> 15
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. The
provisions of Restricted Stock Purchase Agreements need not be the same with
respect to each purchaser.
(d) Rule 16b-3. Stock Purchase Rights granted to Insiders, and Shares
purchased by Insiders pursuant to Stock Purchase Rights, shall be subject to
such additional conditions or restrictions of Rule 16b-3 as may be applicable
thereto in order to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.
(e) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
stockholder and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 12
of the Plan.
9. Stock Bonus Awards. Stock Bonus Awards may be granted either alone,
in addition to or in tandem with other awards granted under the Plan and/or
awards made outside of the Plan. Stock Bonus Awards shall not require payment by
the Optionee of any consideration for the Shares covered by the Stock Bonus
Award. The Administrator shall determine, in its sole discretion, the terms,
conditions and restrictions relating to each Stock Bonus Award and shall
determine any performance or employment-related factors to be considered in the
granting of Stock Bonus Awards and the extent to which such Stock Bonus Awards
have been earned. Shares issued pursuant to a Stock Bonus Award may be made
subject to various conditions, including vesting or forfeiture provisions. Stock
Bonus Awards may vary from participant to participant and between groups of
participants. Each Stock Bonus Award shall be confirmed by, and be subject to
the terms of, a Stock Bonus Award agreement.
10. Long-Term Performance Awards.
(a) Awards. Long-Term Performance Awards are cash or stock bonus
awards that may be granted either alone, in addition to or in tandem with other
awards granted under the Plan and/or awards made outside of the Plan. Long-Term
Performance Awards shall not require payment by the Optionee of any
consideration for the Long-Term Performance Award or for the Shares covered by
such award. The Administrator shall determine the nature, length and starting
date of any performance period (the "Performance Period") for each Long-Term
Performance Award and shall determine the performance or employment factors, if
any, to be used in the determination of the value of Long-Term Performance
Awards and the extent to which such Long-Term Performance Awards have been
earned. Shares issued pursuant to a Long-Term Performance Award may be made
subject to various conditions, including vesting or forfeiture provisions.
Long-Term Performance Awards may vary from participant to participant and
between
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<PAGE> 16
groups of participants and shall be based upon the achievement of Company,
Subsidiary, Parent, Affiliated Company and/or individual performance factors or
upon such other criteria as the Administrator may deem appropriate. Performance
Periods may overlap and participants may participate simultaneously with respect
to Long-Term Performance Awards that are subject to different Performance
Periods and different performance factors and criteria. Long-Term Performance
Awards shall be confirmed by, and be subject to the terms of, a Long-Term
Performance Award agreement.
(b) Value of Awards. At the beginning of each Performance Period, the
Administrator may determine for each Long-Term Performance Award subject to such
Performance Period the range of dollar values and/or numbers of shares of Common
Stock to be awarded to the participant at the end of the Performance Period if
and to the extent that the relevant measures of performance for such Long-Term
Performance Award are met. Such dollar values or numbers of shares of Common
Stock may be fixed or may vary in accordance with such performance or other
criteria as may be determined by the Administrator.
(c) Adjustment of Awards. Notwithstanding the provisions of Section
15 hereof, the Administrator may, after the grant of Long-Term Performance
Awards, adjust the performance factors applicable to such Long-Term Performance
Awards to take into account changes in the law or in accounting or tax rules and
to make such adjustments as the Administrator deems necessary or appropriate to
reflect the inclusion or exclusion of the impact of extraordinary or unusual
items, events or circumstances in order to avoid windfalls or hardships.
11. Non-Transferability of Options. Options and Rights may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder. The
designation of a beneficiary by an Optionee does not constitute a transfer. An
Option or Right may be exercised, during the lifetime of the Optionee, only by
the Optionee or by a transferee permitted by this Section 11.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger,
Asset Sale or Change of Control.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Right, and the number of shares of Common Stock
which have been authorized for issuance under the Plan but as to which no
Options or Rights have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option or Right, as well as the price per
share of Common Stock covered by each such outstanding Option or Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
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<PAGE> 17
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Administrator, whose determination in that respect shall be final,
binding and conclusive.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option or Right
has not been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Administrator may, in the exercise of
its sole discretion in such instances, declare that all Options and Rights shall
terminate as of a date fixed by the Administrator and give each Optionee the
right to exercise his or her Option or Right as to all or any part of the
Optioned Stock, including Shares as to which the Option or Right would not
otherwise be exercisable.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation or the sale of substantially all of the assets
of the Company, each outstanding Option and Right shall be assumed or an
equivalent option or right substituted by the successor corporation or a Parent
or Subsidiary of the successor corporation. However, the Administrator may, in
lieu of such assumption or substitution, provide for the Optionee to have the
right to exercise the Option or Right in full, including Shares as to which such
Options or Rights would not otherwise be exercisable. If the Administrator makes
an Option or Right fully exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Administrator shall notify the
Optionee that the Option or Right shall be fully exercisable for a period of
time determined by the Administrator from the date of such notice, and the
Option or Right will terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Right shall be considered assumed if,
immediately following the merger or sale of assets, the option or right confers
the right to purchase, for each Share of Optioned Stock subject to the Option or
Right immediately prior to the merger or sale of assets, the consideration
(whether stock, cash, or other securities or property) received in the merger or
sale of assets by holders of Common Stock for each Share held on the effective
date of the transaction (and, if such holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets was not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation and the participant, provide for the consideration to be
received upon the exercise of the Option or Right, for each Share of Optioned
Stock subject to the Option or Right, to be solely common stock of the successor
corporation or its Parent equal in Fair Market Value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
(d) Change in Control. In the event of a "Change in Control" of the
Company, as defined in paragraph (e) below, unless otherwise determined by the
Administrator prior to the occurrence of such Change in Control, any Options and
Rights
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outstanding on the date such Change in Control is determined to have occurred
that are not yet exercisable and vested on such date shall become fully
exercisable and vested.
(e) Definition of "Change in Control". For purposes of this Section
12, a "Change in Control" means the happening of any of the following:
(i) When any "person", as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, a Subsidiary or a Company
employee benefit plan, including any trustee of such plan acting as trustee) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under
the Exchange Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power of the
Company's then outstanding securities; or
(ii) The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve an agreement for the sale or disposition by the Company
of all or substantially all of the Company's assets; or
(iii) A change in the composition of the Board of Directors of
the Company, as a result of which fewer than a majority of the directors in
office are Incumbent Directors. "Incumbent Directors" shall mean directors who
either (A) are directors of the Company as of the date the Plan is approved by
the stockholders, or (B) are elected, or nominated for election, to the Board of
Directors of the Company with the affirmative votes of at least a majority of
the Incumbent Directors at the time of such election or nomination (but shall
not include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the
Company).
(f) No Other Adjustments. Except as expressly provided or authorized
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into or exercisable for shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Right.
13. Stock Withholding to Satisfy Withholding Tax Obligations.
(a) Ability to Use Stock to Satisfy Withholding. At the discretion of
the Administrator, Optionees may satisfy withholding obligations as provided in
this Section 13. When an Optionee incurs tax liability in connection with the
award, vesting or exercise of an Option or Right, which tax liability is subject
to tax withholding under applicable tax laws (including federal, state and local
laws), and the Optionee is obligated to pay the Company
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an amount required to be withheld under such applicable tax laws, the Optionee
may satisfy the withholding tax obligation (up to an amount calculated by
applying such Optionee's maximum marginal tax rate) by electing to have the
Company withhold from the Shares to be issued upon award, vesting or exercise of
the Option or Right that number of Shares, or by delivering to the Company that
number of previously owned Shares, having a Fair Market Value equal to the
amount required to be withheld. The Fair Market Value of the Shares to be
withheld or delivered, as the case may be, shall be determined on the date that
the amount of tax to be withheld is determined (the "Tax Date").
(b) Election to Have Stock Withheld. All elections by an Optionee to
have Shares withheld or to deliver previously owned Shares pursuant to this
Section 13 shall be made in writing in a form acceptable to the Administrator
and shall be subject to the following restrictions:
(i) the election must be made on or prior to the applicable Tax
Date;
(ii) all elections shall be subject to the consent or disapproval
of the Administrator; and
(iii) if the Optionee is an Insider, the election must comply
with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(c) Section 83(b) Elections. In the event that an election to have
Shares withheld is made by an Optionee, no election is filed under Section 83(b)
of the Code by such Optionee and the Tax Date is deferred under Section 83 of
the Code, the Optionee shall receive the full number of Shares with respect to
which the Option or Right has been awarded, has vested or has been exercised, as
the case may be, but such Optionee shall be unconditionally obligated to tender
back to the Company the proper number of Shares on the Tax Date.
14. Time of Granting Options and Rights. The date of grant of an Option
or Right shall, for all purposes, be the date on which the Administrator makes
the determination granting such Option or Right or such future date as is
specified in the resolutions of the Administrator grating such Option or Right.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option or Right is so granted within a reasonable time after the date of
such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan, but no amendment, alteration, suspension
or
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termination shall be made which would impair the rights of any Optionee under
any Option or Right theretofore granted without his or her consent.
(b) Stockholder Approval. The Company shall obtain stockholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any successor statute or
rule or other applicable law, rule or regulation, including the requirements of
any exchange or quotation system on which the Common Stock is listed or quoted).
Such stockholder approval, if required, shall be obtained in such a manner and
to such a degree as is required by the applicable law, rule or regulation.
(c) Effect of Amendment or Termination. Any such amendment,
alteration, suspension or termination of the Plan shall not adversely affect
Options or Rights already granted and such Options and Rights shall remain in
full force and effect as if this Plan had not been amended, altered, suspended
or terminated, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
award, vesting or exercise of an Option or Right unless the award, vesting or
exercise of such Option or Right, as the case may be, and the issuance and
delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder,
applicable state securities laws and the requirements of any stock exchange or
quotation system upon which the Shares may then be listed or quoted, and shall
be further subject to the approval of counsel for the Company with respect to
such compliance.
(b) Investment Representation. As a condition to the receipt of
Shares upon the award, vesting or exercise of an Option or Right, the Company
may require the person receiving such Shares to represent and warrant at the
time of any such award, vesting or exercise that the Shares are being acquired
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required by any of the aforementioned relevant provisions of law.
(c) Regulatory Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
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(d) Grants Exceeding Allotted Shares. If the Optioned Stock covered
by an Option or Right exceeds, as of the date of grant, the number of Shares
which may be issued under the Plan without additional stockholder approval, such
Option or Right shall be void with respect to such excess Optioned Stock, unless
stockholder approval of an amendment sufficiently increasing the number of
Shares subject to the Plan is timely obtained in accordance with Section 15(b)
of the Plan.
17. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Agreements. Options and Rights shall be evidenced by written
agreements in such form as the Administrator shall approve from time to time.
19. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted as provided in Section 6. Such stockholder
approval shall be obtained in the degree and manner required under applicable
state and federal law.
20. No Employment or Consulting Agreement. Neither the Plan nor any
Option or Right nor any agreement evidencing such awards nor the vesting thereof
shall confer upon an Optionee any right with respect to continuing the
Optionee's employment or consulting relationship with the Company, nor shall
they interfere in any way with the Optionee's right or the Company's right to
terminate such employment or consulting relationship at any time, with or
without cause.
21. Performance-Based Plan Limitation. The following limitations shall
apply to grants of Options to Employees:
(i) No Employee shall be granted, in any fiscal year of the Company,
Options to purchase more than 1,500,000 Shares.
(ii) In connection with his or her initial employment, an Employee
may be granted Options to purchase up to an additional 500,000 Shares, which
shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 12.
(iv) If an Option is cancelled in the same fiscal year of the Company
in which it was granted (other than in connection with a transaction described
in Section 12), the cancelled Option will be counted against the limit set forth
in this Section 21. For this purpose, if the exercise price of an Option is
reduced, the transaction will be treated as a cancellation of the Option and the
grant of a new Option.
21
<PAGE> 1
EXHIBIT 10.43
VLSI TECHNOLOGY, INC.
1998 NONSTATUTORY STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Nonstatutory Stock Option
Plan are:
- to attract and retain the best available personnel for
positions of substantial responsibility,
- to provide additional incentive to Employees and Consultants,
and
- to promote the success of the Company's business.
Options granted under the Plan will be Nonstatutory Stock Options.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options are, or will be, granted under
the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means VLSI Technology, Inc., a Delaware corporation.
(h) "Consultant" means (i) any person, including an advisor, who
is engaged by the Company or by a Parent or Subsidiary of the Company to render
consulting services to it and who is compensated for such services, provided
that the term "Consultant" shall not include Directors who are compensated,
through a director's fee or other standard director compensation, only for
their services as Directors of the Company, (ii) any currently authorized
manufacturer's representative or sales representative firm which sells products
of the Company or of a Parent or Subsidiary of the Company,
<PAGE> 2
as designated by the Company in its sole discretion (which designation shall be
subject to withdrawal at any time for any or no reason), whether compensated by
the Company for service as such or not, or (iii) any individual who is employed
by such a manufacturer's representative or sales representative firm to perform
services which include the sale of products of the Company or of a Parent or
Subsidiary of the Company, whether compensated by the Company for such services
or not.
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers, employed by
the Company or any Parent or Subsidiary of the Company. A Service Provider shall
not cease to be an Employee in the case of (i) any leave of absence approved by
the Company or (ii) transfers between locations of the Company or between the
Company, its Parent, any Subsidiary, or any successor. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option grant. The
Notice of Grant is part of the Option Agreement.
-2-
<PAGE> 3
(o) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(p) "Option" means a nonstatutory stock option granted pursuant to
the Plan, that is not intended to qualify as an incentive stock option within
the meaning of Section 422 of the Code and the regulations promulgated
thereunder.
(q) "Option Agreement" means an agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(r) "Option Exchange Program" means a program whereby outstanding
options are surrendered in exchange for options with a lower exercise price.
(s) "Optioned Stock" means the Common Stock subject to an Option.
(t) "Optionee" means the holder of an outstanding Option granted
under the Plan.
(u) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(v) "Plan" means this 1998 Nonstatutory Stock Option Plan.
(w) "Service Provider" means an Employee including an Officer,
Consultant or Director.
(x) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(y) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 6,000,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated).
4. Administration of the Plan.
(a) Administration. The Plan shall be administered by (i) the
Board or (ii) a Committee, which committee shall be constituted to satisfy
Applicable Laws.
-3-
<PAGE> 4
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value of the Common Stock;
(ii) to select the Service Providers to whom Options may be
granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(viii) to institute an Option Exchange Program;
(ix) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(x) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(xi) to modify or amend each Option (subject to Section 15(b)
of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or previously
granted by the Administrator;
(xiii) to determine the terms and restrictions applicable to
Options;
-4-
<PAGE> 5
(xiv) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable; and
(xv) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.
(d) Suspension or Termination of Option. If the Chief Executive
Officer or his or her designee reasonably believes that an Optionee has
committed an act of misconduct, the Chief Executive Officer may suspend the
Optionee's right to exercise any Option or to receive any benefits relating
thereto pending a determination by the Administrator. If the Administrator
determines that an Optionee has committed an act of embezzlement, fraud,
dishonesty, nonpayment of an obligation owed to the Company, breach of fiduciary
duty or deliberate disregard of the Company's rules resulting in loss, damage or
injury to the Company, or if an Optionee makes an unauthorized disclosure of any
Company trade secret or confidential information, engages in any conduct
constituting unfair competition, induces any Company customer to breach a
contract with the Company or induces any principal for whom the Company acts as
agent to terminate such agency relationship, neither the Optionee nor his or her
estate shall be entitled to exercise any Option or to receive any benefits
relating to Options whatsoever. In making such determination, the Administrator
shall act fairly and shall give the Optionee an opportunity to appear and
present evidence on Optionee's behalf at a hearing before the Administrator.
5. Eligibility. Options may be granted to Service Providers; provided,
however, that notwithstanding anything to the contrary contained in the Plan,
Options may not be granted to Officers and Directors.
6. Limitation. Neither the Plan nor any Option shall confer upon an
Optionee any right with respect to continuing the Optionee's relationship as a
Service Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.
7. Term of Plan. The Plan shall become effective upon its adoption by
the Board. It shall continue in effect for ten (10) years, unless sooner
terminated under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the
Option Agreement.
-5-
<PAGE> 6
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before
the Option may be exercised. The Administrator may specify that an Option may
not be exercised until the completion of a specified service period or until
certain Company, Subsidiary, Affiliated Company or individual performance
objectives are met. Any such period is referred to herein as the "waiting
period". At the time an Option is granted, the Administrator shall fix the
period within which the Option may be exercised, which shall not be earlier than
the end of the waiting period, if any. The Notice of Grant shall specify the
term of the Option.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. Such consideration may consist entirely of:
(i) cash;
(ii) check (personal, cashier's or certified) or money order;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on the date
of surrender equal to the aggregate exercise price of the Shares as to which
said Option shall be exercised;
(v) delivery to the Company of (A) a properly executed
exercise notice, (B) irrevocable instructions to a broker to sell a sufficient
number of the Shares being exercised to cover the exercise price and to promptly
deliver to the Company the amount of sale proceeds required to pay the exercise
price and any required tax withholding relating to the exercise, and (C) such
other documentation as the Administrator and the broker shall require to effect
a same-day exercise and sale;
(vi) delivery to the Company of (A) a properly executed
exercise notice, (B) irrevocable instructions to a broker or other third party
acceptable to the Company to hold the Shares being exercised as collateral for a
loan to the Optionee of an amount sufficient to cover the exercise price and to
promptly deliver to the Company the amount of loan proceeds required to pay the
exercise price and any required tax withholding relating to the exercise and (C)
such other documentation as the Administrator and the broker or other third
party shall require to effect the transaction;
-6-
<PAGE> 7
(vii) delivery of an irrevocable subscription agreement for
the Shares which irrevocably obligates the Optionee to take and pay for the
Shares not more than twelve months after the date of delivery of such
subscription agreement;
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws; or
(ix) any combination of the foregoing methods of payment.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. An Option may not be exercised for a fraction of
a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
Options held by an Optionee shall not be exercisable during
the Optionee's leave of absence from his or her employment or consulting
relationship with the Company, any Parent or Subsidiary or any Affiliated
Company, regardless of the length of such leave, except as otherwise required by
law. With respect to an Optionee's leave of absence which is ninety (90) days or
less in duration, vesting of all Options held by the Optionee shall continue
uninterrupted during such leave unless otherwise provided in the Option
Agreement. With respect to an Optionee's leave of absence which is more than
ninety (90) days in duration, vesting of any or all Options held by such
Optionee shall be suspended until the end of such leave unless (i) otherwise
expressly provided in the Option Agreement or (ii) prohibited by an applicable
law or regulation.
-7-
<PAGE> 8
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option, but only within such
period of time as is specified in the Option Agreement, and only to the extent
that the Option is vested on the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Option Agreement).
In the absence of a specified time in the Option Agreement, the Option shall
remain exercisable for three (3) months following the Optionee's termination.
If, on the date of termination, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his or
her Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option
Agreement, to the extent the Option is vested on the date of termination (but in
no event later than the expiration of the term of such Option as set forth in
the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws of descent
or distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Non-Transferability of Options . Unless determined otherwise by the
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution or pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act,
or the rules
-8-
<PAGE> 9
thereunder. An Option may be exercised, during the lifetime of the Optionee,
only by the Optionee. If the Administrator makes an Option transferable, such
Option shall contain such additional terms and conditions as the Administrator
deems appropriate.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option shall be assumed or an equivalent option
or right substituted by the successor corporation or a Parent or Subsidiary of
the successor corporation. In the event that the successor corporation refuses
to assume or substitute for the Option, the Optionee shall fully vest in and
have the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
becomes fully vested and exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Administrator shall notify the
Optionee in writing or electronically that the Option shall be fully vested and
exercisable for a period of time determined by the Administrator from the date
of such notice, and the Option shall terminate upon the expiration of such
period. For the
-9-
<PAGE> 10
purposes of this paragraph, the Option shall be considered assumed if, following
the merger or sale of assets, the option or right confers the right to purchase
or receive, for each Share of Optioned Stock, immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option, for each Share of Optioned Stock to be
solely common stock of the successor corporation or its Parent equal in fair
market value to the per share consideration received by holders of Common Stock
in the merger or sale of assets.
13. Stock Withholding to Satisfy Withholding Tax Obligations.
(a) Ability to Use Stock to Satisfy Withholding. At the discretion
of the Administrator, Optionees may satisfy withholding obligations as provided
in this Section 13. When an Optionee incurs tax liability in connection with the
award, vesting or exercise of an Option, which tax liability is subject to tax
withholding under applicable tax laws (including federal, state and local laws),
and the Optionee is obligated to pay the Company an amount required to be
withheld under such applicable tax laws, the Optionee may satisfy the
withholding tax obligation (up to an amount calculated by applying such
Optionee's maximum marginal tax rate) by electing to have the Company withhold
from the Shares to be issued upon award, vesting or exercise of the Option that
number of Shares, or by delivering to the Company that number of previously
owned Shares, having a Fair Market Value equal to the amount required to be
withheld. The Fair Market Value of the Shares to be withheld or delivered, as
the case may be, shall be determined on the date that the amount of tax to be
withheld is determined (the "Tax Date").
(b) Election to Have Stock Withheld. All elections by an Optionee
to have Shares withheld or to deliver previously owned Shares pursuant to this
Section 13 shall be made in writing in a form acceptable to the Administrator
and shall be subject to the following restrictions:
(i) the election must be made on or prior to the applicable
Tax Date; and
(ii) all elections shall be subject to the consent or
disapproval of the Administrator.
(c) Section 83(b) Elections. In the event that an election to have
Shares withheld is made by an Optionee, no election is filed under Section
83(b) of the Code by such Optionee and the Tax Date is deferred under Section 83
of the Code, the Optionee shall receive the full number of Shares with respect
to which the Option has been awarded, has vested or has been exercised, as the
case may be, but such Optionee shall be unconditionally obligated to tender
back to the Company the proper number of Shares on the Tax Date.
-10-
<PAGE> 11
14. Date of Grant. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations. As a condition to the exercise of
an Option the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required.
17. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
-11-
<PAGE> 1
EXHIBIT 10.45
================================================================================
CREDIT AGREEMENT
DATED AS OF DECEMBER 23, 1997
AMONG
VLSI TECHNOLOGY, INC.,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
AS ADMINISTRATIVE AGENT AND LETTER OF CREDIT ISSUING BANK,
BANKBOSTON, N.A.
AS SYNDICATION AGENT,
AND
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
ARRANGED BY
BANCAMERICA ROBERTSON STEPHENS
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<S> <C>
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms............................................... 1
1.2 Other Interpretive Provisions.......................................21
1.3 Accounting Principles...............................................22
ARTICLE II
THE CREDITS
2.1 Amounts and Terms of Commitments....................................23
.........................................................23
2.2 Loan Accounts.......................................................23
2.3 Procedure for Borrowing.............................................24
2.4 Conversion and Continuation Elections...............................25
2.5 Voluntary Termination or Reduction of Commitments...................26
2.6 Optional Prepayments................................................27
2.7 Mandatory Prepayments of Loans; Mandatory Commitment Reductions.....27
2.8 Extension of Revolving Termination Date/ Repayment..................27
.........................................................27
2.9 Interest............................................................28
2.10 Fees...............................................................29
(a) Arrangement, Agency Fees...................................29
(b) Commitment Fees............................................29
2.11 Computation of Fees and Interest...................................30
2.12 Payments by the Borrower...........................................30
2.13 Payments by the Banks to the Agent.................................31
2.14 Sharing of Payments, Etc...........................................32
ARTICLE III
THE LETTERS OF CREDIT
3.1 The Letter of Credit Subfacility....................................32
3.2 Issuance, Amendment and Renewal of Letters of Credit................34
3.3 Risk Participations, Drawings and Reimbursements....................36
3.4 Repayment of Participations.........................................37
3.5 Role of the Issuing Bank............................................38
3.6 Obligations Absolute................................................39
3.7 Cash Collateral Pledge..............................................40
3.8 Letter of Credit Fees...............................................40
3.9 Uniform Customs and Practice........................................41
</TABLE>
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<TABLE>
<CAPTION>
Section Page
<S> <C>
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
4.1 Taxes...............................................................41
4.2 Illegality..........................................................42
4.3 Increased Costs and Reduction of Return.............................43
4.4 Funding Losses......................................................44
4.5 Inability to Determine Rates........................................45
4.6 Intentionally Omitted...............................................45
4.7 Certificates of Banks...............................................45
4.8 Survival............................................................46
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions of Initial Credit Extensions.............................46
(a) Credit Agreement and Notes.................................46
(b) Resolutions; Incumbency....................................46
(c) Organization Documents; Good Standing......................46
(d) Legal Opinions.............................................47
(e) Payment of Fees............................................47
(f) Certificate................................................47
(g) Other Documents............................................47
5.2 Conditions to All Credit Extensions.................................47
(a) Notice, Application........................................47
(b) Continuation of Representations and Warranties.............48
(c) No Existing Default........................................48
5.3 Initial Credit Extension to Each Additional Borrowing Subsidiary....48
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 Corporate Existence and Power.......................................49
6.2 Corporate Authorization; No Contravention...........................49
6.3 Governmental Authorization..........................................50
6.4 Binding Effect......................................................50
6.5 Litigation..........................................................50
6.6 No Default..........................................................50
6.7 ERISA Compliance....................................................51
6.8 Use of Proceeds; Margin Regulations.................................51
6.9 Title to Properties.................................................51
6.10 Taxes..............................................................52
6.11 Financial Condition................................................52
6.12 Environmental Matters..............................................52
6.13 Regulated Entities.................................................52
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
Section Page
<S> <C>
6.14 No Burdensome Restrictions.........................................53
6.15 Copyrights, Patents, Trademarks and Licenses, etc..................53
6.16 Subsidiaries.......................................................53
6.17 Insurance..........................................................53
6.18 Swap Obligations...................................................53
6.19 Full Disclosure....................................................53
ARTICLE VII
AFFIRMATIVE COVENANTS
7.1 Financial Statements................................................54
7.2 Certificates; Other Information.....................................55
7.3 Notices.............................................................55
7.4 Preservation of Corporate Existence, Etc............................56
7.5 Maintenance of Property.............................................56
7.6 Insurance...........................................................57
7.7 Payment of Obligations..............................................57
7.8 Compliance with Laws................................................57
7.9 Compliance with ERISA...............................................57
7.10 Inspection of Property and Books and Records.......................57
7.11 Environmental Laws.................................................58
7.12 Use of Proceeds....................................................58
ARTICLE VIII
NEGATIVE COVENANTS
8.1 Limitation on Liens.................................................58
8.2 Disposition of Assets...............................................60
8.3 Consolidations and Mergers..........................................61
8.4 Loans and Investments...............................................62
8.5 Transactions with Affiliates........................................63
8.6 Use of Proceeds.....................................................63
8.7 Contingent Obligations..............................................63
8.8 Restricted Payments.................................................64
8.9 ERISA...............................................................64
8.10 Change in Business.................................................65
8.11 Accounting Changes.................................................65
8.12 Subordinated Debt..................................................65
ARTICLE IX
FINANCIAL COVENANTS
9.1 Consolidated Tangible Net Worth.....................................66
9.2 Leverage Ratio......................................................66
9.3 Fixed Charge Coverage Ratio.........................................66
</TABLE>
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<TABLE>
<CAPTION>
Section Page
<S> <C>
ARTICLE X
EVENTS OF DEFAULT
10.1 Event of Default...................................................67
(a) Non-Payment................................................67
(b) Representation or Warranty.................................67
(c) Specific Defaults..........................................67
(d) Other Defaults.............................................67
(e) Cross-Default..............................................68
(f) Insolvency; Voluntary Proceedings..........................68
(g) Involuntary Proceedings....................................69
(h) ERISA......................................................69
(i) Monetary Judgments.........................................69
(j) Non-Monetary Judgments.....................................69
(k) Change of Control..........................................70
(l) Adverse Change.............................................70
10.2 Remedies...........................................................70
10.3 Rights Not Exclusive...............................................70
10.4 Certain Financial Covenant Defaults................................71
ARTICLE XI
THE AGENT
11.1 Appointment and Authorization; "Agent".............................71
11.2 Delegation of Duties...............................................72
11.3 Liability of Agent.................................................72
11.4 Reliance by Agent..................................................72
11.5 Notice of Default..................................................73
11.6 Credit Decision....................................................73
11.7 Indemnification of Agent...........................................74
11.8 Agent in Individual Capacity.......................................74
11.9 Successor Agent....................................................75
11.10 Withholding Tax...................................................75
11.11 Syndication Agents................................................77
ARTICLE XII
GUARANTY
12.1 Guaranty...........................................................77
12.2 Obligations Independent............................................78
12.3 Authorization of Renewals, Etc.....................................78
12.4 Waiver of Certain Rights...........................................78
12.5 Waiver of Certain Defenses.........................................78
12.6 Waiver of Presentments, Etc........................................79
12.7 Information Relating to Company....................................79
</TABLE>
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<TABLE>
<CAPTION>
Section Page
<S> <C>
12.8 Subordination......................................................79
12.9 Reinstatement of Guaranty..........................................80
12.10 Powers............................................................80
12.11 Application of Payments on Guaranty...............................80
ARTICLE XIII
MISCELLANEOUS
13.1 Amendments and Waivers.............................................80
13.2 Notices............................................................81
13.3 No Waiver; Cumulative Remedies.....................................82
13.4 Costs and Expenses.................................................82
13.5 Company Indemnification............................................83
13.6 Payments Set Aside.................................................83
13.7 Successors and Assigns.............................................84
13.8 Assignments, Participations, etc...................................84
13.9 Confidentiality....................................................86
13.10 Set-off...........................................................86
13.11 Automatic Debits of Fees..........................................87
13.12 Notification of Addresses, Lending Offices, Etc...................87
13.13 Counterparts......................................................87
13.14 Severability......................................................87
13.15 No Third Parties Benefited........................................87
13.16 Governing Law and Jurisdiction....................................88
13.17 Waiver of Jury Trial..............................................88
13.18 Entire Agreement..................................................88
</TABLE>
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<TABLE>
SCHEDULES
<S> <C>
Schedule 2.1 Commitments
Schedule 6.5 Litigation
Schedule 6.7 ERISA
Schedule 6.11 Permitted Liabilities
Schedule 6.12 Environmental Matters
Schedule 6.16 Subsidiaries and Minority Interests
Schedule 6.17 Insurance Matters
Schedule 8.1(a) Permitted Liens
Schedule 8.1(b) Summary of Off-Balance Sheet Lease Facility
Schedule 8.7 Contingent Obligations
Schedule 13.2 Lending Offices; Addresses for Notices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D Form of Legal Opinion of Company's Counsel
Exhibit E Assumption Agreement
Exhibit F Form of Assignment and Acceptance
Exhibit G Form of Promissory Note
</TABLE>
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<PAGE> 8
CREDIT AGREEMENT
This CREDIT AGREEMENT is entered into as of December 23, 1997, among
VLSI Technology, Inc. a Delaware corporation (the "Company"), certain of the
Subsidiaries (as hereafter defined) of the Company from time to time party to
this Agreement (the "Borrowing Subsidiaries" and together with the Company, the
"Borrowers"), the several financial institutions from time to time party to this
Agreement (collectively, the "Banks"; individually, a "Bank"), Bank of America
National Trust and Savings Association, as letter of credit issuing bank and as
administrative agent for the Banks, and BankBoston, N.A. as syndication agent
for the Banks.
WHEREAS, the Banks have agreed to make available to the Company a
revolving credit facility with letter of credit subfacility upon the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. The following terms have the following
meanings:
"Acquisition" means any transaction or series of related
transactions for the purpose of or resulting, directly or indirectly, in
(a) the acquisition of all or substantially all of the assets of a
Person, or of any business or division of a Person, (b) the acquisition
of in excess of 50% of the capital stock, partnership interests,
membership interests or equity of any Person, or otherwise causing any
Person to become a Subsidiary, or (c) a merger or consolidation or any
other combination with another Person (other than a Person that is a
Subsidiary) provided that the Company or the Subsidiary is the surviving
entity.
"Additional Borrowing Subsidiary" means any wholly-owned
Subsidiary of the Company duly designated by the Company pursuant to a
written notice of the Company delivered to the Agent and each Bank,
which Subsidiary shall have satisfied the conditions precedent set forth
in Section 5.3. Each Additional Borrowing Subsidiary shall automatically
be a Borrowing Subsidiary.
<PAGE> 9
"Affiliate" means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person. A Person shall be deemed to control
another Person if the controlling Person possesses, directly or
indirectly, the power to direct or cause the direction of the management
and policies of the other Person, whether through the ownership of
voting securities, membership interests, by contract, or otherwise.
"Agent" means BofA in its capacity as administrative agent for
the Banks hereunder, and any successor agent arising under Section 11.9.
"Agent-Related Persons" means BofA and any successor agent
arising under Section 11.9 and any successor letter of credit issuing
bank hereunder, together with their respective Affiliates (including, in
the case of BofA, the Arranger), and the officers, directors, employees,
agents and attorneys-in-fact of such Persons and Affiliates.
"Agent's Payment Office" means the address for payments set forth
on Schedule 13.2 or such other address as the Agent may from time to
time specify.
"Agreement" means this Credit Agreement.
"Applicable Margin" as to any Offshore Rate Loan, Base Rate Loan,
CD Rate Loan or Commitment Fee, means a margin (determined in basis
points per annum) based on the Company's Pricing Ratios, as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Senior Debt/EBITDA < 0.40 Senior Debt/EBITDA > 0.40
-
--------------------------------------------------------------------------------------
Margin For Margin For
Offshore/ Margin For Margin For Offshore/ Margin For Margin For
Total Debt/ CD Rate Base Rate Commitment CD Rate Base Rate Commitment
Capitalization(x) Loans Loans Fee Loans Loans Fee
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
x < 20% 50.0 0.0 15.0 62.5 0.0 20.0
-
- ----------------------------------------------------------------------------------------------------------------
20 < x < 30% 62.5 0.0 20.0 75.0 0.0 25.0
-
- ----------------------------------------------------------------------------------------------------------------
x > 30% 75.0 0.0 25.0 87.5 0.0 27.5
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of the foregoing table, "x" or "Total Debt/Capitalization"
means the Ratio of Total Debt to Capitalization and "Senior Debt/EBITDA"
means the Ratio of Senior Debt to EBITDA.
The Applicable Margin will be adjusted quarterly, to the extent
applicable, on the basis of the foregoing table and will take effect, 50
days (or in the case of the last fiscal quarter of any year, 100 days)
after the end of each fiscal
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<PAGE> 10
quarter, based on the Pricing Ratios as of the last day of such fiscal
quarter, as reflected in the Compliance Certificate furnished pursuant
to subsection 7.2(a), it being understood, however, that if the Company
fails to deliver a Compliance Certificate by the date required pursuant
to subsection 7.2(a), the margin in the right-hand bottom row (i.e.,
87.5 bps for Offshore Rate Loans and CD Rate Loans, 0 bps for Base Rate
Loans and 27.5 for Commitment fee) shall apply until such Compliance
Certificate is delivered. As of the Closing Date, until receipt by the
Agent and the Bank of the Company's Compliance Certificate and
financials for the period ended December 26, 1997 pursuant to Section
7.2(a) and Section 7.2(b), the initial Applicable Margin is 75 bps for
Offshore Rate Loans and CD Rate Loans, 0 bps for Base Rate Loans and 25
bps for Commitment fee.
"Arranger" means BancAmerica Robertson Stephens, a Delaware
corporation.
"Assignee" has the meaning specified in subsection 13.8(a).
"Attorney Costs" means and includes all fees and disbursements of
any law firm or other external counsel, the allocated cost of internal
legal services and all disbursements of internal counsel.
"Bank" has the meaning specified in the introductory clause
hereto. References to the "Banks" shall include BofA, including in its
capacity as Issuing Bank; for purposes of clarification only, to the
extent that BofA may have any rights or obligations in addition to those
of the Banks due to its status as Issuing Bank, its status as such will
be specifically referenced.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978
(11 U.S.C. Section 101, et seq.).
"Base Rate" means, for any day, the higher of: (a) 0.50% per
annum above the latest Federal Funds Rate; and (b) the rate of interest
in effect for such day as publicly announced from time to time by BofA
in San Francisco, California, as its "reference rate." (The "reference
rate" is a rate set by BofA based upon various factors including BofA's
costs and desired return, general economic conditions and other factors,
and is used as a reference point for pricing some loans, which may be
priced at, above, or below such announced rate.) Any change in the
reference rate announced by BofA shall take effect at the opening of
business on the day specified in the public announcement of such change.
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<PAGE> 11
"Base Rate Loan" means a Revolving Loan, or an L/C Advance, that
bears interest based on the Base Rate.
"BofA" means Bank of America National Trust and Savings
Association, a national banking association.
"Borrower" is defined in the preamble.
"Borrowing" means a borrowing hereunder consisting of Revolving
Loans of the same Type made to the Company on the same day by the Banks
under Article II, and, other than in the case of Base Rate Loans, having
the same Interest Period.
"Borrowing Date" means any date on which a Borrowing occurs under
Section 2.3.
"Borrowing Subsidiaries" is defined in the preamble.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in San Francisco are authorized or
required by law to close and, if the applicable Business Day relates to
any Offshore Rate Loan, means such a day on which dealings are carried
on in the applicable offshore dollar interbank market.
"Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other Governmental Authority, or any
other law, rule or regulation, whether or not having the force of law,
in each case, regarding capital adequacy of any bank or of any
corporation controlling a bank.
"Cash Collateralize" means to pledge and deposit with or deliver
to the Agent, for the benefit of the Agent, the Issuing Bank and the
Banks, as collateral for the L/C Obligations, cash or deposit account
balances pursuant to documentation in form and substance satisfactory to
the Agent and the Issuing Bank (which documents are hereby consented to
by the Banks). Derivatives of such term shall have corresponding
meaning. The Company hereby grants the Agent, for the benefit of the
Agent, the Issuing Bank and the Banks, a security interest in all such
cash and deposit account balances. Cash collateral shall be maintained
in blocked, non-interest bearing deposit accounts at BofA.
"CD Rate" means, for any Interest Period with respect to CD Rate
Loans comprising part of the same Borrowing, the rate of interest
(rounded upward to the next 1/100th of 1%) determined as follows:
CD Rate = Certificate of Deposit Rate + Assessment
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<PAGE> 12
1.00 - Reserve Percentage Rate
Where:
"Assessment Rate" means, for any day of such Interest Period, the
rate determined by the Agent as equal to the annual assessment rate in
effect on such day payable to the FDIC by a member of the Bank Insurance
Fund that is classified as adequately capitalized and within supervisory
subgroup "A" (or a comparable successor assessment risk classification
within the meaning of 12 C.F.R. Section 327.3) for insuring time
deposits at offices of such member in the United States; or, in the
event that the FDIC shall at any time hereafter cease to assess time
deposits based upon such classifications or successor classifications,
equal to the maximum annual assessment rate in effect on such day that
is payable to the FDIC by commercial banks (whether or not applicable to
any particular Bank) for insuring time deposits at offices of such banks
in the United States.
"Certificate of Deposit Rate" means the rate of interest per
annum determined by the Agent to be the arithmetic mean (rounded upward
to the next 1/100th of 1%) of the rates notified to the Agent as the
rates of interest bid by two or more certificate of deposit dealers of
recognized standing selected by the Agent for the purchase at face value
of dollar certificates of deposit issued by major United States banks,
for a maturity comparable to such Interest Period and in the approximate
amount of the CD Rate Loans to be made, at the time selected by the
Agent on the first day of such Interest Period.
"Reserve Percentage" means, for any day of such Interest Period,
the maximum reserve percentage (expressed as a decimal, rounded upward
to the next 1/100th of 1%), as determined by the Agent, in effect on
such day (including any ordinary, marginal, emergency, supplemental,
special and other reserve percentages), prescribed by the FRB for
determining the maximum reserves to be maintained by member banks of the
Federal Reserve System with deposits exceeding $1,000,000,000 for new
non-personal time deposits for a period comparable to such Interest
Period and in an amount of $100,000 or more.
The CD Rate shall be adjusted, as to all CD Rate Loans then outstanding,
automatically as of the effective date of any change in the Assessment Rate or
the Reserve Percentage.
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<PAGE> 13
"CD Rate Loan" means a Loan that bears interest based on the CD
Rate.
"Change of Control" means the occurrence, after the date of this
Agreement, of any of the following: (a) any Person or two or more
Persons acting in concert acquiring beneficial ownership (within the
meaning of Rule 13d-3 of the SEC under the Exchange Act), directly or
indirectly, of securities of the Company (or other Securities
convertible into such securities) representing 40% or more of the
combined voting power of all securities of the Company entitled to vote
in the election of directors; or (b) during any period of up to 12
consecutive months, commencing after the Closing Date, individuals who
at the beginning of such 12-month period were directors of the Company
ceasing for any reason to constitute a majority of the Board of
Directors unless the Persons replacing such individuals were nominated
by the Board of Directors of the Company; or (c) any Person or two or
more Persons acting in concert acquiring by contract or otherwise, or
entering into a contract or arrangement which upon consummation will
result in its or their acquisition of, or control over, securities of
the Company (or other securities convertible into such securities)
representing 40% or more of the combined voting power of all securities
of the Company entitled to vote in the election of directors.
"Closing Date" means the date on which all conditions precedent
set forth in Section 5.1 are satisfied or waived by all Banks (or, in
the case of subsection 5.1(e), waived by the Person entitled to receive
such payment).
"Code" means the Internal Revenue Code of 1986, and regulations
promulgated thereunder.
"Commitment", as to each Bank, has the meaning specified in
Section 2.1.
"Company" is defined in the preamble.
"Compliance Certificate" means a certificate substantially in the
form of Exhibit C.
"Consolidated Tangible Net Worth" means, as of any date of
determination, total consolidated assets of the Company as of such date
minus total consolidated liabilities of the Company as of such date and
minus the carrying value on a consolidated basis of (a) goodwill,
organizational expenses, patents, patent applications, trademarks,
trademark applications, trade names, service marks, service mark
applications, copyrights, designs and other intellectual property and
licenses therefor
-6-
<PAGE> 14
and rights therein, and other similar intangibles, (b) all amortizing
debt issuance carried as an asset, (c) all reserves carried and not
deducted from assets or not reflected as a liability, and (d) cash held
in a sinking or other analogous fund established for the purpose of
redemption, retirement or prepayment of any capital stock or any
Indebtedness or Contingent Obligation, if no offsetting liability exists
with respect to such Indebtedness or Contingent Obligation on the
balance sheet of the Company.
"Contingent Obligation" means, as to any Person, any direct or
indirect liability of that Person, whether or not contingent, with or
without recourse, (a) with respect to any Indebtedness, lease, dividend,
letter of credit or other obligation (the "primary obligations") of
another Person (the "primary obligor"), including any obligation of that
Person (i) to purchase, repurchase or otherwise acquire such primary
obligations or any security therefor, (ii) to advance or provide funds
for the payment or discharge of any such primary obligation, or to
maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency or any balance sheet
item, level of income or financial condition of the primary obligor,
(iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary
obligation, or (iv) otherwise to assure or hold harmless the holder of
any such primary obligation against loss in respect thereof (each, a
"Guaranty Obligation"); (b) with respect to any Surety Instrument issued
for the account of that Person or as to which that Person is otherwise
liable for reimbursement of drawings or payments; (c) to purchase any
materials, supplies or other property from, or to obtain the services
of, another Person if the relevant contract or other related document or
obligation requires that payment for such materials, supplies or other
property, or for such services, shall be made regardless of whether
delivery of such materials, supplies or other property is ever made or
tendered, or such services are ever performed or tendered, or (d) in
respect of any Swap Contract. The amount of any Contingent Obligation
shall, in the case of Guaranty Obligations, be deemed equal to the
stated or determinable amount of the primary obligation in respect of
which such Guaranty Obligation is made or, if not stated or if
indeterminable, the maximum reasonably anticipated liability in respect
thereof, and in the case of other Contingent Obligations other than in
respect of Swap Contracts, shall be equal to the maximum reasonably
anticipated liability in respect thereof and, in the case of Contingent
Obligations
-7-
<PAGE> 15
in respect of Swap Contracts, shall be equal to the Swap Termination
Value.
"Contractual Obligation" means, as to any Person, any provision
of any security issued by such Person or of any agreement, undertaking,
contract, indenture, mortgage, deed of trust or other instrument,
document or agreement to which such Person is a party or by which it or
any of its property is bound.
"Conversion/Continuation Date" means any date on which, under
Section 2.4, the Company (a) converts Loans of one Type to another Type,
or (b) continues as Loans of the same Type, but with a new Interest
Period, Loans having Interest Periods expiring on such date.
"Credit Extension" means and includes (a) the making of any
Revolving Loans hereunder, and (b) the Issuance of any Letters of Credit
hereunder.
"Default" means any event or circumstance which, with the giving
of notice, the lapse of time, or both, would (if not cured or otherwise
remedied during such time) constitute an Event of Default.
"Dollars", "dollars" and "$" each mean lawful money of the United
States.
"EBITDA" means, for any fiscal period, on a consolidated basis
for the Company and its Subsidiaries, net income, plus depreciation and
amortization expense, plus interest expense, plus provision for taxes on
income, minus interest income, in each case, for such fiscal period.
"Effective Amount" means (i) with respect to any Revolving Loans
on any date, the aggregate outstanding principal amount thereof after
giving effect to any Borrowings and prepayments or repayments of
Revolving Loans occurring on such date; and (ii) with respect to any
outstanding L/C Obligations on any date, the amount of such L/C
Obligations on such date after giving effect to any Issuances of Letters
of Credit occurring on such date and any other changes in the aggregate
amount of the L/C Obligations as of such date, including as a result of
any reimbursements of outstanding unpaid drawings under any Letters of
Credit or any reductions in the maximum amount available for drawing
under Letters of Credit taking effect on such date.
"Eligible Assignee" means (a) a commercial bank organized under
the laws of the United States, or any state thereof, and having a
combined capital and surplus of at
-8-
<PAGE> 16
least $100,000,000; (b) a commercial bank organized under the laws of
any other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of
any such country, and having a combined capital and surplus of at least
$100,000,000, provided that such bank is acting through a branch or
agency located in the United States; and (c) a Person that is primarily
engaged in the business of commercial banking and that is (i) a
Subsidiary of a Bank, (ii) a Subsidiary of a Person of which a Bank is a
Subsidiary, or (iii) a Person of which a Bank is a Subsidiary.
"Environmental Claims" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or
injury to the environment.
"Environmental Laws" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directed duties, requests,
licenses, authorizations and permits of, and agreements with, any
Governmental Authorities, in each case relating to environmental,
health, safety and land use matters.
"ERISA" means the Employee Retirement Income Security Act of
1974, and regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with the Company within the meaning
of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the
Code for purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a
Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate
from a Pension Plan subject to Section 4063 of ERISA during a plan year
in which it was a substantial employer (as defined in Section 4001(a)(2)
of ERISA) or a cessation of operations which is treated as such a
withdrawal under Section 4062(e) of ERISA; (c) a complete or partial
withdrawal by the Company or any ERISA Affiliate from a Multiemployer
Plan or notification that a Multiemployer Plan is in reorganization; (d)
the filing of a notice of intent to terminate, the treatment of a Plan
amendment as a termination under Section 4041 or 4041A of ERISA, or the
commencement of proceedings by the PBGC to terminate a Pension Plan or
Multiemployer Plan; (e) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the
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<PAGE> 17
termination of, or the appointment of a trustee to administer, any
Pension Plan or Multiemployer Plan; or (f) the imposition of any
liability under Title IV of ERISA, other than PBGC premiums due but not
delinquent under Section 4007 of ERISA, upon the Company or any ERISA
Affiliate.
"Eurodollar Reserve Percentage" has the meaning specified in the
definition of "Offshore Rate".
"Event of Default" means any of the events or circumstances
specified in Section 10.1.
"Exchange Act" means the Securities Exchange Act of 1934, and
regulations promulgated thereunder.
"FDIC" means the Federal Deposit Insurance Corporation, and any
Governmental Authority succeeding to any of its principal functions.
"Federal Funds Rate" means, for any day, the rate set forth in
the weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York
(including any such successor, "H.15(519)") on the preceding Business
Day opposite the caption "Federal Funds (Effective)"; or, if for any
relevant day such rate is not so published on any such preceding
Business Day, the rate for such day will be the arithmetic mean as
determined by the Agent of the rates for the last transaction in
overnight Federal funds arranged prior to 9:00 a.m. (San Francisco time)
on that day by each of three leading brokers of Federal funds
transactions in San Francisco selected by the Agent.
"Fee Letter" has the meaning specified in subsection 2.10(a).
"Financial L/C" means any Letter of Credit determined by the
Issuing Bank to be a "financial guaranty-type standby letter of credit"
in accordance with the Risk Based Capital Guidelines issued by the
Comptroller of the Currency.
"FRB" means the Board of Governors of the Federal Reserve System,
and any Governmental Authority succeeding to any of its principal
functions.
"Further Taxes" means any and all present or future taxes,
levies, assessments, imposts, duties, deductions, fees, withholdings or
similar charges (including, without limitation, net income taxes and
franchise taxes), and all liabilities with respect thereto, imposed by
any
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jurisdiction on account of amounts payable or paid pursuant to Section
4.1.
"GAAP" means generally accepted accounting principles set forth
from time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the U.S. accounting profession),
which are applicable to the circumstances as of the date of
determination.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions
of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by
any of the foregoing.
"Guaranty Obligation" has the meaning specified in the definition
of "Contingent Obligation."
"Honor Date" has the meaning specified in subsection 3.3(c).
"Indebtedness" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken
or assumed as the deferred purchase price of property or services (other
than trade payables entered into in the ordinary course of business on
ordinary terms); (c) all non-contingent reimbursement or payment
obligations with respect to Surety Instruments; (d) all obligations
evidenced by notes, bonds, debentures or similar instruments, including
obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses; (e) all indebtedness created or arising
under any conditional sale or other title retention agreement, or
incurred as financing, in either case with respect to property acquired
by the Person (even though the rights and remedies of the seller or bank
under such agreement in the event of default are limited to repossession
or sale of such property); (f) all obligations with respect to capital
leases; (g) all Off Balance Sheet Lease Obligations; (h) all
indebtedness referred to in clauses (a) through (f) above secured by (or
for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property
(including accounts and contracts rights) owned
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<PAGE> 19
by such Person, even though such Person has not assumed or become liable
for the payment of such Indebtedness; and (i) all Guaranty Obligations
in respect of indebtedness or obligations of others of the kinds
referred to in clauses (a) through (h) above.
"Indemnified Liabilities" has the meaning specified in Section
13.5.
"Indemnified Person" has the meaning specified in Section 13.5.
"Independent Auditor" has the meaning specified in subsection
7.1(a).
"Insolvency Proceeding" means, with respect to any Person, (a)
any case, action or proceeding with respect to such Person before any
court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors, or (b) any general assignment for the
benefit of creditors, composition, marshalling of assets for creditors,
or other, similar arrangement in respect of its creditors generally or
any substantial portion of its creditors; undertaken under U.S. Federal,
state or foreign law, including the Bankruptcy Code.
"Interest Payment Date" means, as to any Loan other than a Base
Rate Loan, the last day of each Interest Period applicable to such Loan
and, as to any Base Rate Loan, the last Business Day of each calendar
quarter and each date such Loan is converted into another Type of Loan,
provided, however, that if any Interest Period for a CD Rate Loan or
Offshore Rate Loan exceeds 90 days or three months, respectively, the
date that falls 90 days or three months (as the case may be) after the
beginning of such Interest Period and after each Interest Payment Date
thereafter is also an Interest Payment Date.
"Interest Period" means, (a) as to any Offshore Rate Loan, the
period commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or
continued as an Offshore Rate Loan, and ending on the date one, two,
three or six months thereafter (and any other period that is 12 months
or less and is consented to by each of the Banks in the given instance)
as selected by the Company in its Notice of Borrowing or Notice of
Conversion/Continuation; and (b) as to any CD Rate Loan, the period
commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or
continued as a CD Rate Loan, and ending 30, 60, 90 or 180 days
thereafter, as
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<PAGE> 20
selected by the Company in its Notice of Borrowing or Notice of
Conversion/Continuation;
provided that:
(i) if any Interest Period would otherwise end on a day
that is not a Business Day, that Interest Period shall be
extended to the following Business Day unless, in the case of an
Offshore Rate Loan, the result of such extension would be to
carry such Interest Period into another calendar month, in which
event such Interest Period shall end on the preceding Business
Day;
(ii) any Interest Period pertaining to an Offshore Rate
Loan that begins on the last Business Day of a calendar month
(or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall
end on the last Business Day of the calendar month at the end of
such Interest Period; and
(iii) no Interest Period for any Loan shall extend
beyond the Revolving Termination date;
"IRS" means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
"Issuance Date" has the meaning specified in subsection 3.1(a).
"Issue" means, with respect to any Letter of Credit, to issue or
to extend the expiry of, or to renew or increase the amount of, such
Letter of Credit; and the terms "Issued," "Issuing" and "Issuance" have
corresponding meanings.
"Issuing Bank" means BofA in its capacity as issuer of one or
more Letters of Credit hereunder, together with any replacement letter
of credit issuer arising under subsection 11.1(b) or Section 11.9.
"Joint Venture" means a single-purpose corporation, partnership,
limited liability company, joint venture or other legal arrangement
(whether created by contract or conducted through a separate legal
entity) now or hereafter formed by the Company or any of its
Subsidiaries with another Person in order to conduct a common venture or
enterprise with such Person.
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<PAGE> 21
"L/C Advance" means each Bank's participation in any L/C
Borrowing in accordance with its Pro Rata Share.
"L/C Amendment Application" means an application form for
amendment of outstanding standby or commercial documentary letters of
credit as shall at any time be in use at the Issuing Bank, as the
Issuing Bank shall request.
"L/C Application" means an application form for issuances of
standby or commercial documentary letters of credit as shall at any time
be in use at the Issuing Bank, as the Issuing Bank shall request.
"L/C Borrowing" means an extension of credit resulting from a
drawing under any Letter of Credit which shall not have been reimbursed
on the date when made nor converted into a Borrowing of Revolving Loans
under subsection 3.3(c).
"L/C Commitment" means the commitment of the Issuing Bank to
Issue, and the commitment of the Banks severally to participate in,
Letters of Credit from time to time Issued or outstanding under Article
III, in an aggregate amount not to exceed on any date the amount of
$25,000,000, as the same shall be reduced as a result of a reduction in
the L/C Commitment pursuant to Section 2.5; provided that the L/C
Commitment is a part of the combined Commitments, rather than a
separate, independent commitment.
"L/C Obligations" means at any time the sum of (a) the aggregate
undrawn amount of all Letters of Credit then outstanding, plus (b) the
amount of all unreimbursed drawings under all Letters of Credit,
including all outstanding L/C Borrowings.
"L/C-Related Documents" means the Letters of Credit, the L/C
Applications, the L/C Amendment Applications and any other document
relating to any Letter of Credit, including any of the Issuing Bank's
standard form documents for letter of credit issuances.
"Lending Office" means, as to any Bank, the office or offices of
such Bank specified as its "Lending Office" or "Domestic Lending Office"
or "Offshore Lending Office", as the case may be, on Schedule 13.2, or
such other office or offices as such Bank may from time to time notify
the Company and the Agent.
"Letters of Credit" means any letters of credit (whether standby
letters of credit or commercial documentary letters of credit) Issued by
the Issuing Bank pursuant to Article III.
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<PAGE> 22
"Lien" means any security interest, mortgage, deed of trust,
pledge, hypothecation, assignment, charge or deposit arrangement,
encumbrance, lien (statutory or other) or preferential arrangement of
any kind or nature whatsoever in respect of any property (including
those created by, arising under or evidenced by any conditional sale or
other title retention agreement, the interest of a lessor under a
capital lease, any financing lease having substantially the same
economic effect as any of the foregoing, or the filing of any financing
statement naming the owner of the asset to which such lien relates as
debtor, under the Uniform Commercial Code or any comparable law) and any
contingent or other agreement to provide any of the foregoing, but not
including the interest of a lessor under an operating lease.
"Loan" means an extension of credit by a Bank to a Borrower under
Article II or Article III in the form of a Revolving Loan or L/C
Advance.
"Loan Documents" means this Agreement, any Notes, the Fee Letter,
the L/C-Related Documents, and all other documents delivered to the
Agent or any Bank in connection herewith.
"Margin Stock" means "margin stock" as such term is defined in
Regulation G, T, U or X of the FRB.
"Material Adverse Effect" means (a) a material adverse change in,
or a material adverse effect upon, the operations, business, properties,
condition (financial or otherwise) of the Company or the Company and its
Subsidiaries taken as a whole; (b) a material impairment of the ability
of the Company or any Subsidiary to perform under any Loan Document and
to avoid any Event of Default; or (c) a material adverse effect upon the
legality, validity, binding effect or enforceability against the Company
or any Subsidiary of any Loan Document.
"Multiemployer Plan" means a "multiemployer plan", within the
meaning of Section 4001(a)(3) of ERISA, to which the Company or any
ERISA Affiliate makes, is making, or is obligated to make contributions
or, during the preceding three calendar years, has made, or been
obligated to make, contributions.
"Note" means a promissory note executed by a Borrower in favor of
a Bank pursuant to subsection 2.2(b), in substantially the form of
Exhibit G.
"Notice of Borrowing" means a notice in substantially the form of
Exhibit A.
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<PAGE> 23
"Notice of Conversion/Continuation" means a notice in
substantially the form of Exhibit B.
"Obligations" means all advances, debts, liabilities,
obligations, covenants and duties arising under any Loan Document owing
by any of the Borrowers to any Bank, the Agent, or any Indemnified
Person, whether direct or indirect (including those acquired by
assignment), absolute or contingent, due or to become due, now existing
or hereafter arising.
"Off-Balance Sheet Lease Facility" means a lease agreement which
conforms in all aspects to the summary of terms attached hereto as
Schedule 8.1(b).
"Off Balance Sheet Lease Obligations" means any and all
obligations of the Company or any Subsidiary (as lessee) under any
so-called "off balance sheet lease," "synthetic lease," or other similar
financing arrangement.
"Offshore Rate" means, for any Interest Period, with respect to
Offshore Rate Loans comprising part of the same Borrowing, the rate of
interest per annum (rounded upward to the next 1/16th of 1%) determined
by the Agent as follows:
Offshore Rate = LIBOR
---------------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"Eurodollar Reserve Percentage" means for any day for any
Interest Period the maximum reserve percentage (expressed as a
decimal, rounded upward to the next 1/100th of 1%) in effect on
such day (whether or not applicable to any Bank) under
regulations issued from time to time by the FRB for determining
the maximum reserve requirement (including any emergency,
supplemental or other marginal reserve requirement) with respect
to Eurocurrency funding (currently referred to as "Eurocurrency
liabilities"); and
"LIBOR" means the rate of interest per annum determined by the
Agent to be the arithmetic mean (rounded upward to the next
1/16th of 1%) of the rates of interest per annum notified to the
Agent by each Reference Bank as the rate of interest at which
dollar deposits in the approximate amount of the amount of the
Loan to be made or continued as, or converted into, an Offshore
Rate Loan by such Reference Bank and having a maturity comparable
to such Interest Period would be offered to major banks in the
London interbank market at their request at approximately 11:00
a.m. (London
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<PAGE> 24
time) two Business Days prior to the commencement of such Interest
Period.
The Offshore Rate shall be adjusted automatically as to all Offshore Rate Loans
then outstanding as of the effective date of any change in the Eurodollar
Reserve Percentage.
"Offshore Rate Loan" means a Loan that bears interest based on
the Offshore Rate.
"Organization Documents" means, for any corporation, the
certificate or articles of incorporation, the bylaws, any certificate of
determination or instrument relating to the rights of preferred shareholders of
such corporation, any shareholder rights agreement, and all applicable
resolutions of the board of directors (or any committee thereof) of such
corporation.
"Original Borrowing Subsidiaries" means those Subsidiaries which
are signatories to this Agreement as of the Closing Date.
"Other Taxes" means any present or future stamp, court or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or from the execution,
delivery, performance, enforcement or registration of, or otherwise with respect
to, this Agreement or any other Loan Documents.
"Participant" has the meaning specified in subsection 13.8(d).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions under ERISA.
"Pension Plan" means a pension plan (as defined in Section 3(2)
of ERISA) subject to Title IV of ERISA which the Company sponsors, maintains, or
to which it makes, is making, or is obligated to make contributions, or in the
case of a multiple employer plan (as described in Section 4064(a) of ERISA) has
made contributions at any time during the immediately preceding five (5) plan
years.
"Performance L/C" means any standby Letter of Credit other than a
Financial L/C.
"Permitted Liens" has the meaning specified in Section 8.1.
"Permitted Swap Obligations" means all obligations (contingent or
otherwise) of the Company or any Subsidiary
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<PAGE> 25
existing or arising under Swap Contracts, provided that each of the
following criteria is satisfied: (a) such obligations are (or were)
entered into by such Person in the ordinary course of business for the
purpose of directly mitigating risks associated with liabilities,
commitments or assets held or reasonably anticipated by such Person, or
changes in the value of securities issued by such Person in conjunction
with a securities repurchase program not otherwise prohibited hereunder,
and not for purposes of speculation or taking a "market view;" (b) such
Swap Contracts do not contain (i) any provision ("walk-away" provision)
exonerating the non-defaulting party from its obligation to make
payments on outstanding transactions to the defaulting party, or (ii)
any provision creating or permitting the declaration of an event of
default, termination event or similar event upon the occurrence of an
Event of Default hereunder (other than an Event of Default under
subsection 10.1(a).
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture or Governmental Authority.
"Plan" means an employee benefit plan (as defined in Section 3(3)
of ERISA) which the Company sponsors or maintains or to which the
Company makes, is making, or is obligated to make contributions and
includes any Pension Plan.
"Pricing Ratios" means each of the Ratio of Senior Debt to EBITDA
and the Ratio of Total Debt to Capitalization.
"Pro Rata Share" means, as to any Bank at any time, the
percentage equivalent (expressed as a decimal, rounded to the ninth
decimal place) at such time of such Bank's Commitment divided by the
combined Commitments of all Banks.
"Quarterly Payment Date" means the last Business Day of each
March, June, September and December.
"Ratio of Senior Debt to EBITDA" means the ratio of all
consolidated Indebtedness (excluding Subordinated Debt) of the Companies
and its Subsidiaries to EBITDA.
"Ratio of Total Debt to Capitalization" means the ratio of (i)
total consolidated Indebtedness of the Company and its Subsidiaries to
(ii) the sum of total consolidated Indebtedness of the Company and its
Subsidiaries, plus Consolidated Tangible Net Worth.
"Reference Bank" means BofA and BankBoston, N.A.
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<PAGE> 26
"Reportable Event" means, any of the events set forth in Section
4043(c) of ERISA or the regulations thereunder, other than any such
event for which the 30-day notice requirement under ERISA has been
waived in regulations issued by the PBGC.
"Required Banks" means at any time Banks then holding at least
66-2/3% of the then aggregate unpaid principal amount of the Loans, or,
if no amounts are outstanding, Banks then having at least 66-2/3% of the
aggregate amount of the Commitments.
"Requirement of Law" means, as to any Person, any law (statutory
or common), treaty, rule or regulation or determination of an arbitrator
or of a Governmental Authority, in each case applicable to or binding
upon the Person or any of its property or to which the Person or any of
its property is subject.
"Responsible Officer" means the chief executive officer or the
president of the Company, or any other officer having substantially the
same authority and responsibility; or, with respect to compliance with
financial covenants, the chief financial officer or the treasurer of the
Company, or any other officer having substantially the same authority
and responsibility.
"Revolving Loan" has the meaning specified in Section 2.1, and
may be a Base Rate Loan, CD Rate Loan or an Offshore Rate Loan (each, a
"Type" of Revolving Loan).
"Revolving Termination Date" means the earlier to occur of: (a)
December 22, 2000 or such later date as may be fixed pursuant to Section
2.8(a) and (b) the date on which the Commitments terminate in accordance
with the provisions of this Agreement.
"SEC" means the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of its principal functions.
"Subordinated Debt" means Indebtedness having payment terms and
other terms, and subordinated in form and substance, satisfactory to the
Required Banks.
"Subsidiary" of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business
entity of which more than 50% of the voting stock, membership interests
or other equity interests (in the case of Persons other than
corporations), is owned or controlled directly or indirectly by the
Person, or one or more of the Subsidiaries of the Person,
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or a combination thereof. Unless the context otherwise clearly requires,
references herein to a "Subsidiary" refer to a Subsidiary of the
Company.
"Subsidiary Obligations" is defined in Section 12.1.
"Surety Instruments" means all letters of credit (including
standby and commercial), banker's acceptances, bank guaranties, shipside
bonds, surety bonds and similar instruments.
"Swap Contract" means any agreement, whether or not in writing,
relating to any transaction that is a rate swap, basis swap, forward
rate transaction, commodity swap, commodity option, equity or equity
index swap or option, bond, note or bill option, interest rate option,
forward foreign exchange transaction, cap, collar or floor transaction,
currency swap, cross-currency rate swap, swaption, currency option or
any other, similar transaction (including any option to enter into any
of the foregoing) or any combination of the foregoing, and, unless the
context otherwise clearly requires, any master agreement relating to or
governing any or all of the foregoing.
"Swap Termination Value" means, in respect of any one or more
Swap Contracts, after taking into account the effect of any legally
enforceable netting agreement relating to such Swap Contracts, (a) for
any date on or after the date such Swap Contracts have been closed out
and termination value(s) determined in accordance therewith, such
termination value(s), and (b) for any date prior to the date referenced
in clause (a) the amount(s) determined as the mark-to-market value(s)
for such Swap Contracts, as determined by the Company based upon one or
more mid-market or other readily available quotations provided by any
recognized dealer in such Swap Contracts (which may include any Bank).
"Taxes" means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, fees, withholdings or similar
charges, and all liabilities with respect thereto, excluding, in the
case of each Bank and the Agent, respectively, taxes imposed on or
measured by its net income by the jurisdiction (or any political
subdivision thereof) under the laws of which such Bank or the Agent, as
the case may be, is organized or maintains a lending office.
"Type" has the meaning specified in the definition of "Revolving
Loan."
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"Unfunded Pension Liability" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value
of that Plan's assets, determined in accordance with the assumptions
used for funding the Pension Plan pursuant to Section 412 of the Code
for the applicable plan year.
"United States" and "U.S." each means the United States of
America.
"Wholly-Owned Subsidiary" means any corporation in which (other
than directors' qualifying shares required by law) 100% of the capital
stock of each class having ordinary voting power, and 100% of the
capital stock of every other class, in each case, at the time as of
which any determination is being made, is owned, beneficially and of
record, by the Company, or by one or more of the other Wholly-Owned
Subsidiaries, or both.
1.2 Other Interpretive Provisions. (a) The meanings of defined terms are
equally applicable to the singular and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar words
refer to this Agreement as a whole and not to any particular provision of this
Agreement; and subsection, Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and means
"including without limitation."
(iii) In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and
including"; the words "to" and "until" each mean "to but excluding", and
the word "through" means "to and including."
(d) Unless otherwise expressly provided herein, (i) references
to agreements (including this Agreement) and other contractual instruments shall
be deemed to include all subsequent amendments and other modifications thereto,
but only to the extent such amendments and other modifications are not
prohibited by the terms of any Loan Document, and (ii) references to any statute
or regulation are to be construed as including all statutory and regulatory
provisions consolidating, amending, replacing, supplementing or interpreting the
statute or regulation.
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<PAGE> 29
(e) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
(f) This Agreement and other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms. Unless otherwise expressly
provided, any reference to any action of the Agent or the Banks by way of
consent, approval or waiver shall be deemed modified by the phrase "in its/their
sole discretion."
(g) This Agreement and the other Loan Documents are the result
of negotiations among and have been reviewed by counsel to the Agent, the
Company and the other parties, and are the products of all parties. Accordingly,
they shall not be construed against the Banks or the Agent merely because of the
Agent's or Banks' involvement in their preparation.
1.3 Accounting Principles. (a) Except as otherwise expressly provided in
this Agreement, all accounting terms used in this Agreement shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to the Agent and the Banks under this
Agreement shall (unless otherwise disclosed to the Agent and the Banks in
writing at the time of delivery) be prepared, in accordance with GAAP applied on
a basis consistent with those used in the preparation of the latest financial
statements furnished to the Agent and Banks under this Agreement. All
calculations made for purposes of determining compliance with this Agreement
shall (except as otherwise expressly provided for in this Agreement) be made by
application of GAAP applied on a basis consistent with those used in the
preparation of the latest annual or quarterly financial statements furnished to
the Agent and the Banks pursuant to Section 7.1 unless (i) the Company shall
have objected to determining such compliance on such basis at the time of
delivery of such financial statements or (ii) the Agent on behalf of the
Required Banks shall so object in writing within 30 days after delivery of such
financial statements, in either of which events such calculations shall be made
on a basis consistent with those used in the preparation of the latest financial
statement as to which such objection shall not have been made.
(b) References herein to "fiscal year" and "fiscal quarter"
refer to such fiscal periods of the Company.
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ARTICLE II
THE CREDITS
2.1 Amounts and Terms of Commitments Each Bank severally agrees, on the
terms and conditions set forth herein, to make loans to any or all of the
Borrowers (each such loan, a "Revolving Loan") from time to time on any Business
Day during the period from the Closing Date to the Revolving Termination Date,
in an aggregate amount not to exceed at any time outstanding for all Borrowers
the amount set forth on Schedule 2.1 (such amount as the same may be reduced
under Section 2.5 or as a result of one or more assignments under Section 13.8,
the Bank's "Commitment"); provided, however, that, after giving effect to any
Borrowing of Revolving Loans, the Effective Amount of all outstanding Revolving
Loans of all Borrowers and the Effective Amount of all L/C Obligations of all
Borrowers, shall not at any time exceed the combined Commitments; and provided
further, that the Effective Amount of the Revolving Loans of any Bank to all
Borrowers plus the participation of such Bank in the Effective Amount of all L/C
Obligations of all Borrowers shall not at any time exceed such Bank's
Commitment. Within the limits of each Bank's Commitment, and subject to the
other terms and conditions hereof, each Borrower may borrow under this Section
2.1, prepay under Section 2.6 and reborrow under this Section 2.1.
2.2 Loan Accounts. (a) The Loans made by each Bank and the Letters of
Credit Issued by the Issuing Bank shall be evidenced by one or more accounts or
records maintained by such Bank or Issuing Bank, as the case may be, in the
ordinary course of business. The accounts or records maintained by the Agent,
the Issuing Bank and each Bank shall be rebuttable presumptive evidence of the
amount of the Loans made by the Banks to each Borrower and the Letters of Credit
Issued for the account of such a Borrower, and the interest and payments
thereon. Any failure so to record or any error in doing so shall not, however,
limit or otherwise affect the obligation of any Borrower hereunder to pay any
amount owing with respect to the Loans or any Letter of Credit.
(b) Upon the request of any Bank made through the Agent, the
Loans made by such Bank may be evidenced by one or more Notes, instead of or in
addition to loan accounts. Each such Bank shall endorse on the schedules annexed
to its Note(s) the date, amount and maturity of each Loan made by it and the
amount of each payment of principal made by the applicable Borrower with respect
thereto. Each such Bank is irrevocably authorized by each Borrower to endorse
its Note(s) and each Bank's record shall be conclusive absent manifest error;
provided, however, that the failure of a Bank to make, or an error in making, a
notation thereon with respect to any Loan
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<PAGE> 31
shall not limit or otherwise affect the obligations of such Borrower hereunder
or under any such Note to such Bank.
2.3 Procedure for Borrowing. (a) Each Borrowing of Revolving Loans shall
be made upon the Company's or a Borrower's irrevocable written notice delivered
to the Agent in the form of a Notice of Borrowing (which notice must be received
by the Agent prior to 9:00 a.m. (San Francisco time) (i) three Business Days
prior to the requested Borrowing Date, in the case of Offshore Rate Loans; (ii)
three Business Days prior to the requested Borrowing Date, in the case of CD
Rate Loans, and (iii) one Business Day prior to the requested Borrowing Date, in
the case of Base Rate Loans, specifying:
(A) the amount of the Borrowing, which shall be in an
aggregate minimum amount of $3,000,000 or any multiple of
$1,000,000 in excess thereof;
(B) the requested Borrowing Date, which shall be a
Business Day;
(C) the Type of Loans comprising the Borrowing; and
(D) the duration of the Interest Period applicable to
such Loans included in such notice. If the Notice of Borrowing
fails to specify the duration of the Interest Period for any
Borrowing comprised of CD Rate Loans or Offshore Rate Loans,
such Interest Period shall be 90 days or three months,
respectively.
provided, however, that with respect to the Borrowing to be made on the Closing
Date, the Notice of Borrowing shall be delivered to the Agent not later than
9:00 a.m. (San Francisco time) one Business Day before the Closing Date and such
Borrowing will consist of Base Rate Loans only.
(b) The Agent will promptly notify each Bank of its receipt of
any Notice of Borrowing and of the amount of such Bank's Pro Rata Share of that
Borrowing.
(c) Each Bank will make the amount of its Pro Rata Share of each
Borrowing available to the Agent for the account of the applicable Borrower at
the Agent's Payment Office by 11:00 a.m. (San Francisco time) on the Borrowing
Date requested by the Company or the applicable Borrower in funds immediately
available to the Agent. The proceeds of all such Loans to the applicable
Borrower will then be made available to such Borrower by the Agent at such
office by crediting the account of the applicable Borrower on the books of BofA
with the aggregate of the amounts made available to the Agent by the Banks and
in like funds as received by the Agent.
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(d) After giving effect to any Borrowing, unless the Agent shall
otherwise consent, there may not be more than six different Interest Periods in
effect.
2.4 Conversion and Continuation Elections. (a) As to any Loans to a
Borrower, the Company or such Borrower may, upon irrevocable written notice to
the Agent in accordance with subsection 2.4(b):
(i) elect, as of any Business Day, in the case of Base Rate
Loans, or as of the last day of the applicable Interest Period, in the
case of any other Type of Revolving Loans, to convert any such Loans (or
any part thereof in an amount not less than $3,000,000, or that is in an
integral multiple of $1,000,000 in excess thereof) into Loans of any
other Type; or
(ii) elect as of the last day of the applicable Interest Period,
to continue any Revolving Loans having Interest Periods expiring on such
day (or any part thereof in an amount not less than $3,000,000, or that
is in an integral multiple of $1,000,000 in excess thereof);
provided, that if at any time the aggregate amount of CD Rate Loans or Offshore
Rate Loans in respect of any Borrowing by such Borrower is reduced, by payment,
prepayment, or conversion of part thereof to be less than $3,000,000, such CD
Rate Loans or Offshore Rate Loans shall automatically convert into Base Rate
Loans, and on and after such date the right of the Company or the applicable
Borrower to continue such Loans as, and convert such Loans into, Offshore Rate
Loans or CD Rate Loans, as the case may be, shall terminate.
(b) As to any Loans to a Borrower, the Company or the applicable
Borrower shall deliver a Notice of Conversion/Continuation to be received by
the Agent not later than 9:00 a.m. (San Francisco time) at least (i) three
Business Days in advance of the Conversion/Continuation Date, if such Loans are
to be converted into or continued as Offshore Rate Loans; (ii) three Business
Days in advance of the Conversion/Continuation Date, if such Loans are to be
converted into or continued as CD Rate Loans; and (iii) one Business Day in
advance of the Conversion/Continuation Date, if such Loans are to be converted
into Base Rate Loans, specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of Loans to be converted or
continued;
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(C) the Type of Loans resulting from the proposed
conversion or continuation; and
(D) other than in the case of conversions into Base Rate
Loans, the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable to
CD Rate Loans or Offshore Rate Loans to a Borrower, the Company or such Borrower
has failed to select timely a new Interest Period to be applicable to such CD
Rate Loans or Offshore Rate Loans, as the case may be, or if any Default or
Event of Default then exists, the Company or such Borrower shall be deemed to
have elected to convert such CD Rate Loans or Offshore Rate Loans into Base Rate
Loans effective as of the expiration date of such Interest Period.
(d) The Agent will promptly notify each Bank of its receipt of a
Notice of Conversion/Continuation, or, if no timely notice is provided by the
Company or the applicable Borrower, the Agent will promptly notify each Bank of
the details of any automatic conversion. All conversions and continuations shall
be made ratably according to the respective outstanding principal amounts of the
Loans with respect to which the notice was given held by each Bank.
(e) Unless the Required Banks otherwise consent, during the
existence of a Default or Event of Default, no Borrower may elect to have a Loan
converted into or continued as an Offshore Rate Loan or a CD Rate Loan.
(f) After giving effect to any conversion or continuation of
Loans, unless the Agent shall otherwise consent, there may not be more than six
different Interest Periods in effect.
2.5 Voluntary Termination or Reduction of Commitments. The Company may,
upon not less than five Business Days' prior notice to the Agent, terminate the
Commitments, or permanently reduce the Commitments by an aggregate minimum
amount of $3,000,000 or any multiple of $1,000,000 in excess thereof; unless,
after giving effect thereto and to any prepayments of Loans made on the
effective date thereof, (a) the Effective Amount of all Revolving Loans, and L/C
Obligations together would exceed the amount of the combined Commitments then in
effect, or (b) the Effective Amount of all L/C Obligations then outstanding
would exceed the L/C Commitment. Once reduced in accordance with this Section,
the Commitments may not be increased. Any reduction of the Commitments shall be
applied to each Bank according to its Pro Rata Share. If and to the extent
specified by the Company in the notice to the Agent, some or all of the
reduction in the combined Commitments shall be applied to reduce the L/C
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Commitment. All accrued commitment and letter of credit fees to, but not
including, the effective date of any reduction or termination of Commitments,
shall be paid on the effective date of such reduction or termination.
2.6 Optional Prepayments. Subject to Section 4.4, the applicable
Borrower may, at any time or from time to time, upon not less than five Business
Days' irrevocable notice to the Agent, ratably prepay Loans to such Borrower, in
whole or in part, in minimum amounts of $3,000,000 or any multiple of $1,000,000
in excess thereof. Such notice of prepayment shall specify the date and amount
of such prepayment and the Type(s) of Loans to be prepaid. The Agent will
promptly notify each Bank of its receipt of any such notice, and of such Bank's
Pro Rata Share of such prepayment. If such notice is given by the applicable
Borrower, the applicable Borrower shall make such prepayment and the payment
amount specified in such notice shall be due and payable on the date specified
therein, together with accrued interest to each such date on the amount prepaid
and any amounts required pursuant to Section 4.4.
2.7 Mandatory Prepayments of Loans; Mandatory Commitment Reductions. If
on any date the Effective Amount of L/C Obligations exceeds the L/C Commitment,
the Company shall Cash Collateralize on such date the outstanding Letters of
Credit in an amount equal to the excess of the maximum amount then available to
be drawn under the Letters of Credit over the Aggregate L/C Commitment. Subject
to Section 4.4, if on any date after giving effect to any Cash Collateralization
made on such date pursuant to the preceding sentence, the Effective Amount of
all Revolving Loans then outstanding plus the Effective Amount of all L/C
Obligations exceeds the combined Commitments, the Company shall immediately, and
without notice or demand, prepay the outstanding principal amount of the
Revolving Loans and L/C Advances by an amount equal to the applicable excess.
2.8 Extension of Revolving Termination Date/ Repayment. (a) Not less
than 30 days nor more than 60 days before the 12-month anniversary of the date
of this Agreement, the Company may, by written request delivered to the Agent
and the Banks, request that the Revolving Termination Date be extended for a
period of 1 year from the then-current Revolving Termination Date. The Agent
shall notify the Banks of any such request. Such extension shall only be
effective upon the approval thereof in writing by the Agent and all of the Banks
(which approval may be given or withheld in each such Person's sole discretion).
If such approval is given, the Agent will notify the Company and the Banks
thereof, and this Agreement shall be deemed to be amended to reflect such 1-year
extension of the Revolving Termination date. Such request for an extension of
the Revolving Termination Date under this Section shall contain a
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certification by a Responsible Officer that, as of the date of such request and
as of the 12-month anniversary of the date of this Agreement, (i) the
representations and warranties in Article VI are and will be true and correct in
all material respects on and of each such date with the same effect as if made
on and as of such date (except to the extent such representations and warranties
expressly refer to an earlier date, in which case they shall be true and correct
as of such earlier date), and (ii) no Default or Event of Default exists or
would result from such extension. The Revolving Termination Date shall not be
extended more than once pursuant to this Section 2.8(a).
(b) Each Borrower shall repay to the Banks on the Revolving
Termination Date the aggregate principal amount of Revolving Loans to such
Borrower outstanding on such date.
2.9 Interest. (a) Each Revolving Loan shall bear interest on the
outstanding principal amount thereof from the applicable Borrowing Date at a
rate per annum equal to the CD Rate, the Offshore Rate or the Base Rate, as the
case may be (and subject to the right of the Company or the applicable Borrower
to convert to other Types of Loans under Section 2.4), plus the Applicable
Margin.
(b) Interest on each Revolving Loan shall be paid in arrears on
each Interest Payment Date. Interest shall also be paid on the date of any
prepayment of Offshore Rate Loans or CD Rate Loans so prepaid and upon payment
(including prepayment) in full thereof and, during the existence of any Event of
Default, interest shall be paid on demand of the Agent at the request or with
the consent of the Required Banks.
(c) Notwithstanding subsection (a) of this Section, while any
Event of Default exists or after acceleration, each applicable Borrower shall
pay interest (after as well as before entry of judgment thereon to the extent
permitted by law) on the principal amount of all outstanding Obligations, at a
rate per annum which is determined by adding 1% per annum to the Applicable
Margin then in effect for such Loans and, in the case of Obligations not subject
to an Applicable Margin, at a rate per annum equal to the Base Rate plus 1%;
provided, however, that, on and after the expiration of any Interest Period
applicable to any Offshore Rate Loan or CD Rate Loan outstanding on the date of
occurrence of such Event of Default or acceleration, the principal amount of
such Loan shall, during the continuation of such Event of Default or after
acceleration, bear interest at a rate per annum equal to the Base Rate plus 2%.
(d) Anything herein to the contrary notwithstanding, the
obligations of each Borrower to any Bank hereunder shall be
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subject to the limitation that payments of interest shall not be required for
any period for which interest is computed hereunder, to the extent (but only to
the extent) that contracting for or receiving such payment by such Bank would be
contrary to the provisions of any law applicable to such Bank limiting the
highest rate of interest that may be lawfully contracted for, charged or
received by such Bank, and in such event each Borrower shall pay such Bank
interest at the highest rate permitted by applicable law.
2.10 Fees. In addition to certain fees described in Section 3.8:
(a) Arrangement, Agency Fees(a) Arrangement, Agency Fees. The
Company shall pay an arrangement fee to the Arranger for the Arranger's own
account, and shall pay an agency fee to the Agent for the Agent's own account,
as required by the letter agreement ("Fee Letter") between the Company and the
Arranger and Agent dated November 17, 1997.
(b) Commitment Fees(b) Commitment Fees. The Company shall pay to
the Agent for the account of each Bank a commitment fee on the average daily
unused portion of such Bank's Commitment, computed on a quarterly basis in
arrears on the last Business Day of each calendar quarter based upon the daily
utilization for that quarter as calculated by the Agent, equal to the Applicable
Margin . For purposes of calculating utilization under this subsection, the
Commitments shall be deemed used to the extent of the Effective Amount of
Revolving Loans then outstanding, plus the Effective Amount of L/C Obligations
then outstanding. Such commitment fee shall accrue from the Closing Date to the
Revolving Termination Date and shall be due and payable quarterly in arrears on
the last Business Day of each March, June, September and December, commencing on
March 31, 1998 through the Revolving Termination Date, with the final payment to
be made on the Revolving Termination Date; provided that, in connection with any
reduction or termination of Commitments under Section 2.5 or Section 2.7, the
accrued commitment fee calculated for the period ending on such date shall also
be paid on the date of such reduction or termination, with the following
quarterly payment being calculated on the basis of the period from such
reduction or termination date to such quarterly payment date. The commitment
fees provided in this subsection shall accrue at all times after the
above-mentioned commencement date, including at any time during which one or
more conditions in Article V are not met.
(c) Concurrent with execution and delivery of this Agreement,
the Company agrees to pay to the Agent for the pro rata account of each Bank an
upfront fee equal to 5.0 basis points of the aggregated Commitments.
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2.11 Computation of Fees and Interest. (a) All computations of interest
for Base Rate Loans when the Base Rate is determined by BofA's "reference rate"
shall be made on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed. All other computations of fees and interest shall be made
on the basis of a 360-day year and actual days elapsed (which results in more
interest being paid than if computed on the basis of a 365-day year). Interest
and fees shall accrue during each period during which interest or such fees are
computed from the first day thereof to the last day thereof.
(b) Each determination of an interest rate by the Agent shall be
conclusive and binding on each Borrower and the Banks in the absence of manifest
error. The Agent will, at the request of the Company or any Bank, deliver to the
Company or the Bank, as the case may be, a statement showing the quotations used
by the Agent in determining any interest rate and the resulting interest rate.
(c) If any Reference Bank's Commitment terminates (other than on
termination of all the Commitments), or for any reason whatsoever the Reference
Bank ceases to be a Bank hereunder, that Reference Bank shall thereupon cease to
be a Reference Bank, and the Offshore Rate shall be determined on the basis of
the rates as notified by the remaining Reference Banks.
(d) Each Reference Bank shall use its best efforts to furnish
quotations of rates to the Agent as contemplated hereby. If any of the Reference
Banks fails to supply such rates to the Agent upon its request, the rate of
interest shall be determined on the basis of the quotations of the remaining
Reference Bank(s).
2.12 Payments by the Borrower. (a) All payments to be made by the
Company and/or each Borrower shall be made without set-off, recoupment or
counterclaim. Except as otherwise expressly provided herein, all payments by the
Company and/or each Borrower shall be made to the Agent for the account of the
Banks at the Agent's Payment Office, and shall be made in dollars and in
immediately available funds, no later than 11:00 a.m. (San Francisco time) on
the date specified herein. The Agent will promptly distribute to each Bank its
Pro Rata Share (or other applicable share as expressly provided herein) of such
payment in like funds as received. Any payment received by the Agent later than
11:00 a.m. (San Francisco time) shall be deemed to have been received on the
following Business Day and any applicable interest or fee shall continue to
accrue.
(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be
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made on the following Business Day, and such extension of time shall in such
case be included in the computation of interest or fees, as the case may be.
(c) Unless the Agent receives notice from the Company or a
Borrower prior to the date on which any payment is due to the Banks that the
Company or such Borrower will not make such payment in full as and when
required, the Agent may assume that the Company or such Borrower has made such
payment in full to the Agent on such date in immediately available funds and the
Agent may (but shall not be so required), in reliance upon such assumption,
distribute to each Bank on such due date an amount equal to the amount then due
such Bank. If and to the extent the Company or such Borrower has not made such
payment in full to the Agent, each Bank shall repay to the Agent on demand such
amount distributed to such Bank, together with interest thereon at the Federal
Funds Rate for each day from the date such amount is distributed to such Bank
until the date repaid.
2.13 Payments by the Banks to the Agent. (a) Unless the Agent receives
notice from a Bank on or prior to the Closing Date or, with respect to any
Borrowing after the Closing Date, at least one Business Day prior to the date of
such Borrowing, that such Bank will not make available as and when required
hereunder to the Agent for the account of the applicable Borrower the amount of
that Bank's Pro Rata Share of the Borrowing, the Agent may assume that each Bank
has made such amount available to the Agent in immediately available funds on
the Borrowing Date and the Agent may (but shall not be so required), in reliance
upon such assumption, make available to such Borrower on such date a
corresponding amount. If and to the extent any Bank shall not have made its full
amount available to the Agent in immediately available funds and the Agent in
such circumstances has made available to such Borrower such amount, that Bank
shall on the Business Day following such Borrowing Date make such amount
available to the Agent, together with interest at the Federal Funds Rate for
each day during such period. A notice of the Agent submitted to any Bank with
respect to amounts owing under this subsection (a) shall be conclusive, absent
manifest error. If such amount is so made available, such payment to the Agent
shall constitute such Bank's Loan on the date of Borrowing for all purposes of
this Agreement. If such amount is not made available to the Agent on the
Business Day following the Borrowing Date, the Agent will notify such Borrower
of such failure to fund and, upon demand by the Agent, such Borrower shall pay
such amount to the Agent for the Agent's account, together with interest thereon
for each day elapsed since the date of such Borrowing, at a rate per annum equal
to the interest rate applicable at the time to the Loans comprising such
Borrowing.
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(b) The failure of any Bank to make any Loan on any Borrowing
Date shall not relieve any other Bank of any obligation hereunder to make a Loan
on such Borrowing Date, but no Bank shall be responsible for the failure of any
other Bank to make the Loan to be made by such other Bank on any Borrowing Date.
2.14 Sharing of Payments, Etc. If, other than as expressly provided
elsewhere herein, any Bank shall obtain on account of the Loans made by it any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) in excess of its ratable share (or other share
contemplated hereunder), such Bank shall immediately (a) notify the Agent of
such fact, and (b) purchase from the other Banks such participations in the
Loans made by them as shall be necessary to cause such purchasing Bank to share
the excess payment pro rata with each of them; provided, however, that if all or
any portion of such excess payment is thereafter recovered from the purchasing
Bank, such purchase shall to that extent be rescinded and each other Bank shall
repay to the purchasing Bank the purchase price paid therefor, together with an
amount equal to such paying Bank's ratable share (according to the proportion of
(i) the amount of such paying Bank's required repayment to (ii) the total amount
so recovered from the purchasing Bank) of any interest or other amount paid or
payable by the purchasing Bank in respect of the total amount so recovered. Each
Borrower agrees that any Bank so purchasing a participation from another Bank
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off, but subject to Section 13.10) with respect to
such participation as fully as if such Bank were the direct creditor of such
Borrower in the amount of such participation. The Agent will keep records (which
shall be conclusive and binding in the absence of manifest error) of
participations purchased under this Section and will in each case notify the
Banks following any such purchases or repayments.
ARTICLE III
THE LETTERS OF CREDIT
3.1 The Letter of Credit Subfacility. (a) On the terms and conditions
set forth herein (i) the Issuing Bank agrees, (A) from time to time on any
Business Day during the period from the Closing Date to the Revolving
Termination Date to issue Letters of Credit for the account of any Borrower so
requesting issuance of such Letters of Credit and to amend or renew Letters of
Credit previously issued by it, in accordance with subsections 3.2(c) and (B) to
honor drafts under the Letters of Credit; and (ii) the Banks severally agree to
participate in Letters of Credit Issued for the account of such Borrower;
provided, that
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the Issuing Bank shall not be obligated to Issue, and no Bank shall be obligated
to participate in, any Letter of Credit if as of the date of Issuance of such
Letter of Credit (the "Issuance Date") (1) the Effective Amount of all L/C
Obligations of all Borrowers plus the Effective Amount of all Revolving Loans to
all Borrowers exceeds the combined Commitments, (2) the participation of any
Bank in the Effective Amount of all L/C Obligations of all Borrowers plus the
Effective Amount of the Revolving Loans to all Borrowers of such Bank exceeds
such Bank's Commitment, or (3) the Effective Amount of L/C Obligations of all
Borrowers exceeds the L/C Commitment. Within the foregoing limits, and subject
to the other terms and conditions hereof, the ability of each Borrower to obtain
Letters of Credit shall be fully revolving, and, accordingly, each Borrower may,
during the foregoing period, obtain Letters of Credit to replace Letters of
Credit which have expired or which have been drawn upon and reimbursed.
(b) The Issuing Bank is under no obligation to Issue any Letter
of Credit if:
(i) any order, judgment or decree of any Governmental
Authority or arbitrator shall by its terms purport to enjoin or restrain
the Issuing Bank from Issuing such Letter of Credit, or any Requirement
of Law applicable to the Issuing Bank or any request or directive
(whether or not having the force of law) from any Governmental Authority
with jurisdiction over the Issuing Bank shall prohibit, or request that
the Issuing Bank refrain from, the Issuance of letters of credit
generally or such Letter of Credit in particular or shall impose upon
the Issuing Bank with respect to such Letter of Credit any restriction,
reserve or capital requirement (for which the Issuing Bank is not
otherwise compensated hereunder) not in effect on the Closing Date, or
shall impose upon the Issuing Bank any unreimbursed loss, cost or
expense which was not applicable on the Closing Date and which the
Issuing Bank in good faith deems material to it;
(ii) the Issuing Bank has received written notice from any
Bank, the Agent or any Borrower, on or prior to the Business Day prior
to the requested date of Issuance of such Letter of Credit, that one or
more of the applicable conditions contained in Article V is not then
satisfied;
(iii) the expiry date of any requested Letter of Credit is
(A) more than 365 days after the date of Issuance, unless the Required
Banks have approved such expiry date in writing, or (B) more than 365
days after the Revolving Termination Date, unless all of the Banks have
approved such expiry date in writing;
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(iv) the expiry date of any requested Letter of Credit is
prior to the maturity date of any financial obligation to be supported
by the requested Letter of Credit;
(v) any requested Letter of Credit does not provide for
drafts, or is not otherwise in form and substance acceptable to the
Issuing Bank, or the Issuance of a Letter of Credit shall violate any
applicable policies of the Issuing Bank;
(vi) any standby Letter of Credit is for the purpose of
supporting the issuance of any letter of credit by any other Person;
(vii) such requested Letter of Credit is in a face amount
less than $500,000 or is denominated in a currency other than Dollars;
or
(viii) such requested Letter of Credit is a commercial
Letter of Credit.
3.2 Issuance, Amendment and Renewal of Letters of Credit. (a) Each
Letter of Credit shall be issued upon the irrevocable written request of the
Company or a Borrower received by the Issuing Bank (with a copy sent by the
Company or such Borrower to the Agent) at least four days (or such shorter time
as the Issuing Bank may agree in a particular instance in its sole discretion)
prior to the proposed date of issuance. Each such request for issuance of a
Letter of Credit shall be by facsimile, confirmed immediately in an original
writing, in the form of an L/C Application, and shall specify in form and detail
satisfactory to the Issuing Bank: (i) the proposed date of issuance of the
Letter of Credit (which shall be a Business Day); (ii) the face amount of the
Letter of Credit; (iii) the expiry date of the Letter of Credit; (iv) the name
and address of the beneficiary thereof; (v) the documents to be presented by the
beneficiary of the Letter of Credit in case of any drawing thereunder; (vi) the
full text of any certificate to be presented by the beneficiary in case of any
drawing thereunder; and (vii) such other matters as the Issuing Bank may
require.
(b) At least two Business Days prior to the Issuance of any
Letter of Credit, the Issuing Bank will confirm with the Agent (by telephone or
in writing) that the Agent has received a copy of the L/C Application or L/C
Amendment Application from the Company or the applicable Borrower and, if not,
the Issuing Bank will provide the Agent with a copy thereof. Unless the Issuing
Bank has received notice on or before the Business Day immediately preceding the
date the Issuing Bank is to issue a requested Letter of Credit from the Agent
(A) directing the Issuing Bank not to issue such Letter of Credit because such
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issuance is not then permitted under subsection 3.1(a) as a result of the
limitations set forth in clauses (1) through (3) thereof or subsection
3.1(b)(ii); or (B) that one or more conditions specified in Article V are not
then satisfied; then, subject to the terms and conditions hereof, the Issuing
Bank shall, on the requested date, issue a Letter of Credit for the account of
the requesting Borrower in accordance with the Issuing Bank's usual and
customary business practices.
(c) From time to time while a Letter of Credit is outstanding
and prior to the Revolving Termination Date, the Issuing Bank will, upon the
written request of the Company or a Borrower received by the Issuing Bank (with
a copy sent by the Company or such Borrower to the Agent) at least four days (or
such shorter time as the Issuing Bank may agree in a particular instance in its
sole discretion) prior to the proposed date of amendment, amend any Letter of
Credit issued by it. Each such request for amendment of a Letter of Credit shall
be made by facsimile, confirmed immediately in an original writing, made in the
form of an L/C Amendment Application and shall specify in form and detail
satisfactory to the Issuing Bank: (i) the Letter of Credit to be amended; (ii)
the proposed date of amendment of the Letter of Credit (which shall be a
Business Day); (iii) the nature of the proposed amendment; and (iv) such other
matters as the Issuing Bank may require. The Issuing Bank shall be under no
obligation to amend any Letter of Credit if: (A) the Issuing Bank would have no
obligation at such time to issue such Letter of Credit in its amended form under
the terms of this Agreement; or (B) the beneficiary of any such letter of Credit
does not accept the proposed amendment to the Letter of Credit. The Agent will
promptly notify the Banks of the receipt by it of any L/C Application or L/C
Amendment Application.
(d) Intentionally Omitted
(e) The Issuing Bank may, at its election (or as required by the
Agent at the direction of the Required Banks), deliver any notices of
termination or other communications to any Letter of Credit beneficiary or
transferee, and take any other action as necessary or appropriate, at any time
and from time to time, in order to cause the expiry date of such Letter of
Credit to be a date not later than the date referred to in Section 3.1(b)(iii).
(f) This Agreement shall control in the event of any conflict
with any L/C-Related Document (other than any Letter of Credit).
(g) The Issuing Bank will also deliver to the Agent,
concurrently or promptly following its delivery of a Letter of Credit, or
amendment to or renewal of a Letter of Credit, to an advising bank or a
beneficiary, a true and complete copy of each
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such Letter of Credit or amendment to or renewal of a Letter of Credit.
3.3 Risk Participations, Drawings and Reimbursements. (a) Immediately
upon the Issuance of each Letter of Credit each Bank shall be deemed to, and
hereby irrevocably and unconditionally agrees to, purchase from the Issuing Bank
a participation in such Letter of Credit and each drawing thereunder in an
amount equal to the product of (i) the Pro Rata Share of such Bank, times (ii)
the maximum amount available to be drawn under such Letter of Credit and the
amount of such drawing, respectively. For purposes of subsection 2.1(b), each
Issuance of a Letter of Credit shall be deemed to utilize the Commitment of each
Bank by an amount equal to the amount of such participation.
(b) In the event of any request for a drawing under a Letter of
Credit by the beneficiary or transferee thereof, the Issuing Bank will promptly
notify the Company or the applicable Borrower. The applicable Borrower shall
reimburse the Issuing Bank prior to 10:00 a.m. (San Francisco time), on each
date that any amount is paid by the Issuing Bank under any Letter of Credit
(each such date, an "Honor Date"), in an amount equal to the amount so paid by
the Issuing Bank. In the event the applicable Borrower fails to reimburse the
Issuing Bank for the full amount of any drawing under any Letter of Credit by
10:00 a.m. (San Francisco time) on the Honor Date, the Issuing Bank will
promptly notify the Agent and the Agent will promptly notify each Bank thereof,
and the applicable Borrower shall be deemed to have requested that Base Rate
Loans be made by the Banks to be disbursed on the Honor Date under such Letter
of Credit, subject to the amount of the unutilized portion of the Revolving
Commitment and subject to the conditions set forth in Section 5.2. Any notice
given by the Issuing Bank or the Agent pursuant to this subsection 3.3(b) may be
oral if immediately confirmed in writing (including by facsimile); provided that
the lack of such an immediate confirmation shall not affect the conclusiveness
or binding effect of such notice.
(c) Each Bank shall upon any notice pursuant to subsection
3.3(b) make available to the Agent for the account of the relevant Issuing Bank
an amount in Dollars and in immediately available funds equal to its Pro Rata
Share of the amount of the drawing, whereupon the participating Banks shall
(subject to subsection 3.3(d)) each be deemed to have made a Revolving Loan
consisting of a Base Rate Loan to the applicable Borrower in that amount. If any
Bank so notified fails to make available to the Agent for the account of the
Issuing Bank the amount of such Bank's Pro Rata Share of the amount of the
drawing by no later than 12:00 noon (San Francisco time) on the Honor Date, then
interest shall accrue on such Bank's obligation to make such payment, from the
Honor Date to the date such Bank makes such payment, at a rate per annum equal
to the Federal
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Funds Rate in effect from time to time during such period. The Agent will
promptly give notice of the occurrence of the Honor Date, but failure of the
Agent to give any such notice on the Honor Date or in sufficient time to enable
any Bank to effect such payment on such date shall not relieve such Bank from
its obligations under this Section 3.3.
(d) With respect to any unreimbursed drawing that is not
converted into Revolving Loans consisting of Base Rate Loans to the applicable
Borrower in whole or in part, because of the applicable Borrower's failure to
satisfy the conditions set forth in Section 5.2 or for any other reason, the
applicable Borrower shall be deemed to have incurred from the Issuing Bank an
L/C Borrowing in the amount of such drawing, which L/C Borrowing shall be due
and payable on demand (together with interest) and shall bear interest at a rate
per annum equal to the Base Rate plus 2% per annum, and each Bank's payment to
the Issuing Bank pursuant to subsection 3.3(c) shall be deemed payment in
respect of its participation in such L/C Borrowing and shall constitute an L/C
Advance from such Bank in satisfaction of its participation obligation under
this Section 3.3.
(e) Each Bank's obligation in accordance with this Agreement to
make the Revolving Loans or L/C Advances, as contemplated by this Section 3.3,
as a result of a drawing under a Letter of Credit, shall be absolute and
unconditional and without recourse to the Issuing Bank and shall not be affected
by any circumstance, including (i) any set-off, counterclaim, recoupment,
defense or other right which such Bank may have against the Issuing Bank, any
Borrower or any other Person for any reason whatsoever; (ii) the occurrence or
continuance of a Default, an Event of Default or a Material Adverse Effect; or
(iii) any other circumstance, happening or event whatsoever, whether or not
similar to any of the foregoing; provided, however, that each Bank's obligation
to make Revolving Loans under this Section 3.3 is subject to the conditions set
forth in Section 5.2.
3.4 Repayment of Participations. (a) Upon (and only upon) receipt by the
Agent for the account of the Issuing Bank of immediately available funds from
the Company or the applicable Borrower (i) in reimbursement of any payment made
by the Issuing Bank under the Letter of Credit with respect to which any Bank
has paid the Agent for the account of the Issuing Bank for such Bank's
participation in the Letter of Credit pursuant to Section 3.3 or (ii) in payment
of interest thereon, the Agent will pay to each Bank, in the same funds as those
received by the Agent for the account of the Issuing Bank, the amount of such
Bank's Pro Rata Share of such funds, and the Issuing Bank shall receive the
amount of the Pro Rata Share of such funds of any Bank that did not so pay the
Agent for the account of the Issuing Bank.
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(b) If the Agent or the Issuing Bank is required at any time to
return to any Borrower, or to a trustee, receiver, liquidator, custodian, or any
official in any Insolvency Proceeding, any portion of the payments made by such
Borrower to the Agent for the account of the Issuing Bank pursuant to subsection
3.4(a) in reimbursement of a payment made under the Letter of Credit or interest
or fee thereon, each Bank shall, on demand of the Agent, forthwith return to the
Agent or the Issuing Bank the amount of its Pro Rata Share of any amounts so
returned by the Agent or the Issuing Bank plus interest thereon from the date
such demand is made to the date such amounts are returned by such Bank to the
Agent or the Issuing Bank, at a rate per annum equal to the Federal Funds Rate
in effect from time to time.
3.5 Role of the Issuing Bank. (a) Each Bank and each Borrower agrees
that, in paying any drawing under a Letter of Credit, the Issuing Bank shall not
have any responsibility to obtain any document (other than any sight draft and
certificates expressly required by the Letter of Credit) or to ascertain or
inquire as to the validity or accuracy of any such document or the authority of
the Person executing or delivering any such document.
(b) No Agent-Related Person nor any of the respective
correspondents, participants or assignees of the Issuing Bank shall be liable to
any Bank for: (i) any action taken or omitted in connection herewith at the
request or with the approval of the Banks (including the Required Banks, as
applicable); (ii) any action taken or omitted in the absence of gross negligence
or willful misconduct; or (iii) the due execution, effectiveness, validity or
enforceability of any L/C-Related Document.
(c) Each Borrower hereby assumes all risks of the acts or
omissions of any beneficiary or transferee with respect to its use of any Letter
of Credit; provided, however, that this assumption is not intended to, and shall
not, preclude such Borrower's pursuing such rights and remedies as it may have
against the beneficiary or transferee at law or under any other agreement. No
Agent-Related Person, nor any of the respective correspondents, participants or
assignees of the Issuing Bank, shall be liable or responsible for any of the
matters described in clauses (i) through (vii) of Section 3.6; provided,
however, anything in such clauses to the contrary notwithstanding, that such
Borrower may have a claim against the Issuing Bank, and the Issuing Bank may be
liable to such Borrower, to the extent, but only to the extent, of any direct,
as opposed to consequential or exemplary, damages suffered by such Borrower
which such Borrower proves were caused by the Issuing Bank's willful misconduct
or gross negligence or the Issuing Bank's willful failure to pay under any
Letter of Credit after the presentation
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to it by the beneficiary of a sight draft and certificate(s) strictly complying
with the terms and conditions of a Letter of Credit. In furtherance and not in
limitation of the foregoing: (i) the Issuing Bank may accept documents that
appear on their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary; and (ii)
the Issuing Bank shall not be responsible for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign a
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any reason.
3.6 Obligations Absolute. The obligations of each Borrower under this
Agreement and any L/C-Related Document to reimburse the Issuing Bank for a
drawing under a Letter of Credit issued for the account of such Borrower, and to
repay any L/C Borrowing and any drawing under a Letter of Credit converted into
Revolving Loans, shall be unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement and each such other
L/C-Related Document under all circumstances, including the following:
(i) any lack of validity or enforceability of this Agreement or
any L/C-Related Document;
(ii) any change in the time, manner or place of payment of, or
in any other term of, all or any of the obligations of any Borrower in
respect of any Letter of Credit or any other amendment or waiver of or
any consent to departure from all or any of the L/C-Related Documents;
(iii) the existence of any claim, set-off, defense or other
right that any Borrower may have at any time against any beneficiary or
any transferee of any Letter of Credit (or any Person for whom any such
beneficiary or any such transferee may be acting), the Issuing Bank or
any other Person, whether in connection with this Agreement, the
transactions contemplated hereby or by the L/C-Related Documents or any
unrelated transaction;
(iv) any draft, demand, certificate or other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect; or any loss or delay in the transmission or
otherwise of any document required in order to make a drawing under any
Letter of Credit;
(v) any payment by the Issuing Bank under any Letter of Credit
against presentation of a draft or certificate that does not strictly
comply with the terms of
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any Letter of Credit; or any payment made by the Issuing Bank under any
Letter of Credit to any Person purporting to be a trustee in bankruptcy,
debtor-in-possession, assignee for the benefit of creditors, liquidator,
receiver or other representative of or successor to any beneficiary or
any transferee of any Letter of Credit, including any arising in
connection with any Insolvency Proceeding;
(vi) any exchange, release or non-perfection of any collateral,
or any release or amendment or waiver of or consent to departure from
any other guarantee, for all or any of the obligations of any Borrower
in respect of any Letter of Credit; or
(vii) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing, including any other circumstance
that might otherwise constitute a defense available to, or a discharge
of, any Borrower or a guarantor.
3.7 Cash Collateral Pledge. Upon (i) the request of the Agent, (A) if
the Issuing Bank has honored any full or partial drawing request on any Letter
of Credit and such drawing has resulted in an L/C Borrowing hereunder, or (B)
if, as of the date which is 10 Business Days prior to the Revolving Termination
Date, any Letters of Credit may for any reason remain outstanding and partially
or wholly undrawn, or (ii) the occurrence of the circumstances described in
section 2.7 requiring the Company to Cash Collateralize Letters of Credit, then,
the Company shall immediately Cash Collateralize the L/C Obligations in an
amount equal to such L/C Obligations.
3.8 Letter of Credit Fees. (a) Each applicable Borrower shall pay to the
Agent for the ratable account of each of the Banks a letter of credit fee with
respect to the Letters of Credit for the account of such Borrower, such fee to
be equal to a rate per annum on the average daily maximum amount available to be
drawn on the outstanding Letters of Credit as follows:
(i) for a Financial L/C, (a) the maximum amount available to be
drawn of all then-outstanding Financial L/C's times (b) 100% of the
Applicable Margin for Offshore Rate Loans or CD Rate Loans as set forth
in the pricing grid of the definition of Applicable Margin; and
(ii) for a Performance L/C, (a) the maximum amount available to
be drawn of all then-outstanding Performance L/C's times (b) 50% of the
Applicable Margin for Offshore Rate Loans or CD Rate Loans as set forth
in the pricing grid;
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Such fees shall be computed on a quarterly basis in arrears on each Quarterly
Payment Date based upon Letters of Credit outstanding for that quarter, as
calculated by the Agent. Such letter of credit fees shall be due and payable
quarterly in arrears on each Quarterly Payment Date following each calendar
quarter during which Letters of Credit are outstanding, commencing on the first
such quarterly date to occur after the Closing Date, through the Revolving
Termination Date (or such later date upon which the outstanding Letters of
Credit shall expire), with the final payment to be made on the Revolving
Termination Date (or such later expiration date).
(b) Each Borrower shall pay to the Issuing Bank a letter of
credit fronting fee for each Letter of Credit Issued by the Issuing Bank, such
fee to be determined as set forth in the Fee Letter. Such Letter of Credit
fronting fee shall be due and payable on each date of Issuance of a Letter of
Credit.
(c) Each Borrower shall pay to the Issuing Bank from time to
time on demand the normal issuance, presentation, amendment and other processing
fees, and other standard costs and charges, of the Issuing Bank relating to
letters of credit as from time to time in effect.
3.9 Uniform Customs and Practice. The Uniform Customs and Practice for
Documentary Credits as published by the International Chamber of Commerce most
recently at the time of issuance of any Letter of Credit shall (unless otherwise
expressly provided in the Letters of Credit) apply to the Letters of Credit.
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
4.1 Taxes. (a) Any and all payments by any or all of the Borrowers to
each Bank or the Agent under this Agreement and any other Loan Document shall be
made free and clear of, and without deduction or withholding for, any Taxes. In
addition, each Borrower shall pay all Other Taxes which relate to Loans to or
Letters of Credit for the account of such Borrower.
(b) If any Borrower shall be required by law to deduct or
withhold any Taxes, Other Taxes or Further Taxes from or in respect of any sum
payable hereunder to any Bank or the Agent, then:
(i) the sum payable shall be increased as necessary so that,
after making all required deductions and withholdings (including
deductions and withholdings applicable to additional sums payable under
this Section),
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such Bank or the Agent, as the case may be, receives and retains an
amount equal to the sum it would have received and retained had no such
deductions or withholdings been made;
(ii) such Borrower shall make such deductions and withholdings;
(iii) such Borrower shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in
accordance with applicable law; and
(iv) such Borrower shall also pay to each Bank or the Agent for
the account of such Bank, at the time interest is paid, Further Taxes in
the amount that the respective Bank specifies as necessary to preserve
the after-tax yield the Bank would have received if such Taxes, Other
Taxes or Further Taxes had not been imposed.
(c) such Borrower agrees to indemnify and hold harmless each
Bank and the Agent for the full amount of i) Taxes, ii) Other Taxes, and iii)
Further Taxes in the amount that the respective Bank specifies as necessary to
preserve the after-tax yield the Bank would have received if such Taxes, Other
Taxes or Further Taxes had not been imposed, and any liability (including
penalties, interest, additions to tax and expenses) arising therefrom or with
respect thereto, whether or not such Taxes, Other Taxes or Further Taxes were
correctly or legally asserted. Payment under this indemnification shall be made
within 30 days after the date the Bank or the Agent makes written demand
therefor.
(d) Within 30 days after the date of any payment by any Borrower
of Taxes, Other Taxes or Further Taxes, such Borrower shall furnish to each Bank
or the Agent the original or a certified copy of a receipt evidencing payment
thereof, or other evidence of payment satisfactory to such Bank or the Agent.
(e) If any Borrower is required to pay any amount to any Bank or
the Agent pursuant to subsection (b) or (c) of this Section, then such Bank
shall use reasonable efforts (consistent with legal and regulatory restrictions)
to change the jurisdiction of its Lending Office so as to eliminate any such
additional payment by such Borrower which may thereafter accrue, if such change
in the sole judgment of such Bank is not otherwise disadvantageous to such Bank.
4.2 Illegality. (a) If any Bank determines that the introduction of any
Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any
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central bank or other Governmental Authority has asserted that it is unlawful,
for any Bank or its applicable Lending Office to make Offshore Rate Loans, then,
on notice thereof by the Bank to the Company through the Agent, any obligation
of that Bank to make Offshore Rate Loans shall be suspended until the Bank
notifies the Agent and the Company that the circumstances giving rise to such
determination no longer exist.
(b) If a Bank determines that it is unlawful to maintain any
Offshore Rate Loan to a Borrower, such Borrower shall, upon its receipt of
notice of such fact and demand from such Bank (with a copy to the Agent), prepay
in full such Offshore Rate Loans of that Bank then outstanding to such Borrower,
together with interest accrued thereon and amounts required under Section 4.4,
either on the last day of the Interest Period thereof, if the Bank may lawfully
continue to maintain such Offshore Rate Loans to such day, or immediately, if
the Bank may not lawfully continue to maintain such Offshore Rate Loan. If a
Borrower is required to so prepay any Offshore Rate Loan, then concurrently with
such prepayment, such Borrower shall borrow from the affected Bank, in the
amount of such repayment, a Base Rate Loan.
(c) If the obligation of any Bank to make or maintain Offshore
Rate Loans to a Borrower has been so terminated or suspended, such Borrower may
elect, by giving notice to the Bank through the Agent that all Loans which would
otherwise be made by the Bank as Offshore Rate Loans to such Borrower shall be
instead Base Rate Loans.
(d) Before giving any notice to the Agent under this Section,
the affected Bank shall designate a different Lending Office with respect to its
Offshore Rate Loans if such designation will avoid the need for giving such
notice or making such demand and will not, in the judgment of the Bank, be
illegal or otherwise disadvantageous to the Bank.
4.3 Increased Costs and Reduction of Return. (a) If any Bank determines
that, due to either (i) the introduction of or any change in or in the
interpretation of any law or regulation or (ii) the compliance by that Bank with
any guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any increase in the
cost to such Bank of agreeing to make or making, funding or maintaining any
Offshore Rate Loans or CD Rate Loans or participating in Letters of Credit, or,
in the case of the Issuing Bank, any increase in the cost to the Issuing Bank of
agreeing to issue, issuing or maintaining any Letter of Credit or of agreeing to
make or making, funding or maintaining any unpaid drawing under any Letter of
Credit, then the Company shall be liable for, and shall from time to time, upon
demand (with a copy of such demand to be sent to the Agent), pay to the
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Agent for the account of such Bank, additional amounts as are sufficient to
compensate such Bank for such increased costs.
(b) If any Bank shall have determined that (i) the introduction
of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy
Regulation, (iii) any change in the interpretation or administration of any
Capital Adequacy Regulation by any central bank or other Governmental Authority
charged with the interpretation or administration thereof, or (iv) compliance by
the Bank (or its Lending Office) or any corporation controlling the Bank with
any Capital Adequacy Regulation, affects or would affect the amount of capital
required or expected to be maintained by the Bank or any corporation controlling
the Bank and (taking into consideration such Bank's or such corporation's
policies with respect to capital adequacy and such Bank's desired return on
capital) determines that the amount of such capital is increased as a
consequence of its Commitment, loans, credits or obligations under this
Agreement, then, upon demand of such Bank to the Company through the Agent, the
Company shall pay to the Bank, from time to time as specified by the Bank,
additional amounts sufficient to compensate the Bank for such increase.
4.4 Funding Losses. Each Borrower shall reimburse each Bank and hold
each Bank harmless from any loss or expense arising from broken or defaulted or
converted Interest Periods (including interest expense and attorneys fees) which
the Bank may sustain or incur as a consequence of:
(a) the failure of such Borrower to make on a timely basis any
payment of principal of any Offshore Rate Loan or CD Rate Loan;
(b) the failure of such Borrower to borrow, continue or convert
a Loan after such Borrower has given (or is deemed to have given) a Notice of
Borrowing or a Notice of Conversion/ Continuation;
(c) the failure of such Borrower to make any prepayment in
accordance with any notice delivered under Section 2.6;
(d) the prepayment (including pursuant to Section 2.7) or other
payment (including after acceleration thereof) of an Offshore Rate Loan or a CD
Rate Loan on a day that is not the last day of the relevant Interest Period; or
(e) the automatic conversion under Section 2.4 of any Offshore
Rate Loan or CD Rate Loan to a Base Rate Loan on a day that is not the last day
of the relevant Interest Period;
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including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its Offshore Rate Loans or CD Rate Loans or
from fees payable to terminate the deposits from which such funds were obtained.
For purposes of calculating amounts payable by a Borrower to the Banks under
this Section and under subsection 4.3(a), (i) each Offshore Rate Loan made by a
Bank (and each related reserve, special deposit or similar requirement) shall be
conclusively deemed to have been funded at the LIBOR used in determining the
Offshore Rate for such Offshore Rate Loan by a matching deposit or other
borrowing in the interbank eurodollar market for a comparable amount and for a
comparable period, whether or not such Offshore Rate Loan is in fact so funded,
and (ii) each CD Rate Loan made by a Bank (and each related reserve, special
deposit or similar requirement) shall be conclusively deemed to have been funded
at the Certificate of Deposit Rate used in determining the CD Rate for such CD
Rate Loan by the issuance of its certificate of deposit in a comparable amount
and for a comparable period, whether or not such CD Rate Loan is in fact so
funded.
4.5 Inability to Determine Rates. If any Reference Bank or the Agent
determines that for any reason adequate and reasonable means do not exist for
determining the Offshore Rate or the CD Rate for any requested Interest Period
with respect to a proposed Offshore Rate Loan or CD Rate Loan, or that the
Offshore Rate or the CD Rate applicable pursuant to subsection 2.9(a) for any
requested Interest Period with respect to a proposed Offshore Rate Loan or CD
Rate Loan does not adequately and fairly reflect the cost to such Banks of
funding such Loan, the Agent will promptly so notify the Company and each Bank.
Thereafter, the obligation of the Bank to make or maintain CD Rate Loans or
Offshore Rate Loans, as the case may be, hereunder shall be suspended until the
Agent upon the instruction of the Required Banks revokes such notice in writing.
Upon receipt of such notice, the Company may revoke any Notice of Borrowing or
Notice of Conversion/Continuation then submitted by it or any Borrower. If the
Company does not revoke such Notice, the Banks shall make, convert or continue
the Loans, as proposed by the Company, in the amount specified in the applicable
notice submitted by the Company, but such Loans shall be made, converted or
continued as Base Rate Loans instead of CD Rate Loans or Offshore Rate Loans, as
the case may be.
4.6 Intentionally Omitted.
4.7 Certificates of BanksIV.7 Certificates of Banks. Any Bank claiming
reimbursement or compensation under this Article IV shall deliver to the Company
(with a copy to the Agent) a certificate setting forth in reasonable detail the
amount payable to the Bank hereunder and such certificate shall be conclusive
and binding on the Company and each applicable Borrower in the absence of
manifest error.
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4.8 Survival. The agreements and obligations of the Company and each
Borrower in this Article IV shall survive the payment of all other Obligations.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions of Initial Credit ExtensionsV.1 Conditions of Initial
Credit Extensions. The obligation of each Bank to make its initial Credit
Extension hereunder is subject to the condition that the Agent shall have
received on or before the Closing Date all of the following, in form and
substance satisfactory to the Agent and each Bank, and in sufficient copies for
each Bank:
(a) Credit Agreement and Notes(a) Credit Agreement and Notes.
This Agreement and the Notes (if any) executed by the Company and each Original
Borrowing Subsidiary;
(b) Resolutions; Incumbency(b) Resolutions; Incumbency.
(i) Copies of the resolutions of the board of directors for
each of the Company and each Original Borrowing Subsidiary authorizing
the transactions contemplated hereby, certified as of the Closing Date
by the Secretary or an Assistant Secretary of such Person; and
(ii) An incumbency certificate for each of the Company and
each Original Borrowing Subsidiary executed by the Secretary or
Assistant Secretary of the applicable Borrower, which shall identify by
name and title and bear the signature of the officers of such Borrower
authorized to sign the Loan Documents and to make borrowings hereunder,
upon which certificate the Agent and the Lenders shall be entitled to
rely until informed of any change in writing by the applicable Borrower.
(c) Organization Documents; Good Standing(c) Organization
Documents; Good Standing. Each of the following documents:
(i) the articles or certificate of incorporation and the
bylaws of the Company and each Original Borrowing Subsidiary, certified
by the Secretary or Assistant Secretary of the Company or such
Subsidiary as of the Closing Date; and
(ii) a good standing and tax good standing certificate for
the Company and each Original Borrowing Subsidiary from the Secretary of
State (or similar, applicable Governmental Authority) of Delaware and
California (or in the case of a Subsidiary, its state of
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incorporation) together with a bring-down certificate by facsimile,
dated the Closing Date;
(d) Legal Opinions(d) Legal Opinions. An opinion of Larry L.
Grant as General Counsel and Rachelle Badal as Associate General Counsel,
counsel to the Borrowers and addressed to the Agent and the Banks, substantially
in the form of Exhibit D.
(e) Payment of Fees(e) Payment of Fees. Evidence of payment by
the Company of all accrued and unpaid fees, costs and expenses to the extent
then due and payable on the Closing Date, together with Attorney Costs of BofA
to the extent invoiced prior to or on the Closing Date, plus such additional
amounts of Attorney Costs as shall constitute BofA's reasonable estimate of
Attorney Costs incurred or to be incurred by it through the closing proceedings
(provided that such estimate shall not thereafter preclude final settling of
accounts between the Company and BofA); including any such costs, fees and
expenses arising under or referenced in Sections 2.10 and 13.4;
(f) Certificate(f) Certificate. A certificate signed by a
Responsible Officer, dated as of the Closing Date, stating that:
(i) the representations and warranties contained in Article
VI are true and correct on and as of such date, as though made on and as
of such date;
(ii) no Default or Event of Default exists or would result
from the Credit Extension; and
(iii) there has occurred since September 26, 1997, no event
or circumstance that has resulted or could reasonably be expected to
result in a Material Adverse Effect; and
(g) Other Documents(g) Other Documents. Such other approvals,
opinions, documents or materials as the Agent or any Bank may request.
5.2 Conditions to All Credit Extensions. The obligation of each Bank to
make any Revolving Loan to be made by it (including its initial Revolving Loan)
or to continue or convert any Revolving Loan under Section 2.4 and the
obligation of the Issuing Bank to Issue any Letter of Credit (including the
initial Letter of Credit) is subject to the satisfaction of the following
conditions precedent on the relevant Borrowing Date, Conversion/Continuation
Date or Issuance Date:
(a) Notice, Application(a) Notice, Application. The Agent shall
have received (with, in the case of the initial Revolving Loan only, a copy for
each Bank) a Notice of Borrowing or a Notice of Conversion/Continuation, as
applicable or in the case of any Issuance of any Letter of Credit, the Issuing
Bank and the Agent
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shall have received an L/C Application or L/C Amendment Application, as required
under Section 3.2;
(b) Continuation of Representations and Warranties(b)
Continuation of Representations and Warranties. The representations and
warranties in Article V shall be true and correct on and as of such Borrowing
Date or Conversion/Continuation Date or Issuance Date with the same effect as if
made on and as of such Borrowing Date or Conversion/Continuation Date or
Issuance Date (except to the extent such representations and warranties
expressly refer to an earlier date, in which case they shall be true and correct
as of such earlier date); and
(c) No Existing Default(c) No Existing Default. No Default or
Event of Default shall exist or shall result from such Borrowing or continuation
or conversion or Issuance.
Each Notice of Borrowing, Notice of Conversion/Continuation and L/C Application
or L/C Amendment Application submitted by the Company hereunder shall constitute
a representation and warranty by the Company hereunder, as of the date of each
such notice and as of each Borrowing Date, Conversion/Continuation Date, or
Issuance Date, as applicable, that the conditions in this Section 5.2 are
satisfied.
5.3 Initial Credit Extension to Each Additional Borrowing Subsidiary.
The obligation of each Bank to make its initial Credit Extension hereunder to an
Additional Borrowing Subsidiary is subject to the condition that the Agent shall
have received all of the following in form and substance satisfactory to the
Agent and the Banks and in sufficient number of copies for each Bank:
(a) An assumption agreement substantially in the form of Exhibit E
("Assumption Agreement") executed and delivered by such Additional
Borrowing Subsidiary and containing the written consent of the Company.
(b) The documents referred to in Section 5.1(b) and Section 5.1(c)
but dated as of a date satisfactory to the Agent and the Banks (it being
understood that for this purpose each Additional Borrowing Subsidiary
shall be deemed to be an Original Borrowing Subsidiary).
(c) Written opinions of in-house counsel to such Additional
Borrowing Subsidiary addressed to the Agent and each Bank.
(d) If requested by the Agent or any Bank pursuant to Section
2.2(b), Notes executed by such Additional Borrowing Subsidiary payable
to the order of each of the Banks.
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(e) Such other documents as the Banks or their counsel may have
reasonably requested after reasonable advance notice to the Company and
such Additional Borrowing Subsidiary.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Each of the Borrowers represents and warrants to the Agent and each Bank
that:
6.1 Corporate Existence and Power. The Company and each of its
Subsidiaries:
(a) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation;
(b) has the power and authority and all governmental licenses,
authorizations, consents and approvals to own its assets, carry on its business
and to execute, deliver, and perform its obligations under the Loan Documents;
(c) is duly qualified as a foreign corporation and is licensed and
in good standing under the laws of each jurisdiction where its ownership, lease
or operation of property or the conduct of its business requires such
qualification or license; and
(d) is in compliance with all Requirements of Law; except, in each
case referred to in clause (c) or clause (d), to the extent that the failure to
do so could not reasonably be expected to have a Material Adverse Effect.
6.2 Corporate Authorization; No Contravention. The execution, delivery
and performance by the Company and its Subsidiaries of this Agreement and each
other Loan Document to which such Person is party, have been duly authorized by
all necessary corporate action, and do not and will not:
(a) contravene the terms of any of that Person's Organization
Documents;
(b) conflict with or result in any breach or contravention of, or
the creation of any Lien under, any document evidencing any Contractual
Obligation to which such Person is a party or any order, injunction, writ or
decree of any Governmental Authority to which such Person or its property is
subject; or
(c) violate any Requirement of Law.
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6.3 Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, the Company or
any of its Subsidiaries of the Agreement or any other Loan Document.
6.4 Binding Effect. This Agreement and each other Loan Document to which
the Company or any of its Subsidiaries is a party constitute the legal, valid
and binding obligations of the Company and any of its Subsidiaries to the extent
it is a party thereto, enforceable against such Person in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relating to enforceability.
6.5 Litigation. Except as specifically disclosed in Schedule 6.5, there
are no actions, suits, proceedings, claims or disputes pending, or to the best
knowledge of the Company, threatened or contemplated, at law, in equity, in
arbitration or before any Governmental Authority, against the Company, its
Subsidiaries or any of their respective properties which:
(a) purport to affect or pertain to this Agreement or any other Loan
Document, or any of the transactions contemplated hereby or thereby; or
(b) if determined adversely to the Company or its Subsidiaries,
would reasonably be expected to have a Material Adverse Effect. No injunction,
writ, temporary restraining order or any order of any nature has been issued by
any court or other Governmental Authority purporting to enjoin or restrain the
execution, delivery or performance of this Agreement or any other Loan Document,
or directing that the transactions provided for herein or therein not be
consummated as herein or therein provided.
6.6 No Default. No Default or Event of Default exists or would result
from the incurring of any Obligations by the Company. As of the Closing Date,
neither the Company nor any Subsidiary is in default under or with respect to
any Contractual Obligation in any respect which, individually or together with
all such defaults, could reasonably be expected to have a Material Adverse
Effect, or that would, if such default had occurred after the Closing Date,
create an Event of Default under subsection 10.1(e).
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6.7 ERISA Compliance. Except as specifically disclosed in Schedule 6.7:
(a) Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state law. Each
Plan which is intended to qualify under Section 401(a) of the Code has received
a favorable determination letter from the IRS and to the best knowledge of the
Company, nothing has occurred which would cause the loss of such qualification.
The Company and each ERISA Affiliate has made all required contributions to any
Plan subject to Section 412 of the Code, and no application for a funding waiver
or an extension of any amortization period pursuant to Section 412 of the Code
has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of Company,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Plan which has resulted or could reasonably be expected to
result in a Material Adverse Effect. There has been no prohibited transaction or
violation of the fiduciary responsibility rules with respect to any Plan which
has resulted or could reasonably be expected to result in a Material Adverse
Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to
occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither
the Company nor any ERISA Affiliate has incurred, or reasonably expects to
incur, any liability under Title IV of ERISA with respect to any Pension Plan
(other than premiums due and not delinquent under Section 4007 of ERISA); (iv)
neither the Company nor any ERISA Affiliate has incurred, or reasonably expects
to incur, any liability (and no event has occurred which, with the giving of
notice under Section 4219 of ERISA, would result in such liability) under
Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v)
neither the Company nor any ERISA Affiliate has engaged in a transaction that
could be subject to Section 4069 or 4212(c) of ERISA.
6.8 Use of Proceeds; Margin Regulations. The proceeds of the Loans are
to be used solely for the purposes set forth in and permitted by Section 7.12
and Section 8.6. Neither the Company nor any Subsidiary is generally engaged in
the business of purchasing or selling Margin Stock or extending credit for the
purpose of purchasing or carrying Margin Stock.
6.9 Title to Properties. The Company and each Subsidiary have good
record and marketable title in fee simple to, or valid leasehold interests in,
all real property necessary or used in the ordinary conduct of their respective
businesses, except for such defects in title as could not, individually or in
the
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aggregate, have a Material Adverse Effect. As of the Closing Date, the property
of the Company and its Subsidiaries is subject to no Liens, other than Permitted
Liens.
6.10 Taxes. The Company and its Subsidiaries have filed all Federal and
other material tax returns and reports required to be filed, and have paid all
Federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable, except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been provided in
accordance with GAAP. There is no proposed tax assessment against the Company or
any Subsidiary that would, if made, have a Material Adverse Effect.
6.11 Financial Condition. (a) The audited consolidated financial
statements of the Company and its Subsidiaries dated December 27, 1996, and the
related consolidated statements of income or operations, shareholders' equity
and cash flows for the fiscal year ended on that date:
(i) were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except as otherwise expressly
noted therein;
(ii) fairly present the financial condition of the Company and
its Subsidiaries as of the date thereof and results of operations for
the period covered thereby; and
(iii) except as specifically disclosed in Schedule 6.11, show
all material indebtedness and other liabilities, direct or contingent,
of the Company and its consolidated Subsidiaries as of the date thereof,
including liabilities for taxes, material commitments and Contingent
Obligations.
(b) Since September 26, 1997, there has been no Material Adverse
Effect.
6.12 Environmental Matters. The Company conducts in the ordinary course
of business a review of the effect of existing Environmental Laws and existing
Environmental Claims on its business, operations and properties, and as a result
thereof the Company has reasonably concluded that, except as specifically
disclosed in Schedule 6.12, such Environmental Laws and Environmental Claims
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
6.13 Regulated Entities. None of the Company, any Person controlling the
Company, or any Subsidiary, is an "Investment Company" within the meaning of the
Investment Company Act of
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1940. The Company is not subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any
state public utilities code, or any other Federal or state statute or regulation
limiting its ability to incur Indebtedness.
6.14 No Burdensome Restrictions. Neither the Company nor any Subsidiary
is a party to or bound by any Contractual Obligation, or subject to any
restriction in any Organization Document, or any Requirement of Law, which could
reasonably be expected to have a Material Adverse Effect.
6.15 Copyrights, Patents, Trademarks and Licenses, etc. Except as
specifically disclosed in Schedule 6.5, no claim or litigation is pending or
threatened, and no patent, invention, device, application, principle or any
statute, law, rule, regulation, standard or code is pending or, to the knowledge
of the Company, proposed, which, in either case, could reasonably be expected to
have a Material Adverse Effect.
6.16 Subsidiaries. As of the Closing Date, the Company has no
Subsidiaries other than those specifically disclosed in part (a) of Schedule
6.16 hereto and has no equity investments in any other corporation or entity
other than those specifically disclosed in part (b) of Schedule 6.16.
6.17 Insurance. Except as specifically disclosed in Schedule 6.17, the
properties of the Company and its Subsidiaries are insured with financially
sound and reputable insurance companies not Affiliates of the Company, in such
amounts, with such deductibles and covering such risks as are customarily
carried by companies engaged in similar businesses and owning similar properties
in localities where the Company or such Subsidiary operates.
6.18 Swap Obligations. Neither the Company nor any of its Subsidiaries
has incurred any outstanding obligations under any Swap Contracts, other than
Permitted Swap Obligations. The Company has undertaken its own independent
assessment of its consolidated assets, liabilities and commitments and has
considered appropriate means of mitigating and managing risks associated with
such matters and has not relied on any swap counterparty or any Affiliate of any
swap counterparty in determining whether to enter into any Swap Contract.
6.19 Full Disclosure. None of the representations or warranties made by
the Company or any Subsidiary in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of the Company or any Subsidiary in connection with the Loan
Documents (including the offering and disclosure materials
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delivered by or on behalf of the Company to the Banks prior to the Closing
Date), contains any untrue statement of a material fact or omits any material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they are made, not misleading
as of the time when made or delivered.
ARTICLE VII
AFFIRMATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Required Banks waive compliance in writing:
7.1 Financial Statements. The Company shall deliver to the Agent and the
Banks, in form and detail satisfactory to the Agent and the Required Banks:
(a) as soon as available, but not later than 100 days after the end
of each fiscal year (commencing with the fiscal year ended December 26, 1997), a
copy of the audited consolidated balance sheet of the Company and its
Subsidiaries as at the end of such year and the related consolidated statements
of income or operations, shareholders' equity and cash flows for such year,
setting forth in each case in comparative form the figures for the previous
fiscal year, and accompanied by the opinion of Ernst and Young, LLP or another
nationally-recognized independent public accounting firm ("Independent Auditor")
which report shall state that such consolidated financial statements present
fairly the financial position for the periods indicated in conformity with GAAP
applied on a basis consistent with prior years. Such opinion shall not be
qualified or limited because of a restricted or limited examination by the
Independent Auditor of any material portion of the Company's or any Subsidiary's
records;
(b) as soon as available, but not later than 50 days after the end
of each of the first three fiscal quarters of each fiscal year (commencing with
the fiscal quarter ended March 27, 1998), a copy of the unaudited consolidated
balance sheet of the Company and its Subsidiaries as of the end of such quarter
and the related consolidated statements of income, shareholders' equity and cash
flows for the period commencing on the first day and ending on the last day of
such quarter, and certified by a Responsible Officer as fairly presenting, in
accordance with GAAP (subject to ordinary, good faith year-end audit
adjustments), the financial position and the results of operations of the
Company and the Subsidiaries;
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7.2 Certificates; Other Information. The Company shall furnish to the
Agent and the Banks:
(a) concurrently with the delivery of the financial statements
referred to in subsections 7.1(a) and (b), a Compliance Certificate executed by
a Responsible Officer;
(b) promptly, copies of all financial statements and reports that
the Company sends to its shareholders, and copies of all financial statements
and regular, periodical or special reports (including Forms 10K, 10Q and 8K)
that the Company or any Subsidiary may make to, or file with, the SEC; and
(c) promptly, such additional reasonable information regarding the
business, financial or corporate affairs of the Company or any Subsidiary as the
Agent, at the request of any Bank, may from time to time request.
7.3 Notices. The Company shall promptly notify the Agent and each Bank:
(a) of the occurrence of any Default or Event of Default, and of the
occurrence or existence of any event or circumstance that foreseeably will
become a Default or Event of Default;
(b) of any matter that has resulted or may result in a Material
Adverse Effect, including (i) breach or non-performance of, or any default
under, a Contractual Obligation of the Company or any Subsidiary; (ii) any
dispute, litigation, investigation, proceeding or suspension between the Company
or any Subsidiary and any Governmental Authority; or (iii) the commencement of,
or any material development in, any litigation or proceeding affecting the
Company or any Subsidiary; including pursuant to any applicable Environmental
Laws;
(c) of the occurrence of any of the following events affecting the
Company or any ERISA Affiliate (but in no event more than 10 days after such
event), and deliver to the Agent and each Bank a copy of any notice with respect
to such event that is filed with a Governmental Authority and any notice
delivered by a Governmental Authority to the Company or any ERISA Affiliate with
respect to such event:
(i) an ERISA Event;
(ii) a material increase in the Unfunded Pension Liability of
any Pension Plan;
(iii) the adoption of, or the commencement of contributions to,
any Plan subject to Section 412 of the Code by the Company or any ERISA
Affiliate; or
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(iv) the adoption of any amendment to a Plan subject to Section
412 of the Code, if such amendment results in a material increase in
contributions or Unfunded Pension Liability.
(d) of any material change in accounting policies or financial
reporting practices by the Company or any of its consolidated Subsidiaries, if
not otherwise disclosed; and
(e) upon the request from time to time of the Agent, the Swap
Termination Values, together with a description of the method by which such
values were determined, relating to any then-outstanding Swap Contracts to which
the Company or any of its Subsidiaries is party.
Each notice under this Section shall be accompanied by a written
statement by a Responsible Officer setting forth details of the occurrence
referred to therein, and stating what action the Company or any affected
Subsidiary proposes to take with respect thereto and at what time. Each notice
under subsection 7.3(a) shall describe with particularity any and all clauses or
provisions of this Agreement or other Loan Document that have been (or
foreseeably will be) breached or violated.
7.4 Preservation of Corporate Existence, Etc. The Company shall, and
shall cause each Subsidiary to:
(a) preserve and maintain in full force and effect its corporate
existence and good standing under the laws of its state or jurisdiction of
incorporation;
(b) preserve and maintain in full force and effect all governmental
rights, privileges, qualifications, permits, licenses and franchises necessary
or desirable in the normal conduct of its business;
(c) use reasonable efforts, in the ordinary course of business, to
preserve its business organization and goodwill; and
(d) preserve or renew all of its registered patents, trademarks,
trade names and service marks, the non-preservation of which could reasonably be
expected to have a Material Adverse Effect.
7.5 Maintenance of Property. The Company shall maintain, and shall cause
each Subsidiary to maintain, and preserve all its property which is used or
useful in its business in good working order and condition, ordinary wear and
tear excepted and make all necessary repairs thereto and renewals and
replacements thereof except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect, except as
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permitted by Section 8.2. The Company and each Subsidiary shall use the standard
of care typical in the industry in the operation and maintenance of its
facilities.
7.6 Insurance. The Company shall maintain, and shall cause each
Subsidiary to maintain, with financially sound and reputable independent
insurers, insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by Persons engaged in the same
or similar business, of such types and in such amounts as are customarily
carried under similar circumstances by such other Persons.
7.7 Payment of Obligations. The Company shall, and shall cause each
Subsidiary to, pay and discharge as the same shall become due and payable, all
their respective obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental charges or
levies upon it or its properties or assets, unless the same are being contested
in good faith by appropriate proceedings and adequate reserves in accordance
with GAAP are being maintained by the Company or such Subsidiary;
(b) all lawful claims which, if unpaid, would by law become a Lien
upon its property; and
(c) all indebtedness, as and when due and payable, but subject to
any subordination provisions contained in any instrument or agreement evidencing
such Indebtedness.
7.8 Compliance with Laws. The Company shall comply, and shall cause each
Subsidiary to comply, in all material respects with all Requirements of Law of
any Governmental Authority having jurisdiction over it or its business
(including the Federal Fair Labor Standards Act), except such as may be
contested in good faith or as to which a bona fide dispute may exist.
7.9 Compliance with ERISA. The Company shall, and shall cause each of
its ERISA Affiliates to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law; (b) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification; and (c) make all required contributions to
any Plan subject to Section 412 of the Code.
7.10 Inspection of Property and Books and Records. The Company shall
maintain and shall cause each Subsidiary to maintain proper books of record and
account, in which full, true and correct entries in conformity with GAAP
consistently applied
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shall be made of all financial transactions and matters involving the assets and
business of the Company and such Subsidiary. The Company shall permit, and shall
cause each Subsidiary to permit, representatives and independent contractors of
the Agent or any Bank to visit and inspect any of their respective properties,
to examine their respective corporate, financial and operating records, and make
copies thereof or abstracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective directors, officers, and independent
public accountants, all at the expense of the Company and at such reasonable
times during normal business hours and as often as may be reasonably desired,
upon reasonable advance notice to the Company; provided, however, when an Event
of Default exists the Agent or any Bank may do any of the foregoing at the
expense of the Company at any time during normal business hours and without
advance notice.
7.11 Environmental Laws. The Company shall, and shall cause each
Subsidiary to, conduct its operations and keep and maintain its property in
compliance with all Environmental Laws. VII.12 Use of ProceedsVII.12 Use of
Proceeds. The Company shall use the proceeds of the Loans for working capital
and other general corporate purposes not in contravention of any Requirement of
Law or of any Loan Document.
ARTICLE VIII
NEGATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Required Banks waive compliance in writing:
8.1 Limitation on Liens. The Company shall not, and shall not suffer or
permit any Subsidiary to, directly or indirectly, make, create, incur, assume or
suffer to exist any Lien upon or with respect to any part of its property,
whether now owned or hereafter acquired, other than the following ("Permitted
Liens"):
(a) any Lien existing on property of the Company or any Subsidiary
on the Closing Date and set forth in Schedule 8.1(a) securing Indebtedness
outstanding on such date;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, fees, assessments or other governmental charges
which are not delinquent or remain payable without penalty, or to the extent
that non-payment thereof is permitted by Section 7.7, provided that no notice of
lien (other
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than routine real estate tax liens not in default) in excess of $2,000,000 has
been filed or recorded under the Code;
(d) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other similar Liens arising in the ordinary course
of business which are not delinquent or remain payable without penalty or which
are being contested in good faith and by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the property
subject thereto;
(e) Liens (other than any Lien imposed by ERISA) consisting of
pledges or deposits required in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other social security
legislation;
(f) Liens on the property of the Company or its Subsidiary securing
(i) the non-delinquent performance of bids, trade contracts (other than for
borrowed money), leases, statutory obligations, (ii) contingent obligations on
surety and appeal bonds, and (iii) other non-delinquent obligations of a like
nature; in each case, incurred in the ordinary course of business;
(g) Liens consisting of judgment or judicial attachment liens,
provided that the enforcement of such Liens is effectively stayed and all such
liens in the aggregate at any time outstanding for the Company and its
Subsidiaries do not exceed $10,000,000;
(h) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the businesses of the Company and its Subsidiaries;
(i) Liens on assets of corporations which become Subsidiaries after
the date of this Agreement, provided, however, that such Liens existed at the
time the respective corporations became Subsidiaries and were not created in
anticipation thereof;
(j) purchase money security interests on any property acquired or
held by the Company or its Subsidiaries, securing Indebtedness incurred or
assumed for the purpose of financing all or any part of the cost of acquiring
such property; provided that (i) any such Lien attaches to such property
concurrently with or within 20 days after the acquisition thereof, (ii) such
Lien attaches solely to the property so acquired in such transaction, and (iii)
the principal amount of the debt secured thereby does not exceed 100% of the
cost of such property;
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(k) Liens securing obligations in respect of capital leases on
assets subject to such leases, provided that such capital leases are otherwise
permitted hereunder;
(l) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of set-off or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution; provided that (i) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by the Company in excess of those set forth by regulations promulgated by
the FRB, and (ii) such deposit account is not intended by the Company or any
Subsidiary to provide collateral to the depository institution;
(m) Liens consisting of pledges of cash collateral or government
securities to secure on a mark-to-market basis Permitted Swap Obligations only,
provided that (i) the counterparty to any Swap Contract relating to such
Permitted Swap Obligation is under a similar requirement to deliver similar
collateral from time to time to the Company or the Subsidiary party thereto on a
mark-to-market basis; and (ii) the aggregate value of such collateral so pledged
by the Company and the Subsidiaries together in favor of any counterparty does
not at any time exceed $10,000,000;
(n) Liens on up to $200,000,000 of cash equivalents securing
Off-Balance Sheet Lease Obligations pursuant to the Off-Balance Sheet Lease
Facility, provided, however, that (i) the Off-Balance Sheet Lease Facility, has
been consented to by all Banks; (ii) so long as such Off-Balance Sheet Lease
Obligations are outstanding, the Company's unencumbered cash balances shall
exceed $100,000,000 and (iii) immediately before and after giving effect to the
grant of such Liens, no Default or Event of Default shall exist; and
(o) Liens on fixed assets (i.e. property, plant and equipment)
acquired after the date hereof by the Borrower or its Subsidiaries; provided
that, the aggregate principal amount of Indebtedness secured by all such Liens
shall not at any one time exceed 20% of the Company's Consolidated Tangible Net
Worth;
8.2 Disposition of Assets. The Company shall not, and shall not suffer
or permit any Subsidiary to, directly or indirectly, sell, assign, lease,
convey, transfer or otherwise dispose of (whether in one or a series of
transactions) any property (including accounts and notes receivable, with or
without recourse) or enter into any agreement to do any of the foregoing,
except:
(a) dispositions of inventory, or used, worn-out or surplus
equipment, all in the ordinary course of business;
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(b) the sale of equipment to the extent that such equipment is
exchanged for credit against the purchase price of similar replacement
equipment, or the proceeds of such sale are reasonably promptly applied to the
purchase price of such replacement equipment;
(c) dispositions of assets in the ordinary course of business (but
in any event not involving the sale or transfer of domestic accounts
receivable)by the Company or any Subsidiary to the Company or any Subsidiary
pursuant to reasonable business requirements; and
(d) other dispositions (but in any event not involving the sale or
transfer of domestic accounts receivable) which are made for fair market value;
provided, that (i) at the time of any such disposition, no Event of Default
shall exist or shall result from such disposition, (ii) the aggregate sales
price from such disposition shall be paid in cash, and (iii) the aggregate value
of all assets so sold by the Company and its Subsidiaries, shall not exceed 20%
of the Consolidated Tangible Net Worth as of the end of the fiscal quarter then
most recently ended.
8.3 Consolidations and Mergers. The Company shall not, and shall not
suffer or permit any Subsidiary to, merge, consolidate with or into, or convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to or in favor of any Person, except:
(a) any Subsidiary may merge with the Company, provided that the
Company shall be the continuing or surviving corporation, or with any one or
more Subsidiaries, provided that if any transaction shall be between a
Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be
the continuing or surviving corporation; and
(b) any Subsidiary may sell all or substantially all of its assets
(upon voluntary liquidation or otherwise), to the Company or another
Wholly-Owned Subsidiary.
(c) The Company or any Subsidiary may merge with another Person,
provided that: (i) in the case of a merger with another company, the Company
shall be the surviving entity, (ii) total cumulative cash consideration payable
by the Company or a Subsidiary in connection with all such mergers or
consolidations shall not exceed 100% of the Company's Consolidated Tangible Net
Worth at the end of the prior fiscal quarter, (iii) to the extent cash is
payable in connection with such merger, the Company's remaining unencumbered
cash balances shall exceed $100,000,000 after giving effect to such payment,
(iv) immediately before and after giving effect to such merger, no
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Default or Event of Default shall exist, and (v) the Company shall have
furnished to the Agent pro forma financial statements showing compliance by the
Company with the financial tests in Article IX (such pro forma statements to be
as of the fiscal quarter immediately preceding the date of such merger but
prepared on the assumption that such merger occurred on the last day of such
fiscal quarter) together with a certificate of a Responsible Officer to the
effect that all of the conditions in this Section 8.3 will be satisfied as of
the date of such merger.
8.4 Loans and Investments. The Company shall not purchase or acquire, or
suffer or permit any Subsidiary to purchase or acquire, or make any commitment
therefor, any capital stock, equity interest, or any obligations or other
securities of, or any interest in, any Person, or make or commit to make any
Acquisitions, or make or commit to make any advance, loan, extension of credit
or capital contribution to or any other investment in, any Person including any
Affiliate of the Company (together, "Investments"), except for:
(a) Investments held by the Company or Subsidiary in the form of
cash equivalents or short term marketable securities;
(b) extensions of credit in the nature of accounts receivable or
notes receivable arising from the sale or lease of goods or services in the
ordinary course of business;
(c) extensions of credit by the Company to any of its Wholly-Owned
Subsidiaries or by any of its Wholly-Owned Subsidiaries to another of its
Wholly-Owned Subsidiaries;
(d) Investments incurred in order to consummate Acquisitions
otherwise permitted herein, provided that (i) the cash consideration payable by
the Company or a Subsidiary in connection with any such Acquisition, together
with the cash consideration payable by the Company or a Subsidiary in connection
with all prior Acquisitions undertaken by the Company and its Subsidiaries after
the Closing Date, together with the cash consideration payable by the Company or
a Subsidiary in connection with all mergers permitted under Section 8.3(c) shall
not exceed at the time of such Investment 100% of Consolidated Tangible Net
Worth at the end of the fiscal quarter immediately prior to such Acquisition,
(ii) such Acquisitions are undertaken in accordance with all applicable
Requirements of Law, (iii) the prior, effective written consent or approval to
such Acquisition of the board of directors or equivalent governing body of the
acquiree is obtained, (iv) to the extent cash is payable in connection with such
Acquisition, the Company's remaining unencumbered cash balances shall exceed
$100,000,000 after giving effect to such payment, (v) immediately before and
after
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giving effect to such Acquisition, no Default or Event of Default shall exist,
and (vi) the Company shall have furnished to the Agent pro forma financial
statements showing compliance by the Company with the financial tests in Article
IX (such pro forma statements to be as of the fiscal quarter immediately
preceding the date of such Acquisition but prepared on the assumption that such
Acquisition occurred on the last day of the quarter) together with a certificate
of a Responsible Officer to the effect that all of the conditions in this
Section 8.4 will be satisfied as of the date of such Acquisition; and
(e) Investments constituting Permitted Swap Obligations or payments
or advances under Swap Contracts relating to Permitted Swap Obligations.
8.5 Transactions with Affiliates. The Company shall not, and shall not
suffer or permit any Subsidiary to, enter into any transaction with any
Affiliate of the Company, except upon fair and reasonable terms no less
favorable to the Company or such Subsidiary than would obtain in a comparable
arm's-length transaction with a Person not an Affiliate of the Company or such
Subsidiary.
8.6 Use of Proceeds. The Company shall not, and shall not suffer or
permit any Subsidiary to, use any portion of the Loan proceeds or any Letter of
Credit, directly or indirectly, (i) to purchase or carry Margin Stock, (ii) to
repay or otherwise refinance indebtedness of the Company or others incurred to
purchase or carry Margin Stock, (iii) to extend credit for the purpose of
purchasing or carrying any Margin Stock, or (iv) to acquire any security in any
transaction that is subject to Section 13 or 14 of the Exchange Act.
8.7 Contingent Obligations. The Company shall not, and shall not suffer
or permit any Subsidiary to, create, incur, assume or suffer to exist any
Contingent Obligations except:
(a) endorsements for collection or deposit in the ordinary course of
business;
(b) Permitted Swap Obligations;
(c) Contingent Obligations of the Company and its Subsidiaries
existing as of the Closing Date and listed in Schedule 8.7;
(d) Contingent Obligations with respect to Surety Instruments
incurred in the ordinary course of business and not exceeding at any time
$25,000,000 in the aggregate in respect of the Company and its Subsidiaries
together;
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(e) Contingent Obligations arising under the Loan Documents; and
(f) Off Balance Sheet Lease Obligations under the UBS Off-Balance
Sheet Lease Facility.
8.8 Restricted Payments. The Company shall not, declare or make any
dividend payment or other distribution of assets, properties, cash, rights,
obligations or securities on account of any shares of any class of its capital
stock, or purchase, redeem or otherwise acquire for value any shares of its
capital stock or any warrants, rights or options to acquire such shares, now or
hereafter outstanding; except that the Company may:
(a) declare and make dividend payments or other distributions
payable solely in its common stock;
(b) purchase, redeem or otherwise acquire shares of its common stock
or warrants or options to acquire any such shares with the proceeds received
from the substantially concurrent issue of new shares of its common stock;
(c) purchase, redeem or otherwise acquire shares of its common
stock, provided, that, such purchase, redemption or acquisition is pursuant to
the Company's employee stock option purchase plan,
(d) purchase, redeem or otherwise acquire shares of its common
stock, provided, that, the aggregate of all such purchases, redemptions and
acquisitions shall not exceed $200,000,000 and immediately before and after
giving effect to any such purchase, redemption, or acquisition under this clause
(ii), the Company's unencumbered cash balances shall exceed $100,000,000; and
(e) declare and pay cash dividends to its stockholders, provided,
that, in any period of four consecutive fiscal quarters the aggregate of all
such dividends declared or paid in respect of capital stock of the Company shall
not exceed 15% of the Company's consolidated net income for such period;
provided, that, in the case of (c), (d) and (e), immediately after giving effect
to such proposed action, no Default or Event of Default would exist.
8.9 ERISA. The Company shall not, and shall not suffer or permit any of
its ERISA Affiliates to: (a) engage in a prohibited transaction or violation of
the fiduciary responsibility rules with respect to any Plan which has resulted
or could reasonably expected to result in liability of the Company in an
aggregate amount in excess of $10,000,000; or (b)
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engage in a transaction that could be subject to Section 4069 or 4212(c) of
ERISA.
8.10 Change in Business. The Company shall not, and shall not suffer or
permit any Subsidiary to, engage in any material line of business substantially
different from those lines of business carried on by the Company and its
Subsidiaries on the date hereof.
8.11 Accounting Changes. The Company shall not, and shall not suffer or
permit any Subsidiary to, make any significant change in accounting treatment or
reporting practices, except as required by GAAP, or change the fiscal year of
the Company or of any Subsidiary.
8.12 Subordinated Debt. The Company shall not, and shall not permit any
of its Subsidiaries to:
(a) subject to clause (c) below, make any payment (whether of
principal, interest or otherwise) on any Subordinated Debt on any day other than
the stated, scheduled date for such payment set forth in the documents and
instruments evidencing such Subordinated Debt;
(b) make any payment on any Subordinated Debt in contravention or
violation of the subordination provisions thereof; or
(c) prepay, redeem, purchase or defease any Subordinated Debt, or
make any deposit for any of the foregoing purposes; provided that, the Company
may redeem Subordinated Debt if immediately before and after giving effect
thereto (i) the Company has unencumbered cash balances in excess of $100,000,000
and (ii) no Default or Event of Default shall exist; or
(d) enter into any amendment or modification of any Subordinated
Debt.
ARTICLE IX
FINANCIAL COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Required Banks waive compliance in writing:
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9.1 Consolidated Tangible Net Worth. Not permit at any time Consolidated
Tangible Net Worth to be less than the sum of (i) 85% of Consolidated Tangible
Net Worth as of September 26, 1997, plus (ii) 75% of positive net income (before
acquisition related charges if such charges are expensed in the fiscal quarter
in which the related Acquisition is completed) for the period from and after
September 26, 1997, plus (iii) 75% of the aggregate net proceeds received by the
Company from the issuance or sale of its capital stock from and after the date
hereof, plus (iv) 100% of the principal amount of any Subordinated Debt which is
converted into equity after the date hereof, less (v) 100% of acquisition
related charges if such charges are expensed in the fiscal quarter in which the
related Acquisition is completed.
9.2 Leverage Ratio. Not permit at any time the ratio of
(i) the Company's consolidated Indebtedness (including
Surety Instruments but excluding Subordinated Debt), to
(ii) the sum of the Company's consolidated Indebtedness
(including Surety Instruments), plus Consolidated Tangible Net
Worth,
to be greater than 0.35 to 1.00.
9.3 Fixed Charge Coverage Ratio. Not permit for any period of four
consecutive fiscal quarters of the Company, the ratio of
(A) the sum of:
(i) the consolidated operating income (before Acquisition
related charges if such charges are expensed in the fiscal
quarter in which the related Acquisition is completed) of the
Company and its Subsidiaries for such period, plus
(ii) the consolidated rent/operating lease expense of the
Company and its Subsidiaries for such period to
(B) the sum of:
(i) the consolidated interest expense of the Company and its
Subsidiaries for such period, plus
(ii) the consolidated capitalized interest of the Company and
its Subsidiaries for such period, plus
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(iii) the consolidated rent/operating lease expense of the Company
and its Subsidiaries for such period, plus
(iv) dividends on its capital stock declared or paid by the Company
during such period, plus
(v) the aggregate average current portion of long term debt (as of
the end of each of the four fiscal quarters then most recently
ended) of the Company and its Subsidiaries which is payable
within 12 months of the end of each such fiscal quarters,
to be less than 1.25 to 1.00.
ARTICLE X
EVENTS OF DEFAULT
10.1 Event of Default. Any of the following shall constitute an "Event of
Default":
(a) Non-Payment. Any Borrower fails to pay, (i) when and as required
to be paid herein, any amount of principal of any Loan or of any L/C Obligation,
or (ii) within 3 days after the same becomes due, any interest, fee or any other
amount payable hereunder or under any other Loan Document; or
(b) Representation or Warranty. Any representation or warranty by
the Company or any Subsidiary made or deemed made herein, in any other Loan
Document, or which is contained in any certificate, document or financial or
other statement by the Company, any Subsidiary, or any Responsible Officer,
furnished at any time under this Agreement, or in or under any other Loan
Document, is incorrect in any material respect on or as of the date made or
deemed made; or
(c) Specific Defaults. The Company fails to perform or observe any
term, covenant or agreement contained in any of Section 7.1, 7.2, 7.3 or
7.9 or in Articles VIII, IX or XII; or
(d) Other Defaults. The Company or any Subsidiary party thereto
fails to perform or observe any other term or covenant contained in this
Agreement or any other Loan Document, and such default shall continue
unremedied for a period of 20 days after the earlier of (i) the date upon which
a Responsible Officer knew or reasonably should have known of such failure or
(ii) the date upon which written notice thereof is given to the Company by the
Agent or any Bank; or
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(e) Cross-Default. (i) The Company or any Subsidiary
(A) fails to make any payment in respect of any Indebtedness or
Contingent Obligation (other than in respect of Swap Contracts), having an
aggregate principal amount (and including amounts owing to all creditors
under any combined or syndicated credit arrangement) of more than
$20,000,000 when due (whether by scheduled maturity, required prepayment,
acceleration, demand, or otherwise) and such failure continues after the
applicable grace or notice period, if any, specified in the relevant
document on the date of such failure; or
(B) fails to perform or observe any other condition or covenant,
or any other event shall occur or condition exist, under any agreement or
instrument relating to any such Indebtedness or Contingent Obligation, and
such failure continues after the applicable grace or notice period, if
any, specified in the relevant document on the date of such failure if the
effect of such failure, event or condition is to cause, or to permit the
holder or holders of such Indebtedness or beneficiary or beneficiaries of
such Indebtedness (or a trustee or agent on behalf of such holder or
holders or beneficiary or beneficiaries) to cause such Indebtedness to be
declared to be due and payable prior to its stated maturity, or such
Contingent Obligation to become payable or cash collateral in respect
thereof to be demanded;
or (ii) there occurs under any Swap Contract an Early Termination Date (as
defined in such Swap Contract) resulting from (1) any event of default under
such Swap Contract as to which the Company or any Subsidiary is the Defaulting
Party (as defined in such Swap Contract) or (2) any Termination Event (as so
defined) as to which the Company or any Subsidiary is an Affected Party (as so
defined), and, in either event, the Swap Termination Value owed by the Company
or such Subsidiary as a result thereof is greater than $20,000,000
(Notwithstanding the foregoing, the provisions of this Section 10.1(e) shall not
apply to a non-material default under an equipment lease entered into in the
ordinary course of business so long as (i) such default arises from a good faith
dispute which is not related to the creditworthiness of the Company or its
Subsidiaries, and (ii) the aggregate Indebtedness under all such equipment
leases shall not exceed $50,000,000 in the aggregate); or
(f) Insolvency; Voluntary Proceedings. The Company or any Subsidiary
(i) ceases or fails to be solvent, or generally fails to pay, or admits in
writing its inability to pay, its debts as they become due, subject to
applicable grace periods, if any, whether at stated maturity or otherwise; (ii)
voluntarily ceases to conduct its business in the ordinary
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course; (iii) commences any Insolvency Proceeding with respect to itself; or
(iv) takes any action to effectuate or authorize any of the foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary Insolvency
Proceeding is commenced or filed against the Company or any Subsidiary, or any
writ, judgment, warrant of attachment, execution or similar process, is issued
or levied against a substantial part of the Company's or any Subsidiary's
properties, and any such proceeding or petition shall not be dismissed, or such
writ, judgment, warrant of attachment, execution or similar process shall not be
released, vacated or fully bonded within 60 days after commencement, filing or
levy; (ii) the Company or any Subsidiary admits the material allegations of a
petition against it in any Insolvency Proceeding, or an order for relief (or
similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or
(iii) the Company or any Subsidiary acquiesces in the appointment of a receiver,
trustee, custodian, conservator, liquidator, mortgagee in possession (or agent
therefor), or other similar Person for itself or a substantial portion of its
property or business; or
(h) ERISA. (i) An ERISA Event shall occur with respect to a Pension
Plan or Multiemployer Plan which has resulted or could reasonably be expected to
result in liability of the Company under Title IV of ERISA to the Pension Plan,
Multiemployer Plan or the PBGC in an aggregate amount in excess of $10,000,000;
the aggregate amount of Unfunded Pension Liability among all Pension Plans at
any time exceeds $10,000,000; or (iii) the Company or any ERISA Affiliate shall
fail to pay when due, after the expiration of any applicable grace period, any
installment payment with respect to its withdrawal liability under Section 4201
of ERISA under a Multiemployer Plan in an aggregate amount in excess of
$10,000,000; or
(i) Monetary Judgments. One or more non-interlocutory judgments,
non-interlocutory orders, decrees or arbitration awards is entered against the
Company or any Subsidiary involving in the aggregate a liability (to the extent
not covered by independent third-party insurance as to which the insurer does
not dispute coverage) as to any single or related series of transactions,
incidents or conditions, of $10,000,000 or more, and the same shall remain
unvacated and unstayed pending appeal for a period of 10 days after the entry
thereof; or
(j) Non-Monetary Judgments. Any non-monetary judgment, order or
decree is entered against the Company or any Subsidiary which does or would
reasonably be expected to have a Material Adverse Effect, and there shall be any
period of 10 consecutive days during which a stay of enforcement of such
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judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; or
(k) Change of Control. There occurs any Change of Control; or
(l) Adverse Change. There occurs a Material Adverse Effect.
10.2 Remedies. If any Event of Default occurs, the Agent shall, at the
request of, or may, with the consent of, the Required Banks,
(a) declare the commitment of each Bank to make Loans and any
obligation of the Issuing Bank to Issue Letters of Credit to be terminated,
whereupon such commitments and obligation shall be terminated;
(b) declare an amount equal to the maximum aggregate amount that is
or at any time thereafter may become available for drawing under any outstanding
Letters of Credit (whether or not any beneficiary shall have presented, or shall
be entitled at such time to present, the drafts or other documents required to
draw under such Letters of Credit) to be immediately due and payable, and
declare the unpaid principal amount of all outstanding Loans, all interest
accrued and unpaid thereon, and all other amounts owing or payable hereunder or
under any other Loan Document to be immediately due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Company; and
(c) exercise on behalf of itself and the Banks all rights and
remedies available to it and the Banks under the Loan Documents or applicable
law;
provided, however, that upon the occurrence of any event specified in subsection
(f) or (g) of Section 10.1 (in the case of clause (i) of subsection (g) upon the
expiration of the 60-day period mentioned therein), the obligation of each Bank
to make Loans and any obligation of the Issuing Bank to Issue Letters of Credit
shall automatically terminate and the unpaid principal amount of all outstanding
Loans and all interest and other amounts as aforesaid shall automatically become
due and payable without further act of the Agent, the Issuing Bank or any Bank.
10.3 Rights Not Exclusive. The rights provided for in this Agreement and
the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
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10.4 Certain Financial Covenant Defaults. In the event that, after taking
into account any extraordinary charge to earnings taken or to be taken as of the
end of any fiscal period of the Company (a "Charge"), and if solely by virtue of
such Charge, there would exist an Event of Default due to the breach of any of
Sections 9.1, 9.2, or 9.3 as of such fiscal period end date, such Event of
Default shall be deemed to arise upon the earlier of (a) the date after such
fiscal period end date on which the Company announces publicly it will take, is
taking or has taken such Charge (including an announcement in the form of a
statement in a report filed with the SEC) or, if such announcement is made prior
to such fiscal period end date, the date that is such fiscal period end date, or
(b) the date the Company delivers to the Agent its audited annual or unaudited
quarterly financial statements in respect of such fiscal period reflecting such
Charge as taken.
ARTICLE XI
THE AGENT
11.1 Appointment and Authorization; "Agent". (a) Each Bank hereby
irrevocably (subject to Section 11.9) appoints, designates and authorizes the
Agent to take such action on its behalf under the provisions of this Agreement
and each other Loan Document and to exercise such powers and perform such duties
as are expressly delegated to it by the terms of this Agreement or any other
Loan Document, together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in this
Agreement or in any other Loan Document, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall the Agent
have or be deemed to have any fiduciary relationship with any Bank, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Agent. Without limiting the generality of the
foregoing sentence, the use of the term "agent" in this Agreement with reference
to the Agent is not intended to connote any fiduciary or other implied (or
express) obligations arising under agency doctrine of any applicable law.
Instead, such term is used merely as a matter of market custom, and is intended
to create or reflect only an administrative relationship between independent
contracting parties.
(b) The Issuing Bank shall act on behalf of the Banks with respect
to any Letters of Credit Issued by it and the documents associated therewith
until such time and except for so long as the Agent may agree at the request of
the Required Banks to act for such Issuing Bank with respect thereto; provided,
however, that the Issuing Bank shall have all of the benefits
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and immunities (i) provided to the Agent in this Article XI with respect to any
acts taken or omissions suffered by the Issuing Bank in connection with Letters
of Credit Issued by it or proposed to be Issued by it and the application and
agreements for letters of credit pertaining to the Letters of Credit as fully as
if the term "Agent", as used in this Article XI, included the Issuing Bank with
respect to such acts or omissions, and (ii) as additionally provided in this
Agreement with respect to the Issuing Bank.
11.2 Delegation of Duties. The Agent may execute any of its duties under
this Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
11.3 Liability of Agent. None of the Agent-Related Persons shall (i) be
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be responsible in any manner to any of the Banks for any recital,
statement, representation or warranty made by the Company or any Subsidiary or
Affiliate of the Company, or any officer thereof, contained in this Agreement or
in any other Loan Document, or in any certificate, report, statement or other
document referred to or provided for in, or received by the Agent under or in
connection with, this Agreement or any other Loan Document, or the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document, or for any failure of the Company or any other party to
any Loan Document to perform its obligations hereunder or thereunder. No
Agent-Related Person shall be under any obligation to any Bank to ascertain or
to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement or any other Loan Document, or to
inspect the properties, books or records of the Company or any of the Company's
Subsidiaries or Affiliates.
11.4 Reliance by Agent. (a) The Agent shall be entitled to rely, and shall
be fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to the
Company), independent accountants and other experts selected by the Agent. The
Agent shall be fully justified in failing or refusing to take any action under
this Agreement or any other Loan Document unless it
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shall first receive such advice or concurrence of the Required Banks or the
Banks, as the case may be, as it deems appropriate and, if it so requests, it
shall first be indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement or any
other Loan Document in accordance with a request or consent of the Required
Banks, or the Banks, as the case may be, and such request and any action taken
or failure to act pursuant thereto shall be binding upon all of the Banks.
(b) For purposes of determining compliance with the conditions
specified in Section 5.1, each Bank that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter either sent by the Agent to such Bank for consent,
approval, acceptance or satisfaction, or required thereunder to be consented to
or approved by or acceptable or satisfactory to such Bank.
11.5 Notice of Default. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default, except with respect
to defaults in the payment of principal, interest and fees required to be paid
to the Agent for the account of the Banks, unless the Agent shall have received
written notice from a Bank or the Company referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default". The Agent will notify the Banks of its receipt of any such
notice. The Agent shall take such action with respect to such Default or Event
of Default as may be requested by the Required Banks in accordance with Article
X; provided, however, that unless and until the Agent has received any such
request, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable or in the best interest of the Banks.
11.6 Credit Decision. Each Bank acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by the Agent hereinafter taken, including any review of the affairs of the
Company and its Subsidiaries, shall be deemed to constitute any representation
or warranty by any Agent-Related Person to any Bank. Each Bank represents to the
Agent that it has, independently and without reliance upon any Agent-Related
Person and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, property, financial and other condition and creditworthiness of the
Company and its Subsidiaries, and all
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applicable bank regulatory laws relating to the transactions contemplated
hereby, and made its own decision to enter into this Agreement and to extend
credit to the Company and its Subsidiaries hereunder. Each Bank also represents
that it will, independently and without reliance upon any Agent-Related Person
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other condition and
creditworthiness of the Company. Except for notices, reports and other documents
expressly herein required to be furnished to the Banks by the Agent, the Agent
shall not have any duty or responsibility to provide any Bank with any credit or
other information concerning the business, prospects, operations, property,
financial and other condition or creditworthiness of the Company which may come
into the possession of any of the Agent-Related Persons.
11.7 Indemnification of Agent. Whether or not the transactions
contemplated hereby are consummated, the Banks shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of the
Company and without limiting the obligation of the Company to do so), pro rata,
from and against any and all Indemnified Liabilities; provided, however, that no
Bank shall be liable for the payment to the Agent-Related Persons of any portion
of such Indemnified Liabilities resulting solely from such Person's gross
negligence or willful misconduct. Without limitation of the foregoing, each Bank
shall reimburse the Agent upon demand for its ratable share of any costs or
out-of-pocket expenses (including Attorney Costs) incurred by the Agent in
connection with the preparation, execution, delivery, closing, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein, to the extent that the Agent is not
reimbursed for such expenses by or on behalf of the Company. The undertaking in
this Section shall survive the payment of all Obligations hereunder and the
resignation or replacement of the Agent.
11.8 Agent in Individual Capacity. BofA and its Affiliates may make loans
to, issue letters of credit for the account of, accept deposits from, acquire
equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with the Company and its
Subsidiaries and Affiliates as though BofA were not the Agent or the Issuing
Bank hereunder and without notice to or consent of the Banks. The Banks
acknowledge that, pursuant to such activities, BofA or its Affiliates may
receive information
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regarding the Company or its Affiliates (including information that may be
subject to confidentiality obligations in favor of the Company or such
Subsidiary) and acknowledge that the Agent shall be under no obligation to
provide such information to them. With respect to its Loans, BofA shall have the
same rights and powers under this Agreement as any other Bank and may exercise
the same as though it were not the Agent or the Issuing Bank.
11.9 Successor Agent. The Agent may, and at the request of the Required
Banks shall, resign as Agent upon 30 days' notice to the Banks. If the Agent
resigns under this Agreement, the Required Banks shall appoint from among the
Banks a successor agent for the Banks. If no successor agent is appointed prior
to the effective date of the resignation of the Agent, the Agent may appoint,
after consulting with the Banks and the Company, a successor agent from among
the Banks. Upon the acceptance of its appointment as successor agent hereunder,
such successor agent shall succeed to all the rights, powers and duties of the
retiring Agent and the term "Agent" shall mean such successor agent and the
retiring Agent's appointment, powers and duties as Agent shall be terminated.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this Article XI and Sections 13.4 and 13.5 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement. If no successor agent has accepted appointment as Agent by the date
which is 30 days following a retiring Agent's notice of resignation, the
retiring Agent's resignation shall nevertheless thereupon become effective and
the Banks shall perform all of the duties of the Agent hereunder until such
time, if any, as the Required Banks appoint a successor agent as provided for
above. Notwithstanding the foregoing, however, BofA may not be removed as the
Agent at the request of the Banks unless BofA shall also simultaneously be
replaced as "Issuing Bank" hereunder pursuant to documentation in form and
substance reasonably satisfactory to BofA.
11.10 Withholding Tax. (a) If any Bank is a "foreign corporation,
partnership or trust" within the meaning of the Code and such Bank claims
exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or
1442 of the Code, such Bank agrees with and in favor of the Agent, to deliver to
the Agent:
(i) if such Bank claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, two properly completed
and executed copies of IRS Form 1001 before the payment of any interest in
the first calendar year and before the payment of any interest in each
third succeeding calendar year during which interest may be paid under
this Agreement;
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(ii) if such Bank claims that interest paid under this Agreement is
exempt from United States withholding tax because it is effectively
connected with a United States trade or business of such Bank, two
properly completed and executed copies of IRS Form 4224 before the payment
of any interest is due in the first taxable year of such Bank and in each
succeeding taxable year of such Bank during which interest may be paid
under this Agreement; and
(iii) such other form or forms as may be required under the Code or
other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Agent of any change in circumstances
which would modify or render invalid any claimed exemption or reduction.
(b) If any Bank claims exemption from, or reduction of, withholding
tax under a United States tax treaty by providing IRS Form 1001 and such Bank
sells, assigns, grants a participation in, or otherwise transfers all or part of
the Obligations of any Borrower to such Bank, such Bank agrees to notify the
Agent of the percentage amount in which it is no longer the beneficial owner of
Obligations of such Borrower to such Bank. To the extent of such percentage
amount, the Agent will treat such Bank's IRS Form 1001 as no longer valid.
(c) If any Bank claiming exemption from United States withholding
tax by filing IRS Form 4224 with the Agent sells, assigns, grants a
participation in, or otherwise transfers all or part of the Obligations of such
Borrower to such Bank, such Bank agrees to undertake sole responsibility for
complying with the withholding tax requirements imposed by Sections 1441 and
1442 of the Code.
(d) If any Bank is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such Bank
an amount equivalent to the applicable withholding tax after taking into account
such reduction. However, if the forms or other documentation required by
subsection (a) of this Section are not delivered to the Agent, then the Agent
may withhold from any interest payment to such Bank not providing such forms or
other documentation an amount equivalent to the applicable withholding tax
imposed by Sections 1441 and 1442 of the Code, without reduction.
(e) If the IRS or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that the Agent did not properly
withhold tax from amounts paid to or for the account of any Bank (because the
appropriate form was not delivered or was not properly executed, or because such
Bank
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failed to notify the Agent of a change in circumstances which rendered the
exemption from, or reduction of, withholding tax ineffective, or for any other
reason) such Bank shall indemnify the Agent fully for all amounts paid, directly
or indirectly, by the Agent as tax or otherwise, including penalties and
interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Agent under this Section, together with all costs and expenses
(including Attorney Costs). The obligation of the Banks under this subsection
shall survive the payment of all Obligations and the resignation or replacement
of the Agent.
11.11 Syndication Agents. None of the Banks identified on the facing page
or signature pages of this Agreement as a "syndication agent" shall have any
right, power, obligation, liability, responsibility or duty under this Agreement
other than those applicable to all Banks as such. Without limiting the
foregoing, none of the Banks so identified as a "syndication agent" shall have
or be deemed to have any fiduciary relationship with any Bank. Each Bank
acknowledges that it has not relied, and will not rely, on any of the Banks so
identified in deciding to enter into this Agreement or in taking or not taking
action hereunder.
ARTICLE XII
GUARANTY
12.1 Guaranty. The Company hereby irrevocably, absolutely and
unconditionally guarantees the full and punctual payment or performance when
due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise, of all of the Obligations of each of the
Borrowing Subsidiaries (collectively, the "Subsidiary Obligations"), including
Subsidiary Obligations in respect of amounts that would become due but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Code or
the operation of Sections 502(b) and 506(b) of the Bankruptcy Code. This
Agreement constitutes a guaranty of payment and performance when due and not of
collection, and the Company specifically agrees that it shall not be necessary
or required that the Agent or any Bank exercise any right, assert any claim or
demand or enforce any remedy whatsoever against the Company (or any other
Person) before or as a condition to the obligations of the Company hereunder.
The Agent or any Bank may permit the indebtedness of the Company to the Agent or
any Bank to include indebtedness other than the Subsidiary Obligations, and may
apply any amounts received from any source, other than from the Company, to that
portion of Company's indebtedness to the Agent or any Bank which is not a part
of the Subsidiary Obligations.
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12.2 Obligations Independent. The obligations hereunder are independent of
the obligations of the Company, and a separate action or actions may be brought
and prosecuted against the Company whether action is brought against the Company
or whether the Company be joined in any such action or actions.
12.3 Authorization of Renewals, Etc. The Company authorizes the Agent and
each Bank, without notice or demand and without affecting its liability
hereunder, from time to time:
(a) to renew, compromise, extend, accelerate or otherwise change the
time for payment, or otherwise change the terms, of the Subsidiary Obligations,
including increase or decrease of the rate of interest thereon, or otherwise
change the terms of this Agreement or any other Loan Document;
(b) to receive and hold security for the payment of this Agreement
or the Subsidiary Obligations and exchange, enforce, waive, release, fail to
perfect, sell, or otherwise dispose of any such security;
(c) to apply such security and direct the order or manner of sale
thereof as the Agent, or any Bank, as the case may be, in its or their
discretion may determine; and
(d) to release or substitute any one or more of any endorsers or
guarantors of the Subsidiary Obligations.
The Company further agrees the performance or occurrence of any of the acts or
events described in clauses (a), (b), (c), and (d) above with respect to
indebtedness or other obligations of the Company, other than the Subsidiary
Obligations, to the Agent or any Bank, shall not affect the liability of the
Company hereunder.
12.4 Waiver of Certain Rights. The Company waives any right to require the
Agent or any Bank:
(a) to proceed against the Company or any other Person;
(b) to proceed against or exhaust any security for the Subsidiary
Obligations or any other indebtedness of the Company to the Agent or any Bank;
or
(c) to pursue any other remedy in the Agent's or any such Bank's
power whatsoever.
12.5 Waiver of Certain Defenses. With respect to its obligations under
Article XII, the Company hereby waives (i) any defense arising by reason of any
disability or other defense of the Company, or the cessation from any cause
whatsoever of the
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liability of the Company, whether consensual or arising by operation of law or
any bankruptcy, insolvency or debtor relief proceeding, or from any other cause,
or any claim that the Company's obligations exceed or are more burdensome than
those of the Company, (ii) any defense arising by reason of any statute of
limitations affecting the liability of the Company, (iii) all rights and
defenses arising out of an election of remedies by the Agent or any Bank, even
though that election of remedies, such as a nonjudicial foreclosure with respect
to security for the Subsidiary Obligations, has destroyed the Company's rights
of subrogation and reimbursement against the Company by operation of Section
580d of the California Code of Civil Procedure (if applicable) or other
applicable law, and all rights or defenses the Company may have by reason of
protection afforded to the Company with respect to the Subsidiary Obligations
pursuant to the antideficiency laws or other laws of the State of California (or
other applicable jurisdiction) limiting or discharging the Subsidiary
Obligations, and (iv) any benefit of, and any right to participate in, any
security or other guaranty now or hereafter held by the Agent or any Bank
securing the Subsidiary Obligations.
12.6 Waiver of Presentments, Etc. The Company waives all presentments,
demands for performance, notices of nonperformance, protests, notices of
protest, notices of dishonor and notices of acceptance of this Agreement and of
the existence, creation, or incurring of new or additional Subsidiary
Obligations or any other indebtedness of Company to the Agent or any Bank.
12.7 Information Relating to Company. The Company acknowledges and agrees
that it shall have the sole responsibility for obtaining from the Company such
information concerning the Company's financial condition or business operations
as the Company may require, and that neither the Agent nor any Bank has any duty
at any time to disclose to the Company any information relating to the business
operations or financial condition of the Company.
12.8 Subordination. All obligations of any Borrowing Subsidiary to the
Company, now or hereafter existing, constituting obligations to the Company as
subrogee of the Agent or any Bank or resulting from the Company's performance
under this Agreement, are hereby fully subordinated in time and priority of
payment to the Subsidiary Obligations. Such obligations of the Borrowing
Subsidiaries to the Company if the Required Banks so request shall be enforced
and performance received by the Company as trustee for the Agent and the Banks
and the proceeds thereof shall be paid over to the Agent and the Banks on
account of the Subsidiary Obligations, but without reducing or affecting in any
manner the liability of the Company under the other provisions of this
Agreement.
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12.9 Reinstatement of Guaranty. If any payment or transfer of any interest
in property by the Company to the Agent or any Bank in fulfillment of any
Obligation is rescinded or must at any time (including after the return or
cancellation of this Agreement) be returned, in whole or in part, by the Agent
or any Bank to the Company or any other Person, upon the insolvency, bankruptcy
or reorganization of the Company or otherwise, this Agreement shall be
reinstated with respect to any such payment or transfer, regardless of any such
prior return or cancellation.
12.10 Powers. It is not necessary for the Agent or any Bank to inquire
into the powers of the Company or of the officers, directors, partners or agents
acting or purporting to act on its behalf, and any Subsidiary Obligations made
or created in reliance upon the professed exercise of such powers shall be
guaranteed hereunder.
12.11 Application of Payments on Guaranty. All payments required to be
made by the Company hereunder shall, unless otherwise expressly provided herein,
be made to the Agent for the account of the Banks at the Agent's Payment Office.
The Agent will promptly distribute to each Bank its Pro Rata Share (or other
applicable share as expressly provided herein) of such payment in like funds as
received. Payments received from the Company shall, unless otherwise expressly
provided herein, be applied to costs, fees, or other expenses due under the Loan
Documents, any interest (including interest due under subsection 2.9 of this
Agreement, any principal due under the Loan Documents and any other Subsidiary
Obligations, in such order as the Agent, with the consent of or at the request
of the Required Banks, shall determine.
ARTICLE XIII
MISCELLANEOUS
13.1 Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by the Company or any applicable Subsidiary therefrom, shall be
effective unless the same shall be in writing and signed by the Required Banks
(or by the Agent at the written request of the Required Banks) and the Company
and acknowledged by the Agent, and then any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no such waiver, amendment, or consent shall,
unless in writing and signed by all the Banks and the Company and acknowledged
by the Agent, do any of the following:
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(a) increase or extend the Commitment of any Bank (or reinstate any
Commitment terminated pursuant to Section 8.2);
(b) postpone or delay any date fixed by this Agreement or any other
Loan Document for any payment of principal, interest, fees or other amounts due
to the Banks (or any of them) hereunder or under any other Loan Document;
(c) reduce the principal of, or the rate of interest specified
herein on any Loan, or (subject to clause (iii) below) any fees or other amounts
payable hereunder or under any other Loan Document;
(d) change the definition of Required Lenders or otherwise change
the percentage of the Commitments or of the aggregate unpaid principal amount of
the Loans which is required for the Banks or any of them to take any action
hereunder;
(e) amend this Section, or Section 2.14, or any provision herein
providing for consent or other action by all Banks; or
(f) release the Company from its obligations under Article XII;
and, provided further, that (i) no amendment, waiver or consent shall, unless in
writing and signed by the Issuing Bank in addition to the Required Banks or all
the Banks, as the case may be, affect the rights or duties of the Issuing Bank
under this Agreement or any L/C-Related Document relating to any Letter of
Credit Issued or to be Issued by it, (ii) no amendment, waiver or consent shall,
unless in writing and signed by the Agent in addition to the Required Banks or
all the Banks, as the case may be, affect the rights or duties of the Agent
under this Agreement or any other Loan Document, and (iii) the Fee Letter may be
amended, or rights or privileges thereunder waived, in a writing executed by the
parties thereto.
13.2 Notices. (a) All notices, requests, consents, approvals, waivers and
other communications shall be in writing (including, unless the context
expressly otherwise provides, by facsimile transmission, provided that any
matter transmitted by a Borrower by facsimile (i) shall be immediately confirmed
by a telephone call to the recipient at the number specified on Schedule 13.2,
and (ii) shall be followed promptly by delivery of a hard copy original thereof)
and mailed, faxed or delivered, to the address or facsimile number specified for
notices on Schedule 13.2; or, as directed to the Company or the Agent, to such
other address as shall be designated by such party in a written notice to the
other parties, and as directed to any other party, at such other address as
shall be designated by such party in a written notice to the Company and the
Agent.
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(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mail, or if delivered, upon delivery; except that
notices pursuant to Article II, III or XI to the Agent shall not be effective
until actually received by the Agent, and notices pursuant to Article III to the
Issuing Bank shall not be effective until actually received by the Issuing Bank
at the address specified for the "Issuing Bank" on the applicable signature page
hereof.
(c) Any agreement of the Agent and the Banks herein to receive
certain notices by telephone or facsimile is solely for the convenience and at
the request of the Borrowers. The Agent and the Banks shall be entitled to rely
on the authority of any Person purporting to be a Person authorized by the
Borrowers to give such notice and the Agent and the Banks shall not have any
liability to the Borrowers or other Person on account of any action taken or not
taken by the Agent or the Banks in reliance upon such telephonic or facsimile
notice. The obligation of the Borrowers to repay the Loans and L/C Obligations
shall not be affected in any way or to any extent by any failure by the Agent
and the Banks to receive written confirmation of any telephonic or facsimile
notice or the receipt by the Agent and the Banks of a confirmation which is at
variance with the terms understood by the Agent and the Banks to be contained in
the telephonic or facsimile notice.
13.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay
in exercising, on the part of the Agent or any Bank, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege.
13.4 Costs and Expenses. The Company shall:
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse BofA (including in its capacity as Agent and
Issuing Bank) within five Business Days after demand (subject to subsection
5.1(e)) for all costs and expenses incurred by BofA (including in its capacity
as Agent and Issuing Bank) in connection with the development, preparation,
delivery, closing, administration and execution of, and any amendment,
supplement, waiver or modification to (in each case, whether or not
consummated), this Agreement, any Loan Document and any other documents prepared
in connection herewith or therewith, and the consummation of the transactions
contemplated hereby and thereby, including reasonable Attorney
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Costs incurred by BofA (including in its capacity as Agent and Issuing Bank)
with respect thereto; and
(b) pay or reimburse the Agent, the Arranger and each Bank within
five Business Days after demand (subject to subsection 5.1(e)) for all costs and
expenses (including Attorney Costs) incurred by them in connection with the
enforcement, attempted enforcement, or preservation of any rights or remedies
under this Agreement or any other Loan Document during the existence of an Event
of Default or after acceleration of the Loans (including in connection with any
"workout" or restructuring regarding the Loans, and including in any Insolvency
Proceeding or appellate proceeding).
13.5 Company Indemnification. Whether or not the transactions contemplated
hereby are consummated, the Company shall indemnify, defend and hold the
Agent-Related Persons, and each Bank and each of its respective officers,
directors, employees, counsel, agents and attorneys-in-fact (each, an
"Indemnified Person") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including Attorney Costs) of any kind or
nature whatsoever which may at any time (including at any time following
repayment of the Loans, the termination of the Letters of Credit and the
termination, resignation or replacement of the Agent or replacement of any Bank)
be imposed on, incurred by or asserted against any such Person in any way
relating to or arising out of this Agreement or any document contemplated by or
referred to herein, or the transactions contemplated hereby, or any action taken
or omitted by any such Person under or in connection with any of the foregoing,
including with respect to any investigation, litigation or proceeding (including
any Insolvency Proceeding or appellate proceeding) related to or arising out of
this Agreement or the Loans or Letters of Credit or the use of the proceeds
thereof, whether or not any Indemnified Person is a party thereto (all the
foregoing, collectively, the "Indemnified Liabilities"); provided, that the
Company shall have no obligation hereunder to any Indemnified Person with
respect to Indemnified Liabilities resulting solely from the gross negligence or
willful misconduct of such Indemnified Person. The agreements in this Section
shall survive payment of all other Obligations.
13.6 Payments Set Aside. To the extent that any Borrower makes a payment
to the Agent or the Banks, or the Agent or the Banks exercise their right of
set-off, and such payment or the proceeds of such set-off or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside or required (including pursuant to any settlement entered into by the
Agent or such Bank in its discretion) to be repaid to a trustee, receiver or any
other party, in connection with
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any Insolvency Proceeding or otherwise, then (a) to the extent of such recovery
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such set-off had not occurred, and (b) each Bank severally agrees to pay
to the Agent upon demand its pro rata share of any amount so recovered from or
repaid by the Agent.
13.7 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that no Borrower may assign or transfer any of
its rights or obligations under this Agreement without the prior written consent
of the Agent and each Bank.
13.8 Assignments, Participations, etc. (a) Any Bank may, with the written
consent of the Company (at all times other than during the existence of an Event
of Default) and the Agent and the Issuing Bank, which consent of the Company
shall not be unreasonably withheld, at any time assign and delegate to one or
more Eligible Assignees (provided that no written consent of the Company, the
Agent or the Issuing Bank shall be required in connection with any assignment
and delegation by a Bank to an Eligible Assignee that is an Affiliate of such
Bank) (each an "Assignee") all, or any ratable part of all, of the Loans, the
Commitments, the L/C Obligations and the other rights and obligations of such
Bank hereunder, in a minimum amount of $5,000,000; provided, however, that the
Company and the Agent may continue to deal solely and directly with such Bank in
connection with the interest so assigned to an Assignee until (i) written notice
of such assignment, together with payment instructions, addresses and related
information with respect to the Assignee, shall have been given to the Company
and the Agent by such Bank and the Assignee; (ii) such Bank and its Assignee
shall have delivered to the Company and the Agent an Assignment and Acceptance
in the form of Exhibit F ("Assignment and Acceptance") together with any Note or
Notes subject to such assignment and (iii) the assignor Bank or Assignee has
paid to the Agent a processing fee in the amount of $4,000.
(b) From and after the date that the Agent notifies the assignor
Bank that it has received (and provided its consent with respect to) an executed
Assignment and Acceptance and payment of the above-referenced processing fee,
(i) the Assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, shall have the rights and obligations of a Bank under
the Loan Documents, and (ii) the assignor Bank shall, to the extent that rights
and obligations hereunder and under the other Loan Documents have been assigned
by it pursuant to such Assignment and Acceptance,
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relinquish its rights and be released from its obligations under the Loan
Documents.
(c) Within five Business Days after its receipt of notice by the
Agent that it has received an executed Assignment and Acceptance and payment of
the processing fee, (and provided that it consents to such assignment in
accordance with subsection 13.8(a)), new Notes evidencing such Assignee's
assigned Loans and Commitment and, if the assignor Bank has retained a portion
of its Loans and its Commitment, replacement Notes in the principal amount of
the Loans retained by the assignor Bank (such Notes to be in exchange for, but
not in payment of, the Notes held by such Bank). Immediately upon each
Assignee's making its processing fee payment under the Assignment and
Acceptance, this Agreement shall be deemed to be amended to the extent, but only
to the extent, necessary to reflect the addition of the Assignee and the
resulting adjustment of the Commitments arising therefrom. The Commitment
allocated to each Assignee shall reduce such Commitments of the assigning Bank
pro tanto.
(d) Any Bank may at any time sell to one or more commercial banks or
other Persons not Affiliates of the Company (a "Participant") participating
interests in any Loans, the Commitment of that Bank and the other interests of
that Bank (the "originating Bank") hereunder and under the other Loan Documents;
provided, however, that (i) the originating Bank's obligations under this
Agreement shall remain unchanged, (ii) the originating Bank shall remain solely
responsible for the performance of such obligations, (iii) the Company, the
Issuing Bank and the Agent shall continue to deal solely and directly with the
originating Bank in connection with the originating Bank's rights and
obligations under this Agreement and the other Loan Documents, and (iv) no Bank
shall transfer or grant any participating interest under which the Participant
has rights to approve any amendment to, or any consent or waiver with respect
to, this Agreement or any other Loan Document, except to the extent such
amendment, consent or waiver would require unanimous consent of the Banks as
described in the first proviso to Section 13.1. In the case of any such
participation, the Participant shall be entitled to the benefit of Sections 4.1,
4.3 and 13.5 as though it were also a Bank hereunder, and if amounts outstanding
under this Agreement are due and unpaid, or shall have been declared or shall
have become due and payable upon the occurrence of an Event of Default, each
Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Bank under this Agreement.
(e) Notwithstanding any other provision in this Agreement, any Bank
may at any time create a security interest
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in, or pledge, all or any portion of its rights under and interest in this
Agreement and the Note (if any) held by it in favor of any Federal Reserve Bank
in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31
CFR Section 203.14, and such Federal Reserve Bank may enforce such pledge or
security interest in any manner permitted under applicable law.
13.9 Confidentiality. Each Bank agrees to take and to cause its Affiliates
to take normal and reasonable precautions and exercise due care to maintain the
confidentiality of all information identified as "confidential" or "secret" by
the Company and provided to it by the Company or any Subsidiary, or by the Agent
on the Company's or such Subsidiary's behalf, under this Agreement or any other
Loan Document, and neither it nor any of its Affiliates shall use any such
information other than in connection with or in enforcement of this Agreement
and the other Loan Documents or in connection with other business now or
hereafter existing or contemplated with the Company or any Subsidiary; except to
the extent such information (i) was or becomes generally available to the public
other than as a result of disclosure by the Bank, or (ii) was or becomes
available on a non-confidential basis from a source other than the Company,
provided that such source is not bound by a confidentiality agreement with the
Company known to the Bank; provided, however, that any Bank may disclose such
information (A) at the request or pursuant to any requirement of any
Governmental Authority to which the Bank is subject or in connection with an
examination of such Bank by any such authority; (B) pursuant to subpoena or
other court process; (C) when required to do so in accordance with the
provisions of any applicable Requirement of Law; (D) to the extent reasonably
required in connection with any litigation or proceeding to which the Agent, any
Bank or their respective Affiliates may be party; (E) to the extent reasonably
required in connection with the exercise of any remedy hereunder or under any
other Loan Document; (F) to such Bank's independent auditors and other
professional advisors; (G) to any Participant or Assignee, actual or potential,
provided that such Person agrees in writing to keep such information
confidential to the same extent required of the Banks hereunder; (H) as to any
Bank or its Affiliate, as expressly permitted under the terms of any other
document or agreement regarding confidentiality to which the Company or any
Subsidiary is party or is deemed party with such Bank or such Affiliate; and (I)
to its Affiliates.
13.10 Set-off. In addition to any rights and remedies of the Banks
provided by law, if an Event of Default exists or the Loans have been
accelerated, each Bank is authorized at any time and from time to time, without
prior notice to any Borrower, any such notice being waived by the Borrower to
the fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held by,
and other indebtedness at any time owing by,
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such Bank to or for the credit or the account of a Borrower against any and all
Obligations owing to such Bank, now or hereafter existing, irrespective of
whether or not the Agent or such Bank shall have made demand under this
Agreement or any Loan Document and although such Obligations may be contingent
or unmatured. Each Bank agrees promptly to notify the applicable Borrower and
the Agent after any such set-off and application made by such Bank; provided,
however, that the failure to give such notice shall not affect the validity of
such set-off and application.
13.11 Automatic Debits of Fees. With respect to any commitment fee,
arrangement fee, letter of credit fee or other fee, or any other cost or expense
(including Attorney Costs) due and payable to the Agent, the Issuing Bank, BofA
or the Arranger under the Loan Documents, each Borrower hereby irrevocably
authorizes BofA to debit any deposit account of such Borrower with BofA in an
amount such that the aggregate amount debited from all such deposit accounts
does not exceed such fee or other cost or expense. If there are insufficient
funds in such deposit accounts to cover the amount of the fee or other cost or
expense then due, such debits will be reversed (in whole or in part, in BofA's
sole discretion) and such amount not debited shall be deemed to be unpaid. No
such debit under this Section shall be deemed a set-off.
13.12 Notification of Addresses, Lending Offices, Etc. Each Bank shall
notify the Agent in writing of any changes in the address to which notices to
the Bank should be directed, of addresses of any Lending Office, of payment
instructions in respect of all payments to be made to it hereunder and of such
other administrative information as the Agent shall reasonably request.
13.13 Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
13.14 Severability. The illegality or unenforceability of any provision of
this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
13.15 No Third Parties Benefited. This Agreement is made and entered into
for the sole protection and legal benefit of the Borrowers, the Banks, the Agent
and the Agent-Related Persons, and their permitted successors and assigns, and
no other Person shall be a direct or indirect legal beneficiary of, or have any
direct or indirect cause of action or claim in
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<PAGE> 95
connection with, this Agreement or any of the other Loan Documents.
13.16 Governing Law and Jurisdiction. (a) THIS AGREEMENT AND THE NOTES
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
CALIFORNIA; PROVIDED THAT THE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS
ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA
OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWERS, THE AGENT AND
THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE BORROWERS, THE AGENT AND
THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE
BORROWERS, THE AGENT AND THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY
CALIFORNIA LAW.
13.17 Waiver of Jury Trial. THE BORROWERS, THE BANKS AND THE AGENT EACH
WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER
WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWERS, THE
BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE
PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
13.18 Entire Agreement. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among the Borrowers,
the Banks and the Agent, and supersedes all prior or contemporaneous agreements
and understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof.
-88-
<PAGE> 96
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in San Francisco by their proper and duly authorized
officers as of the day and year first above written.
VLSI TECHNOLOGY, INC.
By: /s/ SUNIL MEHTA
-------------------------------------
Name: Sunil Mehta
-------------------------------
Title: Vice President & Treasurer
-------------------------------
[Corporate Seal]
Attested to by:
/s/ LARRY L. GRANT
- ------------------------------
V.P., Gen. Counsel & Sec.
- ------------------------------
<PAGE> 97
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent, Bank and Issuing Bank
By: /s/ KEVIN MC MAHON
--------------------------------------
Name: KEVIN MC MAHON
------------------------------------
Title: MANAGING DIRECTOR
-----------------------------------
By: /s/ BRIAN K. CHIN
--------------------------------------
Name: Brian K. Chin
------------------------------------
Title: Assistant Vice President
-----------------------------------
<PAGE> 98
BANKBOSTON, N.A.,
as a Bank and Syndication Agent
By: /s/ JAY L. MASSIMO
--------------------------------------
Name: JAY L. MASSIMO
------------------------------------
Title: Vice President
-----------------------------------
<PAGE> 99
THE BANK OF NOVA SCOTIA
By: /s/ JON BURCKIN
--------------------------------------
Name: JON BURCKIN
------------------------------------
Title: RELATIONSHIP MANAGER
-----------------------------------
<PAGE> 100
UNION BANK OF CALIFORNIA, N.A.
By: /s/ PATRICK CLEMENS
--------------------------------------
Name: Patrick Clemens
------------------------------------
Title: Assistant Vice President
-----------------------------------
<PAGE> 101
BANQUE NATIONALE DE PARIS
By: /s/ JUDITH DOWLING
--------------------------------------
Name: Judith Dowling
------------------------------------
Title: Vice President
-----------------------------------
By: /s/ CHARLES H. DAY
--------------------------------------
Name: Charles H. Day
------------------------------------
Title: Assistant Vice President
-----------------------------------
<PAGE> 102
SCHEDULE 2.1
COMMITMENTS
AND PRO RATA SHARES
<TABLE>
<CAPTION>
Pro Rata
Bank Commitment Share
---- ---------- --------
<S> <C> <C>
Bank of America National
Trust and Savings
Association $30,000,000 30%
BankBoston, N.A. $25,000,000 25%
Bank of Nova Scotia $15,000,000 15%
Union Bank of California $15,000,000 15%
Banque Nationale de Paris $15,000,000 15%
TOTAL $100,000,000 100%
</TABLE>
<PAGE> 103
SCHEDULE 6.5
LITIGATION
I Pending Litigation:
None
II Patent Matters:
1. The Company is on notice from Motorola, Inc. regarding technology on
which Motorola claims patents. The Company has discussed licensing
arrangements with Motorola but no agreement has been concluded, and
there can be no assurance the matter will not proceed to litigation.
The Company believes that it has made adequate reserve for this
matter. See note 5 to the Company's Financial Statements.
2. As is customary in the semiconductor industry, the Company receives
notice from time to time that the Company may be utilizing technology
upon which others claim patents. The Company believes that it has
either made adequate reserve for such claims or that they will not
have a Material Adverse Effect. See note 5 to the Company's Financial
Statements.
III Other Claims:
None
<PAGE> 104
SCHEDULE 6.7
ERISA COMPLIANCE EXCEPTIONS
None
<PAGE> 105
SCHEDULE 6.11
PERMITTED LIABILITIES
None
<PAGE> 106
SCHEDULE 6.12
ENVIRONMENTAL MATTERS EXCEPTIONS
None
<PAGE> 107
SCHEDULE 6.16
SUBSIDIARIES AND MINORITY INTERESTS
CREATIVE SYSTEMS SOLUTIONS, INC.
1100-1200 WEST 73RD AVENUE
VANCOUVER, BRITISH COLUMBIA
CANADA V6P 6G5
CREATIVE SYSTEM SOLUTIONS, GMBH
BAYERWALDSTRASSE 11
81737 MUNICH
GERMANY
COMATLAS SA
30 RUE DU CHENE GERMAIN
BP 814
35518 CESSON SEVIGNE CEDEX
FRANCE
VLSI FOREIGN SALES CORPORATION
5 KRONPRINDSENS GADE
CHAROLOTTE AMALIE
ST. THOMAS
U.S. VIRGIN ISLANDS 00801
VLSI INDIA, INC.
1109 MC KAY DRIVE
SAN JOSE, CA 95131
VLSI TECHNOLOGY AG
BAARERSTRASSE 98
P.O. BOX 2069
CH-6302 ZUG
SWITZERLAND
VLSI TECHNOLOGY ASIA LIMITED
15 FLOOR, NO. 170
TUN HWA NORTH ROAD
(HONG TAI WORLDWIDE BUILDING)
TAIPEI, TAIWAN
R.O.C.
VLSI TECHNOLOGY FRANCE, SARL
8 VOIE LA CARDON
PARC GUTENBERG
91126 PALAISEAU
FRANCE
VLSI TECHNOLOGY FRANCE, EURL
8 VOIE LA CARDON
PARC GUTENBERG
91126 PALAISEAU
FRANCE
VLSI TECHNOLOGY, GMBH
BAYERWALDSTRASSE 11
MUNICH
GERMANY
12/18/97 1 VLSI CONFIDENTIAL
<PAGE> 108
SCHEDULE 6.16
SUBSIDIARIES AND MINORITY INTERESTS
VLSI TECHNOLOGY K.K.
NIKKO MOTOYOYOGI BLDG. 1F
30-13 MOTOYOYOGI-CHO
SHIBUYA-KU
TOKYO 151 JAPAN
VLSI TECHNOLOGY LTD.
486-488 MIDSUMMER BLVD.
SAXON GATE WEST
GB-MILTON KEYNES MK9 2EQ
ENGLAND
VLSI TECHNOLOGY (UK) HOLDINGS LIMITED
486-488 MIDSUMMER BLVD.
SAXON GATE WEST
GB-MILTON KEYNES MK9 2EQ
ENGLAND
VLSI TECHNOLOGY, WIRELESS
COMMUNICATION RESEARCH, EURL
505 RTE DES LUCIOLES
LES LUCIOLES
06560 SOPHIA ANTIPOLIS
FRANCE
VLSITEX, INC.
350 N. ST. PAUL
SUITE 2900
DALLAS, TX 75201
12/18/97 2 VLSI CONFIDENTIAL
<PAGE> 109
SCHEDULE 6.17
INSURANCE MATTERS EXCEPTIONS
None
<PAGE> 110
SCHEDULE 8.1(a)
PERMITTED LIENS
Equipment Loans
- ---------------
<TABLE>
<CAPTION>
Type of Equipment Lender Loan Balance
<S> <C> <C>
Semiconductor equipment GE Capital $6.9 million
Semiconductor equipment Heller Financial $12.4 million
</TABLE>
<PAGE> 111
Schedule 8.1(b)
Addendum to Schedule 8.1
Off-Balance Sheet Lease Facility ("Lease") -- General/Significant Structural
Elements
Purpose:
- -------
To provide for the acquisition of certain semiconductor manufacturing
equipment ("Asset"). The Lease is intended to qualify as an operating lease
for VLSI's ("Lessee's") financial accounting purposes satisfying the
requirement of FASB Statement No. 13. The Lessee will be the beneficial
owner of the Asset for tax purposes retaining all tax benefits attendant to
the Asset.
Cash Collateral:
- ---------------
VLSI pledges U.S. Treasury securities having a daily mark-to-market value
of not less than 105% of the funded amount ("Collateral"). The Collateral
would be registered under the name of the appropriate party ("Lessor") and
held in the Lessor's custody account.
Asset:
- -----
Lessor will receive an appraisal with respect to the Asset from an
independent appraiser which will verify the value of the Asset upon
inception and expiration of the Lease.
Lease:
- -----
The Lease will be a bondable net lease whereby the Lessee is
unconditionally obligated to pay all rent ("Lease"). Lessee will pay for
maintenance, repairs, insurance and taxes and will bear risk of loss and
liability from the operation of the Asset.
Lease Termination:
- -----------------
Prior to termination of the Lease, the Lessee will either: (a) exercise its
Purchase Option as defined below; or (b) exercise the End of Term Option as
defined below.
Purchase Option & End of Term Option:
- -----------------------------------
Lessee shall have the option ("Purchase Option") to purchase all of the
Asset at any time during the term of the Lease for the Termination Value.
One year prior to expiration of the term, the Lessee shall give notice to
either purchase the Asset subject to the Lease at the end of the term for
the Termination Value or return the Asset to the Lessor, subject to
satisfactory return conditions, and, in the later case, the Lessee will use
reasonable commercial efforts to sell the Asset as remarketing agent for
Lessor ("End of Term Option"). Regardless of whether the Asset is sold,
the Lessee shall at all times be obligated to repay the amount of the
lease.
Termination Value:
- -----------------
Outstanding principal balance of the funded amount plus (a) any accrued and
unpaid interest thereon, (b) the mark-to-market interest costs for the
current period, and (c) any other monetary amounts due under the Lease.
<PAGE> 112
SCHEDULE 8.7
CONTINGENT OBLIGATIONS
Purchase of 5 acres of land at Lundy and Ringwood, San Jose, for $3.45 million
<PAGE> 113
SCHEDULE 13.2
OFFSHORE AND DOMESTIC LENDING OFFICES,
ADDRESSES FOR NOTICES
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
Notice of Borrowing and
Conversion/Continuation:
Bank of America National Trust
and Savings Association
Agency Administrative Services #5596
1850 Gateway Blvd., 5th Floor
Concord, CA 94520-3281
Attention: VLSI AO
Telephone: (510) 675-8441
Facsimile: (510) 675-8500
Address for all Other Notices:
Bank of America National Trust
and Savings Association
555 California Street, 41st Floor
San Francisco, CA 94104
Attention: Credit Products
High Technology-SF #3697
Brian Chin
Telephone: (415) 622-4567
Facsimile: (415) 622-2385
AGENT'S PAYMENT OFFICE:
Bank of America National Trust
and Savings Association
(ABA 121-000-358)
Attention: Agency Administrative Services, #5596
1850 Gateway Boulevard
Concord, CA 94520
For credit to account:
No. 12335-16011
Ref: VLSI Technology, Inc.
-97-
<PAGE> 114
Notices (other than Borrowing Notices and
Notices of Conversion/Continuation):
Bank of America National Trust
and Savings Association
555 California Street, 41st Floor
San Francisco, CA 94104
Attention: Credit Products
High Technology-SF #3697
Brian Chin
Telephone: (415) 622-4567
Facsimile: (415) 622-2385
Address for VLSI Notices:
VLSI Technology, Inc.
1109 McKay Drive, M/S 26
San Jose, California 95131
Attention: Sunil Mehta
Telephone: (408) 434-7861
Facsimile: (408) 434-3181
Address for BANKBOSTON, N.A. Notices:
Borrowing Notices:
100 Federal Street
Boston, MA 02110
Attn: Anthony Dunn
Telephone: (617) 434-9625
Facsimile: (617) 434-9821
copy to:
435 Tasso Street, Suite 250
Palo Alto, CA 94301
Credit Notices:
435 Tasso Street, Suite 250
Palo Alto, CA 94301
Attn: Sarabelle Hitchner
Telephone: (650) 853-0565
Facsimile: (650) 853-1425
Address for THE BANK OF NOVA SCOTIA Notices:
Borrowing Notices:
600 Peachtree Street, Suite 2700
Atlanta, GA 30308
Attn: Hilma Gabbidon
Telephone: (404) 877-1558
-98-
<PAGE> 115
Facsimile: (404) 888-8998
Credit Notices:
580 California Street
Suite 2100
San Francisco, CA 94104
Attn: Jon Burckin
Telephone: (415) 616-4156
Facsimile: (415) 397-0791
Address for UNION BANK OF CALIFORNIA, N.A. Notices:
350 California St., 6th Floor
San Francisco, CA 94104
Attn: Glenn Leyrer
Telephone: (415) 705-7578
Facsimile: (415) 705-5093
Attn: Nancy Delos Reyes
Telephone: (415) 705-7557
Facsimile: (415) 705-5093
Address for BANQUE NATIONALE DE PARIS Notices:
180 Montgomery Street
San Francisco, CA 94104
Attn: Rafael Lumanian
Vice President
Telephone: (415) 956-0707
Facsimile: (415) 296-8954
Contact - Operations
180 Montgomery Street
San Francisco, CA 94104
Attn: Donald A. Hart
Treasurer
Telephone: (415) 956-2511
Facsimile: (415) 989-9041
Lending Offices (Eurodollar/Domestic)
180 Montgomery Street
San Francisco, CA 94104
Telephone: (415) 956-0707
Facsimile: (415) 296-8954
-99-
<PAGE> 116
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as a Bank
Lending Office and Office for
Borrowing Notices and Notices of
Conversion/Continuation:
1850 Gateway Boulevard, Fourth Floor
Concord, California 94520
Notices (other than Borrowing Notices and
Notices of Conversion/Continuation):
Bank of America National Trust
and Savings Association
555 California Street, 41st Floor
San Francisco, CA 94104
Attention: Credit Products
High Technology-SF #3697
Brian Chin
Telephone: (415) 622-4567
Facsimile: (415) 622-2385
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
as Issuing Bank
Notices:
Bank of America National Trust
and Savings Association
Trade Operations Center #22621
333 S. Beaudry Ave., 19th Floor
Los Angeles, CA 90017
Attention: Sandra Leon
Telephone: (213) 345-5231
Facsimile: (213) 345-6694
and to:
Bank of America National Trust
and Savings Association
1850 Gateway Boulevard, Fourth Floor
Concord, California 94520
Attention: Account Administrator
Global Payment Operations
Account Administration #5693
Facsimile: (510) 675-7531
<PAGE> 117
EXHIBIT A
NOTICE OF BORROWING
Date: _______________, 199___
To: Bank of America National Trust and Savings Association as Agent for the
Banks parties to the VLSI Credit Agreement dated as of December 23, 1997
(as extended, renewed, amended or restated from time to time, the
"Credit Agreement") among VLSI Technology, Inc., certain Banks which are
signatories thereto and Bank of America National Trust and Savings
Association, as Agent
Agency Administrative Services #5596
1850 Gateway Boulevard, 5th Floor
Concord, CA 94520-3281
Attention: VLSI AO
FAX: (510) 675-8500
TEL: (510) 675-8441
Ladies and Gentlemen:
The undersigned, VLSI Technology, Inc. (the "Company"), refers to the
Credit Agreement, the terms defined therein being used herein as therein
defined, and hereby gives you notice irrevocably, pursuant to Section 2.3 of the
Credit Agreement, of the Borrowing specified below:
1. The Business Day of the proposed Borrowing is ,
__________________, 19___.
2. The aggregate amount of the proposed Borrowing is $__________.
3. The Borrowing is to be comprised of $_______________ of
[Base Rate] [CD Rate] [Offshore Rate] Loans.
4. The duration of the Interest Period for the [CD Rate Loans]
[Offshore Rate Loans] included in the Borrowing shall be [_____ days]
[_____ months].
The undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the date of the proposed Borrowing,
before and after giving effect thereto and to the application of the proceeds
therefrom:
A-1
<PAGE> 118
(a) the representations and warranties of the Company contained
in Article VI of the Credit Agreement are true and correct as though
made on and as of such date (except to the extent such representations
and warranties relate to an earlier date, in which case they are true
and correct as of such date);
(b) no Default or Event of Default has occurred and is
continuing, or would result from such proposed Borrowing; and
(c) The proposed Borrowing will not cause the Effective Amount of
all outstanding Revolving Loans of all Borrowers and the Effective
Amount of all L/C Obligations of all Borrowers, at any time to exceed
the combined Commitments.
VLSI TECHNOLOGY, INC.
By:
-------------------------------------
Title:
----------------------------------
By:
-------------------------------------
Title:
----------------------------------
A-2
<PAGE> 119
EXHIBIT B
NOTICE OF CONVERSION/CONTINUATION
Date: _______________, 199___
To: Bank of America National Trust and Savings Association, as Agent for the
Banks parties to the VLSI Credit Agreement dated as of December 23, 1997
(as extended, renewed, amended or restated from time to time, the
"Credit Agreement") among VLSI Technology, Inc., certain Banks which are
signatories thereto and Bank of America National Trust and Savings
Association, as Agent
Agency Administrative Services #5596
1850 Gateway Boulevard, 5th Floor
Concord, CA 94520-3281
Attention: VLSI AO
FAX: (510) 675-8500
TEL: (510) 675-8441
Ladies and Gentlemen:
The undersigned, VLSI Technology, Inc. (the "Company"), refers to the
Credit Agreement, the terms defined therein being used herein as therein
defined, and hereby gives you notice irrevocably, pursuant to Section 2.4 of the
Credit Agreement, of the [conversion] [continuation] of the Loans specified
herein, that:
1. The Conversion/Continuation Date is _____________, 19____.
2. The aggregate amount of the Loans to be [converted]
[continued] is $________________ .
3. The Loans are to be [converted into] [continued as] [CD Rate]
[Offshore Rate] [Base Rate] Loans.
4. [If applicable:] The duration of the Interest Period for the
Loans included in the [conversion] [continuation] shall be [______ days]
[_________months].
The undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the proposed Conversion/Continuation
Date, before and after giving effect thereto and to the application of the
proceeds therefrom:
B-1
<PAGE> 120
(a) the representations and warranties of the Company contained
in Article VI of the Credit Agreement are true and correct as though
made on and as of such date (except to the extent such representations
and warranties relate to an earlier date, in which case they are true
and correct as of such date);
(b) no Default or Event of Default has occurred and is
continuing, or would result from such proposed [conversion]
[continuation]; and
(c) the proposed [conversion][continuation] will not cause the
Effective Amount of all outstanding Revolving Loans of all Borrowers and
the Effective Amount of all L/C Obligations of all Borrowers, at any
time to exceed the combined Commitments.
VLSI TECHNOLOGY, INC.
By:
-------------------------------------
Title:
----------------------------------
By:
-------------------------------------
Title:
----------------------------------
B-2
<PAGE> 121
EXHIBIT C
VLSI TECHNOLOGY, INC.
COMPLIANCE CERTIFICATE
Financial
Statement Date:______________, 199__
To: Bank of America National Trust and Savings Association,
as Agent
High Technology #3697
555 California Street, 41st Floor
San Francisco, CA 94104-1502
Attention: Brian Chin, Asst. Vice President
Reference is made to that certain Credit Agreement dated as of December
23, 1997 (as extended, renewed, amended or restated from time to time, the
"Credit Agreement") among VLSI Technology, Inc., a Delaware corporation (the
"Company"), the several financial institutions from time to time parties to this
Credit Agreement (the "Banks") and Bank of America National Trust and Savings
Association, as agent for the Banks (in such capacity, the "Agent"). Unless
otherwise defined herein, capitalized terms used herein have the respective
meanings assigned to them in the Credit Agreement.
The undersigned Responsible Officer of VLSI Technology, Inc., hereby
certifies as of the date hereof that he/she is the______________ of the Company,
and that, as such, he/she is authorized to execute and deliver this Certificate
to the Banks and the Agent on the behalf of the Company and its consolidated
Subsidiaries, and that:
1. Attached as Schedule 1 hereto are (a) a true and correct copy of the
audited consolidated balance sheet of the Company and its consolidated
Subsidiaries as at the end of the fiscal year ended _______________, 199__ and
(b) the related consolidated statements of income or operations, shareholders'
equity and cash flows for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, and accompanied by
the opinion of _________________ or another nationally-recognized certified
independent public accounting firm (the "Independent Auditor") which report
shall state that such consolidated financial statements are complete and correct
and have been prepared in accordance with GAAP, and fairly present, in all
material respects, the financial position of the Company and its consolidated
Subsidiaries for the periods indicated and on a basis consistent with prior
periods.
OR
C-1
<PAGE> 122
1. Attached as Schedule 1 hereto are (a) a true and correct copy of the
unaudited consolidated balance sheet of the Company and its consolidated
Subsidiaries as of the end of the fiscal quarter ended __________, 199__, and
(b) the related unaudited consolidated statements of income, shareholders'
equity, and cash flows for the period commencing on the first day and ending on
the last day of such quarter, setting forth in each case in comparative form the
figures for the previous year, and certified by a Responsible Officer that such
financial statements were prepared in accordance with GAAP (subject only to
ordinary, good faith year-end audit adjustments and the absence of footnotes)
and fairly present, in all material respects, the financial position and the
results of operations of the Company and its consolidated Subsidiaries.
2. The undersigned has reviewed and is familiar with the terms of the
Credit Agreement and has made, or has caused to be made under his/her
supervision, a detailed review of the transactions and conditions (financial or
otherwise) of the Company during the accounting period covered by the attached
financial statements.
3. To the best of the undersigned's knowledge, the Company, during such
period, has observed, performed or satisfied all of its covenants and other
agreements, and satisfied every condition in the Credit Agreement to be
observed, performed or satisfied by the Company, and the undersigned has no
knowledge of any Default or Event of Default.
4. The following financial covenant analyses and information set forth
on Schedule 2 attached hereto are true and accurate on and as of the date of
this Certificate.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate as of ______________, 199___.
VLSI TECHNOLOGY, INC.
By:
-------------------------------------
Title:
----------------------------------
C-2
<PAGE> 123
Date: _______________, 199___
For the fiscal quarter/year
ended _______________,
SCHEDULE 2
to the Compliance Certificate
<TABLE>
1. Section 9.1 Consolidated Tangible Net Worth
<S> <C> <C>
A. Consolidated Tangible Net Worth as of September
26, 1997 _____
B. 85% of Item (A) _____
C. Positive net income (before acquisition related charges if such
charges are expensed in the fiscal quarter in which the
Acquisition is completed) for the period from
and after September 26, 1997 _____
D. 75% of Item (C) _____
E. The aggregate net proceeds received by the Company
from the issuance or sale of its capital stock from and
after the date of the Credit Agreement (December __, 1997) _____
F. 75% of Item (E) _____
G. The principal amount of any Subordinated Debt which is converted
into equity after the date of the Credit
Agreement (December __, 1997) _____
H. 100% of Item (G) _____
I. The sum of Items (B), (D), (F) and (H) _____
J. Acquisition related charges if such charges are
expensed in the fiscal quarter in which the related
Acquisition is completed. _____
K. 100% of Item (J) _____
L. Item (I) - Item (K) _____
M. Consolidated Tangible Net Worth as of the fiscal quarter
ended _______ 199_. _____
N. Item (M) not to be less than Item (L).
</TABLE>
C-3
<PAGE> 124
<TABLE>
2. Section 9.2 Leverage Ratio
<S> <C> <C>
(A) The Company's Consolidated Indebtedness (including
Surety Instruments) _____
(B) Subordinated Debt _____
(C) Item (A) - Item (B) _____
(D) The Company's Consolidated Indebtedness (including
Surety Instruments) _____
(E) Consolidated Tangible Net Worth as of ________, 199_ _____
(F) The sum of Items (D) and (E) _____
(G) The ratio of Item (C) to Item (F) (not to be greater
than 0.35 to 1.00). :1
_____
</TABLE>
C-4
<PAGE> 125
<TABLE>
3. Section 9.3 Fixed Coverage Charge Ratio
<S> <C> <C>
A. The consolidated operating income (before Acquisition related
charges if such charges are expensed in the fiscal quarter in
which the related Acquisition is completed) of the Company and
its Subsidiaries for the four consecutive fiscal quarters ended
_______,
199_ (the "Period"). _____
B. The consolidated rent/operating lease expense of the
Company and its Subsidiaries for such Period _____
C. The sum of Items (A) and (B) _____
D. The consolidated interest expense of the Company and its
Subsidiaries for such Period _____
E. The consolidated capitalized interest of the Company and
its Subsidiaries for such Period _____
F. The consolidated rent/operating lease expense of the
Company and its Subsidiaries for such Period _____
G. Dividends on its capital stock declared or paid by the
Company during such Period _____
H. The aggregate average current portion of long term debt (as of
the end of each of the four fiscal quarters then most recently
ended) of the Company and its Subsidiaries which is payable
within 12 months of the date of
computation _____
I. The sum of Items (D), (E), (F), (G) and (H) _____
J. The ratio of Item (C) to Item (I) (not to be less than
1.25 to 1.00). :1
_____
</TABLE>
C-5
<PAGE> 126
EXHIBIT D
FORM OF OPINION OF COUNSEL TO THE COMPANY
_____________, 199__
To each of the Banks party to the Credit
Agreement referred to below, and to
Bank of America National Trust and
Savings Association, as Agent for such Banks
Ladies and Gentlemen:
We have acted as counsel for VLSI Technology, Inc., a Delaware
corporation (the "Company") and ____________ (individually an "Original"
Borrowing Subsidiary" and collectively, "Original Borrowing Subsidiaries")1, in
connection with (i) the negotiation, execution and delivery of the Credit
Agreement dated as of December 23, 1997 (the "Credit Agreement") among the
Company, the certain Banks which are signatories thereto (the "Banks"), and Bank
of America National Trust and Savings Association, as Agent for such Banks (the
"Agent"), and (ii) the negotiation, execution and delivery of the other Loan
Documents described below.
This opinion is provided to the Agent and the Banks as required pursuant
to Section 5.1(d) of the Credit Agreement. Capitalized terms not otherwise
defined herein have the respective meanings set forth in the Credit Agreement.
In connection with this opinion letter, we have examined executed copies
of the Credit Agreement, together with all schedules and exhibits thereto, the
Notes and the Fee Letter between the Company and the Agent and BancAmerica
Robertson Stephens dated November 17, 1997, (collectively, the "Loan
Documents"); certificates of public officials from the States of [Delaware] and
[California]; the certificate of incorporation and by-laws of the Company and
each Original Borrowing Subsidiary, as amended to date; and records of
proceedings of the Board of Directors of the Company and each Original Borrowing
Subsidiary during or by which resolutions were adopted relating to matters
covered by this opinion; and certificates of officers of the Company and each
Original Borrowing Subsidiary as to certain factual matters (copies of which are
attached hereto).
In addition, we have made such other investigations as we have deemed
necessary to enable us to express the opinions hereinafter set forth. In the
course of this examination we have assumed the genuineness of all signatures of
persons signing the Loan Documents
- --------
1 To be omitted, if applicable
D-1
<PAGE> 127
To each of the Banks party to the Credit
Agreement referred to below, and to
Bank of America National Trust and
Savings Association, as Agent for such Banks
_____________, 199__
Page 2
on behalf of parties thereto other than the Company and the Original Borrowing
Subsidiaries, the authenticity of all documents submitted to us as originals,
the conformity to authentic original documents of all documents submitted to us
as certified, conformed or photostatic copies, and the due authorization,
execution and delivery of the Loan Documents by the parties thereto other than
the Company and the Original Borrowing Subsidiaries.
Based upon the foregoing, and further subject to the assumptions,
qualifications and exceptions set forth below, we hereby advise you that in our
opinion:
1. The Company and each Original Borrowing Subsidiary are corporations
duly organized, validly existing and in good standing under the laws of the
State of [Delaware] with the corporate power and authority and all governmental
licenses, authorizations, consents and approvals to own and operate (or lease,
as the case may be) their properties and to carry on their business as it is now
conducted. The Company and each Original Borrowing Subsidiary are qualified as
foreign corporations and in good standing in the State of California and in each
other jurisdiction where its ownership, lease or operation of property or the
conduct of its business requires such qualification, except to the extent the
failure to qualify as a foreign corporation and be in good standing in such
other jurisdictions would not have a Material Adverse Effect.
2. The Company and each Original Borrowing Subsidiary have the full
corporate power and authority to enter into and perform the Loan Documents, and
have taken all necessary corporate action to authorize the execution, delivery
and performance of the Loan Documents.
3. No authorization, consent, approval or other action by, license,
exemption of, notice to or filing or registration with, any Governmental
Authority or any other Person is required for the due execution, delivery or
performance by, or enforcement against, the Company or any Original Borrowing
Subsidiary of the Loan Documents.
4. Each of the Loan Documents has been duly executed and delivered on
behalf of the Company and each Original Borrowing Subsidiary. Each of the Loan
Documents constitute the legal, valid and binding obligations of the Company and
each Original Borrowing Subsidiary enforceable against the Company and each
Original Borrowing Subsidiary in accordance with their respective terms.
D-2
<PAGE> 128
To each of the Banks party to the Credit
Agreement referred to below, and to
Bank of America National Trust and
Savings Association, as Agent for such Banks
_____________, 199__
Page 3
5. The execution, delivery and performance by the Company and each
Original Borrowing Subsidiary of the Loan Documents do not and will not (a)
violate or be in conflict with any provision of the certificate of incorporation
or by-laws of the Company or any Original Borrowing Subsidiary, (b) violate or
be in conflict with any law or regulation having applicability to the Company or
any Original Borrowing Subsidiary, (c) violate or contravene any judgment,
decree, injunction, writ or order of any court, or any arbitrator or other
Governmental Authority, having jurisdiction over the Company or any Original
Borrowing Subsidiary or the properties of the Company or any Original Borrowing
Subsidiary or by which the Company or any Original Borrowing Subsidiary may be
bound, or (d) violate or conflict with, or constitute a default under or result
in the termination of, or accelerate the performance required by, any indenture,
any loan or credit agreement, or any other agreement for borrowed money or any
other material agreement, lease or instrument to which the Company or any
Original Borrowing Subsidiary is a party or by which it or its properties may be
bound, or result in the creation of any Lien upon any of the assets or
properties of the Company or any Original Borrowing Subsidiary.
6. We are unaware of any litigation or other proceedings that are
pending or threatened against the Company or its Subsidiaries or their
respective properties before any court, arbitrator or other Governmental
Authority with respect to the transactions contemplated by the Loan Documents or
which, if determined adversely to the Company, its Subsidiaries or their
respective properties, would be likely to have a Material Adverse Effect.
7. The extension of credit under the Credit Agreement does not violate
the provisions of Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System.
8. The Company is not subject to regulation under the Investment Company
Act of 1940, as amended.
Our opinion set forth in paragraph 4 above is subject to the
qualification that the enforceability of the Loan Documents may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally and by general equity
principles.
We express no opinion herein concerning any law other than the law of
the States of California, [the General Corporation Law of the State of _______,]
and the federal law of the United States.
D-3
<PAGE> 129
To each of the Banks party to the Credit
Agreement referred to below, and to
Bank of America National Trust and
Savings Association, as Agent for such Banks
_____________, 199__
Page 4
This letter has been furnished to you at the request of the Company
pursuant to Section 5.1(d) of the Credit Agreement for your use in connection
with the Credit Agreement, and may not be relied upon by you or any other Person
for any other purpose without our consent, except that (i) this opinion may be
disclosed to (a) bank regulatory and other Governmental Authority having
jurisdiction over you requesting (or requiring) such disclosure and (b)
prospective Assignees and Participants and any successor Agent in connection
with the potential transfer of all or part of the Loans or Commitments of any
Bank or any other rights or duties under the Credit Agreement, and (ii) this
opinion may be disclosed to and relied upon by Assignees of or Participants in
the Loans or Commitments and by any successor Agent if such assignments or
participations or such successions are permitted under and made in accordance
with the Credit Agreement.
Very truly yours,
----------------------------------------
Larry L. Grant
General Counsel
----------------------------------------
Rachelle Badal
Associate General Counsel
D-4
<PAGE> 130
EXHIBIT E
ASSUMPTION AGREEMENT
The undersigned (the "Subsidiary"), a subsidiary of VLSI
Technology, Inc. (the "Company"), has been designated by the Company as an
Additional Borrowing Subsidiary (as defined in the Credit Agreement referred to
below) pursuant to that certain Credit Agreement dated as of December 23, 1997,
as amended or modified from time to time, among the Company, certain of the
Company's subsidiaries, the banks named therein (the "Banks") and Bank of
America National Trust and Savings Association, as Agent (the "Credit
Agreement"). Capitalized terms used herein without definition have the meanings
provided therefore in the Credit Agreement.
The undersigned hereby (i) assumes the obligations and
liabilities of a Borrower under the Credit Agreement and each of the other Loan
Documents, (ii) hereby becomes and shall for all purposes hereafter be a party
to the Credit Agreement and other Loan Documents to the same extent as if it
were an original Borrower party thereto and (iii) the undersigned hereby
represents and warrants to the Agent and the Lenders that each of the
representations and warranties in the Credit Agreement and the other Loan
Documents are true and correct as applied to the undersigned as a Borrower.
IN WITNESS WHEREOF, the undersigned has executed and delivered
this Assumption Agreement this _____ day of _________, 19__.
E-1
<PAGE> 131
[INSERT NAME OF SUBSIDIARY]
By:
---------------------------------
Its:
--------------------------------
Accepted and Agreed to this
____ day of _________, 19__
VLSI TECHNOLOGY, INC.
By:
----------------------------
Its:
---------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
By:
----------------------------
Its:
---------------------------
E-2
<PAGE> 132
EXHIBIT F
FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT
This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "Assignment and
Acceptance") dated as of __________, 199__ is made between ___________________
______________________________ (the "Assignor") and __________________________
__________________________________ (the "Assignee").
RECITALS
WHEREAS, the Assignor is party to that certain VLSI Credit
Agreement dated as of December 23, 1997 (as amended, amended and restated,
modified, supplemented or renewed, the "Credit Agreement") among VLSI
Technology, Inc., a Delaware corporation (the "Company"), the several financial
institutions from time to time party thereto (including the Assignor, the
"Banks"), and Bank of America National Trust and Savings Association, as letter
of credit issuing bank ("Issuing Bank") and as agent for the Banks (the
"Agent"). Any terms defined in the Credit Agreement and not defined in this
Assignment and Acceptance are used herein as defined in the Credit Agreement;
WHEREAS, as provided under the Credit Agreement, the Assignor has
committed to making Loans (the "Loans") to the Company in an aggregate amount
not to exceed $__________ (the "Commitment");
WHEREAS, [the Assignor has made Loans in the aggregate principal
amount of $__________ to the Company];
WHEREAS, [the Assignor has acquired a participation in the
Issuing Bank's liability under Letters of Credit in an aggregate principal
amount of $____________ (the "L/C Obligations")] [no Letters of Credit are
outstanding under the Credit Agreement]; and
WHEREAS, the Assignor wishes to assign to the Assignee [part of
the] [all] rights and obligations of the Assignor under the Credit Agreement in
respect of its Commitment, [together with a corresponding portion of each of its
outstanding Loans and L/C Obligations,] in an amount equal to $__________ (the
"Assigned Amount") on the terms and subject to the conditions set forth herein
and the Assignee wishes to accept assignment of such rights and to assume such
obligations from the Assignor on such terms and subject to such conditions;
F-1
<PAGE> 133
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
1. Assignment and Acceptance.
(a) Subject to the terms and conditions of this Assignment and
Acceptance, (i) the Assignor hereby sells, transfers and assigns to the
Assignee, and (ii) the Assignee hereby purchases, assumes and undertakes from
the Assignor, without recourse and without representation or warranty (except as
provided in this Assignment and Acceptance) __% (the "Assignee's Percentage
Share") of (A) the Commitment [and the Loans and the L/C Obligations] of the
Assignor and (B) all related rights, benefits, obligations, liabilities and
indemnities of the Assignor under and in connection with the Credit Agreement
and the Loan Documents.
[If appropriate, add paragraph specifying payment to Assignor by
Assignee of outstanding principal of, accrued interest on, and fees with respect
to, Loans and L/C Obligations assigned.]
(b) With effect on and after the Effective Date (as defined in
Section 5 hereof), the Assignee shall be a party to the Credit Agreement and
succeed to all of the rights and be obligated to perform all of the obligations
of a Bank under the Credit Agreement, including the requirements concerning
confidentiality and the payment of indemnification, with a Commitment in an
amount equal to the Assigned Amount. The Assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Credit Agreement are required to be performed by it as a Bank. It is the intent
of the parties hereto that the Commitment of the Assignor shall, as of the
Effective Date, be reduced by an amount equal to the Assigned Amount and the
Assignor shall relinquish its rights and be released from its obligations under
the Credit Agreement to the extent such obligations have been assumed by the
Assignee; provided, however, the Assignor shall not relinquish its rights under
Sections __ and __ of the Credit Agreement to the extent such rights relate to
the time prior to the Effective Date.
(c) After giving effect to the assignment and assumption set
forth herein, on the Effective Date the Assignee's Commitment will be
$__________.
(d) After giving effect to the assignment and assumption set
forth herein, on the Effective Date the Assignor's Commitment will be
$__________.
F-2
<PAGE> 134
2. Payments.
(a) As consideration for the sale, assignment and transfer
contemplated in Section 1 hereof, the Assignee shall pay to the Assignor on the
Effective Date in immediately available funds an amount equal to $__________,
representing the Assignee's Pro Rata Share of the principal amount of all Loans.
(b) The [Assignor] [Assignee] further agrees to pay to the Agent
a processing fee in the amount specified in Section 13.8(a) of the Credit
Agreement.
3. Reallocation of Payments.
Any interest, fees and other payments accrued to the Effective Date with
respect to the Commitment[,] [and] Loans [and L/C Obligations] shall be for the
account of the Assignor. Any interest, fees and other payments accrued on and
after the Effective Date with respect to the Assigned Amount shall be for the
account of the Assignee. Each of the Assignor and the Assignee agrees that it
will hold in trust for the other party any interest, fees and other amounts
which it may receive to which the other party is entitled pursuant to the
preceding sentence and pay to the other party any such amounts which it may
receive promptly upon receipt.
4. Independent Credit Decision.
The Assignee (a) acknowledges that it has received a copy of the Credit
Agreement and the Schedules and Exhibits thereto, together with copies of the
most recent financial statements referred to in Section 7.1 of the Credit
Agreement, and such other documents and information as it has deemed appropriate
to make its own credit and legal analysis and decision to enter into this
Assignment and Acceptance; and (b) agrees that it will, independently and
without reliance upon the Assignor, the Agent or any other Bank and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit and legal decisions in taking or not taking
action under the Credit Agreement.
5. Effective Date; Notices.
(a) As between the Assignor and the Assignee, the effective date
for this Assignment and Acceptance shall be __________, 199__ (the "Effective
Date"); provided that the following conditions precedent have been satisfied on
or before the Effective Date:
(i) this Assignment and Acceptance shall be executed and
delivered by the Assignor and the Assignee;
F-3
<PAGE> 135
(ii) the consent of the Company [, the Issuing Bank] and
the Agent required for an effective assignment of the Assigned Amount by the
Assignor to the Assignee under Section 13.8(a) of the Credit Agreement shall
have been duly obtained and shall be in full force and effect as of the
Effective Date;
(iii) the Assignee shall pay to the Assignor all amounts
due to the Assignor under this Assignment and Acceptance;
(iv) the Assignee shall have complied with Section 13.8(1)
of the Credit Agreement (if applicable);
(v) the processing fee referred to in Section 2(b) hereof
and in Section 13.8(a) of the Credit Agreement shall have been paid to the
Agent; and
(vi) the Assignor shall have assigned and the Assignee
shall have assumed a percentage equal to the Assignee's Percentage Share of the
rights and obligations of the Assignor under the Credit Agreement (if such
agreement exists).
(b) Promptly following the execution of this Assignment and
Acceptance, the Assignor shall deliver to the Company [, the Issuing Bank] and
the Agent for acknowledgement by the Agent, a Notice of Assignment
[substantially] in the form attached hereto as Schedule 1.
6. Agent.
(a) The Assignee hereby appoints and authorizes the Assignor to
take such action as agent on its behalf and to exercise such powers under the
Credit Agreement as are delegated to the Agent by the Banks pursuant to the
terms of the Credit Agreement.
[(b) The Assignee shall assume no duties or obligations held by
the Assignor in its capacity as Agent under the Credit Agreement.] [INCLUDE ONLY
IF ASSIGNOR IS AGENT]
7. Withholding Tax.
The Assignee (a) represents and warrants to the Agent and the Company
that under applicable law and treaties no tax will be required to be withheld by
the Agent with respect to any payments to be made to the Assignee hereunder, (b)
agrees to furnish (if it is organized under the laws of any jurisdiction other
than the United States or
- --------
(1) Section 13.8 or other section acceptable to or required by the Agent.
F-4
<PAGE> 136
any State thereof) to the Agent and the Company prior to the time that the Agent
or Company is required to make any payment of principal, interest or fees
hereunder, duplicate executed originals of either U.S. Internal Revenue Service
Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein the Assignee
claims entitlement to the benefits of a tax treaty that provides for a complete
exemption from U.S. federal income withholding tax on all payments hereunder)
and agrees to provide new Forms 4224 or 1001 upon the expiration of any
previously delivered form or comparable statements in accordance with applicable
U.S. law and regulations and amendments thereto, duly executed and completed by
the Assignee, and (c) agrees to comply with all applicable U.S. laws and
regulations with regard to such withholding tax exemption.
8. Representations and Warranties.
(a) The Assignor represents and warrants that (i) it is the legal
and beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any Lien or other adverse claim; (ii) it is
duly organized and existing and it has the full power and authority to take, and
has taken, all action necessary to execute and deliver this Assignment and
Acceptance and any other documents required or permitted to be executed or
delivered by it in connection with this Assignment and Acceptance and to fulfill
its obligations hereunder; (iii) no notices to, or consents, authorizations or
approvals of, any Person are required (other than any already given or obtained)
for its due execution, delivery and performance of this Assignment and
Acceptance, and apart from any agreements or undertakings or filings required by
the Credit Agreement, no further action by, or notice to, or filing with, any
Person is required of it for such execution, delivery or performance; and (iv)
this Assignment and Acceptance has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of the Assignor, enforceable
against the Assignor in accordance with the terms hereof, subject, as to
enforcement, to bankruptcy, insolvency, moratorium, reorganization and other
laws of general application relating to or affecting creditors' rights and to
general equitable principles.
(b) The Assignor makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement or any other instrument or document furnished pursuant thereto. The
Assignor makes no representation or warranty in connection with, and assumes no
responsibility with respect to, the solvency, financial condition or statements
of the Company, or the performance or observance by the Company, of any of its
respective
F-5
<PAGE> 137
obligations under the Credit Agreement or any other instrument or document
furnished in connection therewith.
(c) The Assignee represents and warrants that (i) it is duly
organized and existing and it has full power and authority to take, and has
taken, all action necessary to execute and deliver this Assignment and
Acceptance and any other documents required or permitted to be executed or
delivered by it in connection with this Assignment and Acceptance, and to
fulfill its obligations hereunder; (ii) no notices to, or consents,
authorizations or approvals of, any Person are required (other than any already
given or obtained) for its due execution, delivery and performance of this
Assignment and Acceptance; and apart from any agreements or undertakings or
filings required by the Credit Agreement, no further action by, or notice to, or
filing with, any Person is required of it for such execution, delivery or
performance; (iii) this Assignment and Acceptance has been duly executed and
delivered by it and constitutes the legal, valid and binding obligation of the
Assignee, enforceable against the Assignee in accordance with the terms hereof,
subject, as to enforcement, to bankruptcy, insolvency, moratorium,
reorganization and other laws of general application relating to or affecting
creditors' rights and to general equitable principles; and (iv) it is an
Eligible Assignee.
9. Further Assurances.
The Assignor and the Assignee each hereby agree to execute and deliver
such other instruments, and take such other action, as either party may
reasonably request in connection with the transactions contemplated by this
Assignment and Acceptance, including the delivery of any notices or other
documents or instruments to the Company or the Agent, which may be required in
connection with the assignment and assumption contemplated hereby.
10. Miscellaneous.
(a) Any amendment or waiver of any provision of this Assignment
and Acceptance shall be in writing and signed by the parties hereto. No failure
or delay by either party hereto in exercising any right, power or privilege
hereunder shall operate as a waiver thereof and any waiver of any breach of the
provisions of this Assignment and Acceptance shall be without prejudice to any
rights with respect to any other or further breach thereof.
(b) All payments made hereunder shall be made without any set-off
or counterclaim.
(c) The Assignor and the Assignee shall each pay its own costs
and expenses incurred in connection with the
F-6
<PAGE> 138
negotiation, preparation, execution and performance of this Assignment and
Acceptance.
(d) This Assignment and Acceptance may be executed in any number
of counterparts and all of such counterparts taken together shall be deemed to
constitute one and the same instrument.
(e) THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA. The Assignor
and the Assignee each irrevocably submits to the non-exclusive jurisdiction of
any State or Federal court sitting in California over any suit, action or
proceeding arising out of or relating to this Assignment and Acceptance and
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such California State or Federal court. Each party to
this Assignment and Acceptance hereby irrevocably waives, to the fullest extent
it may effectively do so, the defense of an inconvenient forum to the
maintenance of such action or proceeding.
(f) THE ASSIGNOR AND THE ASSIGNEE EACH HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH THIS ASSIGNMENT AND ACCEPTANCE, THE CREDIT AGREEMENT, ANY
RELATED DOCUMENTS AND AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, OR
STATEMENTS (WHETHER ORAL OR WRITTEN).
[Other provisions to be added as may be negotiated between the
Assignor and the Assignee, provided that such provisions are not inconsistent
with the Credit Agreement.]
F-7
<PAGE> 139
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this
Assignment and Acceptance to be executed and delivered by their duly authorized
officers as of the date first above written.
[ASSIGNOR]
By:
-------------------------------------
Title:
----------------------------------
By:
-------------------------------------
Title:
----------------------------------
Address:
[ASSIGNEE]
By:
-------------------------------------
Title:
----------------------------------
By:
-------------------------------------
Title:
----------------------------------
Address:
F-8
<PAGE> 140
SCHEDULE 1
NOTICE OF ASSIGNMENT AND ACCEPTANCE
_______________, 19__
Bank of America National Trust
and Savings Association, as Agent
High Technology #3697
555 California Street, 41st Floor
San Francisco, CA 94104
Attn: Brian Chin
[Bank of America National Trust
and Savings Association, as Issuing Bank
International Trade
Banking Division #5655
333 S. Beaudry Ave., 19th Floor
Los Angeles, CA 90017]
[Name and Address of Company]
Ladies and Gentlemen:
We refer to the VLSI Technology, Inc. Credit Agreement dated as of
December __, 1997 (as amended, amended and restated, modified, supplemented or
renewed from time to time the "Credit Agreement") among VLSI Technology, Inc.
(the "Company"), the Banks referred to therein and Bank of America National
Trust and Savings Association[, as letter of credit issuing bank ("Issuing
Bank") and] as agent for the Banks (the "Agent"). Terms defined in the Credit
Agreement are used herein as therein defined.
1. We hereby give you notice of, and request your consent to, the
assignment by __________________ (the "Assignor") to _______________ (the
"Assignee") of _____% of the right, title and interest of the Assignor in and to
the Credit Agreement (including, without limitation, the right, title and
interest of the Assignor in and to the Commitments of the Assignor[,] [and] all
outstanding Loans made by the Assignor [and the Assignor's participation in the
Letters of Credit]) pursuant to the Assignment and Acceptance Agreement attached
hereto (the "Assignment and Acceptance"). Before giving effect to such
assignment the Assignor's Commitment is $ ___________[,] [and] the aggregate
amount of its outstanding Loans is $_____________[, and its participation in L/C
Obligations is $_____________].
2. The Assignee agrees that, upon receiving the consent of the Agent[,
the Issuing Bank] and, if applicable, VLSI Technology, Inc., to such assignment,
the Assignee will
F-9
<PAGE> 141
be bound by the terms of the Credit Agreement as fully and to
the same extent as if the Assignee were the Bank originally holding such
interest in the Credit Agreement.
3. The following administrative details apply to the Assignee:
(A) Notice Address:
Assignee name:
--------------------------
Address:
-------------------------------
-------------------------------
-------------------------------
Attention:
-------------------------------
Telephone: ( )
--- ------------------------
Telecopier: ( )
--- -----------------------
Telex (Answerback):
----------------------
(B) Payment Instructions:
Account No.:
-----------------------------
At:
-------------------------------
-------------------------------
-------------------------------
Reference:
-------------------------------
Attention:
-------------------------------
4. You are entitled to rely upon the representations, warranties and
covenants of each of the Assignor and Assignee contained in the Assignment and
Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this
Notice of Assignment and Acceptance to be executed by their respective duly
authorized officials, officers or agents as of the date first above mentioned.
Very truly yours,
[NAME OF ASSIGNOR]
By:
-------------------------------------
Title:
----------------------------------
By:
-------------------------------------
Title:
----------------------------------
F-10
<PAGE> 142
[NAME OF ASSIGNEE]
By:
-------------------------------------
Title:
----------------------------------
By:
-------------------------------------
Title:
----------------------------------
ACKNOWLEDGED AND ASSIGNMENT
CONSENTED TO:
VLSI TECHNOLOGY, INC.
By:
----------------------------------
Title:
-------------------------------
By:
----------------------------------
Title:
-------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By:
----------------------------------
Title:
-------------------------------
[BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Issuing Bank
By:
----------------------------------
Title: ]
-------------------------------
F-11
<PAGE> 143
EXHIBIT G
FORM OF NOTE1
$ ___________________ ____________, 199__
FOR VALUE RECEIVED, the undersigned, VLSI Technology, Inc., a
Delaware corporation (the "Company"), hereby promises to pay to the order of
______________________________ (the "Bank"), at the Agent's Payment Office, the
principal sum of ________________________________________ Dollars ($___________)
or, if less, the aggregate unpaid principal amount of all Loans made by the Bank
to the Company pursuant to the VLSI Credit Agreement, dated as of December 23,
1997 (such VLSI Credit Agreement), as it may be amended, restated, supplemented
or otherwise modified from time to time, being hereinafter called the "Credit
Agreement"), among the Company, the Bank, the other banks parties thereto, Bank
of America National Trust and Savings Association, as Agent for the Banks, on
the dates and in the amounts provided in the Credit Agreement. The Company
further promises to pay interest on the unpaid principal amount of the Loans
evidenced hereby from time to time at the rates, on the dates, and otherwise as
provided in the Credit Agreement.
The Bank is authorized to endorse the amount and the date on
which each Loan is made, the maturity date therefor and each payment of
principal with respect thereto on the schedules annexed hereto and made a part
hereof, or on continuations thereof which shall be attached hereto and made a
part hereof; provided, that any failure to endorse such information on such
schedule or continuation thereof shall not in any manner affect any obligation
of the Company under the Credit Agreement and this Promissory Note (the "Note").
This Note is one of the Notes referred to in, and is entitled to
the benefits of, the Credit Agreement, which Credit Agreement, among other
things, contains provisions for acceleration of the maturity hereof upon the
happening of certain stated events and also for prepayments on account of
principal hereof prior to the maturity hereof upon the terms and conditions
therein specified.
- --------
1 In the case of a Subsidiary, the Note shall be appropriately revised to
reflect the applicable Subsidiary as maker.
G-1
<PAGE> 144
Terms defined in the Credit Agreement are used herein with their
defined meanings therein unless otherwise defined herein. This Note shall be
governed by, and construed and interpreted in accordance with, the laws of the
State of California applicable to contracts made and to be performed entirely
within such State.
VLSI TECHNOLOGY, INC.
By:
-------------------------------------
Title:
----------------------------------
By:
-------------------------------------
Title:
----------------------------------
G-2
<PAGE> 145
Schedule A to Note
BASE RATE LOANS
AND REPAYMENT OF BASE RATE LOANS
<TABLE>
<CAPTION>
(2) (3) (4)
Amount Maturity Amount of
of Date of Base Rate (5)
(1) Base Rate Base Rate Loan Notation
Date Loan Loan Repaid Made By
- ---------- ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C>
- ---------- ------------ ------------ -------------- -------------
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- ---------- ------------ ------------ -------------- -------------
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- ---------- ------------ ------------ -------------- -------------
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- ---------- ------------ ------------ -------------- -------------
- ---------- ------------ ------------ -------------- -------------
</TABLE>
G-3
<PAGE> 146
Schedule B to Note
OFFSHORE RATE LOANS
AND REPAYMENT OF OFFSHORE RATE LOANS
<TABLE>
<CAPTION>
(2) (3) (4)
Amount Maturity Amount of
of Date of Offshore Rate (5)
(1) Offshore Rate Offshore Rate Loan Notation
Date Loan Loan Repaid Made By
- ---------- ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C>
- ---------- ------------ ------------ -------------- -------------
- ---------- ------------ ------------ -------------- -------------
- ---------- ------------ ------------ -------------- -------------
- ---------- ------------ ------------ -------------- -------------
- ---------- ------------ ------------ -------------- -------------
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- ---------- ------------ ------------ -------------- -------------
- ---------- ------------ ------------ -------------- -------------
- ---------- ------------ ------------ -------------- -------------
</TABLE>
G-4
<PAGE> 147
Schedule C to Note
CD RATE LOANS
AND REPAYMENT OF CD RATE LOANS
<TABLE>
<CAPTION>
(2) (3) (4)
Amount Maturity Date Amount of (5)
(1) of CD Rate of CD Rate CD Rate Loan Notation
Date Loan Loan Repaid Made By
- ---------- ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C>
- ---------- ------------ ------------ -------------- -------------
- ---------- ------------ ------------ -------------- -------------
- ---------- ------------ ------------ -------------- -------------
- ---------- ------------ ------------ -------------- -------------
- ---------- ------------ ------------ -------------- -------------
- ---------- ------------ ------------ -------------- -------------
- ---------- ------------ ------------ -------------- -------------
- ---------- ------------ ------------ -------------- -------------
- ---------- ------------ ------------ -------------- -------------
- ---------- ------------ ------------ -------------- -------------
- ---------- ------------ ------------ -------------- -------------
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- ---------- ------------ ------------ -------------- -------------
</TABLE>
G-5
<PAGE> 1
EXHIBIT 10.46
VLSI TECHNOLOGY, INC.
NON-QUALIFIED DEFERRED COMPENSATION PLAN
(EFFECTIVE JUNE 1, 1997)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I TITLE AND DEFINITIONS......................................................2
ARTICLE II PARTICIPATION..............................................................4
ARTICLE III DEFERRAL ELECTIONS.........................................................4
ARTICLE IV ACCOUNTS...................................................................6
ARTICLE V VESTING....................................................................7
ARTICLE VI GENERAL DUTIES............................................................ 8
ARTICLE VII DISTRIBUTIONS............................................................. 8
ARTICLE VIII ADMINISTRATION.......................................................... 11
ARTICLE IX MISCELLANEOUS........................................................... 13
</TABLE>
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<PAGE> 3
VLSI TECHNOLOGY, INC.
NON-QUALIFIED DEFERRED COMPENSATION PLAN
This Plan, effective as of June 1, 1997 (the "Effective Date"), is
adopted by VLSI Technology, Inc. (the "Company"), acting on behalf of itself and
its designated subsidiaries. Throughout, the term "Company" shall include
wherever relevant any entity that is directly or indirectly controlled by the
Company or any entity in which the Company has a significant equity or
investment interest, as determined by the Company.
RECITALS
1. The Company wishes to establish a supplemental retirement plan for
the benefit of a select group of management or highly compensated employees of
the Company.
2. The Company wishes to provide that the plan to be established shall
be designated as the VLSI Technology, Inc. Non-Qualified Deferred Compensation
Plan (the "Plan").
3. The Company wishes to provide under the Plan for the payment of
vested accrued benefits to Plan participants and their beneficiary or
beneficiaries ("Trust Beneficiaries").
4. The Company wishes to provide under the Plan that the Company shall
pay all of the accrued benefits from its general assets.
5. The Company intends to enter into an agreement (the "Trust
Agreement") with a person or persons, including an entity, who shall serve as
trustee (the "Trustee") under an irrevocable trust (the "Trust") to be used in
connection with the Plan.
6. The Company wishes to make contributions to the Trust so that such
contributions will be held by the Trustee and invested, reinvested and
distributed, all in accordance with the provisions of this Plan and the Trust
Agreement.
7. The Company intends that amounts allocated to the Trust and the
earnings thereon shall be used by the Trustee to satisfy the liabilities of the
Company under the Plan with respect to each Plan participant for whom an Account
has been established and such utilization shall be in accordance with the
procedures set forth herein.
8. The Company intends that the Trust be a "grantor trust" with the
principal and income of the Trust treated as assets and income of the Company
for federal and state income tax purposes.
9. The Company intends that the assets of the Trust shall at all times
be subject to the claims of the general creditors of the Company as provided in
the Trust Agreement.
<PAGE> 4
10. The Company intends that the existence of the Trust shall not alter
the characterization of the Plan as "unfunded" for purposes of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and shall not be
construed to provide income to Plan participants under the Plan prior to actual
payment of the vested accrued benefits thereunder.
NOW THEREFORE, the Company does hereby establish the Plan as follows and
does also hereby agree that the Plan shall be structured, held and disposed of
as follows:
ARTICLE I
TITLE AND DEFINITIONS
1.1 Title.
This Plan shall be known as the VLSI Technology, Inc. Non-Qualified
Deferred Compensation Plan.
1.2 Definitions.
Whenever the following words and phrases are used in this Plan, with the
first letter capitalized, they shall have the meanings specified below.
"Account" means for each Participant the bookkeeping account maintained
by the Committee that is credited with amounts equal to (1) the portion of the
Participant's Salary that he or she elects to defer, (2) the portion of the
Participant's Commissions that he or she elects to defer, (3) the portion of the
Participant's Bonus that he or she elects to defer, (4) Company contributions
made to the Plan for the Participant's benefit, and (5) adjustments to reflect
deemed earnings pursuant to Section 4.1(d).
"Beneficiary" or "Beneficiaries" means the beneficiary last designated
in writing by a Participant in accordance with procedures established by the
Committee to receive the benefits specified hereunder in the event of the
Participant's death. No beneficiary designation shall become effective until it
is filed with the Committee during the Participant's lifetime.
"Board of Directors" or "Board" means the Board of Directors of the
Company.
"Bonus" means any incentive compensation other than Commissions that is
payable to a Participant in addition to the Participant's Salary.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commissions" means any cash-based commission compensation payable to a
Participant.
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<PAGE> 5
"Committee" means the Committee appointed by the Board to administer the
Plan in accordance with Article VIII.
"Company" means VLSI Technology, Inc., any successor corporation and any
entity that is directly or indirectly controlled by the Company or any entity in
which the Company has a significant equity or investment interest, as determined
by the Company.
"Compensation" means the Salary, Commissions and Bonus that the
Participant is entitled to for services rendered to the Company.
"Disability" means a Participant's long-term disability as defined in
the Company's long-term disability plan for employees.
"Distributable Amount" means the amount credited to a Participant's
Account.
"Effective Date" means June 1, 1997.
"Eligible Employee" means (i) a common law employee of the Company
performing services regularly in the United States who is a vice-president or
more senior employee of VLSI Technology, Inc., or (ii) any other employee or
category of employee designated by the Committee. Notwithstanding the foregoing,
the Committee may determine in writing that an otherwise Eligible Employee shall
not be eligible to participate in this Plan.
"Fund" or "Funds" means one or more of the funds or contracts selected
by the Committee pursuant to Section 3.3.
"Initial Election Period" means June 30, 1997 in the case of an
individual who is an Eligible Employee as of the Plan Effective Date; otherwise
the 30-day period following the Eligible Employee's date of hire or, if later,
upon first becoming an Eligible Employee.
"Interest Rate" means, for each Fund, an amount equal to the net rate of
gain or loss on the assets of such Fund during each valuation period, but not
less frequently than monthly.
"Participant" means any Eligible Employee who elects to defer
Compensation in accordance with Section 3.1.
"Payment Eligibility Date" means the first day of the month following
the calendar quarter in which a Participant terminates employment or dies, or if
not such date, as soon as administratively possible thereafter.
"Plan" means the VLSI Technology, Inc. Non-Qualified Deferred
Compensation Plan set forth herein, now in effect, or as amended from time to
time.
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<PAGE> 6
"Plan Year" means the 12-consecutive month period beginning January 1
and ending December 31, or, if different, the Company's fiscal year, provided
that the first Plan Year shall be a short year beginning June 1, 1997 and ending
December 31, 1997.
"Salary" means the Employee's base salary for the Plan Year. Salary
excludes any other form of compensation such as bonuses, restricted stock,
proceeds from stock options or stock appreciation rights, severance payments,
moving expenses, car or other special allowance, or any other amounts included
in an Eligible Employee's taxable income that is not compensation for services.
Deferral elections shall be computed before taking into account any reduction in
taxable income by salary reduction under Code Sections 125 or 401(k), or under
this Plan.
ARTICLE II
PARTICIPATION
2.1 Participation.
An Eligible Employee shall become a Participant in the Plan by electing
to defer a portion of his or her Compensation in accordance with Section 3.1.
ARTICLE III
DEFERRAL ELECTIONS
3.1 Elections to Defer Compensation.
(a) Initial Election Period. Each Eligible Employee may elect to defer
Compensation by filing with the Committee an election that conforms to the
requirements of this Section 3.1, on a form provided by the Committee, no later
than the last day of his or her Initial Election Period.
(b) General Rule. The amount of Compensation which an Eligible Employee
may elect to defer is as follows:
(1) Any percentage of Salary up to 25%;
(2) Any percentage of Commissions up to 100%; and/or
(3) Any percentage of Bonus up to 100%;
provided, however, that no election shall be effective to reduce the
Compensation paid to an Eligible Employee for a calendar year to an amount that
is less than the amount necessary to pay applicable
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<PAGE> 7
employment taxes (e.g., FICA, hospital insurance) payable with respect to
amounts deferred hereunder, amounts necessary to satisfy any other benefit plan
withholding obligations, any resulting income taxes payable with respect to
Compensation that cannot be so deferred, and any amounts necessary to satisfy
any wage garnishment or similar type obligations.
(c) Effect of Initial Election. An election to defer Compensation during
an Initial Election Period shall be effective with respect to Salary and
Commissions earned during the first pay period beginning after the Initial
Election and to the Bonus payable for the Plan Year with respect to which the
election is made.
(d) Duration of Compensation Deferral Election. Any Compensation
deferral election made under paragraph (a) or paragraph (e) of this Section 3.1
shall remain in effect, notwithstanding any change in the Participant's
Compensation, until changed or terminated in accordance with the terms of this
paragraph (d); provided, however, that such election shall terminate for any
Plan Year for which the Participant is not an Eligible Employee. A Participant
may increase, decrease or terminate his or her Compensation deferral election,
effective for Compensation earned during pay periods beginning after the
beginning of the next succeeding Plan Year, by filing a new election, in
accordance with the terms of this Section 3.1, with the Committee on or before
the preceding December 15.
(e) Elections Other Than Elections During the Initial Election Period.
Any Eligible Employee who fails to elect to defer Compensation during his or her
Initial Election Period may subsequently become a Participant, and any Eligible
Employee who has terminated a prior deferral election may elect to again defer
Compensation, by filing an election, on a form provided by the Committee, to
defer Compensation as described in paragraph (b) above. An election to defer
Compensation must be filed on or before December 15 and will be effective for
Salary and Commissions earned during pay periods beginning on and after the
following January 1 and the Bonus paid with respect to services performed in the
Plan Year beginning on the following January 1.
3.2 Company Contributions.
The Company may, in its sole discretion, make discretionary
contributions to the Accounts of one or more Participants at such times and in
such amounts as the Board may determine. Unless and until the Board or the
Committee determines otherwise, for each Plan Year the Company shall make a
matching contribution for the benefit of each Participant in an amount equal to
the lesser of (i) fifty percent (50%) of the compensation deferred by the
Participant with respect to such Plan Year under both this Plan and the
Company's 401(k) plan, or (ii) three percent (3%) of the Participant's
Compensation for the Plan Year, reduced by any Company matching contributions
allocated to the Participant's matching contribution account under the 401(k)
plan during the Plan Year; provided, however, that the total Company matching
contribution with respect to such Plan Year under both this Plan and the
Company's 401(k) plan shall not exceed the lesser of (i) one-half (1/2) of the
dollar limit in effect for such Plan Year under Section 402(g)(1) of the Code
(or any successor provision), or (ii) three percent (3%) of the dollar limit in
effect for such Plan Year under Section 401(a)(17) of the Code (or any successor
provision).
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<PAGE> 8
3.3 Investment Elections.
The Committee may, in its discretion, provide each Participant with a
list of investment Funds available for hypothetical investment, and the
Participant may designate, in a manner specified by the Committee, one or more
Funds that his or her Account will be deemed to be invested in for purposes of
determining the amount of earnings to be credited to that Account. The Committee
may, from time to time, in its sole discretion select a commercially available
fund or contract to constitute the Fund actually selected. The Interest Rate of
each such commercially available fund or contract shall be used to determine the
amount of earnings to be credited to Participants' Accounts under Section
4.1(d).
In making the designation pursuant to this Section 3.3, the Participant
may specify that all or any 1% multiple of his or her Account be deemed to be
invested in one or more of the Funds offered by the Committee. Subject to such
limitations and conditions as the Committee may specify, a Participant may
change the designation made under this Section 3.3 in such manner and at such
time or times as the Committee shall specify. If a Participants fails to elect a
Fund under this Section 3.3, he or she shall be deemed to have elected a money
market fund.
The Company may, but need not, acquire investments corresponding to
those designated by the Participants hereunder, and it is not under any
obligation to maintain any investment it may make. Any such investments, if
made, shall be in the name of the Company, and shall be its sole property in
which no Participant shall have any interest.
ARTICLE IV
ACCOUNTS
4.1 Participant Accounts.
The Committee shall establish and maintain an Account for each
Participant under the Plan. Each Participant's Account shall be further divided
into separate subaccounts ("investment fund subaccounts"), each of which
corresponds to an investment fund or contract elected by the Participant
pursuant to Section 3.3. A Participant's Account shall be credited as follows:
(a) As soon as practicable following the end of each applicable pay
period, the Committee shall credit the investment fund subaccounts of the
Participant's Account with an amount equal to Salary and Commissions deferred by
the Participant during each pay period in accordance with the Participant's
election; that is, the portion of the Participant's deferred Salary and
Commissions that the Participant has elected to be deemed to be invested in a
certain type of investment fund shall be credited to the investment fund
subaccount corresponding to that investment fund.
(b) As soon as practicable after each Bonus or partial Bonus would have
been paid, the Committee shall credit the investment fund subaccounts of the
Participant's Account with an amount
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<PAGE> 9
equal to the portion of the Bonus deferred by the Participant's election; that
is, the portion of the Participant's deferred Bonus that the Participant has
elected to be deemed to be invested in a certain type of investment fund shall
be credited to the investment fund subaccount corresponding to that investment
fund.
(c) As soon as practicable after the last day of the Plan Year or such
earlier time or times as the Committee may determine, the Committee shall credit
the investment fund subaccounts of the Participant's Account with an amount
equal to the portion, if any, of any Company contribution made to or for the
Participant's benefit in accordance with Section 3.2; that is, the portion of
the Participant's Company contribution, if any, that the Participant has elected
to be deemed to be invested in a certain type of investment fund shall be
credited to the investment fund subaccount corresponding to that investment
fund.
(d) At such time or times as the Committee may determine, but not less
frequently than monthly, each investment fund subaccount of a Participant's
Account shall be credited with earnings in an amount equal to that determined by
multiplying the balance credited to such investment fund subaccount as of the
last day of the preceding valuation period by the Interest Rate for the
corresponding Fund selected by the Company.
ARTICLE V
VESTING
5.1 Account.
(a) Compensation Deferrals. A Participant's Account attributable to
Salary, Commissions and Bonus deferred by a Participant pursuant to the terms of
this Plan, together with any amounts credited to the Participant's Account under
Section 4.1(d) with respect to such deferrals, shall be 100% vested at all
times.
(b) Company Contributions. The value of a Participant's Account
attributable to any Company contributions pursuant to Section 3.2 shall vest at
such time or times as the Board shall specify in connection with any such
contributions. Unless otherwise specified by the Board or the Committee,
Participants shall be 100% vested in such amounts, together with any amounts
credited to the Participant's Account under Section 4.1(d) with respect to such
amounts.
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<PAGE> 10
ARTICLE VI
GENERAL DUTIES
6.1 Trustee Duties. The Trustee shall manage, invest and reinvest the
Trust Fund as provided in the Trust Agreement. The Trustee shall collect the
income on the Trust Fund, and make distributions therefrom, all as provided in
this Plan and in the Trust Agreement.
6.2 Company Contributions. While the Plan remains in effect, the Company
shall make contributions to the Trust Fund at least once each quarter. The
amount of any quarterly contribution shall be at the discretion of the
Committee. As soon as practicable after the close of each calendar year, the
Company shall make an additional contribution to the Trust Fund to the extent
that previous contributions to the Trust Fund for the current calendar year are
not equal to the total of the Compensation deferrals made by each Participant
plus Company contributions, if any, accrued as of the close of the current
calendar year. The Trustee shall not be liable for any failure by the Company to
provide contributions sufficient to pay all accrued benefits under the Plan in
accordance with the terms of this Plan.
6.3 Department of Labor Determination. In the event that any
Participants are found to be ineligible, that is, not members of a select group
of highly compensated employees, according to a determination made by the
Department of Labor, the Committee shall take whatever steps it deems necessary,
in its sole discretion, to equitably protect the interests of the affected
Participants.
ARTICLE VII
DISTRIBUTIONS
7.1 Distribution of Deferred Compensation.
(a) In the case of a Participant who terminates employment with the
Company as a result of Disability, death or who terminates employment with the
Company with a minimum of five years of employment with the Company, the
Distributable Amount shall be paid to the Participant (and after his death to
his or her Beneficiary) in the form of substantially equal quarterly
installments over 15 years beginning on his or her Payment Eligibility Date.
Notwithstanding the foregoing, a Participant described in the preceding sentence
may elect one of the following optional forms of distribution provided that his
or her election is filed with the Committee within 30 days of the date the
Eligible Employee first becomes a Participant:
(1) a cash lump sum payable on the Participant's Payment
Eligibility Date, and
(2) quarterly installments over five or 10 years beginning on
the Participant's Payment Eligibility Date.
-8-
<PAGE> 11
Notwithstanding the foregoing, a Participant described above may change
his or her form of distribution to one of the optional forms listed above
provided that his or her election is filed with the Committee at least one year
prior to his or her Payment Eligibility Date.
To the extent the Distributable Amount is paid in installments, the
Participant's Account shall continue to be credited with earnings pursuant to
Section 4.1(d) of the Plan and the installment amount shall be adjusted annually
to reflect gains and losses until all amounts credited to his or her Account
under the Plan have been distributed. Notwithstanding this subsection, if the
Participant's Distributable Amount is $20,000 or less, the Distributable Amount
shall automatically be distributed in the form of a cash lump sum on the
Participant's Payment Eligibility Date.
(b) In the case of a Participant whose Payment Eligibility Date occurs
prior to the date on which the Participant attains a minimum of five years of
employment with the Company and for reasons other than Disability or death, the
Distributable Amount shall be paid to the Participant in the form of a cash lump
sum on the Participant's Payment Eligibility Date.
(c) If the Participant is in pay status at the time of death, the
Beneficiary shall be paid the remaining quarterly installments as they come due.
7.2 Early Distributions -- Payout.
Notwithstanding Section 7.1, in connection with each election to defer
Compensation, a Participant may elect to receive a payout of such deferred
Compensation and its associated Company contributions, if any, prior to
terminating employment with the Company by filing an election (a "Payout
Election"). The Payout Election shall be made on a form provided by the
Committee and shall be subject to such terms and conditions as the Committee may
specify. A Payout Election shall entitle the Participant to receive a lump sum
payment in an amount that is equal to the deferred Compensation and the
associated Company Contribution, if any, plus earnings credited in the manner
provided in Section 4.1(d) above on that amount, determined at the time that the
payout becomes payable. A Payout Election may not specify a date that is within
five years of the date of such Election. In the event the Participant's
employment with the Company terminates for any reason, the Participant's Payout
Election, if any, shall be disregarded, and the distribution of the
Participant's Distributable Amount shall be governed by Section 7.1.
7.3 Early Distributions -- Withdrawal.
Participants shall be permitted to request to withdraw amounts from
their Accounts prior to termination of employment with the Company ("Early
Distributions"). Upon receiving a withdrawal request, the Committee shall
determine, in its sole discretion, whether to permit any such withdrawal and the
amount, if any, to be withdrawn, subject to the following restrictions:
(a) The election to take an Early Distribution shall be made by filing a
form provided by and filed with the Committee prior to the end of any calendar
month.
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<PAGE> 12
(b) The amount payable to a Participant in connection with an Early
Distribution shall in all cases equal 90% of the amount requested by the
Participant or, if lesser, 90% of the withdrawal amount approved by the
Committee; provided, however, that the maximum amount payable to a Participant
in connection with an Early Distribution shall be 90% of the Distributable
Amount as of the end of the calendar month in which the Early Distribution
election is made.
(c) The amount described in subsection (b) above shall be paid in a
single cash lump sum as soon as practicable after the end of the calendar month
in which the Early Distribution election is made.
(d) If a Participant receives an Early Distribution, the remaining
portion of the requested or approved amount, as applicable (i.e., 10% of such
amount), shall be permanently forfeited and the Company shall have no obligation
to the Participant or his Beneficiary with respects to such forfeited amount.
(e) If a Participant receives an Early Distribution, the Participant
shall be ineligible to Participate in the Plan for the balance of the Plan Year
in which the Early Distribution occurs and the following Plan Year.
(f) An Early Distribution pursuant to this Section 7.3 of less than 90%
of the Participant's Distributable Amount shall be made pro rata from his or her
assumed investments according to the balances in such investments. Subject to
the foregoing, payment of any amount with respect to which a Participant has
filed a request under this Section 7.3 shall be made as soon as practicable
after approval of such request by the Committee.
7.4 Unforeseeable Emergency.
The Committee may, pursuant to rules adopted by it and applied in a
uniform manner, accelerate the date of distribution of a Participant's Account
because of an Unforeseeable Emergency at any time. "Unforeseeable Emergency"
shall mean an unforeseeable, severe financial condition resulting from (a) a
sudden and unexpected illness or accident of the Participant or his or her
dependent (as defined in Section 152(a) of the Code); (b) loss of the
Participant's property due to casualty; or (c) other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the control of
the Participant, but which may not be relieved through other available resources
of the Participant, as determined by the Committee in accordance with uniform
rules adopted by it. Distribution pursuant to this subsection of less than the
Participant's entire interest in the Plan shall be made pro rata from his or her
assumed investments according to the balances in such investments. Subject to
the foregoing, payment of any amount with respect to which a Participant has
filed a request under this subsection shall be made as soon as practicable after
approval of such request by the Committee.
7.5 Inability To Locate Participant.
In the event that the Committee is unable to locate a Participant or
Beneficiary within two years following the Participant's Payment Eligibility
Date, the amount allocated to the Participant's Deferral
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<PAGE> 13
Account shall be forfeited. If, after such forfeiture, the Participant or
Beneficiary later claims such benefit, such benefit (calculated immediately
prior to the forfeiture) shall be reinstated without interest or earnings.
ARTICLE VIII
ADMINISTRATION
8.1 Committee.
A Committee shall be appointed by, and serve at the pleasure of, the
Board. The number of members comprising the Committee shall be determined by the
Board which may from time to time vary the number of members. A member of the
Committee may resign by delivering a written notice of resignation to the Board.
The Board may remove any member by delivering a certified copy of its resolution
of removal to such member. Vacancies in the membership of the Committee shall be
filled promptly by the Board.
8.2 Committee Action.
The Committee shall act at meetings by affirmative vote of a majority of
the members of the Committee. Any action permitted to be taken at a meeting may
be taken without a meeting if, prior to such action, a written consent to the
action is signed by all members of the Committee and such written consent is
filed with the minutes of the proceedings of the Committee. A member of the
Committee shall not vote or act upon any matter which relates solely to himself
or herself as a Participant. The chairman or any other member or members of the
Committee designated by the chairman may execute any certificate or other
written direction on behalf of the Committee.
8.3 Powers and Duties of the Committee.
(a) The Committee, on behalf of the Participants and their
Beneficiaries, shall enforce the Plan in accordance with its terms, shall be
charged with the general administration of the Plan and shall have all powers
necessary to accomplish its purposes, including, but not by way of limitation,
the following:
(1) To select the funds or contracts to be the Funds in
accordance with Section 3.3 hereof;
(2) To construe and interpret the terms and provisions of
this Plan;
(3) To amend, modify, suspend or terminate the Plan in
accordance with Section 9.4;
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<PAGE> 14
(4) To compute and certify the amount and kind of benefits
payable to Participants and their Beneficiaries and to
direct the Trustee as to the distribution of Plan
assets;
(5) To maintain all records that may be necessary for the
administration of the Plan;
(6) To provide for the disclosure of all information and the
filing or provision of all reports and statements to
Participants, Beneficiaries or governmental agencies as
shall be required by law;
(7) To make and publish such rules for the regulation of the
Plan and procedures for the administration of the Plan
as are not inconsistent with the terms hereof; and
(8) To appoint a plan administrator or any other agent, and
to delegate to them such powers and duties in connection
with the administration of the Plan as the Committee may
from time to time prescribe.
8.4 Construction and Interpretation.
The Committee shall have full discretion to construe and interpret the
terms and provisions of this Plan, which interpretation or construction shall be
final and binding on all parties, including but not limited to the Company and
any Participant or Beneficiary. The Committee shall administer such terms and
provisions in a uniform and nondiscriminatory manner and in full accordance with
any and all laws applicable to the Plan.
8.5 Information.
To enable the Committee to perform its functions, the Company shall
supply full and timely information to the Committee on all matters relating to
the Compensation of all Participants, their death or other cause of termination,
and such other pertinent facts as the Committee may reasonably require.
8.6 Compensation, Expenses and Indemnity.
(a) The members of the Committee shall serve without compensation for
their services hereunder.
(b) The Committee is authorized at the expense of the Company to employ
such legal counsel as it may deem advisable to assist in the performance of its
duties hereunder. Expenses and fees in connection with the administration of the
Plan shall be paid by the Company.
(c) To the extent permitted by applicable state law, the Company shall
indemnify and save harmless the Committee and each member thereof, the Board and
any delegate of the Committee who is an employee of the Company against any and
all expenses, liabilities and claims, including legal fees
-12-
<PAGE> 15
to defend against such liabilities and claims arising out of their discharge in
good faith of responsibilities under or incident to the Plan, other than
expenses and liabilities arising out of willful misconduct. This indemnity shall
not preclude such further indemnities as may be available under insurance
purchased by the Company or provided by the Company under any bylaw, agreement
or otherwise, as such indemnities are permitted under state law.
8.7 Quarterly Statements.
Under procedures established by the Committee, a Participant shall
receive a statement with respect to such Participant's Account on a quarterly
basis.
ARTICLE IX
MISCELLANEOUS
9.1 Unsecured General Creditor.
Participants and their Beneficiaries, heirs, successors, and assigns
shall have no legal or equitable rights, claims, or interests in any specific
property or assets of the Company. No assets of the Company shall be held under
any trust, or held in any way as collateral security for the fulfilling of the
obligations of the Company under this Plan. Any and all of the Company's assets
shall be, and remain, the general unpledged, unrestricted assets of the Company.
The Company's obligation under the Plan shall be merely that of an unfunded and
unsecured promise of the Company to pay money in the future, and the rights of
the Participants and Beneficiaries shall be no greater than those of unsecured
general creditors.
9.2 Restriction Against Assignment.
The Company shall pay all amounts payable hereunder only to the person
or persons designated by the Plan and not to any other person or corporation. No
part of a Participant's Account shall be liable for the debts, contracts, or
engagements of any Participant, his or her Beneficiary, or successors in
interest, nor shall a Participant's Account be subject to execution by levy,
attachment, or garnishment or by any other legal or equitable proceeding, nor
shall any such person have any right to alienate, anticipate, commute, pledge,
encumber, or assign any benefits or payments hereunder in any manner whatsoever.
If any Participant, Beneficiary or successor in interest is adjudicated bankrupt
or purports to anticipate, alienate, sell, transfer, assign, pledge, encumber or
charge any distribution or payment from the Plan, voluntarily or involuntarily,
the Committee, in its discretion, may cancel such distribution or payment (or
any part thereof) to or for the benefit of such Participant, Beneficiary or
successor in interest in such manner as the Committee shall direct.
-13-
<PAGE> 16
9.3 Withholding.
There shall be deducted from each payment made under the Plan all taxes
which are required to be withheld by the Company in respect to such payment. The
Company shall have the right to reduce any payment by the amount of cash
sufficient to provide the amount of said taxes.
9.4 Amendment, Modification, Suspension or Termination.
The Committee may amend, modify, suspend or terminate the Plan in whole
or in part, except that no amendment, modification, suspension or termination
shall have any retroactive effect to reduce any amounts allocated to a
Participant's Account, provided that a termination or suspension of the Plan or
any Plan amendment or modification that will significantly increase costs to the
Company shall be approved by the Board. In the event that this Plan is
terminated, the disposition of the amounts credited to a Participant's Account
shall be at the sole discretion of the Committee.
9.5 Governing Law.
This Plan shall be construed, governed and administered in accordance
with the laws of the State of California.
9.6 Receipt or Release.
Any payment to a Participant or the Participant's Beneficiary in
accordance with the provisions of the Plan shall, to the extent thereof, be in
full satisfaction of all claims against the Committee and the Company. The
Committee may require such Participant or Beneficiary, as a condition precedent
to such payment, to execute a receipt and release to such effect.
9.7 Payments on Behalf of Persons Under Incapacity.
In the event that any amount becomes payable under the Plan to a person
who, in the sole judgment of the Committee, is considered by reason of physical
or mental condition to be unable to give a valid receipt therefore, the
Committee may direct that such payment be made to any person found by the
Committee, in its sole judgment, to have assumed the care of such person. Any
payment made pursuant to such determination shall constitute a full release and
discharge of the Committee and the Company.
9.8 No Employment Rights.
Participation in this Plan shall not confer upon any person any right to
be employed by the Company or any other right not expressly provided hereunder.
-14-
<PAGE> 17
9.9 Headings, etc. Not Part of Agreement.
Headings and subheadings in this Plan are inserted for convenience of
reference only and are not to be considered in the construction of the
provisions hereof.
IN WITNESS WHEREOF, the Company has caused this document to be executed
by its duly authorized officer on this 9 day of May, 1997.
VLSI TECHNOLOGY, INC.
By: /s/ LARRY L. GRANT
-------------------------------------
Title: V.P. General Counsel and Secretary
----------------------------------
-15-
<PAGE> 18
EXHIBIT A
AMENDMENT ONE
TO THE VLSI TECHNOLOGY, INC.
NON-QUALIFIED DEFERRED COMPENSATION PLAN
AUGUST 20, 1997
Section 3.1(b) of the VLSI Technology, Inc. Non-Qualified Deferred
Compensation Plan (the "Plan") is hereby amended, effective with respect to
Plan years beginning on and after January 1, 1998, as follows:
3.1 Elections to Defer Compensation
(b) General Rule. The amount of Compensation which an Eligible
Employee may elect to defer is as follows:
(1) Any percentage of Salary up to 100%;
(2) Any percentage of Commissions up to 100%; and /or
(3) Any percentage of Bonus up to 100%;
provided, however, that no election shall be effective to reduce the
Compensation paid to an Eligible Employee for a calendar year to an
amount that is less than the amount necessary to pay applicable
employment taxes (e.g., FICA, hospital insurance) payable with respect
to amounts deferred hereunder, amounts necessary to satisfy any other
benefit plan withholding obligations, as resulting income taxes
payable with respect to Compensation that cannot be so deferred, and
any amounts necessary to satisfy any wage garnishment or similar type
obligations.
To the extent not inconsistent with this Amendment, the terms of the Plan
shall remain in full force and effect.
VLSI TECHNOLOGY, INC.
By: /s/ LARRY L. GRANT
-------------------------------------------
LARRY L. GRANT
V.P., Gen. Counsel & Sec.
<PAGE> 19
VLSI TECHNOLOGY, INC.
COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS
RESOLUTIONS
RATIFICATION OF AMENDMENTS TO THE DEFERRED COMPENSATION PLAN
WHEREAS, on March 5, 1997 the Compensation Committee of the Board of Directors
(the "Compensation Committee") of VLSI Technology, Inc. (the "Corporation")
approved the establishment of a Non-Qualified Deferred Compensation Plan (the
"Plan") whereby a select group of management or highly compensated employees
may voluntarily defer a portion of their compensation, and such Plan has been
amended; and
WHEREAS, on August 20, 1997 the Compensation Committee approved an amendment to
the Plan; and
WHEREAS, the Corporation wishes to incorporate further amendments to the Plan.
NOW, THEREFORE, BE IT
RESOLVED: That the Compensation Committee of the Board of Directors of VLSI
Technology, Inc. (the "Corporation") hereby ratifies and approves the following
additional amendments to be made a part of its Non-Qualified Deferred
Compensation Plan (the "Plan"):
1. Non-employee directors shall be eligible to participate in the Plan;
2. Maximum salary deferral of 100%;
3. In addition to the quarterly payout election, there shall be an annual
installment payout election;
4. Participants may direct a different payout if death occurs while
participant is on an installment payout (as opposed to continuing
same payout participant was on at the time of death);
5. Payout shall be in the first quarter after separation from employment,
if less than five years service; and
6. Participants may revoke payout at any time prior to payout, but no
more than twice.
<PAGE> 20
RESOLVED FURTHER: That the proper officers of this Corporation are authorized
and directed to execute all documents and to take any and all action as they may
deem necessary or advisable in order to carry out and perform the purposes of
these resolutions and all such prior actions taken by the officers in
connection herewith are ratified and approved.
<PAGE> 1
EXHIBIT 10.47
[LOGO] VLSI TECHNOLOGY, INC.
March 21, 1997
John S. Hodgson
82 Jamestown Road
Bernards Township, New Jersey 07920
Re: Offer of Employment
Dear John:
We are happy to make you this offer of employment at VLSI Technology, Inc. under
the following terms and conditions:
1. Your title will be Senior Vice President - Worldwide Sales reporting to
Rich Beyer.
2. Your base compensation will be $10,770 per pay period, which equals
$280,020 annually.
3. The Company will recommend to the Board of Directors that you be granted
125,000 shares of VLSI stock under the Company's Stock Option Plan vesting
25% per year over 4 years, at the Fair Market Value of the stock on the day
of approval by the Board of Directors. In your circumstance, however, we
will attempt to secure our Compensation Committee's approval for your grant
to be approved as of your hire date.
4. You will be eligible to participate in the 1997 Management Incentive Plan
effective January 1, 1997. This Plan provides for an annual bonus which is
based upon achievement of target annual profit for the Company, annual
department or business unit goals and individual performance. Your
Management Incentive Bonus target will be 50% of your 1997 earnings.
5. You will be entitled to receive VLSl's benefits made available to all VLSI
employees to the full extent of your eligibility. This will include a
competitive life insurance, medical and dental plan.
<PAGE> 2
John S. Hodgson
March 21, 1997
Page Two
6. In accordance with the requirements of the Immigration Reform and Control
Act of 1986, you will be required to provide verification of your identity
and legal right to work in the United States. This documentation must be
presented on your first day of employment.
7. You will receive a one-time employment bonus of $100,000. Should you
voluntarily terminate your employment within one year of your start date,
you agree to reimburse VLSI the entire amount ($100,000). Should you
voluntarily terminate, your employment within two (2) years of your start
date, you agree to reimburse VLSI $50,000. You also agree that the company
may offset this amount against your final wages to help effect the
reimbursement.
8. A "Proprietary Information and Inventions Agreement" will be signed and
accepted upon your first day of work.
9. This offer is contingent upon successfully passing VLSl's preemployment
drug screen.
10. Nothing in the employment process, this employment offer, or your future
employment should be construed as a guarantee of continued employment, but
rather, employment with the Company is on an "at will" basis. This means
that the employment relationship may be terminated at any time by either
the employee or the Company for any reason not expressly prohibited by law.
Any written or oral statement to the contrary by a supervisor, corporate
officer or other agent of the Company is invalid and should not be relied
upon. The temns and conditions of your employment with VLSI may change, but
will not affect the "at will" employment relationship between yourself and
VLSI.
11. Please be aware that we are a 100% smoke free environment.
Please sign and date one copy of this letter indicating your acceptance and
start date, and return to me at VLSI Technology, Inc., 1109 McKay Drive, MS/26A,
San Jose, CA 95131. A return envelope is enclosed for your convenience.
At orientation you will enroll in our benefit plan(s), which will take effect
immediately upon your date of hire (the first day you report to work at VLSI).
Therefore, it is important that you review the benefit summary and come prepared
to make decisions about which benefit plan(s) you elect to participate in.
Although you will be asked to choose between various benefit options during
orientation, there is a five (5) day "grace period" during which you will be
able to make changes to your benefit plan selections. It is also important to
bring the birthdates of all of your dependents for this process.
<PAGE> 3
John S. Hodgson
March 21, 1997
Page Three
We recognize, John, that you have great potential and we are confident you will
be a valuable asset to our team. The infusion of new talent and enthusiasm is
vital to our status as an industry leader and this offer exhibits our belief in
you becoming an important contributor.
Sincerely,
VLSI Technology, Inc.
Art Gemmell
Vice President
Customer Excellence
AJG:db
Enclosures
cc: Rich Beyer
THIS OFFER EXPIRES ONE WEEK FROM THE DATE OF THIS LETTER.
ACCEPT: /s/ JOHN S. HODGSON DATE: 4-21-97
------------------------------- ------------
START DATE:
-----------------------------------------------
<PAGE> 4
[VLSI TECHNOLOGY LETTERHEAD]
March 5, 1998
John S. Hodgson
82 Jamestown Road
Bernards Township, New Jersey 07920
Re: VLSI Offer of Employment Dated March 21, 1997
Dear John:
This will confirm and document the addendum made last year to your original
offer letter referenced above:
ADDENDUM TO ITEM 7:
- -------------------
Your one time employment bonus is not payable or earned until you have
completed 1 year of service with VLSI. Should you voluntarily terminate your
employment within one year of your start date, you will not be entitled to this
bonus. Should you voluntarily terminate, your employment within two (2) years
of your start date, you agree to reimburse VLSI $50,000. You also agree that
the company may offset this amount against your final wages to help effect the
reimbursement.
Please acknowledge this change where indicated below.
Sincerely,
VLSI Technology, Inc.
Art Gemmell
Vice President
Customer Excellence
AJG:db
cc: Rich Beyer
SIGNATURE: /s/ JOHN S. HODGSON DATE: 3/15/98
------------------------------------ --------------------
<PAGE> 1
EXHIBIT 10.48
[LOGO] VLSI TECHNOLOGY, INC.
RICHARD M. BEYER
President and Chief Operating Officer
August 6, 1997
Mr. Doug McBurnie
31 Carver Lane
Sunol, CA 94586
Re: Offer of Employment
Dear Doug,
We are happy to make you this offer of employment at VLSI Technology, Inc. under
the following terms and conditions:
1. Your title will be Senior Vice President -- Computer & Consumer Products
Group reporting to me.
2. Your base compensation will be $11,539 per pay period, which equals
$300,014 annually.
3. The Company will recommend to the Board of Directors that you be granted
150,000 shares of VLSI stock under the Company's Stock Option Plan vesting
one-third per year over 3 years, at the Fair Market Value of the stock on
the day of approval by the Board of Directors.
4. You will be eligible to participate in the 1997 Management Incentive Plan.
This Plan provides for an annual bonus which is based upon achievement of
target annual profit for the Company, annual department or business unit
goals and individual performance. Your Management Incentive Bonus target
will be 60% of your 1997 earnings.
5. At the completion of each of your first three years of service, the company
will credit into a deferred compensation account $500,000 on or about the
date each year of service is completed. While the details are yet to be
finalized, our goal, ultimately, will be an arrangement permitting you to
receive a stream of payments when you resign from VLSI but no sooner than
after you have completed three years of service.
6. You will be entitled to receive VLSl's benefits made available to all VLSI
employees to the full extent of your eligibility. This will include a
competitive life insurance, medical and dental plan.
7. In accordance with the requirements of the Immigration Reform and Control
Act of 1986, you will be required to provide verification of your identity
and legal right to work in the United States. This documentation must be
presented on your first day of employment.
<PAGE> 2
Doug McBurnie
August 6, 1997
Page 2
8. A "Proprietary Information and Inventions Agreement" will be signed and
accepted upon your first day of work.
9. This offer is contingent upon successfully passing VLSl's pre-employment
drug screen. Failure to report for the drug screen within 48 hours of
acceptance of this written offer will result in withdrawal of this offer.
Please schedule an appointment with the Peninsula Industrial Medical
Clinic, 1197 E. Arques, Sunnyvale, CA 94086, (408) 773-9000 for the drug
screen. If you reside outside of the San Jose, CA area please contact Diane
Neu, VLSI Staffing Administrator at (408) 434-7753 to arrange for drug
screening.
10. Nothing in the employment process, this employment offer, or your future
employment should be construed as a guarantee of continued employment, but
rather, employment with the Company is on an "at will" basis. This means
that the employment relationship may be terminated at any time by either
the employee or the Company for any reason not expressly prohibited by law.
Any written or oral statement to the contrary by a supervisor, corporate
officer or other agent of the Company is invalid and should not be relied
upon. The terms and conditions of your employment with VLSI may change, but
will not affect the "at will" employment relationship between yourself and
VLSI.
11. Please be aware that we are a 100% smoke free environment.
Please sign and date one copy of this letter indicating your acceptance and
start date, and return to Art Gemmell, VLSI Technology, Inc., 1109 McKay Drive,
MS/26A, San Jose, CA 95131.
We recognize, Doug, that you have great potential and we are confident you will
be a valuable asset to our team. The infusion of new talent and enthusiasm is
vital to our status as an industry leader and this offer exhibits our belief in
you becoming an important contributor.
Sincerely,
/s/ RICHARD M. BEYER
- --------------------------------
Richard M. Beyer
President & Chief Operating Officer
VLSI Technology, Inc.
RMB:db
ACCEPT: DATE:
--------------------------------------- --------------
START DATE:
-----------------------------------
START DATE:
DATE:
<PAGE> 1
EXHIBIT 21
VLSI TECHNOLOGY, INC.
SUBSIDIARIES
1. VLSI Technology GmbH, incorporated under the laws of Germany.
2. VLSI Technology Limited, incorporated under the laws of the United Kingdom.
3. VLSI Technology France Holding SARL, incorporated under the laws of France.
4. VLSI Technology K.K., incorporated under the laws of Japan.
5. VLSI Technology Asia Limited, incorporated under the laws of Hong Kong.
6. VLSI Switzerland AG, incorporated under the laws of Switzerland.
7. ComAtlas S.A., incorporated under the laws of France.
8. VLSI Foreign Sales Corporation, incorporated under the laws of the U.S.
Virgin Islands.
9. VLSI Technology France EURL, incorporated under the laws of France.
10. VLSI Technology Wireless Communication Research EURL, incorporated under
the laws of France.
11. Creative System Solutions GmbH, incorporated under the laws of Germany.
12. Creative System Solutions, Inc., incorporated under the laws of Canada.
13. VLSI India, Inc., incorporated under the laws of the State of Delaware.
14. VLSI Technology (UK) Holdings Limited, incorporated under the laws of the
United Kingdom.
15. VLSITEX, Inc., incorporated under the laws of the State of Texas.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE FORM 10-K OF VLSI TECHNOLOGY, INC. FOR THE
FISCAL YEAR ENDED DECEMBER 26, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000704386
<NAME> VLSI TECHNOLOGY, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-26-1997
<PERIOD-START> DEC-28-1996
<PERIOD-END> DEC-26-1997
<CASH> 193,899
<SECURITIES> 89,585
<RECEIVABLES> 112,869
<ALLOWANCES> (2,000)
<INVENTORY> 51,875
<CURRENT-ASSETS> 533,877
<PP&E> 777,316
<DEPRECIATION> (396,412)
<TOTAL-ASSETS> 922,078
<CURRENT-LIABILITIES> 186,228
<BONDS> 182,999
0
0
<COMMON> 473
<OTHER-SE> 515,922
<TOTAL-LIABILITY-AND-EQUITY> 922,078
<SALES> 712,653
<TOTAL-REVENUES> 712,653
<CGS> 404,709
<TOTAL-COSTS> 404,709
<OTHER-EXPENSES> 212,473
<LOSS-PROVISION> (28)
<INTEREST-EXPENSE> 17,785
<INCOME-PRETAX> 91,295
<INCOME-TAX> 24,650
<INCOME-CONTINUING> 66,645
<DISCONTINUED> 5,173
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,818
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.47
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of VLSI Technology, Inc. for the fiscal years ended
December 27, 1996 and December 29, 1995 as reported and restated in the 1997
Form 10-K. Certain amounts have been reclassified to reflect results from
continuing operations. EPS amounts have been restated as required by FAS 128.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-27-1996 DEC-29-1995
<PERIOD-START> DEC-30-1995 DEC-31-1994
<PERIOD-END> DEC-27-1996 DEC-29-1995
<CASH> 139,074 183,165
<SECURITIES> 66,685 182,416
<RECEIVABLES> 114,708 121,738
<ALLOWANCES> (2,200) (2,100)
<INVENTORY> 56,361 60,848
<CURRENT-ASSETS> 448,506 598,135
<PP&E> 772,565 698,213
<DEPRECIATION> (345,301) (346,172)
<TOTAL-ASSETS> 890,942 959,887
<CURRENT-LIABILITIES> 210,490 198,038
<BONDS> 209,973 218,847
0 0
0 0
<COMMON> 472 472
<OTHER-SE> 470,007 530,157
<TOTAL-LIABILITY-AND-EQUITY> 890,942 959,887
<SALES> 669,017 670,291
<TOTAL-REVENUES> 669,017 670,291
<CGS> 424,287 423,617
<TOTAL-COSTS> 424,287 423,017
<OTHER-EXPENSES> 313,732 170,500
<LOSS-PROVISION> 416 209
<INTEREST-EXPENSE> 13,036 8,025
<INCOME-PRETAX> (77,889) 62,586
<INCOME-TAX> (31,931) 16,370
<INCOME-CONTINUING> (45,958) 46,216
<DISCONTINUED> (3,589) (248)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 49,547 45,968
<EPS-PRIMARY> (1.08) 1.11
<EPS-DILUTED> (1.08) 1.04
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains restated summary financial information of VLSI
Technology, Inc. for the nine months ended September 26, 1997, the six months
ended June 27, 1997 and the three months ended March 28, 1997. Certain amounts
have been reclassified to reflect results from continuing operations. EPS
amounts have been restated as required by FAS 128.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-26-1997 DEC-26-1997 DEC-26-1997
<PERIOD-START> DEC-28-1996 DEC-28-1996 DEC-28-1996
<PERIOD-END> SEP-26-1997 JUN-27-1997 MAR-28-1997
<CASH> 200,391 131,668 90,634
<SECURITIES> 84,307 94,533 117,408
<RECEIVABLES> 116,242 114,834 104,767
<ALLOWANCES> (2,000) 2,100 (2,000)
<INVENTORY> 56,090 53,983 57,054
<CURRENT-ASSETS> 539,418 457,208 438,919
<PP&E> 804,495 812,913 794,269
<DEPRECIATION> (396,966) (393,939) (369,267)
<TOTAL-ASSETS> 968,248 892,411 882,409
<CURRENT-LIABILITIES> 232,648 203,670 210,747
<BONDS> 200,059 205,493 207,758
0 0 0
0 0 0
<COMMON> 472 472 472
<OTHER-SE> 521,069 482,776 463,432
<TOTAL-LIABILITY-AND-EQUITY> 968,248 892,411 882,409
<SALES> 519,636 338,455 167,478
<TOTAL-REVENUES> 519,636 338,455 167,478
<CGS> 298,776 198,535 99,089
<TOTAL-COSTS> 298,776 198,535 99,089
<OTHER-EXPENSES> 156,251 102,603 51,547
<LOSS-PROVISION> (122) (196) (290)
<INTEREST-EXPENSE> 13,224 8,661 4,459
<INCOME-PRETAX> 61,167 35,089 15,583
<INCOME-TAX> 16,515 11,220 4,980
<INCOME-CONTINUING> 44,652 23,869 10,603
<DISCONTINUED> 5,173 (2,550) (1,617)
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 49,825 21,319 8,986
<EPS-PRIMARY> 1.07 0.46 0.19
<EPS-DILUTED> 1.02 0.44 0.19
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains restated summary financial information of VLSI
Technology, Inc. for the nine months ended September 27, 1996, the six months
ended June 28, 1996 and the three months ended March 29, 1996. Certain amounts
have been reclassified to reflect results from continuing operations. EPS
amounts have been restated as required by FAS 128.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-27-1996 DEC-27-1996 DEC-27-1996
<PERIOD-START> DEC-30-1995 DEC-30-1995 DEC-30-1995
<PERIOD-END> SEP-27-1996 JUN-28-1996 MAR-29-1996
<CASH> 154,439 129,271 131,533
<SECURITIES> 28,794 70,841 130,341
<RECEIVABLES> 118,833 117,300 108,318
<ALLOWANCES> (2,000) (1,900) (2,150)
<INVENTORY> 62,417 62,757 64,163
<CURRENT-ASSETS> 412,810 430,360 484,805
<PP&E> 905,741 859,385 797,040
<DEPRECIATION> (416,127) (388,724) (367,739)
<TOTAL-ASSETS> 914,133 912,972 922,994
<CURRENT-LIABILITIES> 166,090 165,930 187,283
<BONDS> 212,269 214,514 216,709
0 0 0
0 0 0
<COMMON> 472 472 472
<OTHER-SE> 522,929 519,683 506,157
<TOTAL-LIABILITY-AND-EQUITY> 914,133 912,972 922,994
<SALES> 495,022 324,548 154,700
<TOTAL-REVENUES> 495,022 324,548 154,700
<CGS> 318,727 211,610 102,774
<TOTAL-COSTS> 318,727 211,610 102,774
<OTHER-EXPENSES> 145,990 96,465 47,996
<LOSS-PROVISION> 67 (100) 21
<INTEREST-EXPENSE> 8,837 5,333 2,478
<INCOME-PRETAX> 22,968 18,080 5,346
<INCOME-TAX> 7,220 5,600 1,900
<INCOME-CONTINUING> 15,748 12,480 3,446
<DISCONTINUED> (1,672) (1,037) (276)
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 14,076 11,443 3,170
<EPS-PRIMARY> 0.31 0.25 0.07
<EPS-DILUTED> 0.30 0.25 0.07
</TABLE>
