<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark One:
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended April 2, 1999.
---------------
Or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
------ ------
Commission file number 0-11879
VLSI TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2597282
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1109 McKay Drive, San Jose, California, 95131
-----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(408) 434-3100
-----------------------------------------------------------------
(Registrant's telephone number, including area code)
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 ( )
Shares outstanding of the Registrant's Common Stock as of April 2, 1999:
46,585,808
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
VLSI TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME - unaudited
(thousands, except per share amounts)
<CAPTION>
Three Months Ended
-------------------------
April 2, March 27,
1999 1998
-------- ---------
<S> <C> <C>
Net revenues $149,577 $141,286
Cost of sales 91,717 82,940
-------- --------
Gross profit 57,860 58,346
-------- --------
Operating expenses:
Research and development 31,810 28,037
Marketing, general and administrative 23,957 26,297
Charges resulting from tender offer 4,500 -
-------- --------
Operating income (loss) (2,407) 4,012
Gain on sale of marketable securities 7,625 -
Interest income and other expenses, net 3,517 3,808
Interest expense (2,292) (3,484)
-------- --------
Income before provision for taxes
on income 6,443 4,336
Provision for taxes on income 1,740 1,170
-------- --------
Net income 4,703 3,166
-------- --------
Other comprehensive income, net of tax:
Unrealized gain on available-for-sale
securities, net of reclassification
adjustment 3,074 483
-------- --------
Comprehensive income $ 7,777 $ 3,649
======== ========
Net income per share - Basic $ 0.10 $ 0.07
======== ========
Net income per share - Diluted $ 0.09 $ 0.07
======== ========
Weighted-average common
shares outstanding - Basic 46,238 45,748
======== ========
Weighted-average common
shares outstanding and assumed
conversions - Diluted 49,921 47,415
======== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
VLSI TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS - unaudited
(thousands)
<CAPTION>
April 2, December 25,
1999 1998
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 76,683 $122,460
Marketable securities 169,048 171,921
Accounts receivable, net of allowance
for doubtful accounts and customer
returns of $1,700
($1,700 at December 25, 1998) 78,606 81,890
Inventories:
Raw materials and work-in-process 29,392 31,691
Finished goods 7,865 11,405
-------- --------
Total inventories 37,257 43,096
Deferred and refundable income taxes 53,485 54,382
Prepaid expenses and other current assets 10,557 8,962
-------- --------
Total current assets 425,636 482,711
Property, plant and equipment, at cost 906,643 864,059
Accumulated depreciation and amortization (460,536) (435,128)
-------- --------
Net property, plant and equipment 446,107 428,931
Other assets 10,746 10,403
-------- --------
TOTAL ASSETS $882,489 $922,045
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 63,751 $ 98,739
Accrued compensation and benefits 33,199 31,631
Income taxes 5,771 5,448
Patent matters 13,914 13,914
Other accrued liabilities 23,640 34,216
-------- --------
Total current liabilities 140,275 183,948
Long-term debt 161,208 164,808
Other long-term obligations 17,558 18,239
Stockholders' equity:
Preferred Shares, $.01 par value - -
Common Shares, $.01 par value 473 473
Additional paid-in capital 446,092 448,228
Treasury Common Shares, at cost (5,937) (14,941)
Stockholders' notes receivable (6,247) -
Retained earnings 117,019 112,316
Accumulated other comprehensive income 12,048 8,974
-------- --------
Total stockholders' equity 563,448 555,050
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $882,489 $922,045
======== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
<TABLE>
VLSI TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - unaudited
(thousands)
<CAPTION>
Three Months Ended
---------------------------
April 2, March 27,
1999 1998
---------- ------------
Increase (decrease) in
cash and cash equivalents
<S> <C> <C>
Operating activities:
Net income $ 4,703 $ 3,166
Adjustments to reconcile net income
to cash generated by operations:
Depreciation and amortization 27,901 25,338
Charges resulting from tender offer 4,500 -
Gain on sale of marketable securities (7,625) -
Gain on repurchase of convertible notes (136) -
Deferred income taxes - (1,475)
Changes in operating assets and liabilities:
Accounts receivable 3,284 16,430
Inventories 5,839 (527)
Refundable income taxes (1,028) 1,880
Accounts payable, income taxes payable and
accrued liabilities (34,395) (11,089)
Other (751) (3,205)
-------- --------
Cash generated by operations 2,292 30,518
-------- --------
Investing activities:
Purchases of marketable securities (42,965) (83,822)
Proceeds from sale of marketable securities 31,907 -
Proceeds from maturities of marketable securities 26,659 75,861
Purchases of property, plant and equipment (60,723) (33,157)
Sale of property, plant and equipment - 16,361
-------- --------
Net cash flow used for investing activities (45,122) (24,757)
-------- --------
Financing activities:
Payments on debt and capital lease obligations (198) (12,710)
Repurchase of convertible notes (3,402) -
Purchase of Treasury Shares - (4,564)
Issuance of Treasury Shares, net 653 1,461
-------- --------
Net cash flow used for financing activities (2,947) (15,813)
-------- --------
Net decrease in cash and cash equivalents (45,777) (10,052)
Cash and cash equivalents, beginning of period 122,460 193,899
-------- --------
Cash and cash equivalents, end of period $ 76,683 $183,847
======== ========
Supplemental disclosures:
Cash outflows for property, plant and equipment $ 60,723 $ 33,157
Change in accrued capital additions (15,904) 807
-------- --------
Property, plant and equipment additions $ 44,819 $ 33,964
======== ========
Interest paid $ 6,935 $ 678
======== ========
Income taxes paid, net $ 2,434 $ 407
======== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
VLSI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The accompanying interim consolidated condensed financial statements of
VlSI Technology, Inc. (VLSI or the Company) have been prepared in
conformance with generally accepted accounting principles, consistent with
those applied in the VLSI Technology, Inc. Annual Report on Form 10-K for
the fiscal year ended December 25, 1998 (the 1998 Annual Report). This
Quarterly Report on Form 10-Q (Form 10-Q) should be read in conjunction
with the 1998 Annual Report. The interim financial statements are
unaudited, but reflect all normal recurring adjustments that are, in the
opinion of management, necessary to a fair statement of results for the
interim periods presented. The results for the quarter ended April 2, 1999
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1999. Fiscal year 1999 will consist of 53
weeks and the first quarter of 1999 consisted of 14 weeks, whereas fiscal
year 1998 consisted of 52 weeks and each of the quarters therein consisted
of 13 weeks.
2. The Company has engaged a number of advisors to assist in the evaluation of
the Amended Philips Offer (as defined in Note 8 below) and strategic
alternatives to such offer and is involved in litigation relating to the
Amended Philips Offer. As a result, in the first quarter of 1999, the Company
recorded a pre-tax charge of $4.5 million related to these matters for the
services performed in the first quarter of 1999. Additional costs
associated with the Company's external advisors are expected to be incurred
in succeeding quarters.
3. Comprehensive income includes net income plus other comprehensive income.
Other comprehensive income for VLSI is comprised of changes in unrealized
gains or losses on available-for-sale securities, net of tax.
Accumulated other comprehensive income and changes thereto consist of
(thousands):
<TABLE>
<CAPTION>
Three Months Ended
----------------------
(thousands)
April 2, March 27,
1999 1998
-------- ---------
<S> <C> <C>
Beginning balance gain (loss), net of tax $ 8,974 $(2,364)
Unrealized gain on available-for-sale securities 12,998 696
Tax effect on unrealized gain (5,005) (213)
Reclassification adjustment for realized
losses (gains) (7,999) -
Tax effect on reclassification adjustment 3,080 -
------- -------
Ending balance gain (loss), net of tax $12,048 $(1,881)
======= =======
Tax effect (benefit) included in ending balance $ 7,543 $(1,264)
======= =======
</TABLE>
<PAGE>
4. Net income per share, Basic and Diluted, is as follows:
<TABLE>
<CAPTION>
Three Months Ended
----------------------
April 2, March 27,
1999 1998
-------- ---------
(thousands, except
per share amounts)
<S> <C> <C>
Net income $ 4,703 $ 3,166
======= =======
Weighted-average common shares - Basic 46,238 45,748
Dilutive options 3,683 1,667
------- -------
Adjusted weighted-average common shares
and assumed conversions - Diluted 49,921 47,415
======= =======
Net income per share - Basic $ 0.10 $ 0.07
======= =======
Net income per share - Diluted $ 0.09 $ 0.07
======= =======
</TABLE>
The effect of convertible debt is excluded in both periods from income
available for shareholders and adjusted weighted-average common shares
because they would have been antidilutive. The following amounts have been
excluded:
April 2, March 27,
1999 1998
-------- ---------
(thousands)
Income available to shareholders, net of tax $ 2,427 $ 2,597
======= =======
Potentially dilutive shares 2,942 3,148
======= =======
5. The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights and positions. 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. 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. The Company has been unable to determine the impact
of a suit filed against VLSI and 25 other companies during 1998 for patent
infringement. While the Company intends to vigorously defend itself against
these charges, should the outcome of this matter be unfavorable, there could
be a material adverse affect on the Company's financial position or results
of operations.
6. The Company was not in compliance with one of the loan covenants of its
$100.0 million committed line of credit at December 25, 1998. The Company
has never drawn on this line of credit and does not anticipate a need for
it in the future. Consequently, the Company has decided not to renew this
revolving credit facility.
7. Industry Segment and Geographic Information
VLSI is managed and operates as a single segment that designs, manufactures
and sells custom and semi-custom integrated circuits of high complexity. The
Company sells its integrated circuits primarily to original equipment
manufacturer customers in the communications, consumer digital entertainment
and advanced computing applications markets through worldwide direct sales,
<PAGE>
commissioned representatives and distributors. The Company's single
reportable segment utilizes the same production processes and similar
product distribution methods for all of its products.
The Company evaluates performance and allocates resources based on operating
profit or loss before income taxes, not including interest expense, patent
matters and interest income and other expenses, net. Since the Company
operates as a single segment there are no intersegment sales and transfers.
Revenue is tracked by the various customers. In the first quarters of 1999
and 1998, Ericsson accounted for 34% and 31% of net revenues, respectively.
Intercompany sales and transfers are recorded between geographical
subsidiaries. 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. 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. Although
assets are tracked by geographical locations, they are not reported
separately for internal decision-making purposes.
Geographic information about segment revenues and long-lived assets is as
follows:
<TABLE>
<CAPTION>
Three Months Ended
----------------------
April 2, March 27,
1999 1998
-------- ---------
(thousands)
<S> <C> <C>
Geographic information:
Revenues (1):
United States $ 86,999 $ 69,527
United Kingdom 42,193 38,664
Europe, excluding United Kingdom 13,395 19,589
Japan 6,990 13,506
-------- --------
Consolidated $149,577 $141,286
======== ========
Long-lived assets (2):
United States $434,055 $367,850
All other 20,623 17,048
-------- --------
Consolidated $454,678 $384,898
======== ========
___________
</TABLE>
(1) Revenues are attributed to countries based on the billings by
consolidated subsidiaries.
(2) Represents those material long-lived assets that can be associated with
a particular geographic area.
<PAGE>
U.S. export revenues were approximately $32.4 million in the first quarter
of 1999 compared to $14.9 million in the first quarter of 1998. Total
revenue, including U.S. export revenue, distributed by region is as
follows:
<TABLE>
<CAPTION>
Three Months Ended
----------------------
April 2, March 27,
1999 1998
-------- ---------
(thousands)
<S> <C> <C>
United States $ 54,573 $ 54,597
Americas, excluding United States 14,027 8,386
Europe 55,588 58,253
Japan/Asia-Pacific 25,389 20,050
-------- --------
$149,577 $141,286
======== ========
</TABLE>
8. Recent Developments
On May 1, 1999, the Company entered into an Agreement and Plan of Merger
(the Merger Agreement) with Koninklijke Philips Electronics N.V. (Philips)
and KPE Acquisition Inc., a wholly-owned subsidiary of Philips (KPE). The
Merger Agreement provides that following consummation of Philips' and KPE's
offer to purchase all outstanding shares of the Company's common stock,
including the associated preferred stock purchase rights, for $21.00 per
share, net to the seller in cash, upon the terms and subject to the
conditions set forth in KPE's Offer to Purchase dated March 5, 1999, as
amended and supplemented by the Supplement to the Offer to Purchase dated
May 5, 1999 and the related revised Letter of Transmittal (collectively, the
"Amended Philips Offer"), subject to the conditions contained in the Merger
Agreement, KPE will be merged with and into the Company. The expiration date
for the Amended Philips Offer is June 1, 1999, unless further extended.
On April 13, 1999, the Delaware Court of Chancery entered an order
consolidating seven actions brought by alleged stockholders of VLSI other
than Philips under the caption, In re VLSI Technology, Inc. Shareholders
Litigation, Consol, C.A. No. 16986.
While the Company intends to vigorously defend itself against these
charges, should the outcome of these matters be unfavorable, there could be
a material adverse effect on the Company's financial position or results of
operations.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS - FIRST QUARTER OF 1999 COMPARED TO THE FIRST QUARTER OF
1998
- --------------------------------------------------------------------------------
This Management's Discussion and Analysis of Financial Condition and Results
of Operations (MDA) should be read in conjunction with the 1998 Annual Report,
inclusive of the MDA therein.
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 the risk factors set forth herein
and in the 1998 Annual Report. Statements made herein are as of the date of
this quarterly filing with the Securities and Exchange Commission. The Company
disclaims any obligation to update the contents of those statements subsequent
to the filing of this Form 10-Q, except as may be required by law.
On May 1, 1999, the Company entered into an Agreement and Plan of Merger (the
Merger Agreement) with Koninklijke Philips Electronics N.V. (Philips) and KPE
Acquisition Inc., a wholly-owned subsidiary of Philips (KPE). The Merger
Agreement provides that following consummation of Philips' and KPE's offer to
purchase all outstanding shares of the Company's common stock, including the
associated preferred stock purchase rights, for $21.00 per share, net to the
seller in cash, upon the terms and subject to the conditions set forth in KPE's
Offer to Purchase dated March 5, 1999, as amended and supplemented by the
Supplement to the Offer to Purchase dated May 5, 1999 and the related revised
Letter of Transmittal (collectively, the "Amended Philips Offer"), subject to
the conditions contained in the Merger Agreement, KPE will be merged with and
into the Company. The expiration date for the Amended Philips Offer is June 1,
1999, unless further extended.
The following table summarizes the Company's operating results for the three-
month period ended April 2, 1999 (which consisted of 14 weeks) as compared to
the three-month period ended March 27, 1998 (which consisted of 13 weeks):
<TABLE>
<CAPTION>
First Quarter
(dollars in thousands)
-------------------------------------------
1999 1998
----------------- --------------------
Percent Percent
of Net of Net
Amounts Revenues Amounts Revenues
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues $149,577 100.0% $141,286 100.0%
Gross profit 57,860 38.7 58,346 41.3
Research & development 31,810 21.3 28,037 19.9
Marketing, general and
administrative 23,957 16.0 26,297 18.6
Charges resulting from
tender offer 4,500 3.0 - -
Operating income (loss) (2,407) (1.6) 4,012 2.8
Gain on sale of
Marketable securities 7,625 5.1 - -
Interest and other income
(expense), net 1,225 0.8 324 0.2
Net income $ 4,703 3.1 $ 3,166 2.2
</TABLE>
<PAGE>
The Company earned net income of $4.7 million in the first quarter of 1999,
compared to net income of $3.2 million in the first quarter of 1998. This
increase was primarily due to a pre-tax gain on sale of marketable securities
of $7.6 million offset by pre-tax charges of $4.5 million resulting from the
tender offer and lower gross profit margin. The Company had a one-week
shutdown in the first week of the first quarter of 1999 to mitigate the impact
of the additional costs incurred by a fourteenth week.
Net revenues in the first quarter of 1999 increased 5.9% from the comparable
1998 period. This increase was primarily due to an increase in units shipped
in the Company's communications products. This increase in unit shipments was
partially offset by a decline in average selling prices consistent with
competitive pricing and reflects changes in the Company's product sales mix.
International net revenues (including export sales) increased, consistent with
total net revenues, to 64% of total net revenues in the first quarter of 1999
from 61% of total net revenues in the first quarter of 1998. This increase was
primarily due to increased sales of the Company's communications products to a
customer in the Asia-Pacific region, partially offset by decreased sales in
Japan.
Gross profit margin decreased to 38.7% in the first quarter of 1999 from 41.3%
in the first quarter of 1998. The decrease was primarily due to changes in
product sales mix and a decline in average selling prices.
Research and development expenditures increased by $3.8 million in the first
quarter of 1999 over expenditures in the same 1998 period and increased as a
percentage of net revenues to 21.3% from 19.9%, reflecting continued
investments in new products and package and process technologies.
Marketing, general and administrative expenses for the first quarter of 1999
decreased by $2.3 million from the first quarter of the prior year and
decreased as a percentage of net revenues to 16.0% from 18.6%. This decrease
primarily reflected the Company's continued cost control efforts.
The Company has engaged a number of advisors to assist in the evaluation of
the Amended Philips Offer and strategic alternatives to such offer and is
involved in litigation relating to the Amended Philips Offer. As a result, in
the first quarter of 1999, the Company recorded a pre-tax charge of $4.5
million related to these matters for the services performed in the first
quarter of 1999. Additional costs associated with the Company's external
advisors are expected to be incurred in succeeding quarters.
The Company recognized a gain on sale of marketable securities of $7.6 million
relating to the sale of a portion of its ARM investment in the first quarter
of 1999.
Interest and other income (expense), net was $1.2 million in the first quarter
of 1999 compared to $0.3 million in the same period a year ago. This increase
was primarily due to a decrease in interest expense resulting from the
retirement of $11.3 million of the Company's convertible subordinated notes
since the second quarter of 1998. Of the $11.3 million, the Company retired
$3.6 million in the first quarter of 1999 resulting in a gain of $0.1 million.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
<PAGE>
and Hedging Activities" (FAS 133). FAS 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. Implementation of FAS 133 is required for years beginning
after June 15, 1999. Upon adoption, transition adjustments will be reported in
net income or other comprehensive income, as appropriate, reflecting the effect
of a change in accounting principle. The Company has not concluded whether
adoption of FAS 133 will have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
RISK FACTORS
The Company's business is subject to numerous risks, any one of which, alone or
in combination, could have a material adverse effect on future results of
operations. Some of these factors are:
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
or exceed 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 or significant events unrelated to the Company's
performance, such as the Amended Philips Offer. Past financial performance
should not be considered a reliable indicator of future performance, and
investors should not use historical trends to anticipate results or trends in
future periods. The Amended Philips Offer may affect the timing and financial
impact of the various risks described herein.
During 1998 and 1997, the Company's top 20 customers represented approximately
three-quarters of the Company's net revenues. During 1996, the Company's top 20
customers represented approximately two-thirds of the Company's net revenues.
Shipments to a single customer in the communications business, Ericsson,
accounted for 34% of net revenues in the first quarter of 1999 as compared to
28% of net revenues in fiscal year 1998. 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 a high 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
or its customers, due to competition or other factors, are 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. Typically, the Company's
results have followed a seasonal pattern, with stronger sales in the second
half of the year, reflecting the buying pattern of the Company's communications
and consumer digital entertainment customers.
The Company currently generates approximately 64% of its net revenues
(including export sales) from direct sales into countries outside of the United
States. In addition, certain of the Company's customers generate greater
portions of their sales from these international areas. If events in any of
these 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.
<PAGE>
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. In addition, semiconductor design and process methodologies are
subject to rapid technological change. Decreases in geometries call for ever-
increasing sophisticated design efforts, more 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 such as were
felt in 1998 by lower average selling prices. 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. The industry can move from a period
of capacity shortages to a period of excess capacity, or vice versa, in a very
short time. During a period of excess capacity, 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. During a period
of capacity shortage, there can be no assurance that the Company can achieve
timely, cost-effective access to additional capacity if and when needed. In the
event future capacity is not available to VLSI when needed, future growth could
be impaired.
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. In 1998, the Company continued to invest in
deep sub-micron manufacturing by ramping capacity for 0.25-micron technology
<PAGE>
and qualifying 0.20-micron technology in its San Antonio facility. The Company
has initiated the conversion of its wafer capability to eight-inch wafer
production and expects to ramp up production in late 1999, with full production
expected by the middle of 2000. Any significant expansion or upgrade of
semiconductor manufacturing capacity could lead to inefficient manufacturing
which could adversely affect the Company's results of operations.
The Company relies on outside suppliers for all of its assembly and
approximately one-third of its test operations. Allocations by these suppliers
of assembly and test capacity to the Company depend on the Company's needs and
supply availability during periods of capacity shortages. The Company has no
material 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 business
uncertainties in the Asia-Pacific area, there can be no assurances that changes
in the Asia-Pacific economy will not affect the Company's Asia-Pacific-based
suppliers thereby materially adversely affecting the Company's results of
operations.
The Company has produced more than 95% of its wafer requirements at its San
Antonio facility in the last three years. Lengthy or recurring disruptions of
operations at either the Company's production facilities or those of its
subcontractors for any reason, such as fire or power failure, 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 product test area, a primary shipping location,
technology development 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. 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. 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. The Company has been unable to determine the impact of a suit filed
against VLSI and 25 other companies during 1998 for patent infringement. While
the Company intends to vigorously defend itself against these charges, should
the outcome of this matter be unfavorable, there could be a material adverse
affect on the Company's financial position or results of operations.
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
<PAGE>
magnitude of the costs associated with such terms. Failure to obtain or renew
such licenses could have a material adverse affect on the Company's financial
position or results of operations.
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. The Company is currently in the process of
filling open positions in the management and engineering arenas. Delays in
replacing management may adversely affect implementation of the Company's
strategic plans. Any significant delays in filling technical positions could
lead to delays in the introduction of various products currently being
developed, as well as the research and development associated with potential
new products. In an effort to retain certain executives, in April 1999, the
Board authorized VLSI to enter into retention agreements with such executives.
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 results
of operations.
Year 2000
In view of the approach of the Year 2000, it is incumbent that the Company take
steps to ensure that computer programs used in connection with critical
corporate functions are capable of properly managing and manipulating data that
includes both 20th and 21st century dates (Year 2000 compliant). The Company is
aware that certain computer programs that have been written using two digits
rather than four to define the applicable year may not be Year 2000 compliant.
Therefore the Company has established a Year 2000 coordination committee, co-
chaired by the Company's Vice President and General Counsel and its Vice
President and Corporate Controller who report directly to the Company's Chief
Executive Officer, for the purpose of executing the Company's plan to minimize
disruptions in the Company's operations caused by such computer programs. The
coordination committee periodically reports to the Board of Directors on the
status of the Company's Year 2000 compliance program.
The Company's plan for addressing Year 2000 compliance consists of the
following five phases: (1) Awareness-Year 2000 problem awareness promotion; (2)
Analysis-system inventory and problem assessment, and the development of a plan
prioritizing systems; (3) Renovation-system replacement, retirement, repair or
upgrade to ensure Year 2000 compliance or contingency plans; (4) Validation-
Year 2000 compliance testing and validation; and (5) Implementation-Year 2000
compliant solutions deployment. The Company's Year 2000 compliance program
focuses on mission critical areas including core information technology (IT)
systems (the computer center, IT technical services and business applications),
manufacturing systems and equipment and Company products and suppliers. The
Company has completed the Awareness phase for these areas. Further, the Company
<PAGE>
has published materials to keep its employees, suppliers and customers informed
of the current status of its Year 2000 efforts.
The Company has substantially completed the Analysis phase and begun the
Renovation phase of its core IT systems. The Company expects to make
substantial progress on the Renovation and Validation phases of its core IT
systems by the middle of the third quarter of 1999. In connection with normal
business operations, the Company is in the process of upgrading certain IT
systems, including a uniform worldwide order management system, with systems
the Company believes are Year 2000 compliant. The Company is also in the
process of determining what modifications may be required to make its non-core
IT systems Year 2000 compliant. While the Company currently expects that the
Year 2000 will not pose significant IT operational problems, delays in the
implementation of Year 2000 compliant IT systems, or a failure to fully
identify and remedy all Year 2000 dependencies in the Company's IT systems
could have a material adverse effect on the Company's results of operations.
Determination as to whether the Company's manufacturing systems and equipment
are Year 2000 compliant is based on evaluation of both the equipment and
services provided by suppliers and the Company's integration of that
equipment. The Company has completed the inventory and problem assessment
steps of the Analysis phase with respect to its wafer fabrication
manufacturing systems and equipment. The Company expects to complete the
prioritization step of the Analysis phase and make substantial progress on
the Renovation and Validation phases with respect to its wafer fabrication
manufacturing systems and equipment by the middle of the third quarter of
1999. As previously discussed in "Risk Factors" herein, VLSI relies on
outside suppliers for all of its assembly and approximately one-third of its
test operations. Although some of these suppliers have represented that they
are Year 2000 compliant, the Company has not yet obtained results of tests
confirming these representations and intends to address this in its
contingency plans. While the Company currently expects that the Year 2000
will not pose significant operational problems, delays in the implementation
of Year 2000 compliant manufacturing systems and equipment, or a failure to
fully identify and remedy Year 2000 dependencies in these systems could have
a material adverse effect on the Company's results of operations.
With respect to VLSI's products, the Analysis phase is completed. The Company
will notify its customers of the findings either by mail or by posting this
information on the Company's website in May 1999. The Analysis phase has
revealed that nearly all of the circuitry the Company has designed and
incorporated into the products it sells (VLSI-designed products) does not have
a date feature or functionality which could cause these products to fail to be
Year 2000 compliant. Moreover, testing has revealed that the few products with
date functionality are Year 2000 compliant. Accordingly, the Company does not
anticipate that substantial actions will be necessary to address Year 2000
compliance problems for VLSI-designed products. The Company is unable to
determine the extent to which Year 2000 compliant VLSI-designed products are
incorporated into customers' products that, by virtue of the customers' overall
product design, are not Year 2000 compliant. Many of the products the Company
sells include circuitry designed, in whole or in part, by its customers
(customer-designed functionality), and only the customer has the information
necessary to determine if customer-designed functionality is Year 2000
compliant. As a result, the Company is unable to determine the degree of Year
2000 compliance of products VLSI has manufactured to the extent they
incorporate customer-designed functionality. The inability of VLSI-designed
products to properly manage and manipulate data in the Year 2000 could result
<PAGE>
in a material adverse impact on the Company, including lower revenues or
increased warranty costs, customer satisfaction issues and potential lawsuits.
Also, the loss of customer orders due to failure by customer products or
customer-designed functionality not being Year 2000 compliant could have a
material adverse effect on the Company.
The Company has sent surveys to most of its suppliers to determine the extent
to which the Company's capabilities are vulnerable to the failure of those
suppliers to ensure Year 2000 compliance of their products or services. The
Company is currently receiving responses to those surveys and anticipates that
the Analysis phase with respect to critical suppliers will be completed in May
1999. The Company will proceed with the remaining Year 2000 compliance program
phases for its suppliers as needed. However, the Company cannot guarantee that
the systems and products of other companies on which it relies will be Year
2000 compliant. Failure of these systems and products to be Year 2000 compliant
could have a material adverse effect on the Company.
Based upon its efforts to date, the Company believes that the majority of its
information systems, including its new uniform worldwide order management and
other core IT systems, will be Year 2000 compliant by January 1, 2000.
Accordingly, the Company does not currently anticipate that information systems
failures will result in any material adverse effect on its operations or
financial condition. During 1999, the Company will continue to expand its
efforts to ensure that its manufacturing systems and equipment, its products
and its suppliers will be prepared for the Year 2000. VLSI will also develop
contingency plans to address any of these areas failing to become Year 2000
compliant. As the Company has not completed the Analysis phases for all
significant areas to determine which areas may not be Year 2000 compliant, VLSI
has not determined the most reasonably likely "worst-case" scenario the Company
might face. Upon completion of the Analysis phase of all mission critical
areas, the Company will be better able to estimate the most reasonably likely
"worst-case" scenario it would face, the likelihood of such occurrence(s) and
to begin developing contingency plans to address such occurrence(s). At this
time, the Company cannot estimate either the likelihood or the potential
financial impact of the most reasonably likely "worst-case" scenario.
The Company has not yet developed a comprehensive contingency plan to address
situations that may result if the Company, or any of the third parties upon
which the Company depends, is unable to achieve Year 2000 compliance. The scope
of VLSI's Year 2000 compliance program, including consideration of contingency
plans, will continue to be evaluated as new information becomes available. The
inability of the Company to develop or implement a comprehensive contingency
plan addressing any non-compliant Year 2000 event that occurs, could result in
a material adverse effect on the Company.
The Company currently estimates that total costs associated with the Year 2000
compliance program will be less than $5 million, which the Company believes can
be funded from currently available cash, cash equivalents, marketable
securities and cash flow expected from operations. Through March 1999, the
Company has spent approximately $0.7 million in connection with this program.
The cost of implementing the uniform worldwide order management system, as well
as other normal system upgrades, is not included in this figure. The
replacement of such legacy systems is ongoing and was not accelerated due to
the Year 2000 problem.
Any critical unresolved Year 2000 problems could have a material adverse effect
on the Company's results of operations, liquidity or financial condition. In
<PAGE>
addition, the Company's expectations about the future costs and timely and
successful completion of its Year 2000 program are subject to uncertainties
that could cause actual results to differ materially from what has been
discussed above. Factors that could influence the amount of future costs and
the completion dates are the effectiveness of Renovation, Validation and
Implementation efforts, the magnitude of related labor and consulting costs,
the availability of qualified personnel and the success of the Company's
suppliers and customers in becoming Year 2000 compliant.
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 Company debt and equity securities and payments of debt and
lease obligations.
At April 2, 1999, total cash, cash equivalents and marketable securities
decreased $48.7 million from the 1998 fiscal year-end balance as discussed
below. Working capital decreased to $285.4 million at April 2, 1999 compared
to $298.8 million at December 25, 1998.
During the three-month period ended April 2, 1999, the Company generated $2.3
million of cash from operations, a 92.5% decrease from the $30.5 million of
cash generated for the three-month period ended March 27, 1998. This decrease
was primarily due to a $7.6 million gain on sale of ARM securities and a
decrease in accounts payable, income taxes payable and accrued liabilities of
$34.4 million due to payments made for accrued equipment purchases, licensing
fees, property taxes and interest on convertible debt.
Cash used for investing activities was $45.1 million for the three-month
period ended April 2, 1999, as compared to $24.8 million for the three-month
period ended March 27, 1998. The Company's proceeds from maturities and sales
of marketable securities exceeded purchases of marketable securities during
the first three months of 1999 while in the first quarter of 1998, purchases
of marketable securities exceeded proceeds on sale and maturities of
marketable securities. The Company invested $44.8 million in property, plant
and equipment in the first three months of 1999 compared to $34.0 million in
the comparable 1998 period. VLSI currently estimates that total capital
expenditures for 1999 will be approximately $150 - $200 million. These
expenditures are being used to convert from six-inch to eight-inch wafer
technology at the San Antonio fabrication facility, increase deep sub-micron
wafer fabrication capability and for other equipment upgrades. The Company is
currently financing its capital expenditures through existing cash balances
and cash from operations.
Cash used for financing activities was $2.9 million in the first three months
of 1999 compared to $15.8 million in the same 1998 period. The 1999 amount
reflects the retirement of convertible debt. The 1998 amount reflects
purchases of treasury stock and the repayment of certain secured equipment
loans in conjunction with the sale-leaseback of equipment.
At December 25, 1998 the Company was in violation of one of its covenants
under the agreement for a $100.0 million committed line of credit. The Company
has never drawn on this line of credit and does not anticipate a need for it
in the future. Consequently, the Company has decided not to renew this
<PAGE>
revolving credit facility. 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 3. Quantitative and Qualitative Disclosures About Market Risk
INTEREST AND CURRENCY RATE EXPOSURES
In the normal course of business, the financial position of the Company is
routinely subjected to a variety of risks, including market risk associated
with interest rate movements, currency rate movements on non-U.S. dollar
denominated assets and liabilities and collectibility of accounts receivable.
The Company regularly assesses these risks and has established policies and
business practices to protect against the adverse effects of these and other
potential exposures. As a result, the Company does not anticipate material
losses in these areas.
For purposes of specific risk analysis, the Company uses sensitivity analysis
to determine the impacts that market risk exposures may have on the fair values
of the Company's financial instruments. The financial instruments included in
the sensitivity analysis consist of all of the Company's cash and cash
equivalents, marketable instruments, debt and all derivative financial
instruments. Currency forward contracts and currency options constitute the
Company's portfolio of derivative financial instruments.
To perform sensitivity analysis, the Company assesses the risk of loss in fair
values from the impact of hypothetical changes in interest rates on market
sensitive instruments. The hypothetical changes in market values for interest
rate risk are computed based on the present value of future cash flows as
impacted by the changes in rates attributable to the market risk being
measured. The discount rates used for the present value computations were
selected based on market interest rates in effect at April 2, 1999 and March
27, 1998. The hypothetical market values that result from these computations
are compared to the market values of these financial instruments at April 2,
1999 and March 27, 1998. The differences in this comparison are the
hypothetical gains or losses associated with each type of risk.
The results of the sensitivity analysis at April 2, 1999 and March 27, 1998 are
as follows:
Interest Rate Risk on Investments: A 100 basis point decrease in the levels of
interest rates with all other variables held constant would result in an
increase in the fair values of the Company's financial instruments by $1.7
million and $0.5 million, respectively. A 100 basis point increase in the
levels of interest rates with all other variables held constant would result in
a decrease in the fair values of the Company's financial instruments by $1.7
million and $0.5 million, respectively.
Interest Rate Risk on Debt: A 100 basis point decrease in the levels of
interest rates with all other variables held constant would result in an
increase in the fair values of the Company's subordinated debt by $16.1 million
and $19.6 million, respectively. A 100 basis point increase in the levels of
interest rates with all other variables held constant would result in a
decrease in the fair values of the Company's subordinated debt by $16.1 million
<PAGE>
and $19.6 million, respectively.
Foreign Currency Exchange Risk: A 10% movement in levels of foreign currency
exchange rates, 20% for Asian currencies, against the U.S. dollar with all
other variables held constant would result in a decrease in the fair values of
the Company's financial instruments by $2.6 million and $2.4 million,
respectively, or an increase in the fair values of the Company's financial
instruments by $1.7 million and $1.6 million, respectively.
All of the potential changes noted above are based on pertinent information
available to management as of April 2, 1999 and March 27, 1998, respectively.
Although management is not aware of any factors that would significantly affect
these estimates, actual results may differ significantly from the amounts
presented.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3 of Part I of the Company's Annual Report on Form
10-K for the fiscal year ended December 25, 1998 (the 1998 Annual Report) for a
discussion of certain pending legal proceedings. There have been no material
developments in any of such matters since the filing of the Company's 1998
Annual Report except the following:
Contract Litigation
In December 1998 Zitel Corporation (Zitel) filed a complaint in the California
Superior Court alleging, among other things, breach of contract and fraud by
the Company. In February 1999, the Company moved to dismiss the complaint on
the grounds that it failed to state facts sufficient to constitute any cause of
action. Rather than oppose VLSI's motion, Zitel voluntarily filed an amended
complaint in April 1999. The amended complaint alleges breach of contract,
fraud and other claims arising out of an attempt by the parties to jointly
design and develop two customized computer chips. The amended complaint asserts
that, because the effort to jointly develop the chips was ultimately
unsuccessful, Zitel terminated the development of the product that was to have
incorporated those chips. The amended complaint requests unspecified
compensatory, special, punitive and exemplary damages. The Company believes it
has a meritorious defense and intends to vigorously defend itself against these
charges.
Litigation Arising out of the Amended Philips Offer
On March 5, 1999, KPE filed a complaint against VLSI in the Delaware Court of
Chancery styled KPE Acquisition Inc. v. VLSI Technology, Inc., et al., C.A.
No. 16992. On May 4, 1999, KPE filed a notice of dismissal dismissing its
complaint.
From March 3, 1999 through March 8, 1999, six purported class action lawsuits
were filed by alleged stockholders of VLSI against VLSI and the Board in the
Delaware Court of Chancery, styled Michael Bernstein v. VLSI Technology, Inc.,
et al., C.A. No. 16988; Felicia Bernstein v. VLSI Technology, Inc., et al.,
C.A. No. 16989; Charles Miller v. VLSI Technology, Inc., et al., C.A.
<PAGE>
No. 16993; Ruth Ellen Miller v. Richard M. Beyer, et al., C.A. No. 16994; David
Olen v. Richard M. Beyer, et al., C.A. No. 16986; and Mishel S. Tehrani v.
Richard M. Beyer, et al., C.A. No. 16998. The class actions set forth
substantially similar allegations of purported misconduct by the Board in
allegedly failing to promptly negotiate with Philips, thereby failing to
maximize stockholder value and depriving the VLSI stockholders of an
opportunity to obtain a substantial premium for their shares. The stockholder
plaintiffs seek an order from the Court (i) declaring the actions to be class
actions; (ii) compelling the Board to carry out its fiduciary duties to the
VLSI stockholders; (iii) enjoining the Board from using the corporate machinery
to entrench itself in office; (iv) ordering the VLSI directors to take steps to
facilitate a premium acquisition of VLSI; (v) requiring the VLSI directors to
account for all damages suffered by VLSI's stockholders; (vi) awarding the
plaintiffs attorneys' fees and costs; and (vii) granting such other relief as
may be just and proper.
On March 9, 1999, a seventh purported class action lawsuit was filed by alleged
stockholders of VLSI against VLSI, its directors, and certain of its officers
in the Delaware Court of Chancery styled Lillie Barenholtz, et al. v. Richard
Beyer, et al., C.A. No. 17010. In addition to reciting allegations
substantially similar to the six previously filed purported class actions, the
Barenholtz complaint alleges that the VLSI directors breached their fiduciary
duties by lowering the trigger for VLSI's rights plan from 20% to 10%. The
Barenholtz complaint seeks an order (i) declaring the action to be a proper
class action; (ii) compelling the VLSI directors to carry out their fiduciary
duties to VLSI's stockholders; (iii) enjoining the implementation of VLSI's
rights plan unless deployed in a way that will maximize stockholder value;
(iv) awarding the plaintiffs attorneys' fees and costs; and (v) granting such
other and further relief as may be just and proper.
On April 13, 1999, the Delaware Court of Chancery entered an order
consolidating the seven actions brought by alleged stockholders of VLSI other
than Philips under the caption, In re VLSI Technology, Inc. Shareholders
Litigation, Consol, C.A. No. 16986.
While the Company intends to vigorously defend itself against these charges,
should the outcome of these matters be unfavorable, there could be a material
adverse effect on the Company's financial position or results of operations.
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.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - See Index to Exhibits on Page 21.
(b) Reports on Form 8-K:
On March 2, 1999, the Company filed a Current Report on Form 8-K
dated March 1, 1999, pursuant to Item 5 of Instructions to Form 8-K,
disclosing that the Company confirmed receipt of an unsolicited
proposal from Royal Philips Electronics to acquire all of VLSI's
capital stock.
On March 8, 1999, the Company filed a Current Report on Form 8-K
dated March 7, 1999, pursuant to Item 5 of Instructions to Form 8-K,
disclosing that the Company had amended its Bylaws.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VLSI TECHNOLOGY, INC.
(Registrant)
Date: May 17, 1999 By: /s/ Victor K. Lee
-------------------------- -------------------------------
Victor K. Lee
Vice President, Chief Financial
Officer (Acting) and Controller
(Principal Financial and
Accounting Officer)
<PAGE>
VLSI TECHNOLOGY, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
10.42 Form of Retention Agreement between the Company and Tier I
Executives. Said document is included as an Exhibit to this
Quarterly Report on Form 10-Q for the fiscal quarter ended
April 2, 1999.
10.43 Form of Retention Agreement between the Company and Tier II
Executives. Said document is included as an Exhibit to this
Quarterly Report on Form 10-Q for the fiscal quarter ended
April 2, 1999.
10.44 Form of Indemnity Agreement between the Company and each
member of the Board of Directors and certain officers or key
employees of VLSI, including the Tier I Executives. Said
document is included as an Exhibit to this Quarterly Report
on Form 10-Q for the fiscal quarter ended April 2, 1999.
10.45 Agreement and Plan of Merger, dated as of May 1, 1999 among
Philips, VLSI and KPE. Said document is included as an
Exhibit to this Quarterly Report on Form 10-Q for the fiscal
quarter ended April 2, 1999.
27 Financial Data Schedule
</TABLE>
<PAGE>
Exhibit 10.42
April 17, 1999
[FirstName] [LastName]
[Address1]
[Address2]
[City], [State] [PostalCode]
[Country]
Dear [FirstName]:
The Board of Directors (the "Board") of VLSI Technology, Inc.
(the "Corporation") has determined that it is in the best interests of the
Corporation and its stockholders to assure that the Corporation will continue
to have your dedication and services notwithstanding the possibility, threat
or occurrence of a Change in Control (as defined herein). The Board believes
it is imperative to diminish the distraction that you would face by virtue of
the personal uncertainties created by a pending or threatened Change in
Control and to encourage your full attention and dedication to the Corporation
currently and in the event of any threatened or pending Change in Control.
Further, the Board desires to provide you with compensation and benefits
arrangements upon a Change in Control which ensure that your compensation and
benefits expectations will be satisfied and which are competitive with those
of other corporations. Therefore, in order to accomplish these objectives,
the Board has caused the Corporation to enter into this Agreement (the
"Agreement"). [This Agreement constitutes a complete amendment and
restatement of the Executive Change in Control Severance Agreement that you
and the Corporation entered into as of [date of prior agreement].]
1. Term of Agreement. The terms of this Agreement shall
become effective upon the execution hereof by the Corporation and shall
continue unless terminated by written agreement between you and the
Corporation; provided, that if a Change in Control occurs, then the term of
this Agreement shall continue in effect for a period of not less than twenty-
four (24) months beyond the date (the "Change in Control Date") on which a
Change in Control occurs. No benefits shall be payable hereunder unless
there has been a Change in Control.
2. Change in Control. A Change in Control shall be deemed to
occur upon the earliest to occur after the date of this Agreement of any of
the following events:
2.1. Acquisition of Stock by Third Party. Any Person
(as defined below) is or becomes the Beneficial Owner (as defined below),
directly or indirectly, of securities of the Corporation representing twenty
five percent (25%) or more of the combined voting power of the Corporation's
then outstanding securities;
2.2. Change in Board of Directors. During any period of
two (2) consecutive years (not including any period prior to the execution of
this Agreement), individuals who at the beginning of such period constitute
the Board, and any new director (other than a director designated by a person
who has entered into an agreement with the Corporation to effect a transaction
described in Sections 2.1, 2.3 or 2.4) whose election by the Board or
nomination for election by the Corporation's stockholders was approved by a
vote of at least two-thirds of the directors then still in office who either
were directors at the beginning of the period or whose election or nomination
<PAGE>
for election was previously so approved, cease for any reason to constitute at
least a majority of the members of the Board;
2.3. Corporate Transactions. The effective date of a
merger or consolidation of the Corporation with any other entity, other than a
merger or consolidation which would result in the voting securities of the
Corporation outstanding immediately prior to such merger or consolidation
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 51% of the combined
voting power of the voting securities of the surviving entity outstanding
immediately after such merger or consolidation and with the power to elect at
least a majority of the board of directors or other governing body of such
surviving entity;
2.4. Liquidation. The approval by the stockholders of
the Corporation of a complete liquidation of the Corporation or an agreement
for the sale or disposition by the Corporation of all or substantially all of
the Corporation's assets; or
2.5. Other Events. There occurs any other event of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A (or a response to any similar item on any
similar schedule or form) promulgated under the Exchange Act (as defined
below), whether or not the Corporation is then subject to such reporting
requirement.
2.6. Certain Definitions. For purposes of this Section
2, the following terms shall have the following meanings:
"Approval Date" shall mean the date, if any, on
which the stockholders of the Corporation approve a transaction the
consummation of which would result in the occurrence of a Change of Control:
provided, however, (i) there shall not be deemed to be any Approval Date in
the event that the transaction so approved by the stockholders does not occur
and (ii) in the event that a Change in Control occurs as to which the
stockholders have not approved the transaction which effects the Change in
Control, the Approval Date shall be deemed to be the Change In Control Date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Person" shall have the meaning as set forth in
Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person
shall exclude (i) the Corporation, (ii) any trustee or other fiduciary holding
securities under an employee benefit plan of the Corporation and (iii) any
corporation owned, directly or indirectly, by the stockholders of the
Corporation in substantially the same proportions as their ownership of stock
of the Corporation.
"Beneficial Owner" shall have the meaning given to
such term in Rule 13d-3 under the Exchange Act; provided, however, that
Beneficial Owner shall exclude any Person otherwise becoming a Beneficial
Owner by reason of the stockholders of the Corporation approving a merger of
the Corporation with another entity.
3. Termination Following a Change in Control.
<PAGE>
3.1. General. You shall be entitled to the benefits
provided in Section 4 upon the termination of your employment, provided (a)
that such termination occurs after the Approval Date unless such termination
is (x) because of your death or Disability (as defined in Section 3.2), (y) by
the Corporation for Cause (as defined in Section 3.3), or (z) by you other
than for Good Reason (as defined in Section 3.4).
3.2. Definition of Disability. If, as a result of your
incapacity due to physical or mental illness, you shall have been absent from
the full-time performance of your duties with the Corporation for six (6)
consecutive months, and within thirty (30) days after written notice of
termination is given you shall not have returned to the full-time performance
of your duties, your employment may be terminated for "Disability."
3.3. Definition of Cause. Termination by the
Corporation of your employment for "Cause" shall mean termination (a) upon
your willful and continued failure to perform substantially your duties with
the Corporation (other than any such failure resulting from your incapacity
due to physical or mental illness or any such actual or anticipated failure
after your issuance of a Notice of Termination (as defined in Section 3.5) for
Good Reason), after a written demand for substantial performance is delivered
to you by Board which demand specifically identifies the manner in which the
Board believes that you have not substantially performed your duties, (b) upon
your willful and continued failure to follow and comply substantially with the
specific and lawful directives of the Board, as reasonably determined by the
Board (other than any such failure resulting from your incapacity due to
physical or mental illness or any such actual or anticipated failure after
your issuance of a Notice of Termination for Good Reason), after a written
demand for substantial performance is delivered to you by the Board, which
demand specifically identifies the manner in which the Board believes that you
have not substantially followed or complied with the directives of the Board,
(c) upon your willful commission of an act of fraud or dishonesty resulting in
material economic or financial injury to the Corporation, or (d) upon your
willful engagement in illegal conduct which is materially and demonstrably
injurious to the Corporation. For purposes of this Section 3.3, no act, or
failure to act, on your part shall be deemed "willful" unless done, or omitted
to be done, by you not in good faith. Notwithstanding the foregoing, you
shall not be deemed terminated for Cause pursuant to Sections 3.3(a), (b), (c)
or (d) hereof unless and until there shall have been delivered to you a copy
of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
(after reasonable notice to you, an opportunity for you, together with your
counsel, to be heard before the Board and a reasonable opportunity to cure),
finding that in the Board's good faith opinion you were guilty of conduct set
forth above in Section 3.3(a), (b), (c) or (d) and specifying the particulars
thereof in reasonable detail. In the event of a Change in Control under
Section 2.3 pursuant to which the Corporation is not the surviving entity,
then on and after the Change in Control Date all determinations and actions
required to be taken by the Board under this Section 3.3 shall be made or
taken by the board of directors of the surviving entity, or if the surviving
entity is a subsidiary, then by the board of directors of the ultimate parent
corporation of the surviving entity.
3.4. Good Reason. You shall be entitled to terminate
your employment for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean, without your express written consent, the occurrence after
the Approval Date of any of the following circumstances unless, in the case of
Sections 3.4(a), (f), (g), or (h), such circumstances are fully corrected
<PAGE>
(provided such circumstances are capable of correction) prior to the Date of
Termination (as defined in Section 3.6) specified in the Notice of Termination
given in respect thereof:
(a) the assignment to you of any duties
inconsistent with the position in the Corporation that you held immediately
prior to the Approval Date, a significant adverse alteration in the nature or
status of your responsibilities or the conditions of your employment from
those in effect immediately prior to the Approval Date, or any other action by
the Corporation that results in a material diminution in your position,
authority, title, duties or responsibilities;
(b) the Corporation's reduction of your annual
base salary or targeted annual cash incentive bonus as in effect on the
Approval Date or as the same may be increased from time to time;
(c) the relocation of the Corporation's offices
at which you are principally employed immediately prior to the Approval Date
(your "Principal Location") to a location more than fifteen (15) miles from
such location or the Corporation's requiring you, without your written
consent, to be based anywhere other than your Principal Location, except for
required travel on the Corporation's business to an extent substantially
consistent with your present business travel obligations;
(d) the Corporation's failure to pay to you any
portion of your current compensation or to pay to you any portion of an
installment of deferred compensation under any deferred compensation program
of the Corporation within seven (7) days of the date such compensation is due;
(e) the Corporation's failure to continue in
effect any material compensation or benefit plan or practice in which you are
eligible to participate in on the Approval Date (other than any equity based
plan), unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the
Corporation's failure to continue your participation therein (or in such
substitute or alternative plan) on a basis not materially less favorable, both
in terms of the amount of benefits provided and the level of your
participation relative to other participants, as existed at the time of the
Approval Date;
(f) the Corporation's failure to continue to
provide you with benefits substantially similar in the aggregate to those
enjoyed by you under any of the Corporation's life insurance, medical, health
and accident, disability, pension, retirement, or other benefit plans or
practices in which you and your eligible family members were eligible to
participate in on the Approval Date (other than any equity based plans), the
taking of any action by the Corporation which would directly or indirectly
materially reduce any of such benefits, or the failure by the Corporation to
provide you with the number of paid vacation days to which you are entitled on
the basis of years of service with the Corporation in accordance with the
Corporation's normal vacation policy in effect on the Approval Date;
(g) the Corporation's failure to obtain a
satisfactory agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 6 hereof; or
(h) any purported termination of your employment
that is not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3.5 hereof (and, if applicable, the requirements of
Section 3.3 hereof), which purported termination shall not be effective for
purposes of this Agreement.
Your right to terminate your employment pursuant to this Section 3.4 shall not
be affected by your incapacity due to physical or mental illness. Your
continued employment shall not constitute consent to, or a waiver of rights
with respect to, any circumstance constituting Good Reason hereunder.
<PAGE>
3.5. Notice of Termination. Any purported termination
of your employment by the Corporation or by you (other than termination due to
death which shall terminate your employment automatically) shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 7. "Notice of Termination" shall mean a notice that
shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of your employment under the
provision so indicated.
3.6. Date of Termination, Etc. "Date of Termination"
shall mean (a) if your employment is terminated due to your death, the date
of your death; (b) if your employment is terminated for Disability, thirty
(30) days after Notice of Termination is given (provided that you shall not
have returned to the full-time performance of your duties during such thirty
(30) day period), and (c) if your employment is terminated pursuant to Section
3.3 or Section 3.4 or for any other reason (other than death or Disability),
the date specified in the Notice of Termination (which, in the case of a
termination for Cause shall not be less than thirty (30) days from the date
such Notice of Termination is given, and in the case of a termination for Good
Reason shall not be less than fifteen (15) nor more than sixty (60) days from
the date such Notice of Termination is given). Notwithstanding anything to
the contrary contained in this Section 3.6, if within fifteen (15) days after
any Notice of Termination is given, the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
termination, then the Date of Termination shall be the date on which the
dispute is finally determined, either by mutual written agreement of the
parties, or otherwise; provided, however, that (i) the Date of Termination
shall be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such dispute
with reasonable diligence; and (ii) in the event of your death pending a
dispute, and the resolution of such dispute is ultimately in your favor, then
the Date of Termination shall be the date specified in the Notice of
Termination.
4. Compensation Upon Termination. The benefits to which you
are entitled upon termination of your employment, subject to Section 3 and the
other terms and conditions of this Agreement, are:
4.1. Cause or Voluntary Termination. If your employment
shall be terminated by the Corporation for Cause or voluntarily terminated by
you other than for Good Reason, the Corporation shall pay you your full base
salary through the Date of Termination at the rate in effect at the time
Notice of Termination is given, plus all other amounts to which you are
entitled under any compensation plan or practice of the Corporation, and the
Corporation shall have no further obligations to you under this Agreement.
4.2. Good Reason or Termination By Corporation Without
Cause. If your employment by the Corporation shall be terminated by you for
Good Reason, or by the Corporation other than for Cause, Disability or death,
then you shall be entitled to the benefits provided below:
(a) the Corporation shall pay to you your full
base salary, when due, through the Date of Termination at the rate in effect
at the time Notice of Termination is given, at the time specified in Section
4.3, plus (i) that portion of your targeted cash bonuses prorated through the
Date of Termination, (ii) all accrued but unused vacation time through the
Date of Termination and (iii) all other amounts to which you are entitled
under any compensation plan or practice of the Corporation at the time such
payments are due;
(b) in lieu of any further salary payments to you
<PAGE>
for periods subsequent to the Date of Termination, the Corporation shall pay
as severance pay to you, at the time specified in Section 4.3, a lump sum
payment equal to the sum of the following:
(1) two (2) times your annual base salary
as in effect at the time the Notice of Termination is given or immediately
prior to the Approval Date, whichever is greater; and
(2) two (2) times your targeted annual
bonus as in effect at the time the Notice of Termination is given or
immediately prior to the Approval Date, whichever is greater;
(c) for a period of two (2) years following the
Date of Termination, the Corporation shall, at its sole expense as incurred,
provide you with outplacement services, the scope and provider of which shall
be selected by you in your sole discretion, at an aggregate cost to the
Corporation not to exceed twenty five percent (25%) of your base salary as in
effect at the time the Notice of Termination is given or immediately prior to
the Approval Date, whichever is greater;
(d) for a twenty-four (24) month period after
such termination, or if later until your 65th birthday if you have attained
age 55 on the Change in Control Date, the Corporation shall continue to
provide you and your eligible family members, based on the cost sharing
arrangement between you and the Corporation at the time the Notice of
Termination is given, with medical and dental health benefits and life and
disability benefits at least equal to those which would have been provided to
you and them if your employment had not been terminated or, if more favorable
to you, as in effect generally at any time thereafter; provided, however, that
if you become re-employed with another employer and are eligible to receive
such benefits under another employer's plans, the Corporation's obligations
under this Section 4.2(d) shall be reduced to the extent comparable benefits
are actually received by you during the twenty-four (24) month period
following your termination, and any such benefits actually received by you
shall be reported to the Corporation. In the event you are ineligible under
the terms of such benefit plans or programs to continue to be so covered, the
Corporation shall provide you with substantially equivalent coverage through
other sources or will provide you with a lump-sum payment in such amount that,
after all taxes on that amount, shall be equal to the cost to you of providing
yourself such benefit coverage. At the termination of the medical and dental
benefits coverage under the second preceding sentence, you, your spouse and
your dependents shall be entitled to continuation coverage pursuant to section
4980B of the Internal Revenue Code of 1986, as amended (the "Code"), sections
601-608 of the Employee Retirement Income Security Act of 1974, as amended,
and under any other applicable law, to the extent required by such laws, as if
you had terminated employment with the Corporation on the date such benefits
coverage terminates. The lump-sum shall be determined on a present value
basis using the interest rate provided in section 1274(b)(2)(B) of the Code on
the Date of Termination;
(e) the Corporation shall furnish you for six (6)
years following the Date of Termination (without reference to whether the term
of this Agreement continues in effect) with directors' and officers' liability
insurance insuring you against insurable events which occur or have occurred
while you were a director or officer of the Corporation, such insurance to
have policy limits aggregating not less than the amount in effect immediately
prior to the Change in Control Date or the Approval Date (if different from
the Change in Control Date, whichever is more favorable to you), and otherwise
to be in substantially the same form and to contain substantially the same
terms, conditions and exceptions as the liability issuance policies provided
for officers and directors of the Corporation in force from time to time,
provided, however, that (i) such terms, conditions and exceptions shall not
<PAGE>
be, in the aggregate, materially less favorable to you than those in effect on
the date hereof and (ii) if the aggregate annual premiums for such insurance
at any time during such period exceed two hundred percent (200%) of the per
annum rate of premium currently paid by the Corporation for such insurance,
then the Corporation shall provide the maximum coverage that will then be
available at an annual premium equal to two hundred percent (200%) of such
rate;
(f) the Corporation shall transfer ownership to
you, without additional consideration, the home computer hardware, software
and related equipment purchased by you pursuant to the Corporation's computer
purchase policy;
(g) all unvested stock options held by you on the
Date of Termination shall immediately vest and become exercisable in full and
shall remain exercisable for the period specified in such options; and
(h) in the event that it shall be determined that
any payment or benefit by the Corporation to or for your benefit, or the
acceleration of any payment or benefit including the acceleration of vesting
of any stock options, whether paid or payable under this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 4.2 (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code, or any comparable federal, state, or
local excise tax (such excise tax, together with any interest and penalties,
are hereinafter collectively referred to as the "Excise Tax"), then the
Corporation shall pay you an additional payment (a "Gross-Up Payment") in such
an amount that after the payment of all taxes (including without limitation,
any interest and penalties on such taxes and the excise tax) on the Payment
and on the Gross-Up Payment, you shall retain an amount equal to the Payment
minus all applicable income and employment taxes on the Payment. Our intent
is that the Corporation shall be solely responsible for, and shall pay, any
Excise Tax on the Payment and Gross-Up Payment and any income, employment and
other taxes (including, without limitation, penalties and interest) imposed on
any Gross-Up Payment, as well as any loss of tax deduction caused by the
Gross-Up Payment or applicable provisions of the Code. The foregoing
determination shall be made by the Corporation's independent certified public
accountants serving immediately prior to the Change in Control (the
"Accountants"). In the event that the Accountants are also serving as
accountant or auditor for the individual, group or entity effecting the Change
in Control you may appoint another nationally recognized public accounting
firm to make the determination required hereunder (which firm shall then be
referred to as the Accountants hereunder). All fees and expenses of the
Accountings shall be borne solely by the Corporation.
4.3. Timing of Payments under Sections 4.1 and 4.2. The
payments provided for in (a) Section 4.1 and Sections 4.2(a) and (b) shall be
made not later than the fifth day following the Date of Termination and (b)
Section 4.2(h) shall be made on the earlier of the date on which you would be
required to pay, or the Corporation would be required to withhold, the Excise
Tax; provided, however, that if the amounts of such payments cannot be finally
determined on or before such day, the Corporation shall pay to you on such day
an estimate, as determined in good faith by the Corporation, of the minimum
amount of such payments and shall pay the remainder of such payments (together
with interest at the rate provided in section 1274(b)(2)(B) of the Code) from
the Date of Termination as soon as the amount thereof can be determined but in
no event later than the thirtieth day after the Date of Termination. In the
event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan
by the Corporation to you, payable on the fifth day after demand by the
Corporation (together with interest at the rate provided in section
<PAGE>
1274(b)(2)(B) of the Code) from the date such payment was made by the
Corporation.
4.4. Death or Disability. If your employment by the
Corporation shall be terminated by reason of death or Disability, the
Corporation shall continue payment of your annual base salary, at the rate
then in effect on the date of such termination, for a period of one year.
4.5. No Mitigation. You shall not be required to
mitigate the amount of any payment provided for in this Section 4 by seeking
other employment or otherwise nor, except as provided in Section 4.2(d), shall
the amount of any payment or benefit provided for in this Section 4 be reduced
by any compensation earned by you as the result of employment by another
employer or self-employment, by retirement benefits, by offset against any
amount claimed to be owed by you to the Corporation, or otherwise.
4.6. Stock Options. Notwithstanding any other provision
of this Agreement or the terms of any stock option plan or agreement to the
contrary, immediately prior to the occurrence of a Change in Control all
unvested stock options held by you shall immediately vest and become
exercisable in full and shall remain exercisable for the period specified in
such options unless such Change in Control is effected through a merger of the
Corporation or the sale of substantially all of the assets of the Corporation
and as of immediately prior to the occurrence of such Change in Control the
Corporation and the successor corporation have made provision for such options
to be assumed or be substituted with an equivalent option or right by the
successor corporation or a parent or subsidiary of the successor corporation.
5. Your Covenants.
5.1. Confidentiality. You agree that all drawings,
diaries, correspondence, files, tapes, discs, project books, notebooks,
sketches, reports, manuals, blueprints, documents, electronic mail messages,
voicemail messages, and any other materials in any form or medium which detail
your employment activities and/or which include Confidential Information (as
defined below), including all copies thereof, are and shall be the
Corporation's sole and exclusive property. You agree that the Corporation
will have unrestricted access to such materials at any time during the term of
your employment with or without notice to you. In addition, you agree to hold
in confidence and not use or disclose, either during or after termination of
your employment with the Corporation, any Confidential Information which you
obtain or create during the period of your employment, whether or not during
working hours, except to the extent authorized by the Corporation. Upon the
Corporation's request, or upon termination of your employment for any reason,
you will deliver to the Corporation all such Confidential Information in your
possession or control in all forms, including all copies thereof, and destroy
all copies that cannot be delivered. You promise and agree that you shall not
misuse, misappropriate, or disclose any of the trade secrets, including
current Corporation products or services, directly or indirectly, or use them
in any way, either during the term of this Agreement or at any time
thereafter, except as required in the course of your employment. As used in
this Agreement, the term "Confidential Information" means information
belonging or relating to the Corporation that is not publicly available, and
includes, but is not limited to, trade secrets consisting of formulas,
patterns, devices, secret inventions, processes, and compilations of
information, including, but not limited to, marketing, engineering, sales,
employment, employees, compensation, operations, future or proposed products
or services (whether these are planned, under consideration, or in
production), and any features of those products or services, information
related to financial lists, records, and specifications, all of which the
Corporation owns and regularly uses in operating its business. It includes
not only the Corporation's information, but also information which the
<PAGE>
Corporation has obtained from a third party under an obligation of
confidentiality. Such Confidential Information may be in writing; may or may
not be marked as proprietary or confidential; may be a sketch or drawing; may
be a machine or computer program; may be verbal; may be stored in an
electronics storage medium; or may be in a combination of forms and/or in
forms not enumerated here.
5.2. Nonsolicitation. You will not, either during the
term of your employment, or for a period of two years after your employment
has terminated, solicit any of the Corporation's employees for a competing
business or otherwise induce or attempt to induce such employees to terminate
their employment with the Corporation.
5.3. Intellectual Property. You hereby agree promptly
to disclose to the Corporation, and hereby assign and agree to assign to the
Corporation or its designee, your entire right, title, and interest in and to
all Intellectual Property (as defined below) which you develop either alone or
with others during your employment with the Corporation and which: (i)
pertains to any line of the Corporation's business activity, or any of the
Corporation's actual or demonstrably anticipated research and development;
(ii) involves the use of the Corporation's material, facilities, or trade
secret information, whether or not during working hours; (iii) relates to any
of your work during the period of your employment with the Corporation,
whether or not during normal working hours; or (iv) is developed wholly or
partially during the Corporation's normal working hours. You agree to
perform, both during and after your employment, all necessary lawful acts to
permit and assist the Corporation, at its expense, to obtain and enforce the
full benefits, enjoyment, rights and title throughout the world in the
Intellectual Property hereby assigned to it. Such acts include, but are not
limited to, executing documents and assisting or cooperating in legal
proceedings. In addition, you agree to disclose to the Corporation, in
confidence if requested, all Intellectual Property that you have developed to
permit the Corporation to determine whether or not the Intellectual Property
should be the Corporation's property. As used in this Agreement, the term
"Intellectual Property" means patents, designs, trademarks, discoveries,
formulae, processes, manufacturing, techniques, trade secrets, inventions
(whether patentable or not), improvements, ideas, works registerable as "mask
works," or copyrightable works, including all rights to obtain, register,
perfect and enforce these proprietary interests throughout the world.
Notwithstanding the foregoing, this Section 5.3 does not apply to an Invention
which qualifies fully under the provisions of Section 2870 of the California
Labor Code.
5.4. Modification. If the covenants contained in this
Section 5 are, in the view of any court or arbitrator asked to rule upon the
issue, deemed unenforceable by reason of being too extensive in nature or
scope, then the same shall be deemed to cover only the greatest nature or
scope, as the case may be, that will not render it unenforceable.
5.5. Specific Performance. You acknowledge and agree
that the Corporation cannot be fully or adequately compensated in damages for
a violation of the covenants contained in this Section 5, and that, in
addition to any other relief to which the Corporation may be entitled, it
shall be entitled to injunctive and equitable relief.
6. Successors; Binding Agreement.
6.1. Successor to Assume Agreement. The Corporation
shall require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Corporation to expressly assume and agree to perform this
Agreement. Failure of the Corporation to obtain such assumption and agreement
prior to the Change in Control Date shall be a breach of this Agreement and
<PAGE>
shall entitle you to terminate your employment and receive compensation from
the Corporation in the same amount and on the same terms to which you would be
entitled hereunder if you terminate your employment for Good Reason following
the Approval Date, except that for purposes of implementing the foregoing, the
Change in Control Date shall be deemed the Date of Termination. Unless
expressly provided otherwise, "Corporation" as used herein shall mean the
Corporation as defined in this Agreement and any successor to its business
and/or assets as aforesaid.
6.2. Binding Agreement. This Agreement shall inure to
the benefit of and be enforceable by you and your personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If you should die while any amount would still be
payable to you hereunder had you continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to your devisee, legatee or other designee or, if there is no such
designee, to your estate.
7. Notice. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall
be in writing and shall be deemed to have been duly given when received if
personally delivered; when transmitted if transmitted by telecopy; the day
after it is sent, if sent for next day delivery to a domestic address by
recognized overnight delivery service (e.g., Federal Express); and upon
receipt, if sent by certified or registered mail, return receipt requested.
All notices, requests, demands and other communications shall be addressed to
the respective addresses set forth on the first page of this Agreement,
provided that all notices to the Corporation shall be directed to the
attention of the Board with a copy to the Secretary of the Corporation, or to
such other address as either party may have furnished to the other in writing
in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
8. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by you and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly
set forth in this Agreement. All references to sections of the Exchange Act
or the Code shall be deemed also to refer to any successor provisions to such
sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Corporation under Section 4 shall survive the expiration of
the term of this Agreement. The section headings contained in this Agreement
are for convenience only, and shall not affect the interpretation of this
Agreement.
9. Severability. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
10. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
11. Suits, Actions, Proceedings, Etc.
11.1. Compensation During Dispute, Etc. Your
<PAGE>
compensation during any disagreement, dispute, controversy, claim, suit,
action or proceeding (collectively, a "Dispute"), arising out of or relating
to this Agreement or the interpretation of this Agreement shall be as follows:
If there is a termination followed by a Dispute as to whether you are entitled
to the payments and other benefits provided under this Agreement, then, during
the period of that Dispute the Corporation shall pay you fifty percent (50%)
of the amount specified in Sections 4.2(a) and 4.2(b) hereof, and the
Corporation shall provide you with the other benefits provided in Section 4.2
of this Agreement, if, but only if, you agree in writing that if the Dispute
is resolved against you, you shall promptly refund to the Corporation all
payments you receive under Sections 4.2(a) and 4.2(b) of this Agreement plus
interest at the rate provided in Section 1274(d) of the Code, compounded
quarterly. If the Dispute is resolved in your favor, promptly after
resolution of the dispute the Corporation shall pay you the sum that was
withheld during the period of the Dispute plus interest at the rate provided
in Section 1274(d) of the Code, compounded quarterly.
11.2. Legal Fees. The Corporation shall pay to you all
legal fees and expenses incurred by you in connection with any Dispute arising
out of or relating to this Agreement or the interpretation thereof (including,
without limitation, all such fees and expenses, if any, incurred in contesting
or disputing any termination of your employment or in seeking to obtain or
enforce any right or benefit provided by this Agreement, or in connection with
any tax audit or proceeding to the extent attributable to the application of
section 4999 of the Code to any payment or benefit provided hereunder),
regardless of the outcome of such proceeding, provided that in the event you
commence such action, you shall not be entitled to recover such fees and costs
if the court determines that you brought the claim in bad faith. Any
attorneys' fees and costs incurred by you shall be paid by the Corporation in
advance of the final disposition of such action or challenge, as such fees and
expenses are incurred, provided that you hereby agree to repay such amounts,
net of any income taxes paid or payable by you with respect to such amounts,
if such amounts are incurred in connection with an action commenced by you if
it is ultimately determined by the court that you brought such claim in bad
faith.
11.3. Choice of Law; Arbitration. The internal laws of
the State of California, United States of America, applicable to contracts
entered into and wholly to be performed in California by California residents,
without reference to any principles concerning conflicts of law, shall govern
the validity of this Agreement, the construction of its terms and the
interpretation of the rights and duties of the parties hereunder. Any
controversy or claim arising out of or relating to this Agreement, or the
breach thereof, shall be settled by the following procedures: Either party
may send the other written notice identifying the matter in dispute and
involving the procedures of this Section 11.3. Within fourteen (14) days
after such written notice is given, one or more principals of each party shall
meet at a mutually agreeable location in San Francisco, California, for the
purpose of determining whether they can resolve the dispute themselves by
written agreement, and, if not, whether they can agree upon a third-party
impartial arbitrator (the "Arbitrator") to whom to submit the matter in
dispute for final and binding arbitration. If the parties fail to resolve the
dispute by written agreement or agree on the Arbitrator within such twenty-one
(21) day period, either party may make written application to the Judicial
Arbitration and Mediation Services ("JAMS"), 2 Embarcadero Center, San
Francisco, California, for the appointment of a single Arbitrator to resolve
the dispute by arbitration and at the request of JAMS, the parties shall meet
with JAMS at its offices or confer with JAMS by telephone within ten (10)
calendar days of such request to discuss the dispute and the qualifications
<PAGE>
and experience which each party respectively believes the Arbitrator should
have; provided, however, the selection of the Arbitrator shall be the
exclusive decision of JAMS and shall be made within thirty (30) days of the
written application to JAMS. Within 30 days of the selection of the
Arbitrator, the parties shall meet in San Francisco, California with such
Arbitrator at a place and time designated by the Arbitrator after consultation
with the parties and present their respective positions on the dispute. Each
party shall have no longer than one day to present its position, the entire
proceedings before the Arbitrator shall be on no more than three consecutive
days, and the award shall be made in writing no more than 30 days following
the end of the proceeding. Such award shall be a final and binding
determination of the dispute and shall be fully enforceable as an arbitration
award in any court having jurisdiction and venue over the parties. The non-
prevailing party (as determined by the Arbitrator) shall pay the Arbitrator's
fees and expenses.
12. Entire Agreement. This Agreement sets forth the entire
agreement of the parties hereto in respect of the subject matter contained
herein and supersedes all other prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto; and
any prior agreement of the parties hereto in respect of the subject matter
contained herein, including, without limitation, any prior severance
agreements, is hereby terminated and canceled. Any of your rights hereunder
shall be in addition to any rights you may otherwise have under benefit plans
or agreements of the Corporation to which you are a party or in which you are
a participant, including, but not limited to, any Corporation sponsored
employee benefit plans and stock options plans. Provisions of this Agreement
shall not in any way abrogate your rights under such other plans and
agreements.
If this letter sets forth our agreement on the subject matter hereof, kindly
sign and return to the Corporation the enclosed copy of this letter. A duly
authorized officer of the Corporation will sign this letter and a fully
executed copy will be returned to you, constituting our agreement on this
subject. Unless and until accepted in writing by the Corporation, this
Agreement is deemed to be neither executed nor effective.
Sincerely,
VLSI TECHNOLOGY, INC.
By:
------------------------------------
ALFRED J. STEIN
Its: Chairman and Chief Executive Officer
Agreed and Accepted,
this day of April, 1999.
___________________________________
<PAGE>
Exhibit 10.43
April 17, 1999
[FirstName] [LastName]
[Address1]
[Address2]
[City], [State] [PostalCode]
Dear [FirstName]:
The Board of Directors (the "Board") of VLSI Technology, Inc. (the
"Corporation") has determined that it is in the best interests of the
Corporation and its stockholders to assure that the Corporation will continue
to have your dedication and services notwithstanding the possibility, threat
or occurrence of a Change in Control (as defined herein). The Board believes
it is imperative to diminish the distraction that you would face by virtue of
the personal uncertainties created by a pending or threatened Change in
Control and to encourage your full attention and dedication to the Corporation
currently and in the event of any threatened or pending Change in Control.
Further, the Board desires to provide you with compensation and benefits
arrangements upon a Change in Control which ensure that your compensation and
benefits expectations will be satisfied and which are competitive with those
of other corporations. Therefore, in order to accomplish these objectives,
the Board has caused the Corporation to enter into this Agreement (the
"Agreement"). [This Agreement constitutes a complete amendment and
restatement of the Executive Change in Control Severance Agreement that you
and the Corporation entered into as of [date of prior agreement].]
1. Term of Agreement. The terms of this Agreement shall
become effective upon the execution hereof by the Corporation and shall
continue unless terminated by written agreement between you and the
Corporation; provided, that if a Change in Control occurs, then the term of
this Agreement shall continue in effect for a period of not less than eighteen
(18) months beyond the date (the "Change in Control Date") on which a Change
in Control occurs. No benefits shall be payable hereunder unless there has
been a Change in Control.
2. Change in Control. A Change in Control shall be deemed to
occur upon the earliest to occur after the date of this Agreement of any of
the following events:
2.1. Acquisition of Stock by Third Party. Any Person
(as defined below) is or becomes the Beneficial Owner (as defined below),
directly or indirectly, of securities of the Corporation representing twenty
five percent (25%) or more of the combined voting power of the Corporation's
then outstanding securities;
2.2. Change in Board of Directors. During any period of
two (2) consecutive years (not including any period prior to the execution of
this Agreement), individuals who at the beginning of such period constitute
the Board, and any new director (other than a director designated by a person
who has entered into an agreement with the Corporation to effect a transaction
described in Sections 2.1, 2.3 or 2.4) whose election by the Board or
nomination for election by the Corporation's stockholders was approved by a
vote of at least two-thirds of the directors then still in office who either
were directors at the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason to constitute at
least a majority of the members of the Board;
2.3. Corporate Transactions. The effective date of a
merger or consolidation of the Corporation with any other entity, other than a
merger or consolidation which would result in the voting securities of the
Page 1
<PAGE>
Corporation outstanding immediately prior to such merger or consolidation
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 51% of the combined
voting power of the voting securities of the surviving entity outstanding
immediately after such merger or consolidation and with the power to elect at
least a majority of the board of directors or other governing body of such
surviving entity;
2.4. Liquidation. The approval by the stockholders of
the Corporation of a complete liquidation of the Corporation or an agreement
for the sale or disposition by the Corporation of all or substantially all of
the Corporation's assets; or
2.5. Other Events. There occurs any other event of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A (or a response to any similar item on any
similar schedule or form) promulgated under the Exchange Act (as defined
below), whether or not the Corporation is then subject to such reporting
requirement.
2.6. Certain Definitions. For purposes of this Section
2, the following terms shall have the following meanings:
"Approval Date" shall mean the date, if any, on
which the stockholders of the Corporation approve a transaction the
consummation of which would result in the occurrence of a Change of Control:
provided, however, (i) there shall not be deemed to be any Approval Date in
the event that the transaction so approved by the stockholders does not occur
and (ii) in the event that a Change in Control occurs as to which the
stockholders have not approved the transaction which effects the Change in
Control, the Approval Date shall be deemed to be the Change In Control Date.
"Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
"Person" shall have the meaning as set forth in
Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person
shall exclude (i) the Corporation, (ii) any trustee or other fiduciary holding
securities under an employee benefit plan of the Corporation and (iii) any
corporation owned, directly or indirectly, by the stockholders of the
Corporation in substantially the same proportions as their ownership of stock
of the Corporation.
"Beneficial Owner" shall have the meaning given to
such term in Rule 13d-3 under the Exchange Act; provided, however, that
Beneficial Owner shall exclude any Person otherwise becoming a Beneficial
Owner by reason of the stockholders of the Corporation approving a merger of
the Corporation with another entity.
3. Termination Following a Change in Control.
3.1. General. You shall be entitled to the benefits
provided in Section 4 upon the termination of your employment, provided (a)
that such termination occurs after the Approval Date unless such termination
is (x) because of your death or Disability (as defined in Section 3.2), (y) by
the Corporation for Cause (as defined in Section 3.3), or (z) by you other
than for Good Reason (as defined in Section 3.4).
3.2. Definition of Disability. If, as a result of your
incapacity due to physical or mental illness, you shall have been absent from
the full-time performance of your duties with the Corporation for six (6)
consecutive months, and within thirty (30) days after written notice of
termination is given you shall not have returned to the full-time performance
of your duties, your employment may be terminated for "Disability."
3.3. Definition of Cause. Termination by the
Corporation of your employment for "Cause" shall mean termination (a) upon
your willful and continued failure to perform substantially your duties with
Page 2
<PAGE>
the Corporation (other than any such failure resulting from your incapacity
due to physical or mental illness or any such actual or anticipated failure
after your issuance of a Notice of Termination (as defined in Section 3.5) for
Good Reason), after a written demand for substantial performance is delivered
to you by Board which demand specifically identifies the manner in which the
Board believes that you have not substantially performed your duties, (b) upon
your willful and continued failure to follow and comply substantially with the
specific and lawful directives of the Board, as reasonably determined by the
Board (other than any such failure resulting from your incapacity due to
physical or mental illness or any such actual or anticipated failure after
your issuance of a Notice of Termination for Good Reason), after a written
demand for substantial performance is delivered to you by the Board, which
demand specifically identifies the manner in which the Board believes that you
have not substantially followed or complied with the directives of the Board,
(c) upon your willful commission of an act of fraud or dishonesty resulting in
material economic or financial injury to the Corporation, or (d) upon your
willful engagement in illegal conduct which is materially and demonstrably
injurious to the Corporation. For purposes of this Section 3.3, no act, or
failure to act, on your part shall be deemed "willful" unless done, or omitted
to be done, by you not in good faith. Notwithstanding the foregoing, you
shall not be deemed terminated for Cause pursuant to Sections 3.3(a), (b), (c)
or (d) hereof unless and until there shall have been delivered to you a copy
of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
(after reasonable notice to you, an opportunity for you, together with your
counsel, to be heard before the Board and a reasonable opportunity to cure),
finding that in the Board's good faith opinion you were guilty of conduct set
forth above in Section 3.3(a), (b), (c) or (d) and specifying the particulars
thereof in reasonable detail. In the event of a Change in Control under
Section 2.3 pursuant to which the Corporation is not the surviving entity,
then on and after the Change in Control Date all determinations and actions
required to be taken by the Board under this Section 3.3 shall be made or
taken by the board of directors of the surviving entity, or if the surviving
entity is a subsidiary, then by the board of directors of the ultimate parent
corporation of the surviving entity.
3.4. Good Reason. You shall be entitled to terminate
your employment for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean, without your express written consent, the occurrence after
the Approval Date of any of the following circumstances unless, in the case of
Sections 3.4(a), (f), (g), or (h), such circumstances are fully corrected
(provided such circumstances are capable of correction) prior to the Date of
Termination (as defined in Section 3.6) specified in the Notice of Termination
given in respect thereof:
(a) the assignment to you of any duties
inconsistent with the position in the Corporation that you held immediately
prior to the Approval Date, a significant adverse alteration in the nature or
status of your responsibilities or the conditions of your employment from
those in effect immediately prior to the Approval Date, or any other action by
the Corporation that results in a material diminution in your position,
authority, title, duties or responsibilities;
(b) the Corporation's reduction of your annual
base salary or targeted annual cash incentive bonus as in effect on the
Approval Date or as the same may be increased from time to time;
(c) the relocation of the Corporation's offices
at which you are principally employed immediately prior to the Approval Date
(your "Principal Location") to a location more than fifteen (15) miles from
such location or the Corporation's requiring you, without your written
Page 3
<PAGE>
consent, to be based anywhere other than your Principal Location, except for
required travel on the Corporation's business to an extent substantially
consistent with your present business travel obligations;
(d) the Corporation's failure to pay to you any
portion of your current compensation or to pay to you any portion of an
installment of deferred compensation under any deferred compensation program
of the Corporation within seven (7) days of the date such compensation is due;
(e) the Corporation's failure to continue in
effect any material compensation or benefit plan or practice in which you are
eligible to participate in on the Approval Date (other than any equity based
plan), unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the
Corporation's failure to continue your participation therein (or in such
substitute or alternative plan) on a basis not materially less favorable, both
in terms of the amount of benefits provided and the level of your
participation relative to other participants, as existed at the time of the
Approval Date;
(f) the Corporation's failure to continue to
provide you with benefits substantially similar in the aggregate to those
enjoyed by you under any of the Corporation's life insurance, medical, health
and accident, disability, pension, retirement, or other benefit plans or
practices in which you and your eligible family members were eligible to
participate in on the Approval Date (other than any equity based plans), the
taking of any action by the Corporation which would directly or indirectly
materially reduce any of such benefits, or the failure by the Corporation to
provide you with the number of paid vacation days to which you are entitled on
the basis of years of service with the Corporation in accordance with the
Corporation's normal vacation policy in effect on the Approval Date;
(g) the Corporation's failure to obtain a
satisfactory agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 6 hereof; or
(h) any purported termination of your employment
that is not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3.5 hereof (and, if applicable, the requirements of
Section 3.3 hereof), which purported termination shall not be effective for
purposes of this Agreement.
Your right to terminate your employment pursuant to this Section 3.4 shall not
be affected by your incapacity due to physical or mental illness. Your
continued employment shall not constitute consent to, or a waiver of rights
with respect to, any circumstance constituting Good Reason hereunder.
3.5. Notice of Termination. Any purported termination
of your employment by the Corporation or by you (other than termination due to
death which shall terminate your employment automatically) shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 7. "Notice of Termination" shall mean a notice that
shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of your employment under the
provision so indicated.
3.6. Date of Termination, Etc. "Date of Termination"
shall mean (a) if your employment is terminated due to your death, the date
of your death; (b) if your employment is terminated for Disability, thirty
(30) days after Notice of Termination is given (provided that you shall not
have returned to the full-time performance of your duties during such thirty
(30) day period), and (c) if your employment is terminated pursuant to Section
3.3 or Section 3.4 or for any other reason (other than death or Disability),
the date specified in the Notice of Termination (which, in the case of a
Page 4
<PAGE>
termination for Cause shall not be less than thirty (30) days from the date
such Notice of Termination is given, and in the case of a termination for Good
Reason shall not be less than fifteen (15) nor more than sixty (60) days from
the date such Notice of Termination is given). Notwithstanding anything to
the contrary contained in this Section 3.6, if within fifteen (15) days after
any Notice of Termination is given, the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
termination, then the Date of Termination shall be the date on which the
dispute is finally determined, either by mutual written agreement of the
parties, or otherwise; provided, however, that (i) the Date of Termination
shall be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such dispute
with reasonable diligence; and (ii) in the event of your death pending a
dispute, and the resolution of such dispute is ultimately in your favor, then
the Date of Termination shall be the date specified in the Notice of
Termination.
4. Compensation Upon Termination. The benefits to which you
are entitled upon termination of your employment, subject to Section 3 and the
other terms and conditions of this Agreement, are:
4.1. Cause or Voluntary Termination. If your employment
shall be terminated by the Corporation for Cause or voluntarily terminated by
you other than for Good Reason, the Corporation shall pay you your full base
salary through the Date of Termination at the rate in effect at the time
Notice of Termination is given, plus all other amounts to which you are
entitled under any compensation plan or practice of the Corporation, and the
Corporation shall have no further obligations to you under this Agreement.
4.2. Good Reason or Termination By Corporation Without
Cause. If your employment by the Corporation shall be terminated by you for
Good Reason, or by the Corporation other than for Cause, Disability or death,
then, subject to Section 4.6, you shall be entitled to the benefits provided
below:
(a) the Corporation shall pay to you your full
base salary, when due, through the Date of Termination at the rate in effect
at the time Notice of Termination is given, at the time specified in Section
4.3, plus (i) that portion of your targeted cash bonuses prorated through the
Date of Termination, (ii) all accrued but unused vacation time through the
Date of Termination and (iii) all other amounts to which you are entitled
under any compensation plan or practice of the Corporation at the time such
payments are due;
(b) in lieu of any further salary payments to you
for periods subsequent to the Date of Termination, the Corporation shall pay
as severance pay to you, at the time specified in Section 4.3, a lump sum
payment equal to the sum of the following:
(1) one and one-half (1-1/2) times your
annual base salary as in effect at the time the Notice of Termination is given
or immediately prior to the Approval Date, whichever is greater; and
(2) one and one-half (1-1/2) times your
targeted annual bonus as in effect at the time the Notice of Termination is
given or immediately prior to the Approval Date, whichever is greater;
(c) for a period of eighteen (18) months
following the Date of Termination, the Corporation shall, at its sole expense
as incurred, provide you with outplacement services, the scope and provider of
which shall be selected by you in your sole discretion, at an aggregate cost
to the Corporation not to exceed twenty five percent (25%) of your base salary
as in effect at the time the Notice of Termination is given or immediately
prior to the Approval Date, whichever is greater;
Page 5
<PAGE>
(d) for an eighteen (18) month period after such
termination, or if later until your 65th birthday if you have attained age 55
on the Change in Control Date, the Corporation shall continue to provide you
and your eligible family members, based on the cost sharing arrangement
between you and the Corporation at the time the Notice of Termination is
given, with medical and dental health benefits and life and disability
benefits at least equal to those which would have been provided to you and
them if your employment had not been terminated or, if more favorable to you,
as in effect generally at any time thereafter; provided, however, that if you
become re-employed with another employer and are eligible to receive such
benefits under another employer's plans, the Corporation's obligations under
this Section 4.2(d) shall be reduced to the extent comparable benefits are
actually received by you during the eighteen (18) month period following your
termination, and any such benefits actually received by you shall be reported
to the Corporation. In the event you are ineligible under the terms of such
benefit plans or programs to continue to be so covered, the Corporation shall
provide you with substantially equivalent coverage through other sources or
will provide you with a lump-sum payment in such amount that, after all taxes
on that amount, shall be equal to the cost to you of providing yourself such
benefit coverage. At the termination of the medical and dental benefits
coverage under the second preceding sentence, you, your spouse and your
dependents shall be entitled to continuation coverage pursuant to section
4980B of the Internal Revenue Code of 1986, as amended (the "Code"), sections
601-608 of the Employee Retirement Income Security Act of 1974, as amended,
and under any other applicable law, to the extent required by such laws, as if
you had terminated employment with the Corporation on the date such benefits
coverage terminates. The lump-sum shall be determined on a present value
basis using the interest rate provided in section 1274(b)(2)(B) of the Code on
the Date of Termination;
(e) the Corporation shall furnish you for six (6)
years following the Date of Termination (without reference to whether the term
of this Agreement continues in effect) with directors' and officers' liability
insurance insuring you against insurable events which occur or have occurred
while you were a director or officer of the Corporation, such insurance to
have policy limits aggregating not less than the amount in effect immediately
prior to the Change in Control Date or the Approval Date (if different from
the Change in Control Date, whichever is more favorable to you), and otherwise
to be in substantially the same form and to contain substantially the same
terms, conditions and exceptions as the liability issuance policies provided
for officers and directors of the Corporation in force from time to time,
provided, however, that (i) such terms, conditions and exceptions shall not
be, in the aggregate, materially less favorable to you than those in effect on
the date hereof and (ii) if the aggregate annual premiums for such insurance
at any time during such period exceed two hundred percent (200%) of the per
annum rate of premium currently paid by the Corporation for such insurance,
then the Corporation shall provide the maximum coverage that will then be
available at an annual premium equal to two hundred percent (200%) of such
rate;
(f) the Corporation shall transfer ownership to
you, without additional consideration, the home computer hardware, software
and related equipment purchased by you pursuant to the Corporation's computer
purchase policy; and
(g) all unvested stock options held by you on the
Date of Termination shall immediately vest and become exercisable in full and
shall remain exercisable for the period specified in such options.
4.3. Timing of Payments under Sections 4.1 and 4.2. The
payments provided for in (a) Section 4.1 and (b) Sections 4.2(a) and (b)
<PAGE>
shall be made not later than the fifth day following the Date of Termination;
provided, however, that if the amounts of such payments cannot be finally
determined on or before such day, the Corporation shall pay to you on such day
an estimate, as determined in good faith by the Corporation, of the minimum
amount of such payments and shall pay the remainder of such payments (together
with interest at the rate provided in section 1274(b)(2)(B) of the Code) from
the Date of Termination as soon as the amount thereof can be determined but in
no event later than the thirtieth day after the Date of Termination. In the
event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan
by the Corporation to you, payable on the fifth day after demand by the
Corporation (together with interest at the rate provided in section
1274(b)(2)(B) of the Code) from the date such payment was made by the
Corporation.
4.4. Death or Disability. If your employment by the
Corporation shall be terminated by reason of death or Disability, the
Corporation shall continue payment of your annual base salary, at the rate
then in effect on the date of such termination, for a period of one year.
4.5. No Mitigation. You shall not be required to
mitigate the amount of any payment provided for in this Section 4 by seeking
other employment or otherwise nor, except as provided in Section 4.2(d), shall
the amount of any payment or benefit provided for in this Section 4 be reduced
by any compensation earned by you as the result of employment by another
employer or self-employment, by retirement benefits, by offset against any
amount claimed to be owed by you to the Corporation, or otherwise.
4.6. Taxes. You shall bear all expense of, and be
solely responsible for, all federal, state, local or foreign taxes due with
respect to any payment received hereunder, including, without limitation, any
excise tax imposed by Section 4999 of the Code; provided, however, that any
payment or benefit, or the acceleration of any payment or benefit including
the acceleration of vesting of any stock options, received or to be received
by you or for your benefit in connection with a Change in Control or the
termination of your employment (whether payable pursuant to the terms of this
Agreement ("Contract Payments") or any other plan, arrangements or agreement
with the Corporation or an affiliate (collectively with the Contract Payments,
the "Total Payments")) that would constitute a "parachute payment" within the
meaning of Section 280G of the Code, shall be reduced to the extent necessary
so that no portion thereof shall be subject to the excise tax imposed by
Section 4999 of the Code but only if, by reason of such reduction, the net
after-tax benefit received by you shall exceed the net after-tax benefit
received by you if no such reduction were made. For purposes of this Section
4.6, "net after-tax benefit" shall mean (i) the Total Payments which you
receive or are then entitled to receive from the Corporation that would
constitute "parachute payments" within the meaning of Section 280G of the
Code, less (ii) the amount of all federal, state and local income and
employment taxes payable by you with respect to the foregoing calculated at
the highest marginal income tax rate for each year in which the foregoing
shall be paid to you (based on the rate in effect for such year as set forth
in the Code as in effect at the time of the first payment of the foregoing),
less (iii) the amount of excise taxes imposed with respect to the payments and
benefits described in (i) above by Section 4999 of the Code. The foregoing
determination will be made by the Corporation's independent certified public
accountants serving immediately prior to the Change in Control (the
"Accountants"). In the event that the Accountants are also serving as
accountant or auditor for the individual, group or entity effecting the Change
in Control you may appoint another nationally recognized public accounting
firm to make the determination required hereunder (which firm shall then be
<PAGE>
referred to as the Accountants hereunder). All fees and expenses of the
Accountants shall be borne by the Corporation. You will direct the
Accountants to submit their determination and detailed supporting calculations
to both you and the Corporation within fifteen (15) days of receipt from you
or the Corporation that you have received or will receive the Total Payments.
If the Accountants determine that such reduction is required by this Section
4.6, you, in your sole and absolute discretion, may determine which Total
Payments shall be reduced to the extent necessary so that no portion thereof
shall be subject to the excise tax imposed by Section 4999 of the Code, and
the Corporation shall pay such reduced amount to you. You and the Corporation
will each provide the Accountants access to and copies of any books, records,
and documents in the possession of you or the Corporation, as the case may be,
reasonably requested by the Accountants, and otherwise cooperate with the
Accountants in connection with the preparation and issuance of the
determinations and calculations contemplated by this Section 4.6.
4.7. Stock Options. Notwithstanding any other provision
of this Agreement or the terms of any stock option plan or agreement to the
contrary, immediately prior to the occurrence of a Change in Control all
unvested stock options held by you shall immediately vest and become
exercisable in full and shall remain exercisable for the period specified in
such options unless such Change in Control is effected through a merger of the
Corporation or the sale of substantially all of the assets of the Corporation
and as of immediately prior to the occurrence of such Change in Control the
Corporation and the successor corporation have made provision for such options
to be assumed or be substituted with an equivalent option or right by the
successor corporation or a parent or subsidiary of the successor corporation.
5. Your Covenants.
5.1. Confidentiality. You agree that all drawings,
diaries, correspondence, files, tapes, discs, project books, notebooks,
sketches, reports, manuals, blueprints, documents, electronic mail messages,
voicemail messages, and any other materials in any form or medium which detail
your employment activities and/or which include Confidential Information (as
defined below), including all copies thereof, are and shall be the
Corporation's sole and exclusive property. You agree that the Corporation
will have unrestricted access to such materials at any time during the term of
your employment with or without notice to you. In addition, you agree to hold
in confidence and not use or disclose, either during or after termination of
your employment with the Corporation, any Confidential Information which you
obtain or create during the period of your employment, whether or not during
working hours, except to the extent authorized by the Corporation. Upon the
Corporation's request, or upon termination of your employment for any reason,
you will deliver to the Corporation all such Confidential Information in your
possession or control in all forms, including all copies thereof, and destroy
all copies that cannot be delivered. You promise and agree that you shall not
misuse, misappropriate, or disclose any of the trade secrets, including
current Corporation products or services, directly or indirectly, or use them
in any way, either during the term of this Agreement or at any time
thereafter, except as required in the course of your employment. As used in
this Agreement, the term "Confidential Information" means information
belonging or relating to the Corporation that is not publicly available, and
includes, but is not limited to, trade secrets consisting of formulas,
patterns, devices, secret inventions, processes, and compilations of
information, including, but not limited to, marketing, engineering, sales,
employment, employees, compensation, operations, future or proposed products
or services (whether these are planned, under consideration, or in
production), and any features of those products or services, information
related to financial lists, records, and specifications, all of which the
<PAGE>
Corporation owns and regularly uses in operating its business. It includes
not only the Corporation's information, but also information which the
Corporation has obtained from a third party under an obligation of
confidentiality. Such Confidential Information may be in writing; may or may
not be marked as proprietary or confidential; may be a sketch or drawing; may
be a machine or computer program; may be verbal; may be stored in an
electronics storage medium; or may be in a combination of forms and/or in
forms not enumerated here.
5.2. Nonsolicitation. You will not, either during the
term of your employment, or for a period of one and one-half (1-1/2) years
after your employment has terminated, solicit any of the Corporation's
employees for a competing business or otherwise induce or attempt to induce
such employees to terminate their employment with the Corporation.
5.3. Intellectual Property. You hereby agree promptly
to disclose to the Corporation, and hereby assign and agree to assign to the
Corporation or its designee, your entire right, title, and interest in and to
all Intellectual Property (as defined below) which you develop either alone or
with others during your employment with the Corporation and which: (i)
pertains to any line of the Corporation's business activity, or any of the
Corporation's actual or demonstrably anticipated research and development;
(ii) involves the use of the Corporation's material, facilities, or trade
secret information, whether or not during working hours; (iii) relates to any
of your work during the period of your employment with the Corporation,
whether or not during normal working hours; or (iv) is developed wholly or
partially during the Corporation's normal working hours. You agree to
perform, both during and after your employment, all necessary lawful acts to
permit and assist the Corporation, at its expense, to obtain and enforce the
full benefits, enjoyment, rights and title throughout the world in the
Intellectual Property hereby assigned to it. Such acts include, but are not
limited to, executing documents and assisting or cooperating in legal
proceedings. In addition, you agree to disclose to the Corporation, in
confidence if requested, all Intellectual Property that you have developed to
permit the Corporation to determine whether or not the Intellectual Property
should be the Corporation's property. As used in this Agreement, the term
"Intellectual Property" means patents, designs, trademarks, discoveries,
formulae, processes, manufacturing, techniques, trade secrets, inventions
(whether patentable or not), improvements, ideas, works registerable as "mask
works," or copyrightable works, including all rights to obtain, register,
perfect and enforce these proprietary interests throughout the world.
Notwithstanding the foregoing, this Section 5.3 does not apply to an Invention
which qualifies fully under the provisions of Section 2870 of the California
Labor Code.
5.4. Modification. If the covenants contained in this
Section 5 are, in the view of any court or arbitrator asked to rule upon the
issue, deemed unenforceable by reason of being too extensive in nature or
scope, then the same shall be deemed to cover only the greatest nature or
scope, as the case may be, that will not render it unenforceable.
5.5. Specific Performance. You acknowledge and agree
that the Corporation cannot be fully or adequately compensated in damages for
a violation of the covenants contained in this Section 5, and that, in
addition to any other relief to which the Corporation may be entitled, it
shall be entitled to injunctive and equitable relief.
6. Successors; Binding Agreement.
6.1. Successor to Assume Agreement. The Corporation
shall require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Corporation to expressly assume and agree to perform this
<PAGE>
Agreement. Failure of the Corporation to obtain such assumption and agreement
prior to the Change in Control Date shall be a breach of this Agreement and
shall entitle you to terminate your employment and receive compensation from
the Corporation in the same amount and on the same terms to which you would be
entitled hereunder if you terminate your employment for Good Reason following
the Approval Date, except that for purposes of implementing the foregoing, the
Change in Control Date shall be deemed the Date of Termination. Unless
expressly provided otherwise, "Corporation" as used herein shall mean the
Corporation as defined in this Agreement and any successor to its business
and/or assets as aforesaid.
6.2. Binding Agreement. This Agreement shall inure to
the benefit of and be enforceable by you and your personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If you should die while any amount would still be
payable to you hereunder had you continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to your devisee, legatee or other designee or, if there is no such
designee, to your estate.
7. Notice. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall
be in writing and shall be deemed to have been duly given when received if
personally delivered; when transmitted if transmitted by telecopy; the day
after it is sent, if sent for next day delivery to a domestic address by
recognized overnight delivery service (e.g., Federal Express); and upon
receipt, if sent by certified or registered mail, return receipt requested.
All notices, requests, demands and other communications shall be addressed to
the respective addresses set forth on the first page of this Agreement,
provided that all notices to the Corporation shall be directed to the
attention of the Board with a copy to the Secretary of the Corporation, or to
such other address as either party may have furnished to the other in writing
in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
8. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by you and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly
set forth in this Agreement. All references to sections of the Exchange Act
or the Code shall be deemed also to refer to any successor provisions to such
sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Corporation under Section 4 shall survive the expiration of
the term of this Agreement. The section headings contained in this Agreement
are for convenience only, and shall not affect the interpretation of this
Agreement.
9. Severability. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
10. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
<PAGE>
11. Suits, Actions, Proceedings, Etc.
11.1. Compensation During Dispute, Etc. Your
compensation during any disagreement, dispute, controversy, claim, suit,
action or proceeding (collectively, a "Dispute"), arising out of or relating
to this Agreement or the interpretation of this Agreement shall be as follows:
If there is a termination followed by a Dispute as to whether you are entitled
to the payments and other benefits provided under this Agreement, then, during
the period of that Dispute the Corporation shall pay you fifty percent (50%)
of the amount specified in Sections 4.2(a) and 4.2(b) hereof, and the
Corporation shall provide you with the other benefits provided in Section 4.2
of this Agreement, if, but only if, you agree in writing that if the Dispute
is resolved against you, you shall promptly refund to the Corporation all
payments you receive under Sections 4.2(a) and 4.2(b) of this Agreement plus
interest at the rate provided in Section 1274(d) of the Code, compounded
quarterly. If the Dispute is resolved in your favor, promptly after
resolution of the dispute the Corporation shall pay you the sum that was
withheld during the period of the Dispute plus interest at the rate provided
in Section 1274(d) of the Code, compounded quarterly.
11.2. Legal Fees. The Corporation shall pay to you all
legal fees and expenses incurred by you in connection with any Dispute arising
out of or relating to this Agreement or the interpretation thereof (including,
without limitation, all such fees and expenses, if any, incurred in contesting
or disputing any termination of your employment or in seeking to obtain or
enforce any right or benefit provided by this Agreement, or in connection with
any tax audit or proceeding to the extent attributable to the application of
section 4999 of the Code to any payment or benefit provided hereunder),
regardless of the outcome of such proceeding, provided that in the event you
commence such action, you shall not be entitled to recover such fees and costs
if the court determines that you brought the claim in bad faith. Any
attorneys' fees and costs incurred by you shall be paid by the Corporation in
advance of the final disposition of such action or challenge, as such fees and
expenses are incurred, provided that you hereby agree to repay such amounts,
net of any income taxes paid or payable by you with respect to such amounts,
if such amounts are incurred in connection with an action commenced by you if
it is ultimately determined by the court that you brought such claim in bad
faith.
11.3. Choice of Law; Arbitration. The internal laws of
the State of California, United States of America, applicable to contracts
entered into and wholly to be performed in California by California residents,
without reference to any principles concerning conflicts of law, shall govern
the validity of this Agreement, the construction of its terms and the
interpretation of the rights and duties of the parties hereunder. Any
controversy or claim arising out of or relating to this Agreement, or the
breach thereof, shall be settled by the following procedures: Either party
may send the other written notice identifying the matter in dispute and
involving the procedures of this Section 11.3. Within fourteen (14) days
after such written notice is given, one or more principals of each party shall
meet at a mutually agreeable location in San Francisco, California, for the
purpose of determining whether they can resolve the dispute themselves by
written agreement, and, if not, whether they can agree upon a third-party
impartial arbitrator (the "Arbitrator") to whom to submit the matter in
dispute for final and binding arbitration. If the parties fail to resolve the
dispute by written agreement or agree on the Arbitrator within such twenty-one
(21) day period, either party may make written application to the Judicial
Arbitration and Mediation Services ("JAMS"), 2 Embarcadero Center, San
Francisco, California, for the appointment of a single Arbitrator to resolve
the dispute by arbitration and at the request of JAMS, the parties shall meet
<PAGE>
with JAMS at its offices or confer with JAMS by telephone within ten (10)
calendar days of such request to discuss the dispute and the qualifications
and experience which each party respectively believes the Arbitrator should
have; provided, however, the selection of the Arbitrator shall be the
exclusive decision of JAMS and shall be made within thirty (30) days of the
written application to JAMS. Within 30 days of the selection of the
Arbitrator, the parties shall meet in San Francisco, California with such
Arbitrator at a place and time designated by the Arbitrator after consultation
with the parties and present their respective positions on the dispute. Each
party shall have no longer than one day to present its position, the entire
proceedings before the Arbitrator shall be on no more than three consecutive
days, and the award shall be made in writing no more than 30 days following
the end of the proceeding. Such award shall be a final and binding
determination of the dispute and shall be fully enforceable as an arbitration
award in any court having jurisdiction and venue over the parties. The non-
prevailing party (as determined by the Arbitrator) shall pay the Arbitrator's
fees and expenses.
12. Entire Agreement. This Agreement sets forth the entire
agreement of the parties hereto in respect of the subject matter contained
herein and supersedes all other prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto; and
any prior agreement of the parties hereto in respect of the subject matter
contained herein, including, without limitation, any prior severance
agreements, is hereby terminated and canceled. Any of your rights hereunder
shall be in addition to any rights you may otherwise have under benefit plans
or agreements of the Corporation to which you are a party or in which you are
a participant, including, but not limited to, any Corporation sponsored
employee benefit plans and stock options plans. Provisions of this Agreement
shall not in any way abrogate your rights under such other plans and
agreements.
If this letter sets forth our agreement on the subject matter
hereof, kindly sign and return to the Corporation the enclosed copy of this
letter. A duly authorized officer of the Corporation will sign this letter
and a fully executed copy will be returned to you, constituting our agreement
on this subject. Unless and until accepted in writing by the Corporation,
this Agreement is deemed to be neither executed nor effective.
Sincerely,
VLSI TECHNOLOGY, INC.
By:
----------------------------------------
ALFRED J. STEIN
Its: Chairman and Chief Executive Officer
Agreed and Accepted,
this day of April, 1999.
___________________________________
<PAGE>
Exhibit 10.44
INDEMNITY AGREEMENT
THIS AGREEMENT is made as of ___________, by and between VLSI Technology,
Inc., a Delaware corporation ("Company"), and ___________("Indemnitee"), an
officer or director of the Company.
RECITALS
WHEREAS, highly competent persons have become more reluctant to serve
publicly-held corporations as directors or in other capacities unless they
are provided with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the Company; and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that, in order to attract and retain qualified individuals, the
Company will attempt to maintain on an ongoing basis, at its sole expense,
liability insurance to protect persons serving the Company and its
subsidiaries from certain liabilities. Although the furnishing of such
insurance has been a customary and widespread practice among United
States-based corporations and other business enterprises, the Company
believes that, given current market conditions and trends, such insurance may
be available to it in the future only at higher premiums and with more
exclusions. At the same time, directors, officers, and other persons in
service to corporations or business enterprises are being increasingly
subjected to expensive and time-consuming litigation relating to, among other
things, matters that traditionally would have been brought only against the
Company or business enterprise itself. The By-laws of the Company require
indemnification of the officers and directors of the Company. Indemnitee may
also be entitled to indemnification pursuant to the Delaware General
Corporation Law ("DGCL"). The By-laws and the DGCL expressly provide that the
indemnification provisions set forth therein are not exclusive, and thereby
contemplate that contracts may be entered into between the Company and
members of the board of directors and officers with respect to
indemnification of directors and officers.
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining
such persons; and
WHEREAS, the Board has determined that the increased difficulty in
attracting and retaining such persons is detrimental to the best interests of
the Company's stockholders and that the Company should act to assure such
persons that there will be increased certainty of such protection in the
future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify, and to advance expenses on
behalf of, such persons to the fullest extent permitted by applicable law so
that they will serve or continue to serve the Company free from undue concern
that they will not be so indemnified; and
WHEREAS, this Agreement is a supplement to and in furtherance of the
<PAGE>
Bylaws of the Company and any resolutions adopted pursuant thereto, and shall
not be deemed a substitute therefor, nor to diminish or abrogate any rights
of Indemnitee thereunder; and
WHEREAS, Indemnitee does not regard the protection available under the
Company's Bylaws and insurance adequate in the present circumstances, and may
not be willing to serve as an officer or director without adequate
protection, and the Company desires Indemnitee to serve in such capacity.
Indemnitee is willing to serve, continue to serve and to take on additional
service for or on behalf of the Company on the condition that he be so
indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. SERVICES TO THE COMPANY. Indemnitee will serve or continue to
serve, at the will of the Company, as an officer, director or key employee of
the Company for so long as Indemnitee is duly elected or appointed or until
Indemnitee tenders his or her resignation.
2. DEFINITIONS. As used in this Agreement:
(a) A "Change in Control" shall be deemed to occur upon the
earliest to occur after the date of this Agreement of any of the following
events:
(i) Acquisition of Stock by Third Party. Any Person (as
defined below) is or becomes the Beneficial Owner (as defined below),
directly or indirectly, of securities of the Company representing fifteen
percent (15%) or more of the combined voting power of the Company's then
outstanding securities;
(ii) Change in Board of Directors. During any period of
two (2) consecutive years (not including any period prior to the execution of
this Agreement), individuals who at the beginning of such period constitute
the Board, and any new director (other than a director designated by a person
who has entered into an agreement with the Company to effect a transaction
described in Sections 2(a)(i), 2(a)(iii) or 2(a)(iv)) whose election by
the Board or nomination for election by the Company's shareholders was
approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a least a majority of the members of the Board;
(iii) Corporate Transactions. The effective date of a
merger or consolidation of the Company with any other entity, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior to such merger of consolidation
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than 51% of
the combined voting power of the voting securities of the surviving entity
outstanding immediately after such merger or consolidation and with the power
to elect at least a majority of the board of directors or other governing
body of such surviving entity;
(iv) Liquidation. The approval by the shareholders of the
<PAGE>
Company of a complete liquidation of the Company or an agreement for the sale
or disposition by the Company of all or substantially all of the Company's
assets; and
(v) Other Events. There occurs any other event of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A (or a response to any similar item on any
similar schedule or form) promulgated under the Exchange Act (as defined
below), whether or not the Company is then subject to such reporting
requirement.
(vi) Certain Definitions. For purposes of this Section
2(a), the following terms shall have the following meanings:
(A) "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended.
(B) "Person" shall have the meaning as
set forth in Sections 13(d) and 14(d) of
the Exchange Act; provided, however, that Person
shall exclude (i) the Company, (ii) any trustee
or other fiduciary holding securities under an
employee benefit plan of the Company, and (iii) any
corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the
same proportions as their ownership of stock of the
Company.
(C) "Beneficial Owner" shall have the
meaning given to such term in Rule 13d-3 under the
Exchange Act; provided, however, that Beneficial
Owner shall exclude any Person otherwise becoming
a Beneficial Owner by reason of the shareholders
of the Company approving a merger of the Company
with another entity.
(b) "Corporate Status" describes the status of a person who is or
was a director, officer, employee or agent of the Company or of any other
corporation, partnership or joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the request of the
Company.
(c) "Disinterested Director" means a director of the Company who
is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
(d) "Enterprise" shall mean the Company and any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
of which Indemnitee is or was serving at the request of the Company as a
director, officer, employee, agent or fiduciary.
(e) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or
expenses of the types customarily incurred in connection with prosecuting,
defending, preparing to prosecute or defend, investigating, being or
<PAGE>
preparing to be a witness in, or otherwise participating in, a Proceeding.
Expenses, however, shall not include amounts paid in settlement by Indemnitee
or the amount of judgments or fines against Indemnitee.
(f) Reference to "other enterprise" shall include employee
benefit plans; references to "fines" shall include any excise tax assessed
with respect to any employee benefit plan; references to "serving at the
request of the Company" shall include any service as a director, officer,
employee or agent of the Company which imposes duties on, or involves
services by, such director, officer, employee or agent with respect to an
employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the best
interests of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in manner "not opposed to the best interests of
the Company" as referred to in this Agreement.
(g) The term "Proceeding" shall include any threatened, pending
or completed action, suit, arbitration, alternate dispute resolution
mechanism, investigation, inquiry, administrative hearing or any other
actual, threatened or completed proceeding, whether brought in the right of
the Company or otherwise and whether of a civil, criminal, administrative or
investigative nature, in which Indemnitee was, is or will be involved as a
party or otherwise by reason of the fact that Indemnitee is or was a director
or officer of the Company, by reason of any action taken by him or of any
action on his part while acting as director or officer of the Company, or by
reason of the fact that he is or was serving at the request of the Company as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, in each case whether or not serving
in such capacity at the time any liability or expense is incurred for which
indemnification, reimbursement, or advancement of expenses can be provided
under this Agreement.
(h) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the
Company or Indemnitee in any matter material to either such party (other than
with respect to matters concerning the Indemnitee under this Agreement, or of
other indemnitees under similar indemnification agreements), or (ii) any
other party to the Proceeding giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term "Independent Counsel"
shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement. The Company agrees to pay the
reasonable fees and expenses of the Independent Counsel referred to above and
to fully indemnify such counsel against any and all Expenses, claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto.
3. INDEMNITY IN THIRD-PARTY PROCEEDINGS. The Company shall indemnify
Indemnitee in accordance with the provisions of this Section 3 if Indemnitee
is, or is threatened to be made, a party to or a participant in any
Proceeding, other than a Proceeding by or in the right of the Company
to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee
shall be indemnified against all Expenses, judgments, fines and amounts paid
in settlement actually and reasonably incurred by Indemnitee or on his behalf
in connection with such Proceeding or any claim, issue or matter therein, if
<PAGE>
Indemnitee acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Company and, in the case of a
criminal proceeding had no reasonable cause to believe that his conduct was
unlawful.
4. INDEMNITY IN PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The
Company shall indemnify Indemnitee in accordance with the provisions of this
Section 4 if Indemnitee is, or is threatened to be made, a party to or a
participant in any Proceeding by or in the right of the Company to procure a
judgment in its favor. Pursuant to this Section 4, Indemnitee shall be
indemnified against all Expenses actually and reasonably incurred by him or
on his behalf in connection with such Proceeding or any claim, issue or
matter therein, if Indemnitee acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company. No indemnification for Expenses shall be made under this Section 4
in respect of any claim, issue or matter as to which Indemnitee shall have
been finally adjudged by a court to be liable to the Company, unless and only
to the extent that any court in which the Proceeding was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnification.
5. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR PARTLY
SUCCESSFUL. Notwithstanding any other provisions of this Agreement, to the
extent that Indemnitee is a party to (or a participant in) and is successful,
on the merits or otherwise, in any Proceeding or in defense of any claim,
issue or matter therein, in whole or in part, the Company shall indemnify
Indemnitee against all Expenses actually and reasonably incurred by him in
connection therewith. If Indemnitee is not wholly successful in such
Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably
incurred by him or on his behalf in connection with each successfully
resolved claim, issue or matter. If the Indemnitee is not wholly successful
in such Proceeding, the Company also shall indemnify Indemnitee against all
Expenses reasonably incurred in connection with a claim, issue or matter
related to any claim, issue, or matter on which the Indemnitee was
successful. For purposes of this Section and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to
such claim, issue or matter.
6. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding any
other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding to which
Indemnitee is not a party, he shall be indemnified against all Expenses
actually and reasonably incurred by him or on his behalf in connection
therewith.
7. ADDITIONAL INDEMNIFICATION.
(a) Notwithstanding any limitation in Sections 3, 4, or 5, the
Company shall indemnify Indemnitee to the fullest extent permitted by law if
Indemnitee is a party to or threatened to be made a party to any Proceeding
(including a Proceeding by or in the right of the Company to
procure a judgment in its favor) against all Expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by Indemnitee in
<PAGE>
connection with the Proceeding. No indemnity shall be made under this Section
7(a) on account of Indemnitee's conduct which constitutes a breach of
Indemnitee's duty of loyalty to the Company or its shareholders or is an act
or omission not in good faith or which involves intentional misconduct or a
knowing violation of the law.
(b) Notwithstanding any limitation in Sections 3, 4, 5 or 7(a),
the Company shall indemnify Indemnitee to the fullest extent permitted by law
if Indemnitee is a party to or threatened to be made a party to any
Proceeding (including a Proceeding by or in the right of the Company to
procure a judgement in its favor) against all Expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by Indemnitee in
connection with the Proceeding.
(c) For purposes of Sections 7(a) and 7(b), the meaning of the
phrase "to the fullest extent permitted by law" shall include, but not be
limited to:
i. to the fullest extent permitted by the provision of
the Act that authorizes or contemplates additional indemnification by
agreement, or the corresponding provision of any amendment to or replacement
of the Act, and
ii. to the fullest extent authorized or permitted by any
amendments to or replacements of the Act adopted after the date of this
Agreement that increase the extent to which a corporation may indemnify its
officers and directors.
8. EXCLUSIONS. Notwithstanding any provision in this Agreement, the
Company shall not be obligated under this Agreement to make any indemnity in
connection with any claim made against Indemnitee:
(a) for which payment has actually been made to or on behalf of
Indemnitee under any insurance policy or other indemnity provision, except
with respect to any excess beyond the amount paid under any insurance policy
or other indemnity provision; or
(b) for an accounting of profits made from the purchase and sale
(or sale and purchase) by Indemnitee of securities of the Company within the
meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended,
or similar provisions of state statutory law or common law.
9. ADVANCES OF EXPENSES. Notwithstanding any provision of this
Agreement to the contrary, the Company shall advance the expenses incurred by
Indemnitee in connection with any Proceeding within 30 days after the receipt
by the Company of a statement or statements requesting such advances from
time to time, whether prior to or after final disposition of any Proceeding.
Advances shall be unsecured and interest free. Advances shall be made without
regard to Indemnitee's ability to repay the expenses and without regard to
Indemnitee's ultimate entitlement to indemnification under the other
provisions of this Agreement. Advances shall include any and all reasonable
Expenses incurred pursuing an action to enforce this right of advancement,
Including Expenses incurred preparing and forwarding statements to the Company
to support the advances claimed. The Indemnitee shall qualify for advances
solely upon the execution and delivery to the Company of an undertaking
providing that the Indemnitee undertakes to repay the advance to the extent
that it is ultimately determined that Indemnitee is not entitled to be
<PAGE>
indemnified by the Company.
10. PROCEDURE FOR NOTIFICATION AND DEFENSE OF CLAIM.
(a) To obtain indemnification under this Agreement, Indemnitee
shall submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee
and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification, not later than thirty (30) days
after receipt by Indemnitee of notice of the commencement of any Proceeding.
The omission to notify the Company will not relieve the Company from any
liability which it may have to Indemnitee otherwise than under this
Agreement. The Secretary of the Company shall, promptly upon receipt of such
a request for indemnification, advise the Board in writing that Indemnitee
has requested indemnification.
(b) The Company will be entitled to participate in the
Proceeding at its own expense.
11. PROCEDURE UPON APPLICATION FOR INDEMNIFICATION.
(a) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 10(a), a determination, if required
by applicable law, with respect to Indemnitee's entitlement thereto shall be
made in the specific case: (i) if a Change in Control shall have occurred, by
Independent Counsel in a written opinion to the Board of Directors, a copy of
which shall be delivered to Indemnitee; or (ii) if a Change in Control shall
not have occurred, (A) by a majority vote of the Disinterested Directors,
even though less than a quorum of the Board, or (B) if there are no such
Disinterested Directors or, if such Disinterested Directors so direct, by
Independent Counsel in a written opinion to the Board, a copy of which shall
be delivered to Indemnitee or (C) if so directed by the Board, by the
stockholders of the Company; and, if it is so determined that Indemnitee is
entitled to indemnification, payment to Indemnitee shall be made within ten
(10) days after such determination. Indemnitee shall cooperate with the
person, persons or entity making such determination with respect to
Indemnitee's entitlement to indemnification, including providing to such
person, persons or entity upon reasonable advance request any documentation
or information which is not privileged or otherwise protected from disclosure
and which is reasonably available to Indemnitee and reasonably necessary to
such determination. Any costs or expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with the person,
persons or entity making such determination shall be borne by the Company
(irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
(b) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section
11(a) hereof, the Independent Counsel shall be selected as provided in this
Section 11(b). If a Change in Control shall not have occurred, the Independent
Counsel shall be selected by the Board of Directors, and the Company shall
give written notice to Indemnitee advising him of the identity of the
Independent Counsel so selected. If a Change in Control shall have occurred,
the Independent Counsel shall be selected by Indemnitee (unless Indemnitee
shall request that such selection be made by the Board of Directors, in which
event the preceding sentence shall apply), and Indemnitee shall give written
<PAGE>
notice to the Company advising it of the identity of the Independent Counsel
so selected. In either event, Indemnitee or the Company, as the case may be,
may, within 10 days after such written notice of selection shall have been
given, deliver to the Company or to Indemnitee, as the case may be, a written
objection to such selection; PROVIDED, HOWEVER, that such objection may be
asserted only on the ground that the Independent Counsel so selected does not
meet the requirements of "Independent Counsel" as defined in Section 2 of
this Agreement, and the objection shall set forth with particularity the
factual basis of such assertion. Absent a proper and timely objection, the
person so selected shall act as Independent Counsel. If such written
objection is so made and substantiated, the Independent Counsel so selected
may not serve as Independent Counsel unless and until such objection is
withdrawn or a court has determined that such objection is without merit. If,
within 20 days after submission by Indemnitee of a written request for
indemnification pursuant to Section 10(a) hereof, no Independent Counsel
shall have been selected and not objected to, either the Company or
Indemnitee may petition a court of competent jurisdiction for resolution of
any objection which shall have been made by the Company or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the Court or by such other person
as the Court shall designate, and the person with respect to whom all
objections are so resolved or the person so appointed shall act as
Independent Counsel under Section 11(a) hereof. Upon the due commencement of
any judicial proceeding or arbitration pursuant to Section 13(a) of this
Agreement, Independent Counsel shall be discharged and relieved of any
further responsibility in such capacity (subject to the applicable standards
of professional conduct then prevailing).
12. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(a) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification
under this Agreement if Indemnitee has submitted a request for
indemnification in accordance with Section 10(a) of this Agreement, and the
Company shall have the burden of proof to overcome that presumption in
connection with the making by any person, persons or entity of any
determination contrary to that presumption. Neither the failure of the
Company (including by its directors or independent legal counsel) to have
made a determination prior to the commencement of any action pursuant to this
Agreement that indemnification is proper in the circumstances because
Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Company (including by its directors or independent legal
counsel) that Indemnitee has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that Indemnitee has
not met the applicable standard of conduct.
(b) If the person, persons or entity empowered or selected
under Section 11 of this Agreement to determine whether Indemnitee is
entitled to indemnification shall not have made a determination within sixty
(60) days after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material
fact necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of
such indemnification under applicable law; provided, however, that such
<PAGE>
60-day period may be extended for a reasonable time, not to exceed an
additional thirty (30) days, if the person, persons or entity making the
determination with respect to entitlement to indemnification in good faith
requires such additional time for the obtaining or evaluating of
documentation and/or information relating thereto; and provided, further,
that the foregoing provisions of this Section 12(b) shall not apply (i) if
the determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 11(a) of this Agreement and if (A) within
fifteen (15) days after receipt by the Company of the request for such
determination the Board of Directors has resolved to submit such
determination to the stockholders for their consideration at an annual
meeting thereof to be held within seventy five (75) days after such receipt
and such determination is made thereat, or (B) a special meeting of
stockholders is called within fifteen (15) days after such receipt for the
purpose of making such determination, such meeting is held for such purpose
within sixty (60) days after having been so called and such determination is
made thereat, or (ii) if the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 11(a) of this
Agreement.
(c) The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement or conviction, or upon a plea
of NOLO CONTENDERE or its equivalent, shall not (except as otherwise
expressly provided in this Agreement) of itself adversely affect the right of
Indemnitee to indemnification or create a presumption that Indemnitee did not
act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Company or, with respect to any
criminal Proceeding, that Indemnitee had reasonable cause to believe that his
conduct was unlawful.
(d) RELIANCE AS SAFE HARBOR. For purposes of any determination
of good faith, Indemnitee shall be deemed to have acted in good faith if
Indemnitee's action is based on the records or books of account of the
Enterprise, including financial statements, or on information supplied to
Indemnitee by the officers of the Enterprise in the course of their duties,
or on the advice of legal counsel for the Enterprise or on information or
records given or reports made to the Enterprise by an independent certified
public accountant or by an appraiser or other expert selected with the
reasonable care by the Enterprise. The provisions of this Section 12(d) shall
not be deemed to be exclusive or to limit in any way the other circumstances
in which the Indemnitee may be deemed to have met the applicable standard of
conduct set forth in this Agreement.
(e) ACTIONS OF OTHERS. The knowledge and/or actions, or failure
to act, of any director, officer, agent or employee of the Enterprise shall
not be imputed to Indemnitee for purposes of determining the right to
indemnification under this Agreement.
13. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made pursuant to
Section 11 of this Agreement that Indemnitee is not entitled to
indemnification under this Agreement, (ii) advancement of Expenses is not
timely made pursuant to Section 9 of this Agreement, (iii) no determination
of entitlement to indemnification shall have been made pursuant to Section
11(a) of this Agreement within 45 days after receipt by the Company of the
request for indemnification, (iv) payment of indemnification is not made
<PAGE>
pursuant to Section 5, 6, 7 or the last sentence of Section 11(a) of this
Agreement within ten (10) days after receipt by the Company of a written
request therefor, or (v) payment of indemnification pursuant to Section 3 or
4 of this Agreement is not made within ten (10) days after a determination
has been made that Indemnitee is entitled to indemnification, Indemnitee
shall be entitled to an adjudication by a court of his entitlement to such
indemnification or advancement of Expenses. Alternatively, Indemnitee, at his
option, may seek an award in arbitration to be conducted by a single
arbitrator pursuant to the Commercial Arbitration Rules of the American
Arbitration Association. The Company shall not oppose Indemnitee's right to
seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made
pursuant to Section 11(a) of this Agreement that Indemnitee is not entitled
to indemnification, any judicial proceeding or arbitration commenced pursuant
to this Section 13 shall be conducted in all respects as a DE NOVO trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason
of that adverse determination. In any judicial proceeding or arbitration
commenced pursuant to this Section 13 the Company shall have the burden of
proving Indemnitee is not entitled to indemnification or advancement of
Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section
11(a) of this Agreement that Indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding or
arbitration commenced pursuant to this Section 13, absent (i) a misstatement
by Indemnitee of a material fact, or an omission of a material fact necessary
to make Indemnitee's statement not materially misleading, in connection with
the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this Section 13,
seeks a judicial adjudication of or an award in arbitration to enforce his
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by
the Company against, any and all Expenses actually and reasonably incurred by
him in such judicial adjudication or arbitration. If it shall be determined
in said judicial adjudication or arbitration that Indemnitee is entitled to
receive part but not all of the indemnification or advancement of Expenses
sought, the Indemnitee shall be entitled to recover from the Company, and
shall be indemnified by the Company against, any and all Expenses reasonably
incurred by Indemnitee in connection with such judicial adjudication or
arbitration.
(e) The Company shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 13 that
the procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any
such arbitrator that the Company is bound by all the provisions of this
Agreement. The Company shall indemnify Indemnitee against any and all
Expenses and, if requested by Indemnitee, shall (within ten (10) days after
receipt by the Company of a written request therefore) advance such expenses
to Indemnitee, which are incurred by Indemnitee in connection with any action
brought by Indemnitee for indemnification or advance of Expenses from the
Company under this Agreement or under any directors' and officers' liability
insurance policies maintained by the Company, regardless of whether
Indemnitee ultimately is determined to be entitled to such indemnification,
<PAGE>
advancement of Expenses or insurance recovery, as the case may be.
14. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE; SUBROGATION.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Company's Articles of Incorporation, the Company's Bylaws, any
agreement, a vote of stockholders or a resolution of directors, or otherwise.
No amendment, alteration or repeal of this Agreement or of any provision
hereof shall limit or restrict any right of Indemnitee under this Agreement
in respect of any action taken or omitted by such Indemnitee in his Corporate
Status prior to such amendment, alteration or repeal. To the extent that a
change in Delaware law, whether by statute or judicial decision, permits
greater indemnification or advancement of Expenses than would be afforded
currently under the Company's Bylaws and this Agreement, it is the intent of
the parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits so afforded by such change. No right or remedy herein conferred is
intended to be exclusive of any other right or remedy, and every other right
and remedy shall be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any
other right or remedy.
(b) To the extent that the Company maintains an insurance
policy or policies providing liability insurance for directors, officers,
employees, or agents of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, Indemnitee shall be covered by
such policy or policies in accordance with its or their terms to the maximum
extent of the coverage available for any such director, officer, employee or
agent under such policy or policies. If, at the time of the receipt of a
notice of a claim pursuant to Section 2(b) of Section 2 hereof, the Company
has director and officer liability insurance in effect, the Company shall
give prompt notice of the commencement of such proceeding to the insurers in
accordance with the procedures set forth in the respective policies. The
Company shall thereafter take all necessary or desirable action to cause such
insurers to pay, on behalf of the Indemnitee, all amounts payable as a result
of such proceeding in accordance with the terms of such policies.
(c) In the event of any payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and
take all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Company to bring suit to enforce
such rights.
(d) The Company shall not be liable under this Agreement to
make any payment of amounts otherwise indemnifiable (or for which advancement
is provided hereunder) hereunder if and to the extent that Indemnitee has
otherwise actually received such payment under any insurance policy,
contract, agreement or otherwise.
(e) The Company's obligation to indemnify or advance Expenses
hereunder to Indemnitee who is or was serving at the request of the Company
as a director, officer, employee or agent of any other corporation,
<PAGE>
partnership, joint venture, trust, employee benefit plan or other enterprise
shall be reduced by any amount Indemnitee has actually received as
indemnification or advancement of expenses from such other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
15. DURATION OF AGREEMENT. This Agreement shall continue until and
terminate upon the later of: (a) 10 years after the date that Indemnitee
shall have ceased to serve as a director or officer of the Company or as a
director, officer, employee or agent of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which
Indemnitee served at the request of the Company; or (b) 1 year after the
final termination of any Proceeding then pending in respect of which
Indemnitee is granted rights of indemnification or advancement of Expenses
hereunder and of any proceeding commenced by Indemnitee pursuant to Section
13 of this Agreement relating thereto. This Agreement shall be binding upon
the Company and its successors and assigns and shall inure to the benefit of
Indemnitee and his heirs, executors and administrators.
16. SEVERABILITY. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including without limitation, each portion of
any Section of this Agreement containing any such provision held to be
invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby and shall
remain enforceable to the fullest extent permitted by law; (b) such provision
or provisions shall be deemed reformed to the extent necessary to conform to
applicable law and to give the maximum effect to the intent of the parties
hereto; and (c) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of any Section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall be
construed so as to give effect to the intent manifested thereby.
17. ENFORCEMENT.
(a) The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on it hereby
in order to induce Indemnitee to serve as a director or officer of the
Company, and the Company acknowledges that Indemnitee is relying upon this
Agreement in serving as a director or officer of the Company.
(b) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.
18. MODIFICATION AND WAIVER. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by the parties
thereto. No waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of any other provisions of this Agreement nor
shall any waiver constitute a continuing waiver.
19. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any
Proceeding or matter which may be subject to indemnification or advancement
<PAGE>
of Expenses covered hereunder. The failure of Indemnitee to so notify the
Company shall not relieve the Company of any obligation which it may have to
the Indemnitee under this Agreement or otherwise.
20. NOTICES. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to have been
duly given (a) if delivered by hand and receipted for by the party to whom
said notice or other communication shall have been directed, or (b) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, at the address indicated on the signature
page of this Agreement, or such other address as Indemnitee shall provide to
the Company.
(b) If to the Company to
VLSI Technology, Inc.
1109 McKay Drive
San Jose, California 95131
Attention: General Counsel
or to any other address as may have been furnished to Indemnitee by the
Company.
21. CONTRIBUTION. To the fullest extent permissible under applicable
law, if the indemnification provided for in this Agreement is unavailable to
Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying
Indemnitee, shall contribute to the amount incurred by Indemnitee, whether
for judgments, fines, penalties, excise taxes, amounts paid or to be paid in
settlement and/or for Expenses, in connection with any claim relating to an
indemnifiable event under this Agreement, in such proportion as is deemed
fair and reasonable in light of all of the circumstances of such Proceeding
in order to reflect (i) the relative benefits received by the Company and
Indemnitee as a result of the event(s) and/or transaction(s) giving cause to
such Proceeding; and/or (ii) the relative fault of the Company (and its
directors, officers, employees and agents) and Indemnitee in connection with
such event(s) and/or transaction(s).
22. APPLICABLE LAW AND CONSENT TO JURISDICTION. This Agreement and
the legal relations among the parties shall be governed by, and construed and
enforced in accordance with, the laws of the State of Delaware, without
regard to its conflict of laws rules. Except with respect to any arbitration
commenced by Indemnitee pursuant to Section 10(a) of this Agreement, the
Company and Indemnitee hereby irrevocably and unconditionally (i) agree that
any action or proceeding arising out of or in connection with this Agreement
shall be brought only in the Chancery Court of the State of Delaware (the
"Delaware Court"), and not in any other state or federal court in the United
States of America or any court in any other country, (ii) consent to submit
to the exclusive jurisdiction of the Delaware Court for purposes of any
action or proceeding arising out of or in connection with this Agreement,
(iii) appoint, to the extent such party is not a resident of the State of
Delaware, irrevocably RL&F Service Corp., One Rodney Square, 10th Floor, 10th
and King Streets, Wilmington, Delaware 19801 as its agent in the State of
Delaware as such party's agent for acceptance of legal process in connection
with any such action or proceeding against such party with the same legal
force and validity as if served upon such party personally within the State
<PAGE>
of Delaware, (iv) waive any objection to the laying of venue of any such
action or proceeding in the Delaware Court, and (v) waive, and agree not to
plead or to make, any claim that any such action or proceeding brought in the
Delaware Court has been brought in an improper or inconvenient forum.
23. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of
this Agreement.
24. MISCELLANEOUS. Use of the masculine pronoun shall be deemed to
include usage of the feminine pronoun where appropriate. The headings of the
paragraphs of this Agreement are inserted for convenience only and shall not
be deemed to constitute part of this Agreement or to affect the construction
thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
as of the day and year first above written.
VLSI TECHNOLOGY, INC. INDEMNITEE
By: ____________________________________ ___________________________________
Chief Executive Officer Name:
Address:
<PAGE>
Exhibit 10.45
AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 1, 1999
AMONG
KONINKLIJKE PHILIPS ELECTRONICS N.V.,
KPE ACQUISITION INC.
AND
VLSI TECHNOLOGY, INC.
a Delaware corporation
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I.
THE TENDER OFFER............................................2
1.1. The Offer........................................2
1.2. SEC Filings......................................3
1.3. Company Action...................................4
1.4. Composition of the Company Board.................5
ARTICLE II.
THE MERGER..................................................6
2.1. The Merger.......................................6
2.2. Closing..........................................6
2.3. Effective Time...................................6
2.4. Effect of the Merger.............................6
2.5. Certificate of Incorporation.....................6
2.6. Bylaws...........................................7
2.7. Officers and Directors of Surviving Corporation..7
2.8. Effect on Capital Stock..........................7
2.9. Surrender and Payment............................8
ARTICLE III.
REPRESENTATIONS AND WARRANTIES.............................10
3.1. Representations and Warranties of the Company...10
3.2. Representations and Warranties of Parent........21
3.3. Representations and Warranties of Parent and
Merger Sub......................................23
ARTICLE IV.
COVENANTS RELATING TO CONDUCT OF BUSINESS..................24
4.1. Covenants of the Company........................24
4.2. Covenants or Parent and Merger Sub..............26
4.3. Advice of Changes; Government Filings...........27
ARTICLE V.
ADDITIONAL AGREEMENTS......................................28
5.1. Approval by the Company's Stockholders..........28
5.2. Access to Information...........................29
5.3. Approvals and Consents; Cooperation.............30
5.4. Acquisition Proposals...........................31
i
<PAGE>
5.5. Employee Benefits...............................32
5.6. Fees and Expenses...............................33
5.7. Indemnification; Directors" and Officers"
Insurance.......................................33
5.8. Public Announcements............................34
5.9. Takeover Statutes...............................34
5.10. Rights Agreement................................34
5.11. Employee Stock Options..........................35
5.12. Further Assurances..............................35
ARTICLE VI.
CONDITIONS PRECEDENT.......................................35
6.1. Conditions to Each Party's Obligation to
Effect the Merger...............................35
ARTICLE VII.
TERMINATION AND AMENDMENT..................................36
7.1. Termination.....................................36
7.2. Effect of Termination...........................39
7.3. Amendment.......................................40
7.4. Extension.......................................40
ARTICLE VIII.
GENERAL PROVISIONS.........................................40
8.1. Non-Survival of Representations, Warranties
and Agreements; No Other Representations
and Warranties..................................40
8.2. Notices.........................................41
8.3. Interpretation..................................41
8.4. Counterparts....................................42
8.5. Entire Agreement; No Third Party Beneficiaries..42
8.6. Governing Law; Jurisdiction; Waiver of
Jury Trial......................................42
8.7. Severability....................................43
8.8. Assignment......................................44
8.9. Enforcement.....................................44
8.10. Definitions.....................................44
8.11. Performance by Merger Sub.......................46
</TABLE>
ii
<PAGE>
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
LOCATION OF
DEFINITION DEFINED TERM
<S> <C>
Acquisition Proposal...............................Section 5.4(a)
Agreement................................................Preamble
Board of Directors................................Section 8.10(a)
Business Day......................................Section 8.10(b)
Certificate of Merger.................................Section 2.3
Certificates.......................................Section 2.9(b)
Closing...............................................Section 2.2
Closing Date..........................................Section 2.2
Code...............................................Section 3.1(h)
Company..................................................Preamble
Company Benefit Plans...........................Section 3.1(1)(i)
Company Board............................................Recitals
Company Common Stock.....................................Recitals
Company Disclosure Schedule...........................Section 3.1
Company Equity Plans..............................Section 8.10(c)
Company Material Contracts.........................Section 3.1(k)
Company Permits....................................Section 3.1(f)
Company Products...................................Section 3.1(q)
Company Rights Agreement........................Section 3.1(b)(i)
Company SEC Reports.............................Section 3.1(d)(i)
Company Stockholders Meeting.......................Section 5.1(c)
Company Voting Debt...........................Section 3.1(b)(iii)
Confidentiality Agreement.............................Section 5.2
Continuing Directors...............................Section 1.4(c)
DGCL.....................................................Recitals
Dissenting Shares..................................Section 2.9(h)
Effective Time........................................Section 2.3
ERISA...........................................Section 3.1(1)(i)
Environmental Law..................................Section 3.1(s)
Exchange Act..................................Section 3.1(c)(iii)
Exchange Agent.....................................Section 2.9(a)
Expenses..............................................Section 5.6
GAAP............................................Section 3.1(d)(i)
Governmental Entity...........................Section 3.1(c)(iii)
Hambrecht & Quist..................................Section 3.1(n)
Hazardous Substance................................Section 3.1(s)
iii
<PAGE>
<CAPTION>
LOCATION OF
DEFINITION DEFINED TERM
<S> <C>
Indemnified Party.....................................Section 5.7
Information Statement...........................Section 3.1(e)(i)
Intellectual Property.............................Section 8.10(d)
Liens..........................................Section 3.1(b)(ii)
Material Adverse Effect...........................Section 8.10(e)
Material Subsidiaries.............................Section 8.10(f)
Merger...................................................Recitals
Merger Consideration...............................Section 2.8(c)
Merger Sub...............................................Preamble
Minimum Condition..................................Section 1.1(a)
Minimum Shares.....................................Section 1.1(a)
Morgan Stanley.....................................Section 3.1(n)
Multiemployer Plan......................................3.1(l)(i)
Nasdaq........................................Section 3.1(c)(iii)
Offer....................................................Recitals
Offer Documents....................................Section 1.2(a)
Organizational Documents..........................Section 8.10(g)
Option............................................Section 5.10(a)
Outside Date.......................................Section 7.1(b)
Parent...................................................Preamble
Parent Disclosure Schedule............................Section 3.2
Parent Representatives................................Section 5.2
Payment Fund.......................................Section 2.9(a)
Person............................................Section 8.10(h)
Price Per Share..........................................Recitals
Proxy Statement.................................Section 3.1(e)(i)
Required Company Votes.............................Section 3.1(j)
Required Consents.................................Section 8.10(i)
Required Regulatory Approvals......................Section 6.1(d)
Schedule 14D-1.....................................Section 1.2(a)
Schedule 14D-9.....................................Section 1.2(b)
SEC................................................Section 1.2(a)
Securities Act................................Section 3.1(c)(iii)
Subsidiary........................................Section 8.10(j)
Superior Proposal..................................Section 5.4(b)
Surviving Corporation.................................Section 2.1
Takeover Statute......................................Section 5.9
Tax...............................................Section 8.10(k)
Taxable...........................................Section 8.10(k)
Taxes.............................................Section 8.10(k)
iv
<PAGE>
<CAPTION>
LOCATION OF
DEFINITION DEFINED TERM
<S> <C>
Tax Return........................................Section 8.10(k)
Terminating Company Breach.........................Section 7.1(h)
Terminating Parent Breach..........................Section 7.1(i)
Termination Fee....................................Section 7.2(b)
the other party...................................Section 8.10(l)
Violation......................................Section 3.1(c)(ii)
Year 2000 Compliant................................Section 3.1(q)
</TABLE>
v
<PAGE>
This AGREEMENT AND PLAN OF MERGER, dated as of May 1, 1999 (this
"Agreement"), by and among KONINKLIJKE PHILIPS ELECTRONICS N.V., a company
incorporated under the laws of The Netherlands ("PARENT"), KPE ACQUISITION
INC., a Delaware corporation and an indirect wholly owned Subsidiary of
Parent ("MERGER SUB"), and VLSI TECHNOLOGY, INC., a Delaware corporation (the
"COMPANY").
W I T N E S S E T H :
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and
the Company have each approved the acquisition of the Company by Parent upon the
terms and subject to the conditions of this Agreement;
WHEREAS, in furtherance of such acquisition, Parent proposes to cause
Merger Sub to amend its tender offer commenced on March 5, 1999 (as amended
prior to the date hereof and as it may be amended from time to time as permitted
under this Agreement, the "OFFER") to purchase all of the issued and outstanding
shares of the Common Stock, par value $.01 per share, of the Company ("COMPANY
COMMON STOCK") at a price per share of Company Common Stock of $21.00 net to the
seller in cash (such price, as it may be increased in accordance with the terms
of this Agreement, the "PRICE PER SHARE") upon the terms and conditions set
forth in this Agreement, including Annex A hereto;
WHEREAS, in order to complete such acquisition, the respective Boards
of Directors of Parent, Merger Sub and the Company have approved the merger of
Merger Sub with and into the Company (the "MERGER"), upon the terms and subject
to the conditions of this Agreement and in accordance with the Delaware General
Corporation Law (the "DGCL"), whereby each issued and outstanding share of
Company Common Stock not owned directly or indirectly by Parent or the Company
will be converted into the right to receive the Price Per Share in cash;
WHEREAS, the Board of Directors of the Company (the "COMPANY BOARD")
has unanimously approved this Agreement, the Offer and the Merger, has
determined that the Offer and the Merger are fair to and in the best interests
of the Company's stockholders and is recommending that the Company's
stockholders accept the Offer, tender their shares of Company Common Stock
thereunder and adopt and approve the Merger and this Agreement:
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
1
<PAGE>
ARTICLE I.
THE TENDER OFFER
1.1. THE OFFER.
(a) Provided that this Agreement shall not have been terminated in
accordance with Article VII, then (i) not later than the first Business Day
after execution of this Agreement, Parent and the Company shall issue a public
announcement of the execution of this Agreement and (ii) Merger Sub shall, as
soon as practicable, but in no event later than two Business Days after the date
of such announcement, amend (within the meaning of Rule 14d-2(a) of the Exchange
Act) the Offer to provide for the purchase of all of the outstanding shares of
Company Common Stock at the Price Per Share subject to reduction only for any
applicable federal withholding taxes. The initial expiration date of the Offer
shall be the tenth Business Day from and after the date the Offer is amended to
provide for the purchase of all of the outstanding shares of Company Common
Stock in accordance with the terms hereof. The Offer shall be made pursuant to a
Supplemental Offer to Purchase and related Letter of Transmittal in form
reasonably satisfactory to the Company and containing terms and conditions set
forth in this Agreement. The obligation of Merger Sub to accept for payment,
purchase and pay for shares of Company Common Stock tendered pursuant to the
Offer shall be subject only to (i) at least that number of shares of Company
Common Stock equivalent to a majority of the total issued and outstanding shares
of Common Stock on a fully diluted basis on the date such shares are purchased
pursuant to the Offer (the "MINIMUM SHARES") being validly tendered and not
withdrawn prior to the expiration of the Offer (the "MINIMUM CONDITION") and
(ii) the satisfaction of the other conditions set forth in Annex A hereto, any
of which conditions may be waived by Merger Sub in its sole discretion. The
Company agrees that no shares of Company Common Stock held by the Company or any
of its Subsidiaries will be tendered to Merger Sub pursuant to the Offer.
(b) Without the prior written consent of the Company, neither
Parent nor Merger Sub will (i) decrease the Price Per Share payable in the
Offer, (ii) decrease the number of shares of Company Common Stock sought
pursuant to the Offer or change the form of consideration payable in the
Offer, (iii) change or amend the conditions to the Offer (including the
conditions set forth in Annex A hereto) or impose additional conditions to
the Offer, (iv) change the expiration date of the Offer or (v) otherwise
amend, add or waive any term or condition of the Offer in any manner adverse
to the holders of shares of Company Common Stock; provided, however, that if
on any scheduled expiration date of the Offer all conditions to the Offer
have not been satisfied or waived, Merger Sub may, and at the request of the
Company shall, from time to time, extend the expiration date of the Offer for
up to 10 additional Business Days (but in no event shall Merger Sub be
required to extend the expiration date of the Offer beyond the Outside Date);
and provided further that Merger Sub may, (x) without the consent of the
Company, extend the Offer for any period required by any rule, regulation,
interpretation or position of the SEC applicable to the Offer and (y) extend
the Offer if (1) the conditions to the Offer shall have
2
<PAGE>
been satisfied or waived and (2) the number of shares of Company Common Stock
that have been validly tendered and not withdrawn represent more than 50% but
less than 90% of the issued and outstanding shares of the Company Common Stock;
provided, however, that in no event shall the extensions permitted under the
foregoing clause (y) exceed, in the aggregate, 10 Business Days. Parent and
Merger Sub will, subject to the terms and conditions of this Agreement, use
their best efforts to consummate the Offer. Assuming the prior satisfaction or
waiver of all the conditions to the Offer set forth in Annex A, and subject to
the terms and conditions of this Agreement, Merger Sub shall, and Parent shall
cause Merger Sub to, accept for payment, purchase and pay for, in accordance
with the terms of the Offer, all shares of Company Common Stock validly tendered
and not withdrawn pursuant to the Offer as soon as permitted under applicable
law, recognizing that the parties wish to close as expeditiously as possible
after all Required Regulatory Approvals are obtained and following the
expiration or termination of all applicable waiting periods under antitrust or
other competition laws of any applicable jurisdictions. Parent shall provide, or
cause to be provided, to Merger Sub, on a timely basis, the funds necessary to
purchase any shares of Company Common Stock that Merger Sub becomes obligated to
purchase pursuant to the Offer.
1.2. SEC FILINGS.
(a) As soon as reasonably practicable following the date hereof but in
no event later than two Business Days after the date of the announcement
referenced in Section 1.1(a), Parent and Merger Sub shall file with the
Securities and Exchange Commission (the "SEC") with respect to the Offer, an
amendment to the Tender Offer Statement on Schedule 14D-1 filed by Parent and
Merger Sub on March 5, 1999 (as so amended, and as amended prior to the date
hereof and from time to time hereafter, the "SCHEDULE 14D-1") to provide for the
purchase of the issued and outstanding shares of Company Common Stock in
accordance with the terms hereof. The Schedule 14D-1 will comply as to form and
content in all material respects with the applicable provisions of the federal
securities laws and will contain or incorporate by reference the Supplemental
Offer to Purchase, the related Letter of Transmittal and other ancillary
documents and agreements pursuant to which the Offer will be made (the Schedule
14D-1, the Supplemental Offer to Purchase, the Letter of Transmittal and such
other documents being collectively referred to herein as the "OFFER DOCUMENTS").
The Company and its counsel shall be given an opportunity to review and comment
upon the Offer Documents and any amendment or supplement thereto prior to the
filing thereof with the SEC, and Parent and Merger Sub shall consider such
comments in good faith. Parent and Merger Sub agree to provide to the Company
and its counsel any comments which Parent, Merger Sub or their counsel may
receive from the Staff of the SEC with respect to the Offer Documents promptly
after receipt thereof. Parent, Merger Sub and the Company agree to correct
promptly any information provided by any of them for use in the Offer Documents
which shall have become false or misleading in any material respect, and Parent
and Merger Sub further agree to take all steps necessary to cause the Schedule
14D-1 as so corrected to be filed with the SEC and to disseminate any revised
Offer
3
<PAGE>
Documents to the Company's stockholders, in each case as and to the extent
required by the applicable provisions of the federal securities laws.
(b) The Company shall file with the SEC an amendment to the
Solicitation/Recommendation Statement on Schedule 14D-9 filed by the Company on
March 18, 1999 (as so amended, and as amended prior to the date hereof and as
amended from time to time hereafter, the "SCHEDULE 14D-9") containing the
recommendation of the Company Board described in Section 5.1(a) (subject to the
right of the Company Board to withdraw, amend or modify such recommendation in
accordance with the terms of this Agreement) which will comply as to form and
content in all material respects with the applicable provisions of the federal
securities laws. The Company will file its amended Schedule 14D-9 no later than
four Business Days following the filing of the amendment to the Schedule 14D-1
as required by Section 1.2(a). The Company will cooperate with Parent and Merger
Sub in mailing or otherwise disseminating the Schedule 14D-9 with the
appropriate Offer Documents to the stockholders of the Company. Parent and its
counsel shall be given an opportunity to review and comment upon the Schedule
14D-9 and any amendment or supplement thereto prior to the filing thereof with
the SEC, and the Company shall consider any such comments in good faith. The
Company agrees to provide to Parent and Merger Sub and their counsel any
comments which the Company or its counsel may receive from the Staff of the SEC
with respect to the Schedule 14D-9 promptly after receipt thereof. The Company,
Parent and Merger Sub agree to correct promptly any information provided by any
of them for use in the Schedule 14D-9 which shall hare become false or
misleading in any material respect, and the Company further agrees to take all
steps necessary to cause such Schedule 14D-9 as so corrected to be filed with
the SEC and disseminated to the Company's stockholders, in each case as and to
the extent required by the applicable provisions of the federal securities laws.
Parent, Merger Sub and the Company each hereby agree to provide promptly such
information necessary to the preparation of the exhibits and schedules to the
Schedule 14D-9 and the Offer Documents which the respective party responsible
therefor shall reasonably request.
1.3. COMPANY ACTION. Promptly upon execution of this Agreement and in connection
with the Offer, the Company shall furnish Merger Sub with such information
(including a list of the stockholders of the Company, mailing labors and a list
of securities positions, each as of a recent date), and shall thereafter render
such assistance, as Parent or Merger Sub may reasonably request in communicating
the Offer to the Company's stockholders. Subject to the requirements of
applicable law and except for such steps as are necessary to disseminate the
Offer Documents and any other documents necessary to consummate the Merger,
Parent and Merger Sub and each of their respective affiliates and associates
shall (a) hold in confidence the information contained in any of such labels and
lists, (b) use such information only in connection with the Offer and the Merger
and (c) if this Agreement is terminated, promptly deliver to the Company all
copies of such information then in their possession.
4
<PAGE>
1.4. COMPOSITION OF THE COMPANY BOARD.
(a) Promptly upon the acceptance for payment of, and payment by Merger
Sub in accordance with the Offer for, not less than a majority of the
outstanding shares of Company Common Stock on a fully diluted basis pursuant to
the Offer, Merger Sub shall be entitled to designate such number of members of
the Company Board, rounded up to the next whole number, equal to that number of
directors which equals the product of the total number of directors on the
Company Board (giving effect to the directors elected pursuant to this sentence)
multiplies by the percentage that such number of shares of Company Common Stock
owned in the aggregate by Merger Sub or Parent, upon such acceptance for
payment, bears to the number of shares of Company Common Stock outstanding;
provided, however, that until the Effective Time there shall be at least two
Continuing Directors. Upon the written request of Merger Sub, the Company shall,
on the date of such request, (i) either increase the size of the Company Board
or use its reasonable efforts to secure the resignations of such number of its
incumbent directors as is necessary to enable Parent's designees to be so
elected to the Company Board and (ii) cause Parent's designees to be so elected,
in each case as may be necessary to comply with the foregoing provisions of
this Section 1.4(a).
(b) The Company's obligation to cause designees of Merger Sub to be
elected or appointed to tho Company's Board shall be subject to Section 14(f) of
the Exchange Act and Rule 14f-1 promulgated thereunder. The Company shall
promptly take all actions required pursuant to Section 14(f) and Rule 14f-1 in
order to fulfill its obligations under this Section 1.4, and shall include in
the Schedule 14D-9 such information with respect to the Company and its officers
and directors as is required under Section 14(f) and Rule 14f-1. Parent and
Merger Sub will supply to the Company in writing and be solely responsible for
any information with respect to any of them and their nominees, officers,
directors and affiliates required by Section 14(f) and Rule 14f-1 and applicable
rules and regulations.
(c) After the time that Merger Sub's designees constitute at least a
majority of the Company's Board and until the Effective Time, any (i) amendment
or termination of this Agreement, (ii) amendment to the Organizational Documents
of the Company, (iii) extension of time for the performance or waiver of the
obligations or other acts of Parent or Merger Sub or waiver of the Company's
rights hereunder or (iv) action by the Company with respect to this Agreement
and the transactions contemplated hereby which materially and adversely affects
the interests of the stockholders of the Company, shall require the approval of
a majority of the then serving directors, if any, who are directors as of the
date hereof (the "CONTINUING DIRECTORS"), except to the extent that applicable
law requires that such action be acted upon by the full Company Board, in which
case such action will require the concurrence of a majority of the Company
Board, which majority shall include each of the Continuing Directors. If there
is more than one Continuing Director and prior to the Effective Time, the number
of Continuing Directors is reduced for any reason, the remaining Continuing
Director or Directors shall be entitled to designate persons to fill such
vacancies who shall be deemed Continuing Directors for purposes
5
<PAGE>
of this Agreement. In the event there is only one Continuing Director and he or
she resigns or is removed or if all Continuing Directors resign or are removed,
he, she or they, as applicable, shall be entitled to designate his, her or their
successors, as the case may be, each of whom shall be deemed a Continuing
Director for purpose of this Agreement. The Company Board shall not delegate any
matter set forth in this Section 1.4 to any committee of the Company Board.
ARTICLE II.
THE MERGER
2.1. THE MERGER. Upon the terms and subject to the conditions act forth in this
Agreement, and in accordance with the DGCL, Merger Sub shall be merged with and
into the Company at the Effective Time. Following the Merger, the separate
corporate existence of Merger Sub shall cease, and the Company shall continue as
the surviving corporation (the "SURVIVING CORPORATION") in accordance with the
DGCL.
2.2. CLOSING. The closing of the Merger (the "CLOSING") will take place as soon
as practicable after satisfaction or waiver (as permitted by this Agreement and
applicable law) of the conditions (excluding conditions that, by their terms,
cannot be satisfied until the Closing Date) set forth in Article VI (the
"CLOSING DATE"), unless another time or date is agreed to in writing by the
parties hereto. The Closing shall be held at the offices of Latham & Watkins,
505 Montgomery Street, Suite 1900, San Francisco, CA 94111, unless another place
is agreed to in writing by the parties hereto.
2.3. EFFECTIVE TIME. Upon the Closing, the parties shall file with the Secretary
of State of the State of Delaware either (i) a certificate of merger, in form
and substance satisfactory to the Company and Parent, or (ii) in the event
Merger Sub shall have acquired 90% or more of the outstanding shares of Company
Common Stock, a certificate of ownership and merger (in either such case, the
"CERTIFICATE OF MERGER") executed in accordance with the relevant provisions of
the DGCL and shall make all other filings, recordings or publications required
under the DGCL in connection with the Merger. The Merger shall become effective
at such time as the Certificate of Merger is duly filed with the Delaware
Secretary of State, or at such other time as the parties may agree and specify
in the Certificate of Merger (the time the Merger becomes effective being the
"EFFECTIVE TIME").
2.4. EFFECT OF THE MERGER. At and after the Effective Time, the Merger will have
the effects set forth in Section 259 of the DGCL.
2.5. CERTIFICATE OF INCORPORATION. At the Effective Time and without any further
action on the part of the Company and Merger Sub, the certificate of
incorporation of the Company shall be amended to read in its entirety as the
certificate of incorporation of Merger Sub reads as in effect immediately prior
to the Effective Time until thereafter changed or amended as provided therein
6
<PAGE>
or by applicable law, provided that such certificate of incorporation shall be
amended to reflect "VLSI Technology, Inc." as the name of the Surviving
Corporation.
2.6. BYLAWS. The bylaws of Merger Sub as in effect at the Effective Time shall
be the bylaws of the Company until thereafter changed or amended as provided
therein or by applicable law.
2.7. OFFICERS AND DIRECTORS OF SURVIVING CORPORATION. The directors of Merger
Sub immediately prior to the Effective Time shall be the initial directors of
the Surviving Corporation, until the earlier of their resignation or removal or
otherwise ceasing to be a director or until their respective successors are duly
elected and qualified, as the case may be. The officers of the Company
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, until the earlier of their resignation or removal or
otherwise ceasing to be an officer or until their respective successors are duly
elected and qualified, as the case may be.
2.8. EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue of the Merger
and without any action on the part of Parent, Merger Sub, the Company or the
holder of any shares of Company Common Stock or any shares of capital stock of
Merger Sub:
(a) CAPITAL STOCK OF MERGER SUB. Each issued and outstanding share of
capital stock of Merger Sub shall be converted into and become one fully
paid and nonassessable share of common stock, par value $.01 per share, of
the Surviving Corporation.
(b) CANCELLATION OF TREASURY STOCK AND PARENT-OWNED STOCK. Each share
of Company Common Stock that is owned by the Company or by a wholly owned
Subsidiary of the Company and each share of Company Common Stock that is
owned by Parent, Merger Sub or any other wholly owned Subsidiary of Parent
shall automatically be canceled and retired and shall cease to exist, and
no Merger Consideration shall be delivered in exchange therefor.
(c) CONVERSION OF COMPANY COMMON STOCK. Subject to Section 2.9(h), at
the Effective Time each issued and outstanding share of Company Common
stock (other than shares to be canceled in accordance with Section 2.8(b))
shall be converted into the right to receive $21.00 in cash, without
interest (the "MERGER CONSIDERATION"). As of the Effective Time, all such
shares of Company Common Stock shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares of Company Common
Stock shall cease to have any rights with respect thereto, except the right
to receive upon the surren der of such certificates, the Merger
Consideration.
7
<PAGE>
2.9. SURRENDER AND PAYMENT.
(a) EXCHANGE AGENT. Prior to the Effective Time, Parent shall
designate a bank or trust company reasonably acceptable to the Company to act as
agent for the holders of shares of Company Common Stock in connection with the
Merger (the "EXCHANGE AGENT") to receive the Merger Consideration to which
holders of shares of Company Common Stock shall become entitled pursuant to
Section 2.8. Prior to the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware, Parent or Merger Sub shall deposit with the
Exchange Agent cash in an aggregate amount equal to the product of (i) the
number of shares of Company Common Stock outstanding (and not to be canceled
pursuant to Section 2.8(b)) immediately prior to the Effective Time, multiplied
by (ii) the Price Per Share. The deposit made by Parent or Merger Sub pursuant
to the preceding sentence is hereinafter referred to as the "PAYMENT FUND"). The
Exchange Agent shall cause the Payment Fund to be (i) held for the benefit of
the holders of Company Common Stock and (ii) promptly applied to making the
payments provided for in Section 2.8(c). The Payment Fund shall not be used for
any purpose that is not provided for herein.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates (the "CERTIFICATES") which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock, other
than shares to be canceled or retired in accordance with Section 2.8(b), (i) a
Letter of Transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent) and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Exchange Agent, together with
such Letter of Transmittal, duly executed, and such other documents as may
reasonably be required by the Exchange Agent, the Exchange Agent shall pay the
holder of such Certificate the Merger Consideration in respect of such
Certificate, and the Certificate so surrendered shall forthwith be canceled. If
any portion of the Merger Consideration is to be paid to a Person other than the
registered holder of the shares represented by the Certificate or Certificates
surrendered in exchange therefor, it shall be a condition to such payment that
the Certificate or Certificates so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the Person requesting such
payment shall pay to the Exchange Agent any transfer or other taxes required as
a result of such payment to a Person other than the registered holder of such
shares or establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not payable. Until surrendered as contemplated by this Section
2.9, each Certificate (other than Certificates representing Dissenting Shares or
shares of Company Common Stock to be canceled pursuant to Section 2.8(b)) shall
be deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration upon such surrender.
8
<PAGE>
(c) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All Merger
Consideration paid upon the surrender for exchange of Certificates in accordance
with the terms of this Article II shall be deemed to have been paid in full
satisfaction of all rights pertaining to the shares of Company Common Stock
theretofore represented by such Certificates. There shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Exchange Agent
for any reason, they shall be canceled and exchanged as provided in this Article
II, except as otherwise provided by law.
(d) UNCLAIMED FUNDS. Any portion of the Payment Fund made available to
the Exchange Agent pursuant to Section 2.9(a) that remains unclaimed by holders
of the Certificates for six months after the Effective Time of the Merger shall
be delivered to Parent, upon demand, and any holders of Certificates who have
not theretofore complied with this Article II shall thereafter look only to
Parent for payment of their claim for Merger Consideration.
(e) NO LIABILITY. None of Parent, Merger Sub, the Company or the
Exchange Agent shall be liable to any Person in respect of any Merger
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(f) INVESTMENT OF FUNDS. The Payment Fund shall be invested by the
Exchange Agent in obligations of, or guaranteed by, the United States of
America, in commercial paper obligations rated A-1 or P-l or better by Moody's
Investor Services or Standard & Poor's Corporation, respectively, in each case
with maturities not exceeding seven days. All earnings thereon shall inure to
the benefit of the Parent.
(g) LOST CERTIFICATES. In the event that any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the Person claiming such Certificate to be lost, stolen or destroyed and, if
required by Parent, the granting of an indemnity reasonably satisfactory to
Parent against any claim that may be made against it, the Surviving Corporation
or the Exchange Agent, with respect to such Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration with respect to such Certificate, to which such Person is entitled
pursuant hereto.
(h) DISSENTING SHARES. Notwithstanding anything in this Agreement to
the contrary, shares of Company Common Stock, outstanding immediately prior to
the Effective Time and held by a holder who has not voted in favor of the Merger
or consented thereto in writing and who has demanded appraisal for such shares
in accordance with the DGCL (the "DISSENTING SHARES"), shall not be converted
into a right to receive the Merger Consideration, unless such holder fails to
perfect or withdraws or otherwise loses its right to appraisal. If after the
Effective Time such holder fails to perfect or withdraws or loses its right to
appraisal, such shares shall be treated as if they had been converted as of the
Effective Time into a right to
9
<PAGE>
receive the Merger Consideration. The Company shall give Parent prompt notice of
any demands received by the Company for appraisal of shares of Company Common
Stock, and Parent shall have the right to participate in all negotiations and
proceedings with respect to such demands. The Company shall not, except with the
prior written consent of Parent, make any payment with respect to, or settle or
offer to settle, any such demands.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in the
Company Disclosure Schedule delivered by the Company to Parent at or prior to
the execution of this Agreement (the "COMPANY DISCLOSURE SCHEDULE") or the
Company SEC Reports, the Company represents and warrants to Parent and Merger
Sub as follows:
(a) ORGANIZATION, STANDING AND POWER. Each of the Company and its
Material Subsidiaries has been duly organized and is validly existing and
in good standing under the laws of its jurisdiction of incorporation. Each
of the Company and its Material Subsidiaries is duly qualified and in good
standing or otherwise authorized to do business in each jurisdiction in
which the nature of its business or the ownership or leasing of its
properties makes such qualification necessary, except where the failure to
so qualify, when taken together with all other such failures, could not
reasonably be expected to have a Material Adverse Effect on the Company or
materially impair or delay the ability of the Company to consummate the
transactions contemplated hereby. The copies of the Organizational
Documents of the Company which were previously furnished or made available
to Parent are true, complete and correct copies of such documents as in
effect on the date of this Agreement. Each of the Company and its
Subsidiaries has the requisite corporate power and corporate authority to
carry on its respective businesses in all material respects as they are now
being conducted. The Company's Certificate of Incorporation and By-Laws and
the comparable governing instruments of each of its Subsidiaries are in
full force and effect.
(b) CAPITAL STRUCTURE.
(i) As of the date of this Agreement, the authorized capital
stock of the Company consists of (A) 200,000,000 shares of Company Common
Stock, of which not more than 46,591,000 shares plus no more than 600,000
shares issued pursuant to the Company's Employee Stock Purchase Plan since
December 31, 1998 are outstanding, and (B) 2,000,000 shares of preferred
stock, par value $.01 per share, of which no shares are outstanding. All
issued and outstanding shares of the capital stock of the Company are duly
authorized, validly issued, fully paid and nonassessable, and no class of
capital stock is entitled to preemptive rights. As of the date of this
Agreement, there are no outstanding options, warrants or other rights to
acquire capital stock from the Company
10
<PAGE>
other than (C) rights issued pursuant to the Rights Agreement dated as of
November 7, 1989 between the Company and BankBoston, N.A., as amended and
restated as of August 12, 1992, amended as of August 24, 1992, and amended
and restated as of March 7, 1999 (as amended, the "COMPANY RIGHTS
AGREEMENT") and (D) options representing in the aggregate the right to
purchase not more than 11,293,000 shares of Company Common Stock under the
Company Equity Plans.
(ii) All of the issued and outstanding shares of capital stock of
the Company's Subsidiaries are duly authorized, validly issued, fully paid
and nonassessable and are owned by the Company, free and clear of any
liens, pledges, security interests, claims, encumbrances, restrictions,
preemptive rights or any other claims of any third party ("LIENS").
(iii) As of the date of this Agreement, no bonds, debentures,
notes or other indebtedness of the Company having the right to vote on any
matters on which stockholders may vote ("COMPANY VOTING DEBT") are issued
or outstanding.
(iv) Except as otherwise set forth in this Section 3.1(b), as of
the date of this Agreement, there are no securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any
kind to which the Company or its Subsidiaries is a party or by which any of
them is bound obligating the Company or a Subsidiary to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other voting securities of the Company or such Subsidiary
or obligating the Company or such Subsidiary to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. As of the date of this Agreement,
there are no outstanding obligations of the Company or any Subsidiary to
repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or such Subsidiary. Immediately prior to the consummation of the
Offer and Merger, no shares of Company Common Stock or other securities of
the Company will be issuable pursuant to the Company Rights Agreement, and,
immediately after the Effective Time, the Surviving Corporation will,
assuming the execution of releases by holders of outstanding Company stock
options as described in Section 5.11, have no obligation to issue, transfer
or sell any shares of common stock of the Surviving Corporation pursuant to
any compensation and benefit plan.
(c) AUTHORITY; NO CONFLICTS.
(i) The Company has all requisite corporate power and corporate
authority to enter into this Agreement and, subject to the adoption of this
Agreement and approval of the Merger by the requisite vote of the holders
of Company Common Stock, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been
11
<PAGE>
duly authorized by all necessary corporate action on the part of the
Company, subject in the case of the consummation of the Merger to the
adoption of this Agreement by the requisite vote of the stockholders of the
Company. This Agreement has been duly executed and delivered by the Company
and constitutes a valid and binding agreement of the Company, enforceable
against it in accordance with its terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium and
similar laws relating to or affecting creditors generally and by general
equity principles (regardless of whether such enforceability is considered
in a proceeding in equity or at law). The Company Board has unanimously
approved this Agreement, the Offer and the Merger and determined that the
Offer and the Merger are fair to and in the best interests of the Company's
stockholders.
(ii) The execution and delivery of this Agreement does not or
will not, as the case may be, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of,
or constitute a default (with or without notice or lapse of time, or both)
under, or give rise to a right of consent, termination, amendment,
cancellation or acceleration of any obligation or the loss of a material
benefit under, or the creation of a Lien on any assets (any such conflict,
violation, default, right of consent, termination, amendment, cancellation
or acceleration, loss or creation, a "VIOLATION"), or result in any
material adverse change in the rights or obligations of the Company,
pursuant to: (A) any provision of the Organizational Documents of the
Company or any of its Subsidiaries or (B) except as could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect on the Company or materially impair or delay the ability of the
Company to consummate the transactions contemplated hereby and, subject to
obtaining or making the consents, approvals, orders, authorizations,
registrations, declarations and filings referred to in paragraph (iii)
below, any loan or credit agreement, note, mortgage, bond, indenture,
lease, compensation or benefit plan (or any grant or award made pursuant
thereto) or other agreement, obligation, instrument, contract, permit,
concession, franchise, license, judgment, order, award, decree, statute,
law, ordinance, rule or regulation applicable to the Company, the Company's
Subsidiaries or their respective properties or assets.
(iii) No consent, registration, permit, approval, order or
authorization of, or registration, declaration, notice, report, or other
filing with, any supranational, national, state, municipal or local
government, any instrumentality, subdivision, court, administrative agency
or commission or other authority thereof, or any quasi-governmental or
private body exercising any regulatory, taxing, or other governmental or
quasi-governmental authority (a "GOVERNMENTAL ENTITY"), is required by or
with respect to the Company or any Material Subsidiary in connection with
the execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated hereby, except
for (x) those required under or in relation to (A) the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT"), (B) the DGCL with
12
<PAGE>
respect to the filing and recordation of appropriate merger or other
documents, (C) rules and regulations of the Nasdaq National Market
("NASDAQ"), and (D) antitrust or other competition laws of any applicable
jurisdictions and (y) such consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to make or
obtain could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company or materially impair or
delay the ability of the Company to consummate the transactions
contemplated hereby. Notwithstanding the foregoing, the Company will use
its commercially reasonable efforts to obtain all the consents required to
consummate the transactions contemplated hereby.
(d) REPORTS AND FINANCIAL STATEMENTS.
(i) Since December 31, 1998, the Company has timely filed all
required reports, schedules, forms, statements and other documents required
to be filed by it with the SEC (collectively, including all exhibits
thereto, the "COMPANY SEC REPORTS"). The Company SEC Reports, as of their
respective dates (and, if amended or superseded by a filing prior to the
date of this Agreement or of the Closing Date, then on the date of such
filing), did not, and any Company SEC Reports filed with the SEC subsequent
to the date hereof and prior to the purchase of shares pursuant to the
Offer will not, contain any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. Each of the financial statements (including the
related notes) included or to be included in, or incorporated by reference
into, the Company SEC Reports presents or will present fairly, in all
material respects, the consolidated financial position and consolidated
results of operations and cash flows of the Company and its Subsidiaries as
of the respective dates or for the respective periods set forth therein,
all in conformity with U.S. generally accepted accounting principles
("GAAP") consistently applied during the periods involved except as
otherwise noted therein, and subject, in the case of the unaudited interim
financial statements, to normal and recurring year-end adjustments that
have not been and will not be material in amount. All of such Company SEC
Reports, as of their respective dates (and as of the date of any amendment
to the respective Company SEC Report filed prior to the date hereof),
complied as to form in all material respects with the applicable
requirements of the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder.
(ii) Except as set forth in the Company SEC Reports filed prior
to the date of this Agreement, and except for liabilities and obligations
incurred in the ordinary course of business or related to the potential
sale of the Company since December 31, 1998 (none of which has had or could
be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company), the Company does not have any
undisclosed liabilities or obligations of any nature required by GAAP to be
set forth
13
<PAGE>
on a consolidated balance sheet of the Company which have had or could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
(e) INFORMATION SUPPLIED.
(i) None of the information supplied or to be supplied by the
Company for inclusion or incorporation by reference in (A) the information
statement (the "INFORMATION STATEMENT") advising stockholders of the
Company that the requisite number of stockholders have consented to the
Merger, if applicable, (B) the proxy statement relates the Company
Stockholders Meeting (the "PROXY STATEMENT"), if applicable, (C) the
Schedule 14D-9 or (D) the Offer Documents will, at the respective times
such documents are filed, and, with respect to the Offer Documents, the
Information Statement, if any, and the Proxy Statement, if any, when first
published, sent or given to the stockholders of the Company, contain an
untrue statement of material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein,
at the light of the circumstances under which they are made, not false or
misleading or, in the case of the Offer Documents, the Information
Statement, if any, and the Proxy Statement, if any, or any amendment
thereof or supplement thereto, at the time of the Company Stockholders
Meeting (as defined below), if any, and at the Effective Time, contain an
untrue statement of a material fact or omit to date any material fact
required to be stated therein or necessary in order to make the statements
made therein, in the light of the circumstances under which they are made,
not false or misleading or necessary to correct any statement in any
earlier communication with respect to the Offer or the solicitation of
proxies for the Company Stockholders Meeting, if any, which shall have
become false or misleading. The Proxy Statement, if any, the Information
Statement, if any, and Schedule 14D-9 will comply as to form in all
material respects with the requirements of the Exchange Act and the
Securities Act and the rules and regulations of the SEC thereunder.
(ii) Notwithstanding the foregoing provisions of this Section
3.1(e), no representation or warranty is made by the Company with respect
to statements made or incorporated by reference in the Proxy Statement, if
any, the Information Statement, if any, and Schedule 14D-9 based on
information supplied by Parent or Merger Sub for inclusion or incorporation
by reference therein.
(iii) The documents and information supplied by the
representatives of the Company to the representatives of Parent and Merger
Sub in connection with the Company's management presentation on Thursday,
April 8, 1999 with respect to commercial relationships, volumes of business
done with significant suppliers and customers and total backlog were
prepared in good faith by the Company on bases reflecting the best then
available estimates and judgments of the Company.
14
<PAGE>
(f) COMPLIANCE WITH APPLICABLE LAWS; REGULATORY MATTERS. The Company
and its Material Subsidiaries hold all permits, licenses, certificates,
franchises, registrations, variances, exemptions, orders and approvals of
all Governmental Entities which are material to the operation of their
businesses, taken as a whole (the "COMPANY PERMITS"). The Company and its
Material Subsidiaries are in compliance with the terms of the Company
Permits, except where the failure so to comply, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect on the Company. Except as disclosed in the Company SEC Reports filed
with the SEC prior to the date hereof, the businesses of the Company and
its Material Subsidiaries are not being and have not been conducted in
violation of any law, ordinance, regulation, judgment, decree, injunction,
rule or order of any Governmental Entity, except for violations which could
not reasonably be expected to have a Material Adverse Effect on the
Company. As of the date of this Agreement, no investigation by any
Governmental Entity with respect to the Company or any Material Subsidiary
is pending or, to the knowledge of the Company, threatened, other than
investigations which, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on the Company.
(g) LITIGATION. There is no litigation, arbitration, claim, suit,
action, inves tigation or proceeding pending or, to the knowledge of the
Company, threatened against or affecting the Company or any Subsidiary
which could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company, nor is there any
judgment, award, decree, injunction, rule or order of any Governmental
Entity or arbitrator outstanding against the Company or any Material
Subsidiary which could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company.
(h) TAXES. Except as disclosed to Parent's representatives during
their due diligence investigation or in the Company SEC Reports filed with
the SEC prior to the date hereof: (i) The Company and its Subsidiaries have
duly and timely filed (taking into account any extension of time within
which to file) all material Tax Returns required to be filed by any of them
and all such filed Tax Returns are complete and accurate in all material
respects; (ii) the Company and its Material Subsidiaries have paid all
Taxes that are shown as due on such filed Tax Returns or for which no Tax
Return is required to be filed for such amounts that, individually or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect on the Company; (iii) as of the date of this Agreement, there are no
pending or, to the knowledge of the Company, threatened in writing audits,
examinations, investigations or other proceedings in respect of Taxes or
Tax matters relating to the Company or any Subsidiary which, if determined
adversely to the Company or such Subsidiary, could reasonably be expected
to have a Material Adverse Effect on the Company; (iv) there are no
deficiencies or claims for any Taxes that have been proposed, asserted or
assessed, or material issues that have been raised in connection with the
examination of Tax Returns and that could reasonably be expected to
15
<PAGE>
give rise to such deficiencies or claims, against the Company or any
Subsidiary which, if such deficiencies or claims were finally resolved
against the Company or such Subsidiary, could reasonably be expected to
have a Material Adverse Effect on the Company; (v) there are no material
Liens for Taxes upon the assets of the Company or any Subsidiary, other
than Liens for current Taxes not yet due and payable and Liens for Taxes
that are being contested in good faith by appropriate proceedings and that
could not be reasonably expected to have, individually or in the aggregate,
Material Adverse Effect on the Company if any such contest is unsuccessful;
(vi) the Company is not, nor was it at any time during the five-year period
ending on the date on which the Effective Time occurs, a "United States
real property holding corporation" within the meaning of Section 897(c) of
the Code; (vii) neither of the Company nor any Subsidiary has made an
election under Section 341(f) of the Internal Revenue Code of 1986, as
amended (the "CODE"); and (viii) other than payments to the officers and
employees whose names are set forth on Schedule 3.1(1), no material payment
(or acceleration of benefits) required to be made to any employee or former
employee of the Company or any Subsidiary as a result of the transactions
contemplated by this Agreement under any Company Benefit Plan or otherwise
will, if made, constitute an "excess parachute payment" within the meaning
of Section 280G of the Code.
(i) ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1998
through the date of this Agreement, (A) each of the Company and the
Company's Material Subsidiaries has conducted its business in the ordinary
course and has not incurred any material liability, except in the ordinary
course of their respective businesses; (B) there has not been any change in
the business, financial condition or results of operations of the Company
or its Subsidiaries that has had, or could reasonably be expected to have,
a Material Adverse Effect on the Company; (C) there has not been any entry
by the Company or its Subsidiaries into any employment agreement, severance
agreement or termination agreement with any employee of the Company other
than in the ordinary course of business; (D) there has not been any
declaration, setting aside or payment of any dividend or other distribution
with respect to the capital stock of the Company nor has there been any
repurchase, redemption or other acquisition by the Company or any of its
Subsidiaries of any outstanding shares of capital stock or other securities
of, or other ownership interests in, the Company or such Subsidiary; (E)
there has not been any change by the Company in accounting principles,
practices or methods; (F) except as provided for herein or as disclosed in
the Company SEC Reports filed with the SEC prior to the date hereof, there
has not been any material increase in the compensation payable or which
could become payable by the Company and its Subsidiaries to their officers
or key employees, or any amendment of any compensation and benefit plans;
(G) there has not been any amendment of any material term of any
outstanding security of the Company or any of its Subsidiaries other than
the amendments to the Company Rights Agreement; and (H) there has not been
any acquisition, sale or transfer of any material assets of the Company or
any of its Subsidiaries.
16
<PAGE>
(j) VOTE REQUIRED. The affirmative vote of the holders of a majority
of the outstanding shares of Company Common Stock (the "REQUIRED COMPANY
VOTES") is the only vote of the holders of any class or series of the
Company capital stock necessary to approve this Agreement and the
transactions contemplated hereby and is only necessary in the event that
the number of shares of the Company Common Stock tendered pursuant to the
Offer represents less than 90% of the issued and outstanding shares of the
Company Common Stock.
(k) CERTAIN AGREEMENTS. (i) All contracts listed as an exhibit to the
Company's Annual Report on Form 10-K under the rules and regulations of the
SEC relating to the business of the Company and its Subsidiaries and (ii)
to the knowledge of the General Counsel of the Company, any other agreement
within the meaning set forth in item 601(b)(10) of Regulation S-K of Title
17, Part 229 of the Code of Federal Regulations (the "COMPANY MATERIAL
CONTRACTS") are valid and in full force and effect except to the extent
they have previously expired in accordance with their terms, and neither
the Company nor its Subsidiaries has violated any provision of, or
committed or failed to perform any act which, with or without notice, lapse
of time, or both, could reasonably be expected to constitute a default
under the provisions of, any such Company Material Contract, except for
defaults which could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company. To the knowledge
of the Company, no counterparty to any such Company Material Contract has
violated any provision of, or committed or failed to perform any act which,
with or without notice, lapse of time, or both, could reasonably be
expected to constitute a default or other breach under the provisions of,
such Company Material Contract, except for defaults or breaches which could
not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company.
(l) EMPLOYEE BENEFIT PLANS: LABOR MATTERS.
(i) With respect to each employee benefit plan as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and with respect to each other material employee benefit
plan, program, arrangement and contract (including any bonus, deferred
compensation, stock bonus, stock purchase, restricted stock, stock option,
employment, termination, change in control and severance plan, program,
arrangement and contract), to which the Company or any Subsidiary is a
party, which is maintained or contributed to by the Company or any
Subsidiary, or with respect to which the Company or any Subsidiary could
incur material liability under Section 4069, 4201 or 4212(c) of ERISA other
than any "multiemployer plan" within the meaning of Section 3(37) of ERISA
(a "Multiemployer Plan") (collectively, the "COMPANY BENEFIT PLANS"), the
Company has made available to Parent a true and complete copy of such
Company Benefit Plan.
17
<PAGE>
(ii) Each of the Company Benefit Plans that is an "employee"
pension benefit plan" within the meaning of Section 3(2) of ERISA and that
is intended to be qualified under Section 401(a) of the Code has received a
favorable determination letter from the United States Internal Revenue
Service, and the Company is not aware of any circumstances likely to result
in the revocation of any such favorable determination letter.
(iii) With respect to the Company Benefit Plans and any
Multiemployer Plan, no event has occurred and, to the knowledge of the
Company, there exists no condition or set of circumstances, in connection
with which the Company or any Material Subsidiary could be subject to any
liability under the terms of such Company Benefit Plans, Multiemployer
Plan, ERISA, the Code or any other applicable law which could reasonably be
expected to have a Material Adverse Effect on the Company.
(iv) All Company Benefit Plans, to the extent subject to ERISA,
are in substantial compliance with ERISA. There is no material pending or,
to the knowledge of the Company threatened, litigation relating to the
Company Benefit Plans. No Company Benefit Plan is subject to Title IV of
ERISA and no liability under Title IV of ERISA has been or is expected to
be incurred by the Company or any of its Subsidiaries with respect to any
ongoing, frozen or terminated "single-employer plan", within the meaning of
Section 4001(a)(15) of ERISA, of any entity which is considered one
employer with the Company under Section 4001 of ERISA or Section 414 of the
Code (an "ERISA AFFILIATE").
(v) Neither the Company nor any of its Subsidiaries has any
material obligations for retiree health and life benefits under any Company
Benefit Plan except to the extent required by applicable law.
(vi) All Company Benefit Plans maintained outside of the United
States are in substantial compliance and comply in all material respects
with applicable local law. The Company and its Subsidiaries have no
material unfunded liabilities with respect to any such Company Benefit
Plan.
(vii) Neither of the Company nor any Subsidiary is a party to any
collective bargaining or other labor union contracts and no collective
bargaining agreement is being negotiated by the Company or any Subsidiary.
There is no pending labor dispute, strike or work stoppage against the
Company or any Subsidiary which may interfere with the respective business
activities of the Company or any Subsidiary, except where such dispute,
trike or work stoppage could not reasonably be expected to have a Material
Adverse Effect on the Company. There is no pending charge or complaint
against the Company or any Material Subsidiary by the National Labor
Relations Board or any comparable state agency, except where such unfair
labor practice, charge or
18
<PAGE>
complaint could not reasonably be expected to have a Material Adverse
Effect on the Company.
(m) INTELLECTUAL PROPERTY.
(i) Except as would not have a Material Adverse Effect on the
Company, to the knowledge of the General Counsel of the Company, all
material patents, trademarks, trade names, service marks and copyrights
held by the Company and/or its Subsidiaries are valid and, (A) neither the
Company nor any of its Subsidiaries is, nor will the Company or any of its
Subsidiaries be as a result of the execution and delivery of this Agreement
or the performance of the Company's obligations hereunder, in violation of,
and no claims are pending or, to the knowledge of the Company, threatened
that the Company or any Subsidiary is infringing on or otherwise violating
the rights of any person with regard to any Intellectual property and (B)
to the knowledge of the Company, no person is infringing on or otherwise
violating any right of the Company or any Subsidiary with respect to any
Intellectual Property owned by and/or licensed to the Company or any
Subsidiary.
(ii) It is the policy of the Company to require that its
employees execute agreements assigning to the Company all rights such
employees otherwise would have in Intellectual Property developed by such
employees while in the employ of the Company.
(n) BROKERS OR FINDERS. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any
of the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company, except Morgan Stanley & Co.
Incorporated ("MORGAN STANLEY") and Hambrecht & Quist LLC ("HAMBRECHT &
QUIST"), the arrangements with which have been disclosed in writing to
Parent prior to the date hereof.
(o) OPINION OF FINANCIAL ADVISOR. The Company has received the opinion
of each of Morgan Stanley and Hambrecht & Quist dated the date of this
Agreement, to the effect that, as of such date, the Merger Consideration is
fair, from a financial point of view, to the holders of Company Common
Stock other than Parent and its affiliates. A copy of each written opinion
will promptly be provided to Parent.
(p) PRODUCT WARRANTIES. Except as would not have a Material Adverse
Effect on the Company, as of the date hereof, to the knowledge of the
Company, there are no pending or threatened material claims with respect to
any warranties, with respect to the products of the Company or any of its
Subsidiaries.
19
<PAGE>
(q) YEAR 2000. Except as disclosed in the Company SEC Reports filed
with the SEC prior to the date hereof, the Company has a Year 2000 program
in place which, to the knowledge of the Company, is adequate to cause all
computer software and data processing devices designed by the Company (i)
used in or for the manufacturing of Company Products by the Company and/or
any of its Subsidiaries, or (ii) utilized in or by any Company Products,
including any Company Products sold and/or installed prior to the date
hereof, to become "Year 2000 Compliant" during 1999 and the Company
reasonably believes that all material costs associated with such program
are included in the Company's 1999 budget and in its 2000 strategic plan,
in each case except as had not had or would not reasonably be likely to
have, individually or in the aggregate, a Material Adverse Effect. "YEAR
2000 COMPLIANT" means that the product or software accurately processes and
stores date/time data (including, but not limited to calculating,
comparing, displaying, recording and sequencing operations involving
date/time data) during, from and into and between the twentieth and
twenty-first centuries, and the years 1999 and 2000, including correct
processing of leap year data.
(r) RIGHTS AGREEMENT. The Company has amended the Company Rights
Agreement to provide that neither Parent nor any of its "affiliates" or
"associates" (each as defined in the Company Rights Agreement) (including
Merger Sub) shall be deemed an Acquiring Person (as defined in the Company
Rights Agreement) and that the Distribution Date (as defined in the Company
Rights Agreement) shall not be deemed to occur, and that the Rights will
not separate from the shares of Company Common Stock, as a result of the
entering into this Agreement, the commencement of the Offer or the
consummation of the Merger or the other transactions contemplated hereby.
(s) ENVIRONMENTAL MATTERS. Except as would not reasonably be expected
to have a Material Adverse Effect on the Company and its Subsidiaries,
taken as a whole, to the knowledge of the Company: (i) the Company and each
Subsidiary has complied with all Environmental Laws; (ii) no property that
has been owned or operated by the Company or any current or former
Subsidiary contains any Hazardous Substance which could be expected to
require investigation or remediation under any Environmental Law; (iii) the
Company and its Subsidiaries are not subject to liability for any off-site
disposal or contamination; (iv) the Company and its Subsidiaries have not
received any claims, orders or notices alleging responsibility or liability
under any Environmental Law; and (v) there are no other circumstances
involving the Company or any Subsidiary that are likely to result in any
claims, liabilities, costs or property restrictions in connection with any
Environmental Law. As used herein, "ENVIRONMENTAL LAW" means any law,
regulation, order, decree, common law or agency requirement relating to the
protection of the environment or human health and safety. "HAZARDOUS
SUBSTANCE" means any substance that is listed, classified or regulated in
any concentration under any Environmental Law including petroleum products,
asbestos and polychlorinated biphenyls.
20
<PAGE>
3.2. REPRESENTATIONS AND WARRANTIES OF PARENT. Except as set forth in the Parent
Disclosure Schedule delivered by Parent to the Company at or prior to the
execution of this Agreement (the "PARENT DISCLOSURE SCHEDULE") or the Parent SEC
Reports, Parent represents and warrants to the Company as follows:
(a) ORGANIZATION, STANDING AND POWER. Parent has been duly organized
and is validly existing under the laws of its jurisdiction of organization.
Parent is duly qualified or otherwise authorized to do business in each
jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary, except where
the failure so to qualify could not reasonably be expected to have a
Material Adverse Effect on Parent.
(b) AUTHORITY; NO CONFLICTS.
(i) Parent has all requisite corporate power and corporate
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent. This
Agreement has been duly executed and delivered by Parent and constitutes a
valid and binding agreement of Parent, enforceable against it in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to
or affecting creditors generally, or by general equity principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
(ii) The execution and delivery of this Agreement does not or
will not, as the case may be, and the consummation of the transactions
contemplated hereby will not, result in any Violation of: (A) any provision
of the Organizational Documents of Parent or any of its Material
Subsidiaries or (B) except as could not reasonably be expected to have a
Material Adverse Effect on Parent or material impair or delay the ability
of Parent to consummate the transactions contemplated hereby and subject to
obtaining or making the consents, approvals, orders, authorizations,
registrations, declarations and filings referred to in paragraph (iii)
below, any loan or credit agreement, note, mortgage, bond, indenture,
lease, benefit plan or other agreement, obligation, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Parent, any of its Material
Subsidiaries or their respective properties or assets.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by or with respect to Parent in connection with the execution and
delivery of this Agreement by Parent or the consummation by Parent of the
transactions contemplated hereby, except for (A) the
21
<PAGE>
consents, approvals, orders, authorizations, registrations, declarations
and filings required under or in relation to clause (x) of Section
3.1(c)(iii), (B) filings with Governmental Entities administering, and the
expiration of applicable waiting periods under, applicable antitrust and
other competition laws in any applicable jurisdictions may be required, (C)
any filings required to be made or consents that have to be obtained or
arrangements that have to be made in order to ensure that the United States
government or any agency thereof will not challenge the consummation of the
transactions contemplated hereby on national security grounds and (D) such
consents, approvals, orders, authorizations, registrations, declarations
and filings the failure of which to make or obtain could not reasonably be
expected to have a Material Adverse Effect on Parent or materially impair
or delay the ability of Parent to consummate the transactions contemplated
hereby.
(c) INFORMATION SUPPLIED.
(i) None of (A) the Offer Documents or (B) the information
supplied or to be supplied by Parent or Merger Sub for inclusion or
incorporation by reference in the Information Statement, if any, the Proxy
Statement, if any, the Schedule 14D-9 and any other documents to be filed
with the SEC in connection with the transactions contemplated hereby,
including any amendment or supplement to such documents, will, at the
respective times such documents are filed, and, with respect to the
Information Statement, if any, the Proxy Statement, if any, and the Offer
Documents, when first published, sent or given to stockholders of the
Company, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under
which they are made, not false or misleading or, in the case of the
Information Statement, if any, the Proxy Statement, if any, or any
amendment thereof or supplement thereto, at the time of the Company
Stockholders Meeting, if any, and at the Effective Time, contain any untrue
statement of a material fact, or omit to state any material fact required
to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they are made, not
false or misleading or necessary to correct any statement in any earlier
communication with respect to the Offer or the solicitation of proxies for
the Company Stockholders Meeting, if any, which shall have become false or
misleading. The Offer Documents will comply as to form in all material
respects with the requirements of the Exchange Act and Securities Act and
the rules and regulations of the SEC thereunder.
(ii) Notwithstanding the foregoing provisions of this Section
3.2(d), no representation or warranty is made by Parent or Merger Sub with
respect to statements made or incorporated by reference in the Information
Statement, if any, the Proxy Statement, if any, or the Offer Documents
based on information supplied by the Company for inclusion or incorporation
by reference therein.
22
<PAGE>
(d) VOTE REQUIRED. No vote of the holders of the outstanding shares of
common stock of Parent is necessary to approve this Agreement and the
transactions contemplated hereby.
(e) BROKERS OR FINDERS. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any
of the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Parent on Merger Sub, except Credit Suisse First
Boston Corporation.
(f) OWNERSHIP OF COMPANY CAPITAL STOCK. Except for 1,235,000 shares of
Company Common Stock owned by affiliates of Parent, as of the date of this
Agreement, neither Parent nor any of its Subsidiaries or, to the best of
its knowledge, any of its affiliates or associates (as such terms are
defined under the Exchange Act) (i) beneficially owns, directly or
indirectly or (ii) is party to any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of, in case of
either clause (i) or ii), shares of capital stock of the Company.
(g) FINANCING. Parent has available, and will make available to Merger
Sub, sufficient funds to consummate the Offer and the Merger on the terms
contemplated by this Agreement.
3.3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB. Parent and Merger
Sub represent and warrant to the Company as follows:
(a) ORGANIZATION AND CORPORATE POWER. Merger Sub is an indirect wholly
owned Subsidiary of Parent and a corporation duly incorporated, validly
existing and in good standing under the laws of Delaware.
(b) CORPORATE AUTHORIZATION. Merger Sub has all requisite corporate
power and corporate authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery
and performance by Merger Sub of this Agreement and the consummation by
Merger Sub of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Merger Sub.
This Agreement has been duly executed and delivered by Merger Sub and
consti tutes a valid and binding agreement of Merger Sub, enforceable
against it in accordance with its terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditors generally, or by general
equity principles (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
23
<PAGE>
(c) NON-CONTRAVENTION. The execution, delivery and performance by
Merger sub of this Agreement and the consummation by Merger Sub of the
transactions contemplated hereby do not and will not contravene or
conflict with the Organizational Document of Merger Sub.
(d) NO BUSINESS ACTIVITIES. Merger Sub is not a party to any material
agreements and has not conducted any activities other than in connection
with the organization of Merger Sub, the commencement of the Offer, the
negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby. Merger Sub has no Subsidiaries.
ARTICLE IV.
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1. COVENANTS OF THE COMPANY. During the period from the date of this Agreement
and continuing until the Effective Time (except as expressly contemplated or
permitted by this Agreement or to the extent that Parent shall otherwise consent
in writing):
(a) ORDINARY COURSE. The Company and its Subsidiaries shall carry on
their respective businesses in the usual, regular and ordinary course in
all material respects, and shall use all commercially reasonable efforts to
preserve intact their present business organizations and preserve their
existing relationships with customers, suppliers, employees and others
having business dealings with them; provided, however, that no action by
the Company or its Subsidiaries with respect to matters specifically
addressed by any other provision of this Section 4.1 shall be deemed a
breach of this Section 4.1(a) unless such action would constitute a breach
of one or more of such other provisions.
(b) DIVIDENDS; CHANGES IN SHARE CAPITAL. The Company shall not, and
shall not propose to, (i) declare or pay any dividends on or make other
distributions in respect of any of its capital stock, (ii) split, combine
or reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its capital stock, (iii) repurchase, redeemed
or otherwise acquire any shares of its capital stock or any securities
convertible into or exercisable for any shares of its capital stock except
as otherwise permitted under certain option agreements to effect cashless
option exercises.
(c) ISSUANCE OF SECURITIES. The Company shall not and shall cause its
Subsidiaries not to issue, pledge, dispose of or encumber, deliver or
sell, or authorize or propose the issuance, disposition, encumbrance,
pledge, delivery or sale of, any shares of its capital stock of any class,
any Company Voting Debt or any securities convertible into or exercisable
for, or any rights, warrants or options to acquire, any such shares or
Company Voting Debt, or enter into any agreement with respect to any of the
foregoing,
24
<PAGE>
other than (i) the issuance of Company Common Stock upon the exercise of
stock options or stock appreciation rights issued in the ordinary course of
business in accordance with the terms of the Company Equity Plans as in
effect on the date of this Agreement and (ii) issuances of options, rights
or other awards in the ordinary course of business pursuant to the Company
Equity plans as in effect on the date of this Agreement.
(d) ORGANIZATIONAL DOCUMENTS AND COMPANY RIGHTS AGREEMENT. Except to
the extent required to comply with their respective obligations hereunder
or required by law, the Company and its Material Subsidiaries shall not
amend or propose to amend their respective Organizational Documents or
amend, modify or terminate the Company Rights Agreement.
(e) INDEBTEDNESS. The Company shall not (i) incur any indebtedness for
borrowed money or guarantee any such indebtedness or issue or sell any debt
securities or warrants or rights to acquire any debt securities of the
Company or guarantee any debt securities of other Persons other than
indebtedness of the Company or its Subsidiaries to the Company or its
Subsidiaries and other than in the ordinary course of business, (ii) make
any loans, advances or capital contributions to, or investments in, any
other Person, other than by the Company or its Subsidiaries to or in the
Company or its Subsidiaries or (iii) pay, discharge, modify or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than in the case of clauses
(ii) and (iii), loans, advances, capital contributions, investments,
payments, discharges or satisfactions incurred or committed to in the
ordinary course of business.
(f) COMPENSATION. The Company shall not, and shall not permit its
Subsidiaries to (i) increase the compensation payable or to become payable
to any of its executive officers or employees or (ii) take an action with
respect to the grant of any severance or termination pay, or stay, bonus or
other incentive arrangement (other than as required pursuant to benefit
plans and policies in effect on the date of this Agreement), except any
such increases or grants made in the ordinary course of business, pursuant
to agreements, plans or policies existing on the date hereof or as
otherwise provided under this Agreement.
(g) TAX ELECTIONS. The Company shall not, and shall not permit its
Subsidiaries to, make any material Tax election or change its (or its
Subsidiaries') method of accounting for Tax purposes.
(h) EMPLOYMENT. The Company shall not, and shall not permit its
Subsidiaries to, release or otherwise terminate the employment of any
employee or hire any new employees, except in the ordinary course of
business.
25
<PAGE>
(i) BENEFIT PLANS AND AGREEMENTS. The Company shall not, and shall not
permit its Subsidiaries to, establish, adopt or enter into any new employee
benefit plans or agreements (including pension, profit sharing, bonus,
incentive compensation, director and officer compensation, severance,
medical, disability, life or other insurance plans, and employment
agreements) or amend or modify any existing Company Benefit Plans, or
extend coverage of the Company Benefit Plans, except in each case for
amendments or modifications required by applicable law and except as set
forth in the Company Disclosure Schedule.
(j) OTHER ACTIONS.
(i) The Company shall not, and shall not permit its Subsidiaries
to, take any action that could reasonably be expected to result in (A) any
of the representations and warranties of the Company set forth in this
Agreement that are qualified as to materiality becoming untrue, (B) any of
such representations and warranties that are not so qualified becoming
untrue in any material respect or (C) except as otherwise permitted by
Section 5.4, any of the conditions to the Merger set forth in Article VI
not being satisfied.
(ii) The Company shall not, and shall not permit its Subsidiaries
to, (A) transfer, lease, license, guarantee, sell, mortgage, pledge,
dispose of or encumber any assets except in the ordinary course of
business; (B) authorize capital expenditures in any manner not reflected in
the capital budget of the Company as currently in effect or make any
acquisition of, or investment in, any business or stock of any other person
or entity except in the ordinary course of business; (C) settle or
compromise any material claims or litigation or, except in the ordinary
course of business, modify, amend or terminate any of the Company Material
Contracts or waive, release or assign any material rights or claims; (D)
permit any material insurance policy naming it as a beneficiary or a loss
payable payee to be canceled or terminated without the prior written
approval of Parent, except in the ordinary course of business; or (E)
terminate the employment of any employee who is covered by a change in
control, employment, termination or similar agreement, except for Cause (as
defined in such agreements) or permit circumstances to exist that would
provide such employee with Good Reason (as defined in such agreements) to
terminate employment.
4.2. COVENANTS OR PARENT AND MERGER SUB. During the period from the date of this
Agreement and continuing until the Effective Time (except as expressly
contemplated or permitted by this Agreement or to the extent that the Company
shall otherwise consent in writing) Parent shall not, and shall not permit any
of its Subsidiaries to, take any action that could reasonably be expected to
result in (i) any of the representations and warranties of the Parent or Merger
Sub set forth in this Agreement that are qualified as to materiality becoming
untrue in any material respect or (ii) any of the conditions to the Merger set
forth in Article VI not being satisfied.
26
<PAGE>
4.3. ADVICE OF CHANGES; GOVERNMENT FILINGS.
(a) Each party shall (a) confer on a regular and frequent basis with
the other, (b) report (to the extent permitted by law, regulation and any
applicable confidentiality agreement) to the other on operational matters
and (c) promptly advise the other orally and in writing of (i) any
representation or warranty made by it contained in this Agreement that is
qualified as to materiality becoming untrue or inaccurate in any respect or
any such representation or warranty that is not so qualified becoming
untrue or inaccurate in any material respect, (ii) the failure by it (A) to
comply with or satisfy in any respect any covenant, condition or agreement
required to be complied with or satisfied by it under this Agreement that
is qualified as to materiality or (B) to comply with or satisfy in any
material respect any covenant, condition or agreement required to be
complied with or satisfied by it under this Agreement that is not so
qualified as to materiality or (iii) any change, event or circumstance that
has had or could reasonably be expected to have a Material Adverse Effect
on such party or material adversely affect its ability to consummate the
Merger in a timely manner; provided, however, that no such notification
shall affect the representations, warranties, covenants or agreements of
the parties or the conditions to the obligations of the parties under this
Agreement. The Company shall file all reports required to be filed by it
with the SEC (and all other Governmental Entities) between the date of this
Agreement and the Effective Time and shall (to the extent permitted by law
or regulation or any applicable confidentiality agreement) deliver to
Parent copies of all such reports promptly after the same are filed.
Subject to applicable laws relating to the exchange of information, each of
the Company and Parent shall have the right to review in advance, and to
the extent practicable each will consult with the other, with respect to
all the information relating to the other party and each of their
respective Subsidiaries, which appears in any filings, announcements or
publications made with, or written materials submitted to, any third party
or any Governmental Entity in connection with the transactions contemplated
by this Agreement. In exercising the foregoing right, each of the parties
hereto agrees to act reasonably and as promptly as practicable. Each party
agrees that, to the extent practicable, it will consult with the other
party with respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and Governmental Entities necessary or
advisable to consummate the transactions contemplated by this Agreement and
each party will keep the other party apprised of the status of matters
relating to completion of the transactions contemplated hereby.
(b) Each party shall cooperate with each other and shall use its
respective reasonable best efforts to reach a mutually satisfactory
arrangement with the United States government or an appropriate agency
thereof so that Parent's acquisition of the Company Common Stock would not
present national security concerns on account of the Company being a party
to United States government contracts (it being agreed that in determining
whether any such arrangement is satisfactory, Parent shall take into
account
27
<PAGE>
the relative materiality of the Company's government contract business as
compared to the business of the Company as a whole). For purposes of the
foregoing sentence, reasonable best efforts shall include making available
knowledgeable individuals and retaining suitable advisors and conducting
meetings and discussions with representatives of the United States
government.
ARTICLE V.
ADDITIONAL AGREEMENTS
5.1. APPROVAL BY THE COMPANY'S STOCKHOLDERS.
(a) Subject to the last sentence of this subparagraph (a), if the
Minimum Condition is satisfied, at the request of Merger Sub, the Company will
take all action necessary to enable Merger Sub to adopt this Agreement by
written consent (the "WRITTEN CONSENT") (including the completion and mailing of
the Information Statement) in accordance with the DGCL and its Certificate of
Incorporation and bylaws and otherwise to notify the holders of Company Common
Stock as promptly as practicable of the approval of this Agreement and the
Merger. The record date for purposes of determining the holders of record
entitled to consent to the Merger pursuant to this subparagraph shall be the
close of business on the first business day after Merger Sub acquires shares of
Company Common Stock pursuant to the Offer. Notwithstanding the foregoing and
notwithstanding any other provision of this Agreement to the contrary, to the
extent the Company is unable or it becomes reasonably impractical for the
Company, pursuant to the rules and regulations of the SEC and/or of Nasdaq to
obtain the requisite stockholder approval for this Agreement and the Merger, by
means of the Written Consent and as contemplated by this subparagraph, the
Company shall and shall be entitled to seek to obtain such stockholder approval
pursuant to subparagraph (c) below.
(b) Neither a preliminary nor a definitive Information Statement shall
be filed, and no amendment or supplement to a preliminary or definitive
Information Statement will be made by the Company, without consultation with
Parent and its counsel. The Information Statement shall contain the notices and
other information required by Section 228(d) and 262(d)(2) of the DGCL as
applicable.
(c) If required by the DGCL or the Company's Organizational Documents
in order to consummate the Merger, the Company shall, as soon as practicable
following the acquisition by Merger Sub of the shares of the Company Common
Stock pursuant to the Offer, duly call, give notice of, convene and hold a
meeting of its stockholders (the "COMPANY STOCKHOLDERS MEETING") for the purpose
of obtaining the Required Company Votes, and, the Company shall, through the
Company Board, recommend to its stockholders that they accept the Offer and
tender all of their shares of Company Common Stock to Merger Sub and vote in
favor of the adoption of this Agreement; provided, however, that the Company
Board may withdraw, modify or change such recommendation to the extent that the
Company Board determines to do
28
<PAGE>
so in exercise of its fiduciary duties or as permitted under Section 5.4.
Notwithstanding anything to the contrary contained in this Agreement, in the
event the Minimum Condition is not met, the Company shall hold the Company
Stockholders Meeting for the purpose of allowing the Company's stockholders to
vote on the adoption of this Agreement (including in the event that the Company
Board has determined at any time subsequent to the date hereof that this
Agreement is no longer advisable and recommends that the stockholders of the
Company reject it). Parent shall vote or cause to be voted all the shares of
Company Common Stock owned of record by Parent, Merger Sub or any of its other
Subsidiaries in favor of the approval of the Merger and adoption of this
Agreement. After the date hereof and prior to the expiration of the Offer,
Parent shall not purchase, offer to purchase, or enter into any contract,
agreement or understanding regarding the purchase of shares of Company Common
Stock, except pursuant to the terms of the Offer and the Merger.
(d) Notwithstanding the preceding paragraph or any other provision of
this Agreement, in the event Parent, Merger Sub or any other Subsidiary of
Parent shall beneficially own, in the aggregate, at least 90% of the outstanding
shares of the Company Common Stock, the Company shall not be required to call
the Company Stockholders Meeting or to file or mail the Proxy Statement, and the
parties hereto shall, at the request of Parent and subject to Article VI, take
all necessary and appropriate action to cause the Merger to become effective as
soon as practicable after the acceptance for payment of and payment for shares
of the Company Common Stock by Merger Sub pursuant to the Offer without a
meeting of stockholders of the Company in accordance with Section 253 of the
DGCL.
(e) If required by applicable law, as soon as practicable following
Parent's request, the Company and Parent shall prepare and file with the SEC the
Proxy Statement. Each of the Company and Parent shall use reasonable efforts to
cause the Proxy Statement to be mailed to the Company's stockholders, as
promptly as practicable.
5.2. ACCESS TO INFORMATION. From the date hereof until the earlier of the
Effective Time or the termination of this Agreement, upon reasonable notice, the
Company shall afford to the officers, employees, accountants, counsel, financial
advisors and other representatives of Parent ("PARENT REPRESENTATIVES")
reasonable access during normal business hours, to all of its and its
Subsidiaries" properties, books, contracts, commitments and records and its
officers, management employees and representatives and, during such period, the
Company shall furnish promptly to Parent, consistent with its legal obligations,
all information concerning its business, properties and personnel as the other
party may reasonably request; provided, however, the Company may restrict the
foregoing access to the extent that (i) a Governmental Entity requires the
Company or any of its Subsidiaries to restrict access to any properties or
information reasonably related to any such contract on the basis of applicable
laws and regulations or (ii) any law, treaty, rule or regulation of any
Governmental Entity applicable to the Company or any of its Subsidiaries
requires the Company or any of its Subsidiaries to restrict access to any
properties or information (subject, however, to existing confidentiality and
similar nondisclosure obligations
29
<PAGE>
and the preservation of attorney client and work product privileges). Such
information shall be held in confidence to the extent required by, and in
accordance with, the provisions of the letter (the "CONFIDENTIALITY AGREEMENT")
dated April 7, 1999, between the Company and Parent, which Confidentiality
Agreement shall, notwithstanding language in such Confidentiality Agreement to
the contrary, remain in full force and effect.
5.3. APPROVALS AND CONSENTS; COOPERATION. Each of the Company and Parent shall
cooperate with each other and use (and shall cause their respective
Subsidiaries to use) its reasonable best efforts to take or cause to be taken
all actions, and do or case to be done all things, necessary, proper or
advisable on their part under this Agreement and applicable laws to consummate
and make effective the Merger and the other transactions contemplated by this
Agreement as soon as practicable, including (i) preparing and filing as promptly
as practicable all documentation to effect all necessary applications, notices,
petitions, filings, tax ruling requests and other documents and to obtain as
promptly as practicable all consents, waivers, licenses, orders, registrations,
approvals, permits, tax rulings and authorizations necessary or advisable to be
obtained from any third party and/or any Governmental Entity in order to
consummate the Merger or any of the other transactions contemplated by this
Agreement and (ii) taking all reasonable steps as may be necessary to obtain all
such consents, waivers, licenses, registrations, permits, authorizations, tax
rulings, orders and approvals. Without limiting the generality of the foregoing,
each of the Company and Parent agrees to make all necessary filings in
connection with the Required Regulatory Approvals as promptly as practicable
after the date of this Agreement, and to use its reasonable efforts to furnish
or cause to be furnished, as promptly as practicable, all information and
documents requested with respect to such Required Regulatory Approvals and shall
otherwise cooperate with the applicable Governmental Entity in order to obtain
any Required Regulatory Approvals in as expeditious a manner as possible. Each
of the Company and Parent shall use its reasonable efforts to resolve such
objections, if any, as any Governmental Entity may assert with respect to this
Agreement and the transactions contemplated hereby in connection with the
Required Regulatory Approvals. In the event that a suit is instituted by a
Person or Governmental Entity challenging this Agreement and the transactions
contemplated hereby as violative of applicable antitrust or competition laws,
each of the Company and Parent shall use its reasonable efforts to resist or
resolve such suit. The Company and Parent each shall, upon request by the other,
furnish the other with all information concerning itself, its Subsidiaries,
directors, officers and stockholders and such other matters as may reasonably be
necessary or advisable in connection with the Offer Documents, Schedule 14D-9,
Proxy Statement or any other statement, filing, tax ruling request, notice or
application made by or on behalf of the Company, Parent or any of their
respective Subsidiaries to any third party and/or any Governmental Entity in
connection with the Offer, the Merger or the other transactions contemplated by
this Agreement.
30
<PAGE>
5.4. ACQUISITION PROPOSALS.
(a) Unless and until this Agreement shall have been terminated by
either party pursuant to Article VII hereof, the Company, its Subsidiaries, or
any of the respective officers and directors of the Company or its Subsidiaries,
shall not, and the Company shall direct and use its reasonable best efforts to
cause its employees, agents and representatives (including, without limitation,
any investment banker, attorney or accountant retained by the Company or any of
its Subsidiaries) not to, take or cause, directly or indirectly, any of the
following actions with any party other than Parent, Merger Sub or their
respective designees: (i) solicit, knowingly encourage, initiate, participate in
or otherwise facilitate any negotiations, inquiries or discussions with respect
to any offer, indication or proposal to acquire all or more than 15% of its
business, assets or capital shares whether by merger, consolidation, other
business combination, purchase of assets, reorganization, tender or exchange
offer or otherwise (each of the foregoing, an "ACQUISITION PROPOSAL") or (ii)
disclose, in connection with an Acquisition Proposal, any information or provide
access to its properties, books or records, except as required by law or
pursuant to a governmental request for information. The Company will immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing. The Company will take the necessary steps to promptly inform the
individuals or entities referred to in the first sentence of Section 5.4(a)
hereof of the obligations undertaken in this Section 5.4. The Company also will
promptly request each person which has heretofore executed a confidentiality
agreement in connection with its consideration of acquiring the Company and/or
any of its Subsidiaries to return or destroy all confidential information
heretofore furnished to such person by or on behalf of the Company.
(b) Notwithstanding anything to the contrary contained in Section
5.4(a) or elsewhere in this Agreement, prior to the Effective Time, the Company
may participate in discussions or negotiations with, and furnish non-public
information, and afford access to the properties, books, records, officers,
employees and representatives of the Company to any Person, entity or group if
such Person, entity or group has delivered to the Company, prior to the date of
the Company Stockholders Meeting or the Written Consent, as applicable, and in
writing, an Acquisition Proposal which the Company Board in its good faith
reasonable judgment determines if consummated would be more favorable, from a
financial point of view, to the Company's stockholders than the transactions
contemplated by this Agreement, which determination may be made only after the
Company Board (i) receives advice of its legal counsel that the Company Board
would breach its fiduciary duties if it did not accept the Acquisition Proposal
and (ii) an opinion of its financial advisors to the effect that the Acquisition
Proposal is superior, from a financial point of view, to the Company's
stockholders than the transactions contemplated by this Agreement (a "SUPERIOR
PROPOSAL"). In the event the Company receives a Superior Proposal, nothing
contained in this Agreement (but subject to the terms of this paragraph (b))
will prevent the Company Board from executing or entering into an agreement
relating to such Superior Proposal and recommending such Superior Proposal to
its stockholders,
31
<PAGE>
if the Company Board determines in accordance with the preceding sentence that
its fiduciary duties require it to do so; in such case, the Company Board may
withdraw, modify or refrain from making its recommendation of the Merger;
PROVIDED, HOWEVER that the Company shall (i) promptly notify Parent, and in any
event within 24 hours, if any such Acquisition Proposal is received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, the Company or any of its
Subsidiaries, indicating, in connection with such notice, the name of such
person and the material terms of any such Acquisition Proposal, (ii) provide
Parent at least 48 hours prior written notice of the Company's intention to
execute or enter into an agreement relating to such Superior Proposal and (iii)
terminate this Agreement by written notice to Parent provided no sooner than 48
hours after Parent's receipt of a copy of such Superior Proposal (or a
description of the significant terms and conditions thereof). Notwithstanding
anything to the contrary contained in Section 5.4 or elsewhere in this
Agreement, prior to the Effective Time, the Company may, in connection with a
possible Acquisition Proposal, refer any third party to this Section 5.4 and
Section 7.2(b) and make a copy of this Section 5.4 and Section 7.2(b) available
to a third party.
5.5. EMPLOYEE BENEFITS.
(a) Subject to subparagraph 5.5(c) below, for a period of two years
imme diately following the Closing Date, Parent shall or shall cause the
Surviving Corporation to maintain in effect employee benefit plans and
arrangements for employees of the Company and its Subsidiaries which provide
benefits which have a value which is at least comparable in the aggregate to the
benefits provided by the Company Benefit Plans other than Company Equity Plans.
(b) Employees of the Company and its Subsidiaries as of the Effective
Time shall receive credit for service with the Company and its Subsidiaries to
the same extent such service credit was granted under the Company Benefit Plans
under the comparable employee benefit plans, programs and policies of Parent,
the Surviving Corporation or their respective Subsidiaries in which such
employees become participants, solely for purposes of eligibility to
participate, vesting, vacation entitlement and severance benefits; it being
understood, that such service prior to the Effective Time shall not be credited
for purposes of benefit accrual under any defined benefit pension plan or
eligibility for post-retirement medical benefits.
(c) Parent shall cause the Surviving Corporation to assume and honor
in accordance with their terms all written employment, severance, retention and
termination agreements (including change in control provisions and including the
Employee Retention Plan adopted by the Company on April 17, 1999) applicable to
employees of the Company and its Subsidiaries provided to Parent on or prior to
the date of this Agreement or described on the Company's SEC Reports.
Notwithstanding the foregoing, (i) Parent agrees to include the employees of the
Company and its Subsidiaries in a sabbatical policy that is substantially
comparable to the Company Sabbatical Policy listed in Section 5.5(c) of the
Company
32
<PAGE>
Disclosure Schedule, (ii) except as provided in this Agreement, nothing shall in
any way limit or restrict the ability of Parent or the Surviving Corporation
following the Effective Time to modify, amend or terminate any Company Benefit
Plan, in accordance with the terms of such Company Benefit Plan. Nothing
contained herein shall limit or restrict the ability of Parent to terminate the
employment of any employee.
5.6. FEES AND EXPENSES. Whether or not the transactions contemplated hereby are
consummated, all Expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
Expenses, except (a) if the Merger is consummated, the Surviving Corporation
shall pay, or cause to be paid, any and all property or transfer taxes imposed
on the Company or its Subsidiaries and any real property transfer tax imposed on
any holder of shares of capital stock of the Company resulting from the Merger,
(b) the Expenses incurred in connection with the printing, filing and mailing to
stockholders of the Information Statement, if any, or the Proxy Statement and
the solicitation of stockholder approvals shall be shared equally by the Company
and Parent, and (c) as provided in Section 7.2. As used in this Agreement,
"EXPENSES" includes all out-of-pocket expenses (including, without limitation,
all fees and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party or on its
behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement and the transactions
contemplated hereby, including the preparation, printing, filing and mailing of
the Offer Documents and the Information Statement, if any, or the Proxy
Statement, if any, and the solicitation of stockholder approvals and all other
matters related to the transactions contemplated hereby.
5.7. INDEMNIFICATION; DIRECTORS" AND OFFICERS" INSURANCE. Parent and the
Surviving Corporation shall cause to be maintained in effect (i) for a period of
six years after the Effective Time, the current provisions regarding
indemnification of current or former officers and directors (each an
"INDEMNIFIED PARTY") contained in the Organizational Documents of the Company or
its Subsidiaries and in any agreements between an Indemnified Party and the
Company or its Subsidiaries, provided that in the event any claim or claims are
asserted or made within such six year period, all rights to indemnification in
respect of any claim or claims shall continue until final disposition of any and
all such claims, and (ii) for a period of six years, the current policies of
directors" and officers" liability insurance and fiduciary liability insurance
maintained by the Company (provided that Parent or the Surviving Corporation may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are, in the aggregate, no less
advantageous to the insured and provided that such substitution shall not result
in any gaps or lapses in coverage with respect to matters occurring prior to the
Effective Time) with respect to claims arising from facts or events that
occurred on or before the Effective Time. Parent shall not be obligated to pay
annual premiums to the extent such premiums exceed 150% of the annual premiums
paid as of the date hereof by the Company for such insurance (such 150% amount,
the "MAXIMUM PREMIUM"). If such insurance coverage cannot be obtained at all, or
can only be obtained at an annual premium in excess of the Maximum Premium,
Parent shall
33
<PAGE>
maintain the most advantageous policies of directors' and officers' insurance
obtainable for an annual premium equal to the Maximum Premium.
This covenant is intended to be for the benefit of, and shall be
enforceable by, each of the Indemnified Parties and their respective heirs and
legal representatives. For a period of six years after the Effective Time
(provided that in the event any claim or claims are asserted or made within such
six year period, all rights to indemnification in respect of any claim or claims
shall continue until final disposition of any and all such claims), Parent shall
indemnify the Indemnified Parties to the same extent as such Indemnified are
entitled to indemnification pursuant to clause (i) of the first sentence of this
Section 5.7. Without limitation of the foregoing, in the event any such
Indemnified Party is or becomes involved in any action, proceeding or
investigation in connection with any matter occurring prior to or on the
Effective Time, including the transactions contemplated hereby, Parent will pay
as incurred such Indemnified Party's reasonable fees and expenses of counsel
selected by the Indemnified Party and reasonably acceptable to Parent (including
the cost of any investigation and preparation and the cost of any appeal)
incurred in connection therewith. This covenant shall survive the closing of the
transactions contemplated hereby and is intended to be for the benefit of, and
shall be enforceable by, each of the Indemnified Parties and their respective
heirs and legal representatives.
5.8. PUBLIC ANNOUNCEMENTS. So long as this Agreement is in effect, the Company
and Parent shall use all reasonable efforts to develop a joint communications
plan and each party shall use all reasonable efforts (i) to ensure that all
press releases and other public statements with respect to the transactions
contemplated hereby shall be consistent with such joint communications plan and
(ii) unless otherwise required by applicable law or by obligations pursuant to
any listing agreement with or rules of any securities exchange, to consult with
each other before issuing any press release or otherwise making any public
statement with respect to this Agreement or the transactions contemplated
hereby.
5.9. TAKEOVER STATUTES. If Section 203 of the DGCL or any other "fair price",
"moratorium", "control share acquisition", "interested shareholder", "business
combination" or other similar antitakeover statute or regulation (including,
without limitation, the business combination provisions of Section 203 of the
DGCL) (each a "TAKEOVER STATUTE") shall become applicable to the transactions
contemplated hereby, the Company and the members of the Company Board, subject
to its fiduciary duties, shall grant such approvals and take such actions as are
necessary so that the transactions contemplated hereby may be consummated as
promptly as practicable on the terms contemplated hereby and otherwise act to
eliminate or minimize the effects of such Takeover Statute on the transactions
contemplated hereby.
5.10. RIGHTS AGREEMENT. The Company shall take all necessary action to cause the
dilution provisions of the Company Rights Agreement to be inapplicable to the
transactions contemplated
34
<PAGE>
by this Agreement, without any payment to holders of rights issued pursuant to
such rights agreement.
5.11. EMPLOYEE STOCK OPTIONS. The Company shall use its best efforts to take all
action necessary so that each outstanding stock option granted by the Company to
employees, directors or consultants under the Company Equity Plans (an "OPTION")
whether or not then vested or exercisable, shall be canceled immediately prior
to the Effective Time, and shall thereafter represent the right to receive at
the Effective Time from the Company or as soon as practicable thereafter from
the Surviving Corporation in consideration for such cancellation an amount in
cash equal to the product of (A) the number of shares of Company Common Stock
previously subject to such Option and (B) the excess, if any, of the Merger
Consideration over the exercise price per share of Company Common Stock
previously subject to such Option, less any required withholding taxes. Promptly
following the execution of this Agreement, the Company shall mail to each person
who is a holder of outstanding stock options granted pursuant to the Company
Equity Plans (regardless of whether such stock options are vested or exercisable
at the time) a letter in a form acceptable to Parent which describes the
treatment of and payment for such options pursuant to this Section 5.11 and
provides instructions for use in obtaining payment for such options hereunder.
The Company shall use its reasonable best efforts to obtain a release from each
such holder, prior to or as soon as practicable following the Effective Time, by
which such holder effectively relinquishes all rights with respect to such
holder's outstanding stock options upon payment therefor in accordance with this
Section 5.11. The Company shall take all actions necessary to cause the Company
Equity Plans to be terminated effective as of the Effective Time.
5.12. FURTHER ASSURANCES. In case at any time after the Effective Time any
further action is reasonably necessary to carry out the purposes of this
Agreement, the proper officers of the Company, Parent and Merger Sub shall take
any such necessary action.
ARTICLE VI.
CONDITIONS PRECEDENT
6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The obligations
of the Company, Parent and Merger Sub to effect the Merger are subject to the
satisfaction or waiver (subject to Section 1.4(c)) on or prior to the Effective
Time of the following conditions:
(a) STOCKHOLDER APPROVAL. The Company shall have obtained all
approvals of holders of shares of capital stock of the Company necessary to
approve this Agreement and all the transactions contemplated hereby (including
the Merger) to the extent required by law.
(b) HSR ACT. The waiting period (and any extension thereof) applicable
to the Merger under the HSR Act shall have been terminated or shall have
expired.
35
<PAGE>
(c) NO INJUNCTION OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by a court or
other Governmental Entity of competent jurisdiction shall be in effect and have
the effect of making the Merger illegal or otherwise prohibiting consummation of
the Merger; provided, however, that the provisions of this Section 6.1(c) shall
not be available to any party whose failure to fulfill its obligations pursuant
to Section 5.3 shall have been the cause of, or shall have resulted in, such
order or injunction.
(d) REQUIRED REGULATORY APPROVALS. All authorizations, consents,
orders and approvals of, and declarations and filings with, and all expirations
of waiting periods imposed by, any Governmental Entity which, if not obtained in
connection with the consummation of the transactions contemplated hereby, could
reasonably be expected to have a Material Adverse Effect on the Company or
materially impair or delay the ability of the Company, Parent or Merger Sub to
consummate the transactions contemplated hereby (collectively, "REQUIRED
REGULATORY APPROVALS"), shall have been obtained, have been declared or filed or
have occurred, as the case may be, and all such Required Regulatory Approvals
shall be in full force and effect.
(e) COMPLETION OF THE OFFER. Merger Sub shall have (i) commenced the
Offer pursuant to Article I hereof and (ii) purchased, pursuant to the terms and
conditions of such Offer, all shares of Company Common Stock duly tendered and
not withdrawn; provided, however, that neither Parent nor Merger Sub shall be
entitled to rely on the condition in clause (ii) above if either of them shall
have failed to purchase shares of Company Common Stock pursuant to the Offer in
breach of their obligations under this Agreement.
ARTICLE VII.
TERMINATION AND AMENDMENT
7.1. TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, by action taken or authorized by the Board of Directors of the
terminating party or parties, whether before or after approval of this Agreement
and the matters contemplated herein, including the Merger, by the stockholders
of the Company
(a) By mutual written consent of Parent and the Company, by action of
their respective Boards of Directors;
(b) By either the Company or Parent if the Merger shall not have been
consummated by the date which is four months from the date of this Agreement
(the "OUTSIDE DATE"); provided further that the right to terminate this
Agreement under this Section 7.1(b) shall not be available to any party whose
failure to fulfill any obligation or condition under this Agreement has been the
cause of, or resulted in, the failure of the Merger to occur on or before such
date and shall not be available to Parent if it has purchased shares of the
Company Common Stock pursuant to the Offer;
36
<PAGE>
(c) By the Company or Parent if the Offer is terminated or withdrawn
pursuant to its terms without any shares of Company Common Stock being purchased
thereunder; provided that Parent may terminate this Agreement pursuant to this
Section 7.1(c) only if Parent's or Merger Sub's termination or withdrawal of the
Offer is not in violation of the terms of this Agreement or the Offer;
(d) By either the Company or Parent if any Governmental Entity shall
have issued an order, decree or ruling or taken any other action (which order,
decree, ruling or other action the parties shall have used their reasonable
efforts to resist, resolve or lift, as applicable, subject to the provisions of
Section 5.3) permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement, and such order, decree, ruling or
other action shall have become final and nonappealable;
(e) By either Parent or the Company if any approval by the
stockholders of the Company required for the consummation of the Merger or the
other transactions contemplated hereby shall not have been obtained at the
Company Stockholders Meeting or any adjournment thereof by reason of the failure
to obtain the required vote at a duly held meeting of stockholders or at any
adjournment thereof;
(f) By Parent, prior to the purchase by Merger Sub of shares of
Company Common Stock pursuant to the Offer, if (i) the Company Board shall have
withdrawn or adversely modified its recommendation of the Offer, the Merger or
this Agreement or the Company Board, upon request by Parent, shall fail to
reaffirm such approval or recommendation within 10 business days after such
request if an Acquisition Proposal is pending, or shall have resolved to do any
of the foregoing; (ii) the Company Board shall have recommended to the
stockholders of the Company that they approve, an Acquisition Proposal other
than transactions contemplated by this Agreement; (iii) a tender offer or
exchange offer that, if successful, would result in any Person or "group"
becoming a "beneficial owner" (such terms having the meaning in this Agreement
as is ascribed under Regulation 13D under the Exchange Act) of 15% or more of
the outstanding shares of Company Common Stock is commenced (other than by
Parent or an affiliate of Parent) and the Company Board recommends that the
stockholders of the Company tender their shares in such tender or exchange
offer; (iv) for any reason the Company fails to call and hold the Company
Stockholders Meeting by the Outside Date (provided that Parent's right to
terminate this Agreement under such clause (iv) shall not be available if at
such time the Company would be entitled to terminate this Agreement under
Section 7.1(c) or Section 7.1(i) or following the purchase by Merger Sub of a
number of shares of Company Common Stock that satisfies the Minimum Condition);
or (v) if the Company or any of the Persons described in Section 5.4(a) shall
(A) willfully and materially breach Section 5.4(a) or (B) take any of the
actions that would be proscribed by Section 5.4(a) but for the provisions of
Section 5.4(b) allowing certain actions to be taken pursuant to Section 5.4(b)
under the conditions set forth therein.
37
<PAGE>
(g) By the Company, prior to the purchase by Merger Sub of shares of
Company Common Stock pursuant to the Offer, if the Company Board determines to
accept a Superior Proposal;
(h) By Parent, prior to the purchase by Merger Sub of shares of
Company Common Stock pursuant to the Offer, upon a material breach of any
covenant or agreement on the part of the Company set forth in this Agreement, or
if (i) any representation or warranty of the Company that is qualified as to
materiality shall have become untrue or (ii) any representation or warranty of
the Company that is not so qualified shall have become untrue in any material
respect (a "TERMINATING COMPANY BREACH"); provided, however, that, such
Terminating Company Breach must be reasonably likely to materially adversely
affect the Company or the consummation of the Offer or the Merger and if such
Terminating Company Breach is capable of being cured by the Company prior to the
Effective Time through the exercise of its best efforts, so long as the Company
continues to exercise such best efforts, Parent may not terminate this Agreement
under this Section 7.1(h); or
(i) By the Company, upon a material breach of any covenant or
agreement on the part of Parent or Merger Sub set forth in this Agreement, or if
(i) any representation or warranty of Parent or Merger Sub that is qualified as
to materiality shall have become untrue or (ii) any representation or warranty
of Parent or Merger Sub that is not so qualified shall have become untrue in any
material respect ("TERMINATING PARENT BREACH"); provided, however, that, such
Terminating Parent Breach must be reasonably likely to materially adversely
effect the consummation of the Offer or the Merger and if such Terminating
Parent Breach is capable of being cured by Parent prior to the Effective Time
through the exercise of best efforts, so long as Parent continues to exercise
such best effort, the Company may not terminate this Agreement under this
Section 7.1(i);
(j) By the Company, if Merger Sub shall have failed to amend the Offer
within the two Business Day period specified in Section 1.1(a) or Merger Sub
fails to purchase validly tendered shares of the Company Common Stock in
violation of the terms of the Offer or this Agreement; or
(k) By Parent or the Company, if the Offer terminates or expires on
account of the failure of any condition specified in Annex A without Merger Sub
having purchased any shares of Company Common Stock thereunder (provided that
the right to terminate this Agreement pursuant to this subparagraph shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of any such
condition).
38
<PAGE>
7.2. EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement by either the
Company or Parent as provided in Section 7.1, this Agreement shall forthwith
become void and there shall be no liability or obligation on the part of Parent
or the Company or their respective officers or directors except (i) with respect
to the last sentence of Section 5.2, Section 5.6, this Section 7.2 and Article
VIII and (ii) with respect to any liabilities or damages incurred or suffered by
a party as a result of the willful breach by the other party of any of its
covenants or other agreements set forth in this Agreement.
(b) In the event that (x) this Agreement is terminated pursuant to
Section 7.1(f) or 7.1(g), or (y) (i) the Offer shall have remained open for a
minimum of at least 20 Business Days from the date that it is amended pursuant
to Section 1.1(a), (ii) after the date hereof any corporation, partnership,
person, other entity or group (as defined in Section 13(d)(3) of the Exchange
Act) other than Parent or Merger Sub or any of their respective Subsidiaries or
affiliates shall have become the beneficial owner of 15% or more of the
outstanding shares of Company Common Stock or made any Acquisition Proposal,
(iii) the Minimum Condition shall not have been satisfied and the Offer is
terminated pursuant to Section 7.1(c) and Merger Sub shall not have accepted for
payment any shares of Company Common Stock pursuant to the Offer and (iv) within
twelve months of such termination the Company enters into an agreement providing
for the consummation of an Acquisition Proposal (as such term is defined in
Section 5.4(a), except that the reference in such definition to 15% shall be
deemed a reference to 40% for purposes of this clause (iv) only) or any other
person or other entity (other than Parent or any of its affiliates) becomes the
beneficial owner of 40% or more of the outstanding shares of Company Common
Stock, then the Company shall pay the Parent in cash (A) $30,000,000 plus (B) up
to $7,500,000 of Parent's reasonable and documented expenses incurred in
connection with the Offer and Merger ((A) and (B) together, the "TERMINATION
FEE"), which amount shall be payable by wire transfer of immediately available
funds no later than two Business Days after such termination, in the case of
clause (x), or within two business days of the Company entering into an
agreement or a person becoming the beneficial owner of 40% or more of the
Company's outstanding shares of Company Common Stock, in the case of clause (y);
PROVIDED, HOWEVER, the Termination Fee shall not be payable following
termination by Parent pursuant to Section 7.1 (f)(v)(B) unless within one year
of the date of such termination the Company or one or more of its affiliates
enters into an agreement providing for the consummation of an Acquisition
Proposal (as defined in Section 5.4(a), except that the reference in such
definition to 15% shall be deemed to be a reference to 40% for purposes of this
proviso only), in which case the Company shall pay Parent the Termination Fee
within two business days after the entry into such agreement; PROVIDED, FURTHER,
HOWEVER, that the one year period in the period in the preceding provision shall
be deemed to be two years if the Company enters into an agreement providing for
the consummation of an Acquisition Proposal with the Person that made the
Superior Proposal that caused the Company to take the actions that triggered
Parent's right to terminate under Section 7.1(f)(v)(B). The Company acknowledges
that the agreements contained in this Section 7.2(b)
39
<PAGE>
are an integral part of the transactions contemplated in this Agreement, and
that, without these agreements, the Parent and Merger Sub would not enter into
this Agreement; accordingly, if the Company fails to promptly pay the amount due
pursuant to this Section 7.2(b), and, in order to obtain such payment, Parent or
Merger Sub commences a suit which results in a judgment against the Company for
the fee set forth in this paragraph (b), the Company shall pay to Parent or
Merger Sub its costs and expenses (including attorneys' fees) in connection with
such suit, together with interest on the amount of the fee at the prime rate of
Citibank N.A. on the date such payment was required to be made.
7.3. AMENDMENT. Subject to Section 1.4(c), this Agreement may be amended by the
parties hereto, by action taken or authorized by their respective Boards of
Directors, at any time before or after approval of the matters presented in
connection with the Merger by the stockholders of the Company, but, after any
such approval, no amendment shall be made which by law or in accordance with the
rules of Nasdaq requires further approval by such stockholders without such
further approval. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
7.4. EXTENSION; WAIVER. Subject to Section 1.4(c), at any time prior to the
Effective Time, the parties hereto, by action taken or authorized by their
respective Boards of Directors, may, to the extent legally allowed, (i) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such party. No delay on the part of any party hereto in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
waiver on the part of any party hereto of any right, power or privilege
hereunder operate as a waiver of any other right, power or privilege hereunder,
nor shall any single or partial exercise of any right, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder. Unless otherwise provided, the rights
and remedies herein provided are cumulative and are not exclusive of any rights
or remedies which the parties hereto may otherwise have at law or in equity. The
failure of any party to this Agreement to assert any of its rights under this
Agreement or otherwise shall not constitute a waiver of those rights.
ARTICLE VIII.
GENERAL PROVISIONS
8.1. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS; NO OTHER
REPRESENTATIONS AND WARRANTIES. None of the representations, warranties,
covenants and other agreements in this Agreement or in any instrument delivered
pursuant to this Agreement, including any rights arising out of any breach of
such representations, warranties, covenants and
40
<PAGE>
other agreements, shall survive the Effective Time, except for those covenants
and agreements contained herein and therein shall by their terms apply or are to
be performed in whole or in part after the Effective Time and this Article VIII.
Each party hereto agrees that, except for the representations and warranties
contained in this Agreement, none of the Company, Parent or Merger Sub makes any
other representations or warranties, and each hereby disclaims an other
representations or warranties made by itself or any of its officers, directors,
employees, agents, financial and legal advisors or other representatives, with
respect to the execution and delivery of this Agreement, the documents and the
instruments referred to herein, or the transactions contemplated hereby or
thereby, notwithstanding the delivery or disclosure to the other party or the
other party's representatives of any documentation or other information with
respect to any one or more of the foregoing.
8.2. NOTICES. All notices and other communications hereunder shall be in writing
and shall be deemed duly given (a) on the date of delivery if delivered
personally, (b) on the first Business Day following the date of dispatch if
delivered by a nationally recognized next-day courier service, (c) on the tenth
Business Day following the dale of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid or (d) if sent by
facsimile transmission, with a copy mailed on the same day in the manner
provided in (a) or (b) above, when transmitted and receipt is confirmed by
telephone. All notices hereunder shall be delivered as sct forth below, or
pursuant to such other instructions as may be designated in writing by the party
to receive such notice:
(a) if to Parent or Merger Sub, to, Koninklijke Philips Electronics
N.V., Rembrandt Tower, Amstelplein 1, 1096 HA Amsterdam, The Netherlands,
Attention: Guido R.C. Dierick, Director and Deputy Secretary, Facsimile No:
011-31-20-597-7230, with copies to Neil T. Anderson, Esq., Sullivan & Cromwell,
125 Broad Street, New York, New York 10004, Facsimile No.: 212-558-3588;
(b) if to the Company, to, VLSI Technology, Inc., 1109 McKay Drive,
San Jose, California 95131, Attention: Alfred J. Stein, Chairman and Chief
Executive Officer, Facsimile No.: 408-263-2511, with a copy to Christopher L.
Kaufman, Esq., Latham & Watkins, 505 Montgomery Street, Suite 1900, San
Francisco, California, 94111, Facsimile No.: 415-395- 8095.
8.3. INTERPRETATION. When a reference is made in this Agreement to Sections,
Exhibits or Schedules, such reference shall be to a Section of or Exhibit or
Schedule to this Agreement unless otherwise indicated. The table of contents,
glossary of defined terms and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this
41
<PAGE>
Agreement shall be construed as if drafted jointly by the parties and no
presumption or burden or proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement. Any
reference to any federal, state, local or foreign statute or law shall be deemed
also to refer to all rules and regulations promulgated thereunder, unless the
content requires otherwise. It is understood and agreed that neither the
specifications of any dollar amount in this Agreement nor the inclusion of any
specific item in the Schedules or Exhibits is intended to imply that such
amounts or higher or lower amounts, or the items so included or other items, are
or are not material, and neither party shall use the fact of setting of such
amounts or the fact of the inclusion of such item in the Schedules or Exhibits
in any dispute or controversy between the parties as to whether any obligation,
item or matter is or is not material for purposes hereof.
8.4. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other party, it being understood that both parties need not
sign the same counterpart.
8.5. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES.
(a) This Agreement (including the Schedules and Exhibits) constitutes
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, other than the Confidentiality Agreement, which shall survive the
execution and delivery of this Agreement.
(b) This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Agreement, express or implied,
is intended to or shall confer upon any other Person any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement, other than
Article II and Sections 1.4(c) and 5.7 (which is intended to be for the benefit
of the Persons covered thereby and may be enforced by such Persons).
8.6. GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL.
(a) This Agreement shall be governed and construed in accordance with
the laws of the State of Delaware, without regard to the laws that might be
applicable under conflicts of laws principles.
(b) Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the exclusive jurisdiction of any
Delaware State court, or Federal court of the United States of America, sitting
in Delaware, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement or the agreements
delivered in connection herewith or the transactions contemplated hereby or
thereby or for recognition or enforcement of any judgment relating thereto, and
each of the parties hereby
42
<PAGE>
irrevocably and unconditionally (i) agrees not to commence any such action or
proceeding except in such courts, (ii) agrees that any claim in respect of any
such action or proceeding may be heard and determined in such Delaware State
court or, to the extent permitted by law, in such Federal court, (iii) waives,
to the fullest extent it may legally and effectively do so, any objection which
it may now or hereafter have to the laying of venue of any such action or
proceeding in any such Delaware State or Federal court, and (iv) waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such Delaware State or Federal
court. Each of the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Each party to this Agreement irrevocably consents to service of process in the
manner provided for notices in Section 8.2. Nothing in this Agreement will
affect the right of any party to this Agreement to serve process in any other
manner permitted by law.
(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ANY OF THE
AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE EITHER OF SUCH WAIVERS, (ii) IT MAKES SUCH WAIVERS VOLUNTARILY, AND
(iv) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.6(c).
8.7. SEVERABILITY. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any law or public policy, all other
terms and provisions of this Agreement shall nevertheless remain in full force
and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible. Any provision of this Agreement held invalid or
unenforceable only in part, degree or certain jurisdictions will remain in full
force and effect to the extent not held invalid or unenforceable. To the extent
permitted by applicable law, each party waives any provision of law which
renders any provision of this Agreement invalid, illegal or unenforceable in any
respect.
43
<PAGE>
8.8. ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto, in whole
or in part (whether by operation of law or otherwise), without the prior written
consent of the other parties, and any attempt to make any such assignment
without such consent shall be null and void. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective permitted successors and assigns.
8.9. ENFORCEMENT. The parties agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
shall be entitled to specific performance of the terms hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
8.10. DEFINITIONS. As used in this Agreement:
(a) "BOARD OF DIRECTORS" means the Board of Directors of any specified
Person and any properly serving and acting committees thereof.
(b) "BUSINESS DAY" means any day on which banks are not required or
authorized to close in the City of New York.
(c) "COMPANY EQUITY PLANS" means the Company's 1986 Directors' Stock
Option Plan, Amended and Restated Employee Stock Purchase Plan, Compass Design
Automation, Inc. 1992 Stock Option Plan, as amended, 1992 Stock Plan, as
amended, and the 1998 Nonstatutory Stock Option Plan.
(d) "INTELLECTUAL PROPERTY" shall mean patents, copyrights, trademarks
(registered and unregistered), service marks, brand names, trade names, and
registrations in any jurisdiction of, and applications in any jurisdiction to
register, the foregoing, technology, know-how, software, and tangible or
intangible proprietary information or materials that are used in the business of
the Company and its Subsidiaries as currently conducted and any other trade
secrets related thereto.
(e) "MATERIAL ADVERSE EFFECT" means, with respect to any Person, any
adverse change, circumstance, development, event or effect that, individually or
in the aggregate with all other adverse changes, circumstances, developments,
events and effects, is or is reasonably likely to be materially adverse to the
business, operations, assets, liabilities, financial condition or results of
operations of such entity and its Subsidiaries taken as a whole; provided,
however, that with respect to the Company the term Material Adverse Effect shall
not include (i) any change, circumstance, development, event or effect that
relates to or results primarily from the announcement or other disclosure or
consummation of the transactions contemplated by this Agreement or (ii) changes
in general economic conditions, financial markets generally (including
44
<PAGE>
fluctuations in the price of shares of the Company Common Stock or shares of
capital stock of Parent) or conditions in the semiconductor and related
industries generally.
(f) "MATERIAL SUBSIDIARIES" of a Person shall mean the "Significant
Subsidiaries" of such Person as defined under Regulation S-X of the Securities
Act.
(g) "ORGANIZATIONAL DOCUMENTS" means, with respect to any entity, the
certificate of incorporation, bylaws or other governing documents of such
entity.
(h) "PERSON" means an individual, corporation, partnership, limited
liability company association, trust, unincorporated organization, entity or
group (as defined in the Exchange Act).
(i) "REQUIRED CONSENTS" means (i) all material required approvals and
consents of any Governmental Entity obtained on terms and conditions reasonably
satisfactory to Parent and (ii) Parent or the Merger Sub shall not have received
notice under Section 721 of Title VII of the United States Defense Production
Act of 1950, as amended by Section 5021 of the Omnibus Trade and Competitiveness
Act of 1988 (the "Exon-Florio Amendment") that the Committee on Foreign
Investment in the United States ("CFIUS") has determined to investigate the
Offer or any related transaction and the time that CFIUS can decide to take such
action shall have expired.
(j) "SUBSIDIARY" when used with respect to any Person means any
corporation or other organization, whether incorporated or unincorporated, (i)
of which such Person or any other Subsidiary of such Person is a general partner
(excluding partnerships, the general partnership interests of which held by such
Person or any Subsidiary of such Person do not have a majority of the voting and
economic interests in such partnership) or (ii) at least a majority of the
securities or other interests of which having by their terms ordinary voting
power to elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such Person or by any one or more of its
Subsidiaries, or by such Person and one or more of its Subsidiaries.
(k) (i) "TAX" (including, with correlative meaning, the terms "TAXES"
and "TAXABLE") means all federal, state, local and foreign income, profits,
franchise, gross receipts, environmental, customs duty, capital stock,
severance, stamp, payroll, sales, employment, unemployment disability, use,
property, withholding, excise, production, value added, occupancy and other
taxes, duties or assessments of any nature whatsoever, together with all
interest, penalties, fines and additions to tax imposed with respect to such
amounts and any interest in respect of such penalties and additions to tax, and
(ii) "TAX RETURN" means all returns and reports (including elections, claims,
declarations, disclosures, schedules, estimates, computations and information
returns) required to be supplied to a Tax authority in any jurisdiction relating
to Taxes.
45
<PAGE>
(l) "THE OTHER PARTY" means, with respect to the Company, Parent and
means, with respect to Parent, the Company.
8.11. PERFORMANCE BY MERGER SUB.
Parent hereby agrees to cause Merger Sub to comply with its
obligations hereunder and under the Offer and to cause Merger Sub to consummate
the Merger as contemplated herein and whenever this Agreement requires Merger
Sub to take any action, such requirement shall be deemed to include an
undertaking of Parent to cause Merger Sub to take such action.
46
<PAGE>
IN WITNESS WHEREOF, Parent, the Company and Merger Sub have caused
this Agreement to be signed by their respective officers thereunto duly
authorized, all as of May 1, 1999.
KONINKLIJKE PHILIPS ELECTRONICS N.V.,
a company incorporated under the laws of The
Netherlands
By: /s/ ARTHUR VAN DER POEL
----------------------------------------------
Name: Arthur van der Poel
Title: Executive Vice President
KPE ACQUISITION INC.,
a Delaware corporation
By: /s/ GUIDO R.C. DIERICK
----------------------------------------------
Name: Guido R.C. Dierick
Title: Vice President and Treasurer
VLSI TECHNOLOGY, INC.,
a Delaware corporation
By: /s/ ALFRED J. STEIN
----------------------------------------------
Name: Alfred J. Stein
Title: Chairman and Chief Executive Officer
47
<PAGE>
ANNEX A
CONDITIONS TO THE OFFER
The Offer shall be conditioned upon the Minimum Shares being validly
tendered and not withdrawn prior to the date which is 10 Business Days following
the amendment of the Offer in accordance with the terms of Section 1.1(a) of the
Agreement or such later date as the Offer may be extended by an amendment to the
Agreement in accordance with the provisions thereof. Moreover, notwithstanding
any other provision of the Offer, and subject to the terms and conditions of the
Agreement, Merger Sub shall not be obligated to accept for payment any shares of
Company Common Stock until all Required Regulatory Approvals shall have been
obtained, made or satisfied and until the expiration of any waiting periods
applicable under antitrust or competition laws of any applicable jurisdiction
and Merger Sub shall not be required to accept for payment, purchase or pay for,
and may delay the acceptance for payment of or payment for, any shares of
Company Common Stock tendered in the Offer, or if the Minimum Shares shall not
have been validly tendered pursuant to the Offer and not withdrawn, may
terminate or amend the Offer, subject to the terms and conditions of the
Agreement and Merger Sub's obligation to extend the Offer pursuant to Section
1.1(b) if, prior to the time of acceptance for payment of any such shares of
Company Common Stock (whether or not any other shares of Company Common Stock
have theretofore been accepted for payment or paid for pursuant to the Offer),
any of the following shall occur and remain in effect:
(a) the Company, Parent and the United States government or
appropriate agency thereof shall not have reached a mutually satisfactory
arrangement so that Parent's acquisition of the Company Common Stock would not
present national security concerns on account of the Company being a party to
government contracts; provided that Parent's invocation of this condition shall
be subject to Parent's satisfaction of its obligations under Section 4.3(b) of
the Agreement;
(b) there shall be pending any action, litigation or proceeding
(hereinafter, an "ACTION") by any Governmental Entity: (i) challenging the
acquisition by Parent or Merger Sub of shares of Company Common Stock or seeking
to restrain or prohibit the consummation of the Offer or the Merger; (ii)
seeking to prohibit or impose any material limitations on Parent's, Merger Sub's
or any of their respective affiliates' ownership or operation of all or any
material portion of the business or assets of the Company and its Subsidiaries
taken as a whole or the business or assets of any significant Subsidiary of
Koninklijke Philips Electronics N.V., or to compel Parent or Merger Sub to
dispose of or hold separate all or any material portion of Parent's or Merger
Sub's or the Company's business or assets (including the business or assets of
their respective affiliates and
48
<PAGE>
Subsidiaries) as a result of the Offer or the Merger; (iii) seeking to impose
material limitations on the ability of Parent or Merger Sub effectively to
acquire or hold, to exercise full rights of ownership of, the shares of Company
Common Stock including, without limitation, the right to vote the shares of
Company Common Stock purchased by them on an equal basis with all other shares
of Company Common Stock on all matters properly presented to the shareholders of
the Company, which in the case of clause (i), (ii) or (iii), if successful or if
the Offer were consummated prior to the resolution thereof, would have a
Material Adverse Effect on the Company or Parent or would materially and
adversely effect the ability of Parent to conduct its business or the business
of the Company following the consummation of the Offer or Parent demonstrates
would reasonably be determined to have a material adverse effect on the economic
or business benefits of the Merger;
(c) any statute, rule, regulation, order or injunction shall be
enacted, promulgated, entered, enforced or deemed to or become applicable to the
Offer or the Merger, or any other action shall have been taken by any court or
other Governmental Entity, that is reasonably expected to result in any of the
effects of any Action referred to in clauses (i) through (iii) of paragraph (b)
above;
(d) there shall have been a Material Adverse Effect on the Company; or
(e) the Agreement shall have been terminated by the Company or Parent
or Merger Sub pursuant to its terms.
The foregoing conditions are for the sole benefit of Parent and Merger
Sub and may be asserted by Parent and Merger Sub regardless of the circumstances
giving rise to such condition or, except for the Minimum Condition, may be
waived by Parent and Merger Sub in whole or in part at any time and from time to
time, by express and specific action to that effect, in whole or in part at any
time and from time to time in their sole discretion.. The failure by Parent or
Merger Sub at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right, the waiver of any such right with respect to
particular facts and other circumstances shall not be deemed a waiver with
respect to any other facts and circumstances, and each such right shall be
deemed an ongoing right that may be asserted at any time and from time to time.
The capitalized terms used in this Annex A shall have the meanings set
forth in the Agreement to which it is annexed, except that the term Merger
Agreement shall be deemed to refer to the Agreement to which this Annex A is
appended.
49
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE QUARTERLY REPORT ON FORM 10-Q OF VLSI TECHNOLOGY,
INC. FOR THE THREE MONTHS ENDED APRIL 2, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> DEC-26-1998
<PERIOD-END> APR-02-1999
<CASH> 76,683
<SECURITIES> 169,048
<RECEIVABLES> 80,306
<ALLOWANCES> 1,700
<INVENTORY> 37,257
<CURRENT-ASSETS> 425,636
<PP&E> 906,643
<DEPRECIATION> (460,536)
<TOTAL-ASSETS> 882,489
<CURRENT-LIABILITIES> 140,275
<BONDS> 161,208
473
0
<COMMON> 0
<OTHER-SE> 562,975
<TOTAL-LIABILITY-AND-EQUITY> 882,489
<SALES> 149,577
<TOTAL-REVENUES> 149,577
<CGS> 91,717
<TOTAL-COSTS> 91,717
<OTHER-EXPENSES> 60,122
<LOSS-PROVISION> 145
<INTEREST-EXPENSE> 2,292
<INCOME-PRETAX> 6,443
<INCOME-TAX> 1,740
<INCOME-CONTINUING> 4,703
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,703
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.09
</TABLE>
