<PAGE>
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SCHEDULE 13E-3
(Rule13e-100)
Transaction Statement Pursuant to Section 13(e) of the Securities
Exchange Act of 1934 and Rule 13e-3 Thereunder
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e)
of the Securities Exchange Act of 1934)
Amendment No. 1
INTEGRATED CIRCUIT SYSTEMS, INC.
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(Name of Issuer)
ICS MERGER CORP.
BAIN CAPITAL, INC.
BAIN CAPITAL FUND VI, L.P.
BCIP ASSOCIATES II
BCIP ASSOCIATES II-B
BCIP ASSOCIATES II-C
BEAR, STEARNS & CO. INC.
HENRY I. BOREEN
HOCK E. TAN
LEWIS C. EGGEBRECHT
- -------------------------------------------------------------------------------
(Name of Persons Filing Statement)
COMMON STOCK, NO PAR VALUE
- -------------------------------------------------------------------------------
(Title of Class of Securities)
45811K109
- -------------------------------------------------------------------------------
(CUSIP Number of Class of Securities)
Hock E. Tan
Chief Operating Officer
Integrated Circuit systems, Inc.
2435 Boulevard of the Generals
Norristown, PA 19403
(610) 630-5300
- -------------------------------------------------------------------------------
(Name, Address and Telephone Number of Persons Authorized to Receive
Notices and Communications on Behalf of Persons Filing Statement)
Copies to:
John Howard Michael Krupka
Bear, Stearns & Co. Inc. Bain Capital, Inc.
245 Park Avenue Two Copley Place
New York, NY 10167 Boston, MA 02116
(212) (617) 572-3000
<PAGE>
Robert Friedel Dennis M. Myers
Pepper Hamilton LLP Kirkland & Ellis
3000 Two Logan Square 200 East Randolph Dr.
18th and Arch Street Chicago, IL 60601
Philadelphia, PA 19103-2799 (312) 861-2000
(215) 981-4000
This statement is filed in connection with (check the appropriate box):
a. [x] The filing of solicitation materials or an information
statement subject to Regulation 14A, Regulation 14C or Rule
13e-3(c) under the Securities Exchange Act of 1934.
b. [ ] The filing of registration statement under the Securities Act of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [X]
CALCULATION OF FILING FEE
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Transaction Valuation* Amount of Filing Fee
$265,016,407 $53,003
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*$21.25 per share of common stock of the Issuer plus an aggregate of $12,500,532
million in consideration of outstanding options.
[x] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: $53,003
Form or Registration No.: Schedule 14A
Filing Party: Integrated Circuit Systems, Inc.
Date Filed: February 16, 1999
<PAGE>
INTRODUCTION
This Rule 13E-3 Transaction Statement (this "Statement") relates to
the solicitation of proxies by Integrated Circuit Systems, Inc., a Pennsylvania
corporation ("Issuer"), in connection with a Special Meeting of its shareholders
at which the Issuer's shareholders will be asked to consider a proposal to
approve and adopt an "Agreement and Plan of Merger (the "Merger Agreement"),
dated January 20, 1999, as amended by Amendment No. 1 to the Agreement and Plan
of Merger, dated February 16, 1999, between Issuer and ICS Merger Corp., a
Pennsylvania corporation newly formed by Bain Capital, Inc. and Bear Stearns &
Co. Inc. ("Merger Corp."). The response to the items in this Statement is the
individual response of each of the filers of this Statement.
The cross reference sheet on the following pages, which is being
supplied pursuant to General Instruction F to Schedule 13E-3, shows the location
in the Preliminary Proxy Statement, as amended (the "Proxy Statement"), filed by
the Issuer with the Securities and Exchange Commission on the date hereof of the
information required to be included in response to the items of this Statement.
The information set forth in the Proxy Statement which is attached hereto as
Exhibit (d), including all exhibits thereto, is hereby incorporated herein by
reference, and the responses to each Item herein are qualified in their entirety
by the provisions of the Proxy Statement.
<PAGE>
CROSS REFERENCE SHEET
(Pursuant to General Instruction F to Schedule 13E-3)
All references are to portions of the Proxy Statement which are incorporated
herein and made a part hereof by reference.
Schedule 13E-3 Item Reponse / Caption in
Number and Caption Proxy Statement
------------------- ---------------------
1. Issuer and Class of Security
Subject to the Transaction.
(a) "SUMMARY OF PROXY STATEMENT -- Parties
to the Merger"
(b) "SUMMARY OF PROXY STATEMENT -- The
Special Meeting"; "SUMMARY OF PROXY
STATEMENT -- Market Prices for Common
Stock and Dividends"; "THE SPECIAL
MEETING --Record Date; Quorum"
(c) "SUMMARY OF PROXY STATEMENT -- Market
Prices for Common Stock and Dividends"
(d) "SUMMARY OF PROXY STATEMENT -- Market
Prices for Common Stock and Dividends"
(e) *
(f) "SUMMARY OF PROXY STATEMENT -- Market
Prices for Common Stock and Dividends"
2. Identity and Background.
(a) - (g) "SUMMARY OF PROXY STATEMENT -- Parties
to the Merger"; "CERTAIN INFORMATION
CONCERNING MERGER CORP. AND ITS
AFFILIATES"
3. Past Contacts, Transactions or Negotiations.
(a) (1) "SPECIAL FACTORS - Background of the
Merger"
(2) "SUMMARY OF PROXY STATEMENT --Conflicts
of Interest"; "SPECIAL FACTORS --
Background of the Merger"; "SPECIAL
FACTORS -- Conflicts of Interest"
(b) "SUMMARY OF PROXY STATEMENT --Conflicts
of Interest"; "SPECIAL FACTORS --
Background of the Merger"; "SPECIAL
FACTORS -- Conflicts of Interest"
4. Terms of the Transaction.
(a) "SUMMARY OF PROXY STATEMENT -- The
Merger"; "SUMMARY OF PROXY STATEMENT --
Conflicts of Interest"; "SPECIAL
FACTORS"
(b) "SUMMARY OF PROXY STATEMENT --Conflicts
of Interest"; "SPECIAL FACTORS --
Background of the Merger"; "SPECIAL
FACTORS -- Conflicts of Interest"
5. Plans or Proposals of the Issuer or Affiliate.
(a) *
(b) *
* Not applicable or answer is negative.
ii
<PAGE>
Schedule 13E-3 Item Reponse / Caption in
Number and Caption Proxy Statement
------------------- ---------------------
(c) "THE MERGER -- Effective Time and
Consequences of the Merger"
"CERTAIN INFORMATION CONCERNING MERGER
CORP. AND ITS AFFILIATES"
(d) "THE MERGER -- Effective Time and
Consequences of the Merger
"THE MERGER -- Financing"
(e) "THE MERGER -- Effective Time and
Consequences of the Merger"
(f) "THE MERGER -- Effective Time and
Consequences of the Merger" and
"THE MERGER -- Delisting and
Deregistration of the Common Stock"
(g) *
6. Source and Amount of Funds or Other Consideration.
(a) "SUMMARY OF PROXY STATEMENT --Financing
of the Merger"; "THE MERGER --
Financing"
(b) "THE MERGER AGREEMENT -- Fees and
Expenses"
(c) (1) "SUMMARY OF PROXY STATEMENT--Financing
of the Merger"; "THE MERGER --
Financing"
(2) "SUMMARY OF PROXY STATEMENT --
Financing of the Merger"; "THE MERGER --
Financing"
(d) *
7. Purpose(s), Alternatives, Reasons and Effects.
(a) "SPECIAL FACTORS -- Recommendation of
the Special Committee and the Board of
Directors"; "SPECIAL FACTORS -- Reasons
of the Company for the Merger"; "SPECIAL
FACTORS -- Fairness of the Merger" and
"SPECIAL FACTORS --Equity Investors'
Reasons for the Merger"
(b) "SPECIAL FACTORS -- Equity Investors'
Reasons for the Merger"
(c) "SPECIAL FACTORS -- Recommendation of
the Special Committee and the Board of
Directors"; "SPECIAL FACTORS --Reasons
of the Company for the Merger"; "SPECIAL
FACTORS -- Fairness of the Merger" and
"SPECIAL FACTORS --Equity Investors'
Reasons for the Merger"
(d) "SUMMARY OF PROXY STATEMENT"; "SPECIAL
FACTORS -- Conflicts of Interest"; "THE
MERGER -- Effective Time and
Consequences of the Merger"; "THE
MERGER --Federal Income Tax
Consequences"; "SUMMARY OF PROXY
STATEMENT --Accounting Treatment";
"SPECIAL FACTORS -- Recommendation of
the Special Committee and the Board of
Directors"; "SPECIAL FACTORS -- Reasons
of the Company for the Merger"; "SPECIAL
FACTORS -- Fairness of the Merger" and
"SPECIAL FACTORS --Equity Investors'
Reasons for the Merger"
8. Fairness of the Transaction.
(a) "SPECIAL FACTORS -- Recommendation of
the Special Committee and the Board of
Directors"; "SPECIAL FACTORS -- Reasons
of the Company for the Merger"; "SPECIAL
FACTORS -- Fairness of the Merger"; and
"SPECIAL FACTORS --Equity Investors'
Reasons for the Merger"
* Not applicable or answer is negative.
iii
<PAGE>
Schedule 13E-3 Item Response / Caption in
Number and Caption Proxy Statement
------------------- ------------------------
(b) "SPECIAL FACTORS -- Background of the
Merger;" "SPECIAL FACTORS --
Recommendation of the Special Committee
and the Board of Directors"; "SPECIAL
FACTORS -- Reasons of the Company for
the Merger"; "SPECIAL FACTORS --Fairness
of the Merger"; "SPECIAL FACTORS --
Equity Investors' Reasons for the
Merger"; and "SPECIAL FACTORS -- Opinion
of Financial Advisor"
(c) "THE SPECIAL MEETING -- Vote Required"
(d) "SUMMARY OF PROXY STATEMENT --
Recommendation of the Special
Committee and the Company's Board of
Directors" and "SPECIAL FACTORS --
Recommendation of the Special
Committee and the Board of Directors"
(e) "SUMMARY OF PROXY STATEMENT --
Recommendation of the Special
Committee and the Company's Board of
Directors" and "SPECIAL FACTORS --
Recommendation of the Special
Committee and the Board of Directors"
(f) *
9. Reports, Opinions, Appraisals and Certain
Negotiations.
(a) "SUMMARY OF PROXY STATEMENT -- Opinion
of Financial Advisor" and "SPECIAL
FACTORS -- Opinion of Financial
"Advisor"
(b) "SUMMARY OF PROXY STATEMENT -- Opinion
of Financial Advisor" and
"SPECIAL FACTORS -- Opinion of
Financial Advisor"
(c) "SUMMARY OF PROXY STATEMENT -- Opinion
of Financial Advisor" and
"SPECIAL FACTORS -- Opinion of
Financial Advisor"
10. Interest in Securities of the Issuer.
(a) "SUMMARY OF PROXY STATEMENT -- Conflicts
of Interest"; "SPECIAL FACTORS --
"Conflicts of Interest"; "BENEFICIAL
OWNERSHIP OF COMMON STOCK"
(b) "SUMMARY OF PROXY STATEMENT -- Market
Prices for Common Stock and Dividends";
"SUMMARY OF PROXY STATEMENT -- Conflicts
of Interest"; "SPECIAL FACTORS --
Background of the Merger"; "SPECIAL
FACTORS -- Conflicts of Interests"
11. Contracts, Arrangements or Understandings *
with Respect to the Issuer's Securities.
12. Present Intention and Recommendation of Certain Persons with Regard to the
Transaction.
(a) "SUMMARY OF PROXY STATEMENT -- "The
Special Meeting"; "THE SPECIAL MEETING
-- Vote Required"
(b) "SUMMARY OF PROXY STATEMENT --
Recommendation of the Special Committee
and the Company's Board of Directors";
"SPECIAL FACTORS -- Recommendations of
the Special Committee and the Board of
Directors"; "SPECIAL FACTORS -- Reasons
of the Company for the Merger"; and
"SPECIAL FACTORS -- Fairness of the
Merger."
* Not applicable or answer is negative.
iv
<PAGE>
13. Other Provisions of the Transaction.
(a) "SUMMARY OF PROXY STATEMENT -- Rights of
Dissenting Shareholders"; and "THE
MERGER -- Rights of Dissenting
Shareholders" and "APPRAISAL RIGHT OF
DISSENTING SHAREHOLDERS"
(b) *
(c) *
14. Financial Information.
(a) "SUMMARY OF PROXY STATEMENT -- SUMMARY
Financial Information" and
"DOCUMENTS INCORPORATED BY REFERENCE"
(b) *
15. Persons and Assets Employed, Retained or Utilized.
Schedule 13E-3 Item Response / Caption in
Number and Caption Proxy Statement
------------------- ------------------------
(a) "THE SPECIAL MEETING -- Solicitation of
Proxies" and "SPECIAL FACTORS --
Conflicts of Interest"
(b) "THE SPECIAL MEETING -- Solicitation of
Proxies"
16. Additional Information. *
* Not applicable or answer is negative.
v
<PAGE>
Item 1. Issuer and Class of Security Subject to Transaction.
(a) The information set forth in "SUMMARY OF PROXY STATEMENT -- Parties to
the Merger" of the Proxy Statement is incorporated herein by reference.
(b) The information set forth in "SUMMARY OF PROXY STATEMENT -- The Special
Meeting," "SUMMARY OF PROXY STATEMENT -- Market Prices for Common Stock and
Dividends," and "THE SPECIAL MEETING -- Record Date; Quorum" of the Proxy
Statement is incorporated herein by reference.
(c) The information set forth in "SUMMARY OF PROXY STATEMENT -- Market
Prices for Common Stock and Dividends" of the Proxy Statement is incorporated
herein by reference.
(d) The information set forth in "SUMMARY OF PROXY STATEMENT -- Market
Prices for Common Stock and Dividends."
(e) Not applicable.
(f) The information set forth in "SUMMARY OF PROXY STATEMENT -- Market
Prices for Common Stock and Dividends"
Item 2. Identity and Background.
(a)-(g) The information set forth in "SUMMARY OF PROXY STATEMENT -- Parties
to the Merger" and "CERTAIN INFORMATION CONCERNING MERGER CORP. AND ITS
AFFILIATES" of the Proxy Statement is incorporated herein by reference.
Item 3. Past Contacts, Transactions or Negotiations.
(a)(1) The information set forth in "SPECIAL FACTORS -- Background of the
Merger" is incorporated herein by reference
(a)(2) The information set forth in "SUMMARY OF PROXY STATEMENT --Conflicts
of Interest," "SPECIAL FACTORS -- Background of the Merger," and "SPECIAL
FACTORS -- Conflicts of Interest" of the Proxy Statement is incorporated herein
by reference.
(b) The information set forth in "SUMMARY OF PROXY STATEMENT -- Conflicts
of Interest," "SPECIAL FACTORS -- Conflicts of Interest" and "SPECIAL FACTORS --
Background of the Merger" of the Proxy Statement is incorporated herein by
reference.
Item 4. Terms of the Transaction.
(a) The information set forth in "SUMMARY OF PROXY STATEMENT -- The
Merger," "SUMMARY OF PROXY STATEMENT -- Conflicts of Interest" and "SPECIAL
FACTORS" of the Proxy Statement is incorporated herein by reference.
(b) The information set forth in "SUMMARY OF PROXY STATEMENT -- Conflicts
of Interest," "SPECIAL FACTORS -- Background of the Merger" and "SPECIAL
FACTORS -- Conflicts of Interest" of the Proxy Statement is incorporated herein
by reference.
Item 5. Plans or Proposals of the Issuer or Affiliate.
(a) Not applicable.
(b) Not applicable.
(c) The information set forth in "THE MERGER -- Effective Time and
Consequences of the Merger" and "CERTAIN INFORMATION CONCERNING MERGER CORP.
AND ITS AFFILIATES" is incorporated herein by reference.
<PAGE>
(d) The information set forth in "THE MERGER -- Effective Time and
Consequences of the Merger" and "THE MERGER -- Financing" of the Proxy
Statement is incorporated herein by reference.
(e) The information set forth in "THE MERGER -- Effective Time and
Consequences of the Merger" of the Proxy Statement is incorporated herein by
reference.
(f) The information set forth in "THE MERGER -- Effective Time and
Consequences of the Merger" and "THE MERGER -- Delisting and Deregistration of
the Common Stock" of the Proxy Statement is incorporated herein by reference.
(g) Not applicable.
Item 6. Source and Amount of Funds or Other Consideration.
(a) The information set forth in "SUMMARY OF PROXY STATEMENT -- Financing
of the Merger" and "THE MERGER -- Financing" of the Proxy Statement is
incorporated herein by reference.
(b) The information set forth in "THE MERGER AGREEMENT -- Fees and
Expenses" of the Proxy Statement is incorporated herein by reference.
(c)(1) and (2) The information set forth in "SUMMARY OF PROXY STATEMENT --
Financing of the Merger" and "THE MERGER -- Financing" of the Proxy Statement is
incorporated herein by reference.
(d) Not applicable.
Item 7. Purpose(s), Alternatives, Reasons and Effects.
(a) The information set forth in "SPECIAL FACTORS -- Recommendation of the
Special Committee and the Board of Directors," "SPECIAL FACTORS -- Reasons of
the Company for the Merger," and "SPECIAL FACTORS -- Equity Investors' Reasons
for the Merger" of the Proxy Statement is incorporated herein by reference.
(b) "SPECIAL FACTORS -- Equity Investors' Reasons for the Merger"
(c) The information set forth in "SPECIAL FACTORS -- Recommendation of the
Special Committee and the Board of Directors," "SPECIAL FACTORS -- Reasons of
the Company for the Merger", "SPECIAL FACTORS -- Fairness of the Merger" and
"SPECIAL FACTORS --Equity Investors' Reasons for the Merger."
(d) The information set forth in "SUMMARY OF PROXY STATEMENT," "SPECIAL
FACTORS -- Conflicts of Interest," "THE MERGER -- Effective Time and
Consequences of the Merger," "THE MERGER -- Federal Income Tax Consequences,"
"SUMMARY OF PROXY STATEMENT -- Accounting Treatment," and SPECIAL FACTORS --
Recommendation of the Special Committee and the Board of Directors," "SPECIAL
FACTORS -- Reasons of the Company for the Merger", "SPECIAL FACTORS -- Fairness
of the Merger" and "SPECIAL FACTORS -- Equity Investors' Reasons for the Merger"
of the Proxy Statement is incorporated herein by reference.
Item 8. Fairness of the Transaction.
2
<PAGE>
(a) The information set forth in "SPECIAL FACTORS -- Recommendation of the
Special Committee and the Board of Directors," "SPECIAL FACTORS -- Reasons of
the Company for the Merger," "SPECIAL FACTORS -- Fairness of the Merger" and
"SPECIAL FACTORS --Equity Investors' Reasons for the Merger."
(b) The information set forth in "SPECIAL FACTORS -- Background of the
Merger," "SPECIAL FACTORS -- Recommendation of the Special Committee and the
Board of Directors," "SPECIAL FACTORS -- Reasons of the Company for the Merger;"
"SPECIAL FACTORS --Equity Investors' Reasons for the Merger" and "SPECIAL
FACTORS - Opinion of Financial Advisor" of the Proxy Statement is incorporated
herein by reference.
(c) The information set forth in "THE SPECIAL MEETING -- Vote Required" of
the Proxy Statement is incorporated herein by reference.
(d) The information set forth in "SUMMARY OF PROXY STATEMENT --
Recommendation of the Special Committee and the Company's Board of Directors"
and "SPECIAL FACTORS -- Recommendation of the Special Committee of the Board of
Directors."
(e) The information set forth in "SUMMARY OF PROXY STATEMENT --
Recommendation of the Special Committee and the Company's Board of Directors"
and "SPECIAL FACTORS -- Recommendation of the Special Committee and the Board of
Directors" of the Proxy Statement is incorporated herein by reference.
(f) Not applicable.
Item 9. Reports, Opinions, Appraisals and Certain Negotiations.
(a) The information set forth in "SUMMARY OF PROXY STATEMENT -- Opinion of
Financial Advisor" and "SPECIAL FACTORS -- Opinion of Financial Advisor" of the
Proxy Statement is incorporated herein by reference.
(b) The information set forth in "SUMMARY OF PROXY STATEMENT -- Opinion of
Financial Advisor" and "SPECIAL FACTORS -- Opinion of Financial Advisor" of the
Proxy Statement is incorporated herein by reference.
(c) The information set forth in "SUMMARY OF PROXY STATEMENT -- Opinion of
Financial Advisor" and "SPECIAL FACTORS -- Opinion of Financial Advisor" of the
Proxy Statement is incorporated herein by reference.
Item 10. Interest in Securities of the Issuer.
(a) The information set forth in "SUMMARY OF PROXY STATEMENT -- Conflicts
of Interest" and "SPECIAL FACTORS -- Convlicts of Interest" and "BENEFICIAL
OWNERSHIP OF COMMON STOCK" of the Proxy Statement is incorporated herein by
reference.
(b) The information set forth in "SUMMARY OF THE PROXY STATEMENT -- Market
Prices for Common Stock and Dividends," "SUMMARY OF PROXY STATEMENT -- Conflicts
of Interest," "SPECIAL FACTORS -- Background of the Merger" and "SPECIAL
FACTORS -- Conflicts of Interest" of the Proxy Statement is incorporated herein
by reference.
Item 11. Contracts, Arrangements or Understandings with Respect to the Issuer's
Securities.
Negative
3
<PAGE>
Item 12. Present Intention and Recommendation of Certain Persons with Regard
to the Transaction.
(a) The information set forth in "SUMMARY OF PROXY STATEMENT -- The Special
Meeting"; "THE SPECIAL MEETING -- Vote Required" of the Proxy Statement is
incorporated herein by reference.
(b) The information set forth in "SUMMARY OF PROXY STATEMENT --
Recommendation of the Special Committee and the Company's Board of Directors";
"SPECIAL FACTORS -- Recommendations of the Special Committee and the Board of
Directors," "SPECIAL FACTORS -- Reasons of the Company for the Merger" and
"SPECIAL FACTORS -- Fairness of the Merger" of the Proxy Statement is
incorporated herein by reference.
Item 13. Other Provisions of the Transaction.
(a) The information set forth in "SUMMARY OF PROXY STATEMENT -- Rights of
Dissenting Shareholders," and "THE MERGER -- Rights of Dissenting Shareholders"
and "APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS" of the Proxy Statement is
incorporated herein by reference.
(b) Not applicable.
(c) Not applicable.
Item 14. Financial Information.
(a) The information set forth in "SUMMARY OF PROXY STATEMENT -- Summary
Financial Information" and "DOCUMENTS INCORPORATED BY REFERENCE" of the Proxy
Statement is incorporated herein by reference.
(b) "THE SPECIAL MEETING -- Solicitation of Proxies"
Item 15. Persons and Assets Employed, Retained or Utilized.
(a) The information set forth in "THE SPECIAL MEETING -- Soliciation of
Proxies" and "SPECIAL FACTORS -- Conflicts of Interest" is incorporated herein
by reference.
(b) Negative
Item 16. Additional Information.
Not applicable.
4
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
March 29, 1999 BAIN CAPITAL, INC.
- -----------------------
(Date) By: /s/ Michael A. Krupka
---------------------------------
Name: Michael A. Krupka
Title: Managing Director
BAIN CAPITAL FUND VI, L.P.
By: Bain Capital Partners VI, L.P.
Its: General Partner
By: Bain Capital Investors, Inc.
Its: General Partner
By: /s/ Michael A. Krupka
---------------------------------
Name: Michael A. Krupka
Title: Managing Director
INTEGRATED CIRCUIT SYSTEMS, INC.
By: /s/ Hock E. Tan
---------------------------------
Name: Hock E. Tan
Title: Chief Operating Officer
BCIP ASSOCIATES II
By: Bain Capital, Inc.
Its: Managing Partner
By: /s/ Michael A. Krupka
---------------------------------
Name: Michael A. Krupka
Title: Managing Director
BCIP ASSOCIATES II-B
By: Bain Capital, Inc.
Its: Managing Partner
By: /s/ Michael A. Krupka
-------------------------------
Name: Michael A. Krupka
Title: Managing Director
5
<PAGE>
BCIP ASSOCIATES II-C
Bain Capital, Inc.
Its: Managing Partner
By: /s/ Michael A. Krupka
-----------------------------------
Name: Michael A. Krupka
Title: Managing Director
/s/ Henry I. Boreen
-----------------------------------
Henry I. Boreen
/s/ Hock E. Tan
-----------------------------------
Hock E. Tan
/s/ Lewis C. Eggebrecht
-----------------------------------
Lewis C. Eggebrecht
ICS MERGER CORP.
By: /s/ Michael A. Krupka
------------------------------------
Name: Michael A. Krupka
Title: President
BEAR STEARNS & CO. INC.
By: /s/ Bodil Arlander
-----------------------------------
Name: Bodil Arlander
Title: Vice President
6
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -------------------------------------------------------------
(a) Commitment letter for bank financing.
(b)(1) Opinion of Pennsylvania Merchant Group. Included as Appendix
B to Exhibit (d) hereto.
(b)(2) Presentation of Pennsylvania Merchant Group, dated
October 12, 1998.
(b)(3) Presentation of Pennsylvania Merchant Group, dated
October 15, 1998.
(b)(4) Presentation of Pennsylvania Merchant Group, dated
January 15, 1999.
(c) Agreement and Plan of Merger, dated as of January 20, 1998,
as amended by Amendment No. 1 to Agreement and Plan of
Merger, dated February 16, 1999, between ICS Merger Corp. and
Integrated Circuit Systems, Inc. Included as Appendix A to
Exhibit (d) hereto.
(d) Preliminary Proxy Statement of Integrated Circuit Systems,
Inc.
(e) Text of Subchapter 15D Section 1906 and Section 1930 of the
Business Corporation Law of Pennsylvania. Included as
Appendix C to Exhibit (d) hereto.
(f) Not applicable.
7
<PAGE>
Exhibit (a)
CREDIT SUISSE FIRST BOSTON
Eleven Madison Avenue
New York, New York 10010
January 18, 1999
Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Integrated Circuit Systems, Inc.
---------------------------------
Senior Secured Credit Facilities and Mezzanine Facility Loan Commitment Letter
------------------------------------------------------------------------------
Ladies and Gentlemen:
You have advised Credit Suisse First Boston ("CSFB") that Bain
Capital, Inc. and Bear, Stearns & Co. Inc. (the "Investors"), propose to
create a newly formed entity reasonably satisfactory to CSFB, which will merge
(the "Merger") into Integrated Circuit Systems, Inc. (the "Company") in a
transaction (the "Recapitalization") that will provide for recapitalization
accounting treatment. We understand that the Recapitalization will be
accomplished through the Merger, the redemption of certain capital of Company
from existing shareholders for an aggregate redemption price of $259.2 million,
adjusted for cash on hand, and the "rollover" of certain capital stock of
Company by certain existing shareholders of Company. You have further advised us
that in connection with the Recapitalization (i) the Investors and certain
management investors and existing shareholders will make or cause to be made an
equity contribution of approximately $50.0 million (the "Equity Contribution")
to the Company (with up to approximately $10 million of such Equity Contribution
to be made by such management investors and such existing shareholders), (ii)
the Company will obtain senior secured credit facilities (the "Senior
Facilities") in an aggregate principal amount of up to $145 million (as more
fully described in the Summary of Principal Terms and Conditions attached hereto
as Exhibit A (the "Senior Term Sheet"), and (iii) the Company will obtain senior
subordinated mezzanine loan
<PAGE>
financing (the "Mezzanine Facility") of $47.5 million, (the Recapitalization,
the Merger and the transactions referred to in the immediately preceding clauses
(i) through (iii) are collectively referred to herein as the "Transactions").
The approximate sources and uses of the funds necessary to consummate the
Transactions are set forth on Annex II to the Senior Term Sheet.
You have requested that CSFB (i) agree to structure, arrange and
syndicate the Senior Facilities, (ii) commit to provide the Senior Facilities
and to serve as advisor, arranger, administrative agent and collateral agent
therefor, (iii) agree to structure, arrange and syndicate the Mezzanine Facility
(together with the Senior Facilities, the "Facilities") and (iv) commit to
provide the Mezzanine Facility and to serve as advisor, arranger and
administrative agent therefor. CSFB is pleased to advise you of (i) its
willingness to act as exclusive advisor, arranger, administrative agent and
collateral agent for the Senior Facilities, (ii) its commitment to provide the
entire amount of the Senior Facilities upon the terms and subject to the
conditions set forth or referred to in this commitment letter and the exhibits
hereto (the "Commitment Letter") (including, without limitation, the conditions
set forth in Exhibit C attached hereto) and in the Senior Term Sheet, (iii) its
willingness to act as exclusive advisor, arranger and administrative agent for
the Mezzanine Facility and (iv) its commitment to provide the entire amount of
the Mezzanine Facility upon the terms and subject to the conditions set forth or
referred to herein (including, without limitation, the conditions set forth in
Exhibit C attached hereto) and in the Summary of Principal Terms and Conditions
attached as Exhibit B hereto (the "Mezzanine Term Street"; together with the
Senior Term Sheet, the "Term Sheets").
CSFB reserves the right and intends, prior to or after the execution
of the definitive documentation with respect to the Facilities (the "Facilities
Documents"), to syndicate all or a portion of its commitments to one or more
financial institutions (such financial institutions, together with CSFB, the
"Lenders") identified by CSFB in consultation with, and reasonably acceptable
to, you, which Lenders will become parties to the Facilities Documents. It is
agreed that CSFB will act as the sole administrative agent and advisor for, and
sole arranger and syndication manager of, the Facilities and that no additional
agents or co-agents or co-arrangers will be appointed without the prior written
consent of CSFB.
CSFB also reserves the right to require Company to issue, in lieu of
the Mezzanine Facility (and, at the option of CSFB in lieu of all or a portion
of the Senior Facilities) high-yield debt securities (the "Alternative
Securities"); provided that such issuances shall be made in consultation with,
--------
and with the consent of, the Investors and Company, not to be unreasonably
withheld.
2
<PAGE>
In addition, CSFB also reserves the right to employ the services of
Credit Suisse First Boston Corporation ("CSFBC") in providing services
incidental to the provision of the Mezzanine Facility or the Alternative
Securities and any resale or refinancing of the Mezzanine Loans (as defined in
the Mezzanine Term Sheet), and you agree that, solely in connection with the
provision of such services, CSFB and CSFBC may share with each other any
confidential or other information relating to the Investors and the Company and
its subsidiaries and their respective affiliates as from time to time they may
possess.
CSFB will manage all aspects of the syndication, including decisions
as to the selection of institutions to be approached and when they will be
approached, when their commitments will be accepted, which institutions
identified by us in consultation with, and reasonably acceptable to, you, will
participate in the allocations of the commitments among the Lenders and the
amount and distribution of fees among the Lenders. The Investors understand
that the Senior Facilities and the Mezzanine Facility will be separately
syndicated. You agree to assist CSFB in forming any such syndicate and to
provide the potential Lenders, promptly upon request, with all information
reasonably requested by them to complete successfully the syndication, including
but not limited to (a) an information package, including a Confidential
Information Memorandum for each of the Facilities and other marketing materials
for delivery to potential Lenders and participants, and (b) all information and
projections prepared by you or your advisors relating to the Transactions. You
also agree to participate in, and to make appropriate senior officers and
representatives of the Investors, available (and to use commercially reasonable
efforts to make senior officers and representatives of Company available) to
participate in, informational meetings for potential Lenders and participants at
such times and places as CSFB may reasonably request and to use commercially
reasonable efforts to ensure that CSFB's syndication efforts materially benefit
from the Investors and the Company's existing lending relationships.
The Investors represent and warrant and covenant that, to the best of
their knowledge:
(a) all written information (other than financial projections) which
has been or is hereafter furnished to CSFB by you or any of your
representatives in connection with the Transactions is complete and correct
as of the date thereof in all material respects and does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein not misleading
in light of the circumstances under which such statements were or are made;
and
3
<PAGE>
(b) all financial projections that have been or are hereafter prepared
by you or on your behalf and made available to CSFB have been or will be
prepared in good faith based upon what you believe to be reasonable assump
tions (it being understood that such projections are subject to significant
uncertainties and contingencies, many of which are beyond your, or the
Company's, control and that no assurance can be given that the projections
will be realized).
The Investors agree to supplement the information and projections referred to in
clauses (a) and (b) above from time to time until completion of the syndication
so that the representations and warranties in the preceding sentence remain
correct without regard to when such information and projections were furnished.
In arranging and syndicating the Facilities, CSFB will be entitled to use and
rely on such information and projections without independent verification
thereof.
In connection with the syndication of the Facilities, CSFB may, in its
discretion, allocate to other Lenders portions of any fees payable to CSFB in
connection with the Facilities. You agree that neither you nor the Company nor
any of your or its affiliates will pay to any Lender any compensation or titles
of any kind for its participation in the Facilities except as expressly provided
for in this letter or in the fee letter dated the date hereof between you and
CSFB (the "Fee Letter").
The Investors agree, jointly and severally, to (or to cause Company
to) reimburse CSFB and its affiliates, upon request made from time to time, for
their reasonable out-of-pocket fees and expenses incurred in connection with the
preparation, execution and delivery of this letter, the Fee Letter, the Warrant
Letter (as defined below) and the Facilities Documents and the activities
thereunder or contemplated thereby, including without limitation syndication
expenses (other than fees allocated in accordance with the preceding paragraph)
and the reasonable fees and expenses of Skadden, Arps, Slate, Meagher & Flom LLP
and such other outside counsel and advisors to CSFB and its affiliates approved
by you (such approval not to be unreason ably withheld) payable on the earlier
of (i) the date the commitment of CSFB hereunder is terminated or (ii) the
Closing Date.
4
<PAGE>
The Investors also agree, jointly and severally, to (or to cause the
Company to) indemnify and hold harmless CSFB and each other Lender, their
respective affiliates and each of their respective directors, officers,
employees, agents and advisors (each, an "Indemnified Party"), from and against
any and all claims, damages, liabilities (including securities law liabilities),
losses and expenses, including reasonable fees, expenses and disbursements of
counsel, which may be incurred by or asserted against an Indemnified Party in
connection with CSFB's or any Lender's commitment or participation in the
transactions contemplated by this letter, the Facilities or any related matter
or any investigation, litigation or proceeding in connection therewith and
whether or not the Recapitalization is consummated or the Facilities are drawn
upon, except to the extent such claim, damage, loss, liability or expense is
found to have resulted from such Indemnified Party's own bad faith, gross
negligence or willful misconduct; provided, however, that in connection with any
-------- -------
such third party claim, you shall not be responsible for, or required to hold
harmless any Indemnified Party from and against, the reasonable fees, expenses
and disbursements of more than one counsel for all of the Indemnified Parties
taken together, except to the extent any such Indemnified Party requires its own
counsel in order to be adequately represented in the reasonable judgment of such
Indemnified Party. No Indemnified Party shall be responsible or liable to any
other party hereto or any other person for consequential damages that may be
alleged as a result of this letter or the breach of any party's obligations
hereunder.
The Investors also hereby agree, in accordance with the terms of a
separate letter dated the date hereof between you and CSFB (the "Warrant
Letter"), to make available to CSFB and the holders of Mezzanine Loans,
Exchange Notes or Alternative Securities, as the case may be, warrants to
acquire equity in the Company to assist in the syndication of the Mezzanine
Loans, Exchange Notes or Alternative Securities.
This letter is delivered to you on the understanding that neither this
letter nor any other agreement between us related to this letter or the
Transactions, including the Term Sheets, the other exhibits hereto, the Fee
Letter, the Warrant Letter and the letter of even date herewith regarding the
engagement of CSFBC and Bear, Stearns & Co. Inc. with respect to the financing
and structure of the Transactions (the "Engagement Letter"), nor any of their
terms or substance shall be disclosed, directly or indirectly, to any other
person except (a) to your officers, directors, agents and advisors who are
directly involved in the consideration of this matter (and then only on a
confidential basis) or (b) as may be compelled in a judicial or administrative
proceeding or as otherwise required by law (in which case you agree to inform us
promptly thereof); provided, however, that you may disclose (and then only on a
-------- -------
confidential basis) this letter, the term sheets and the other exhibits hereto
and their
5
<PAGE>
terms and substance (but not the Fee Letter, the Warrant Letter or the
Engagement Letter or their respective terms and substance) to the Company and
its officers, directors agents and advisors who are directly involved in this
matter so long as they agree to the confidentiality requirements of this letter,
upon your acceptance of this letter.
Our offer to provide the Facilities will terminate at 5:00 P.M., New
York time, (i) on January 18, 1999, unless on or before that time you accept
this letter by signing and returning an enclosed counterpart of this letter, the
Fee Letter, the Warrant Letter and the Engagement Letter and (ii) if so accepted
by you on or prior to such time, on June 30, 1999. Subject to the immediately
succeeding sentence, your obligations with respect to indemnification and
confidentiality shall remain in full force and effect, regardless of any
termination of the commitment of CSFB made hereunder. You agree to cause the
Company to become a party to this letter, the Fee Letter, the Warrant Letter and
the Engagement Letter as soon as practicable and thereby assume your obligations
thereunder, at which time the Investors shall be released from such obligations.
This letter is intended to be solely for the benefit of the parties
hereto and is not intended to confer any benefits upon, or create any rights in
favor of, any person other than the parties hereto. This letter and CSFB's
commitments hereunder may not be assigned by you without the prior written
consent of CSFB, and any attempted assignment without such consent shall be
void. CSFB's commitments hereunder may be assigned by CSFB to any of its
affiliates or any Lender. Any such assignment to an affiliate shall not relieve
CSFB from any of its obligations hereunder unless and until the Facilities
Documents with respect to such assigned commitment shall have been executed and
delivered by the parties thereto, but any assignment to a Lender shall be by
novation and shall release CSFB from its commitment hereunder pro tanto. This
--- -----
letter may not be amended or modified or any provision hereof waived except in
writing signed by you and CSFB. This letter shall be governed by and construed
in accordance with the internal laws of the State of New York without giving
effect to the conflicts of laws principles thereof. This letter may be executed
in any number of counterparts, each of which when so executed and delivered
shall be deemed an original and all of which together shall constitute one and
the same instrument. Delivery of an executed counterpart of a signature page of
this letter by facsimile transmission shall be effective as delivery of a
manually signed counterpart hereof.
[Remainder of this page intentionally left blank]
6
<PAGE>
We appreciate the opportunity to assist you in this very important
transaction.
Very truly yours,
CREDIT SUISSE FIRST BOSTON
By: /s/ Robert Hetu
------------------------------
Name: Robert Hetu
Title: Vice President
By: /s/ Chris Cunningham
------------------------------
Name: Chris Cunningham
Title: Director
ACCEPTED AND AGREED TO AS OF
THE DATE FIRST WRITTEN ABOVE,
BAIN CAPITAL, INC.
By: /s/ Michael A. Krupka
------------------------------
Name: Michael A. Krupka
Title: Managing Director
BEAR, STEARNS & CO. INC.
By: /s/ Bodil Arlander
------------------------------
Name: Bodil Arlander
Title: Vice President
7
<PAGE>
EXHIBIT A
Integrated Circuit Systems, Inc.
--------------------------------
Senior Secured Credit Facilities
--------------------------------
Summary of Principal Terms and Conditions/1/
-----------------------------------------
Borrower: Integrated Circuit Systems, Inc. (the "Company").
- ---------
Recapitalization: Pursuant to an Agreement and Plan of Merger (the
- ------------------ "Recapitalization Agreement"), a corporation to be
established by the Investors will merge (the "Merger")
into the Company in a transaction (the "Recapitaliza-
tion") that will provide for recapitalization accounting
treatment, and in connection therewith, the issued and
outstanding share capital (the "Shares")of the Company
will be redeemed, for aggregate cash consideration of
approximately $259.2 million (the "Purchase Price"). In
connection with the Recapitalization, (a) the Company
will obtain the senior secured credit facilities (the
"Senior Facilities") as described below under the
caption "Senior Facilities" in an aggregate principal
amount of $145 million; (b) an equity contribution of
approximately $50.0 million (the "Equity Contribution")
will be made to the Company by the Investors and certain
management investors and existing shareholders; (c) the
Company will obtain mezzanine financing structured,
arranged and syndicated by CSFB (the "Mezzanine
Facility") of $47.5 million; and (d) the Company will
pay reasonable fees and expenses (including, without
limitation, reasonable fees of outside counsel) in
connection with the foregoing in an amount
- ---------------------------
/1/ All capitalized terms used but not defined herein have the meanings
given to them in the Commitment Letter to which this term sheet is attached.
A-1
<PAGE>
not to exceed approximately $17.5 million (the
Recapitalization, the Merger and the foregoing
transactions are collectively referred to herein as
the "Transactions").
Sources and Uses: The approximate sources and uses of funds necessary to
- ----------------- consummate the Transactions are set forth on Annex II
attached hereto.
Agent: CSFB will act as administrative agent (the "Agent") for
- ------ a syndicate of financial institutions identified by CSFB
in consultation with, and reasonably acceptable to, the
Company (the "Lenders"), and will perform the duties
customarily associated with such role.
Advisor and Arranger: CSFB will act as advisor and arranger for the Senior
- --------------------- Facilities (the "Arranger"), and will perform the duties
customarily associated with such roles.
Senior Facilities: (A) Senior Secured Term Loan Facilities in an aggre
- ------------------ gate principal amount of up to $120 million (the
"Term Facility"), of which (i) $50 million
("Term Loan A") will mature in five years and
(ii) $70 million ("Term Loan B") will mature in
seven years.
CSFB shall be entitled, with the consent of
Company and the Investors, not to be unreason-
ably withheld, to reallocate amounts among Term
Loan A and Term Loan B to the extent CSFB
reasonably determines that such reallocation is
advisable in order to facilitate the syndications
of the Senior Facilities, provided that the
aggregate amount of the Term Facility remains
unchanged.
A-2
<PAGE>
(B) Senior Secured Revolving Credit Facility (the
"Revolving Facility") in an amount equal to $25
million, of which up to an amount to be agreed
upon will be available in the form of letters of
credit.
Purpose: (A) The proceeds of the Term Facility will be used
- -------- by the Company on the date of the initial funding
under the Senior Bank Facilities (the "Closing
Date"), together with the proceeds of the Mezza
nine Facility and the Equity Contribution solely
(i) to finance the Purchase Price, (ii) to repay
the Existing Indebtedness and (iii) to pay
related fees and expenses.
(B) The proceeds of loans under the Revolving
Facility in an amount not to exceed approxi-
mately $16 million may be used, together with
the proceeds of the Equity Contribution and the
Mezzanine Facility to finance the Recapitaliza-
tion, repay Existing Indebtedness and pay
related fees and expenses. The proceeds of any
subsequent borrowings under the Revolving
Facility will be used for general corporate
purposes.
(C) Letters of credit will be used by the Company
solely for general corporate purposes.
Availability (A) Loans under the Term Facility will be made
- ------------ available only on the Closing Date. Such loans,
once repaid may not be reborrowed.
(B) Loans under the Revolving Facility will be
available at any time prior to the final maturity
of the Revolving Facility. Amounts repaid under
the Revolving Facility may be reborrowed.
A-3
<PAGE>
(C) Letters of Credit will be available at any time
before the fifth business day prior to the final
maturity of the Revolving Facility.
Default Rate: The applicable interest rate plus 2% per annum (charged
- ------------- only at the written election of the Lenders and only for
amounts in payment default).
Letters of Credit: Letters of credit under the Revolving Facility will be
- ------------------ issued by a New York-based Lender, as issuing bank (in
such capacity, the "Issuing Bank"), agreed upon by the
Company and the Agent. Each letter of credit shall
expire no later than the earlier of (a) 12 months after
its date of issuance (but may, under terms to be agreed
upon, be automatically renewed) and (b) the fifth
business day prior to the final maturity of the
Revolving Facility.
Drawings under any letter of credit shall be reimbursed
by the Company on the same business day. To the extent
that the Company does not reimburse the Issuing Bank on
the same business day, the Lenders shall be irrevoca bly
obligated to reimburse the Issuing Bank pro rata based
--------
upon their respective Revolving Facility commit ments,
with the amount of such reimbursement payment being
deemed to be a drawing under the Revolving Facility.
The issuance of all letters of credit shall be subject
to the customary procedures of the Issuing Bank.
A-4
<PAGE>
Final Maturity and (A) Term Facility
- ------------------ -------------
Commitment Term Loan A and Term Loan B will mature on
- ---------- the fifth and seventh anniversaries,
Reductions: respectively, of the Closing Date, and will
- ---------- amortize in equal quarterly installments in the
aggregate annual amounts as set forth below:
-----------------------
Year Term Term
Loan A Loan B
-----------------------
1 $ 1.0 $ .7
-----------------------
2 $ 7.0 $ .7
-----------------------
3 $10.0 $ .7
-----------------------
4 $14.0 $ .7
-----------------------
5 $18.0 $ .7
-----------------------
6 $28.0
-----------------------
7 $38.5
-----------------------
(amounts in millions)
(B) Revolving Facility
------------------
The Revolving Facility will mature on
the fifth anniversary of the Closing
Date.
Guarantees: All obligations of the Company under the Senior
- ----------- Facilities will be unconditionally guaranteed by
each existing and subsequently acquired or
organized domestic subsid iary of the Company.
Security: The Senior Facilities and the related
- --------- guarantees will be secured by substantially all
the assets of the Company and each existing and
subsequently acquired or organized domestic
subsidiary of the Company (collectively, the
"Collateral"), including but not
A-5
<PAGE>
limited to (a) a first priority pledge of all the
capital stock of each existing and subsequently
acquired or organized domestic subsid iary of the
Company (65% of material foreign subsidiar ies of
the Company) and (b) perfected first priority
(subject to customary exceptions) security
interests in, and mortgages on, substantially all
tangible and intangi ble assets of the Company
and each existing and subse quently acquired or
organized domestic subsidiary of the Company
(including but not limited to accounts receiv-
able, inventory, general intangibles,
intellectual property, real property, cash and
proceeds of the foregoing).
All the above-described pledges, security
interests and mortgages shall be created on
terms, and pursuant to documentation, reasonably
satisfactory to the Lenders and the Company, and,
subject to limited customary exceptions to be
agreed upon, none of the Collateral shall be
subject to any other pledges, security interests
or mortgages.
Interest Rates As set forth on Annex I hereto.
- --------------
and Fees:
- ---------
Mandatory Loans under the Term Facility shall be prepaid
- --------- with (a) 50% of Consolidated Excess Cash Flow (to
Prepayment: be defined) so long as the Leverage Ratio (as
- ----------- defined below) is greater than or equal to 2.5:1,
(b) 100% of the net cash proceeds of all non-
ordinary-course asset sales or other dispositions
of property by the Company and its subsid iaries
(including insurance and condemnation proceeds),
subject to exceptions to be agreed upon
(including the right to reinvest such proceeds in
the Company's business under certain
circumstances), (c) 100% of the net cash proceeds
of issuances of debt obligations of the Company
and its subsidiaries, subject to exceptions
A-6
<PAGE>
(including the Mezzanine Facility) to
be agreed upon, and (d) 50% of the net cash
proceeds of issuances of equity securities of the
Company and its subsidiaries, subject to excep-
tions to be agreed upon, so long as the Leverage
Ratio is greater than or equal to 3.0:1.
In addition, the Term Loan Facility shall be
prepaid in an amount equal to any refunding of
deposits lodged with Chartered Semiconducter
Manufacturing Ltd. (the "Refunds").
Voluntary Voluntary prepayments will be permitted in whole
- --------- or in part, at the option of the Company, in
Prepayment: minimum principal amounts to be agreed upon,
- ----------- without premium or penalty, other than payment of
breakage costs (excluding profits and Applicable
Margins) and reimbursement of the Lenders' actual
re-employment costs in the case of prepayment of
Adjusted LIBOR borrowings other than on the last
day of the relevant Interest Period (such
breakage costs and re-employment costs,
collectively "Breakage Costs").
Application of Voluntary and mandatory prepayments shall be
- -------------- made, without premium or penalty (but with
Prepayments: Breakage Costs (as defined above), and shall be
- ------------ applied to the Term A and B Loans first, (except
with respect to prepayments made from Refunds) to
amortization payments on the Loans due during the
immediately succeeding twelve month period as
directed by the Company, and second, (including
------
prepayments made from Refunds) pro rata to the
Term A and B Loans, and further, pro rata to the
remain ing amortization payments of such loans;
provided that holders of Term Loan B may elect to
--------
have their portion of any mandatory prepayment
applied to any outstanding portion of Term
Loan A.
Representations Usual for facilities and transactions of this
- --------------- type and others to be agreed upon by the Agent
and Warranties: and the Company (the Company's agreement not to
- --------------- be unreasonably withheld), including but not
limited to accuracy of financial statements; no
material adverse change; absence of litigation;
no violation of agreements or instruments;
compliance with laws (including employee
benefits, margin regulations and environmental
laws); payment of taxes; ownership of properties;
solvency; effectiveness of regulatory approvals;
labor matters; environmental matters; accuracy of
information; and validity, priority and
perfection of security interests in the
Collateral.
A-7
<PAGE>
Conditions Precedent The obligations of CSFB and the Lenders to make
- -------------------- the Senior Facilities available on the Closing
to Initial Borrowing: Date are subject to the satisfaction or waiver of
- --------------------- the conditions set forth in Exhibit C to the
Commitment Letter.
Subject to the foregoing, the Lenders shall make
the initial Loans available to the Company on the
Closing Date bearing interest at Adjusted LIBOR
(with an interest period of one month until
syndication of the Senior Facilities, as
determined by CSFB, has been substantially
completed) plus the then Applicable Margin so
long as, on or prior to the day that is three
days prior to the Closing Date, the Company shall
have delivered to CSFB, the other Lenders and the
Agent an executed indemnity for any Breakage
Costs with respect to such Loans that is in form
and substance reasonably satisfac tory to CSFB,
the other Lenders and the Agent.
Affirmative Usual for facilities and transactions of this
- ----------- type and others to be agreed upon by the Company
Covenants: and the Agent (the Company's agreement not to be
- ---------- unreasonably withheld) (to be applicable to the
Company and its subsidiaries), including, but not
limited to, maintenance of corporate existence
and rights; performance of obliga tions; delivery
of audited financial statements, other financial
information and notices of default and litiga-
tion; maintenance of properties in good working
order; maintenance of reasonably satisfactory
insurance; compliance with laws; inspection of
books and proper ties; further assurances; and
payment of taxes.
A-8
<PAGE>
Negative Covenants: Usual for facilities and transactions of this
- ------------------ type and others to be agreed upon by the Company
and the Agent (the Company's agreement not to be
unreasonably withheld) (to be applicable to the
Company and its subsidiaries), including, but not
limited to, limitations on dividends on, and
redemptions and repurchases of, capital stock;
limitations on prepayments, redemptions and
repurchases of subordinated debt; limitations on
prepayments, redemptions and repurchases of
senior debt; limitations on liens and sale-
leaseback transactions; limitations on loans and
investments; limitations on debt; limitations on
mergers, acquisitions and asset sales;
limitations on transactions with affiliates;
limitations on changes in business conducted;
limitations on amend ment of debt and other
material agreements; and limita tions on capital
expenditures.
Selected Financial The credit agreement relating to the Senior
- ------------------ Facilities (the "Credit Agreement") will contain
Covenants: financial covenants determined on a consolidated
- --------- basis with respect to the Company and its
subsidiaries (with definitions of financial
terms and levels to be agreed upon), including
but not limited to (a) maximum ratio of Total
Debt to EBITDA ("Leverage Ratio"), (b) minimum
ratio of EBITDA to Interest Expense, and (c)
minimum EBITDA.
Events of Usual for facilities and transactions of this
- --------- type (with customary cure periods) and others to
Default: be agreed upon by the Company and the Agent (the
- ------- Company's agreement not to be unreasonably
withheld), including but not limited to
nonpayment of principal or interest, violation of
covenants, incorrectness of representations and
warranties in any material respect, cross default
and cross-acceleration, bankruptcy, material
judgments, employee benefits, actual or asserted
invalidity of the guarantees or the security
documents and Change in Control (the definition
of which will be agreed upon).
A-9
<PAGE>
Voting: Amendments and waivers of the Credit Agreement
- ------ and the other definitive credit documentation
will require the approval of the Company and
Lenders holding more than 50% of the aggregate
amount of the loans and commitments under the
Senior Facilities (the "Required Lenders"),
except that the consent of each Lender adversely
affected thereby shall be required with respect
to (a) increases in such Lender's commitments,
(b) reductions of principal, interest or fees,
(c) extensions of scheduled amortization or final
maturity and (d) releases of all or substantially
all of the Collateral or certain guarantors
(except where the release of Collateral or a
guarantor is made pursuant to a transaction
approved by Required Lenders or otherwise
permitted by the Loan Documents).
Cost and Yield Usual for facilities and transactions of this
- -------------- type on terms to be agreed upon. In addition, the
Protection: Company will obtain interest rate hedging on not
- ---------- less than 30% of outstandings under the Term
Facility for a period of at least two years, in
form and substance reasonably satisfactory to
Agent and Company.
Assignments The Lenders will be permitted to assign loans and
- ----------- commitments to other financial institutions in
and Participations: minimum amounts of $5.0 million without
- ------------------ restriction (other than with the approval of the
Company (not to be unreasonably withheld) in the
case of assignments occurring when no Event of
Default exists to any person other than a Lender
or an affiliate of the assignor). The Agent will
receive a processing and recordation fee of
A-10
<PAGE>
$3,500, payable by the assignor and/or the
assignee, with each assignment. Assignments will
be by novation.
The Lenders will be permitted to participate
loans and commitments to other financial
institutions without restriction. Voting rights
of participants shall be limited to matters in
respect of (a) reductions of principal, interest
or fees, (b) extensions of scheduled amortization
or final maturity and (c) releases of all or
substantially all of the Collateral or certain
guarantors (except where the release of
collateral or a guarantor is made pursuant to a
transaction approved by the Required Lenders or
otherwise permitted by the Loan Documents).
Expenses and In addition to those reasonable out-of-pocket
- ------------ expenses reimbursable under the Commitment
Indemnification: Letter, all reasonable out-of-pocket costs of the
- ---------------- Agent (and, in the case of enforcement costs and
documentary taxes, the Lenders) associated with
the Senior Facilities are to be paid by the
Company.
The Company will indemnify the Arranger, the
Agent, the Lenders and their respective officers,
directors, employees, affiliates and agents
collectively ("indemnified persons") and hold
them harmless from and against all reasonable
costs, expenses (including reasonable fees,
disbursements and other charges of counsel) and
liabilities of any such indemnified person
arising out of or relating to those matters set
forth in the Commitment Letter, including,
without limitation, any claim or any litigation
or other proceedings (regardless of whether any
such indemnified person is a party thereto) that
relate to the Transactions or any transactions
connected therewith, provided that none of the
--------
indemnified persons will be indemnified for its
bad faith, gross negligence or willful
misconduct.
A-11
<PAGE>
Counsel for the Arranger Skadden, Arps, Slate, Meagher & Flom LLP.
- -------------------------
and the Agent:
- ------------
Governing Law New York.
- -------------
and Forum:
- ----------
A-12
<PAGE>
ANNEX I
TO EXHIBIT A
Interest Rates and Fees
-----------------------
Interest Rates: The interest rates under the Senior Facilities will
- --------------- be, at the Company's option, either the Base Rate or
the Adjusted LIBOR plus, in each case, the
Applicable Margin. The Applicable Margin shall be
initially as set forth in the following table, and
subsequently, as set forth below under the caption
"Changes in Commitment Fees and Interest Rates":
<TABLE>
<CAPTION>
===============================================
-----------------------------------------------
Adjusted
Base Rate LIBOR
-----------------------------------------------
<S> <C> <C>
Revolving Facility 2.00% 3.00%
-----------------------------------------------
Term Loan A 2.00% 3.00%
-----------------------------------------------
Term Loan B 2.50% 3.50%
===============================================
</TABLE>
The Company may elect interest periods of 1, 2, 3, 6
months (or, if generally made available by all
Lenders, 2 weeks or 9- or 12-months) for Adjusted
LIBOR borrowings.
Calculation of interest shall be on the basis of
actual days elapsed in a year of 360 days (or 365 or
366 days, as the case may be, in the case of Base
Rate loans based on the Prime Rate) and interest
shall be payable at the end of each interest period
and, for interest periods of six months or longer,
at least every 3 months.
A-I-2
<PAGE>
The Base Rate will be defined as the higher of the
Agent's prime lending rate and the rate 2 of 1% in
excess of the Federal funds effective rate.
Adjusted LIBOR will at all times include statutory
reserves.
Letter of Credit Fee: A per annum participation fee equal to the spread
- --------------------- over Adjusted LIBOR from time to time in effect for
loans under the Revolving Facility will accrue on
the aggregate face amount of outstanding letters of
credit under the Revolving Facility, payable in
arrears at the end of each quarter and upon the
termination of the Revolving Facility, in each case
for the actual number of days elapsed over a 360-day
year. Such fees shall be distributed to the Lenders
pro rata in accordance with the amount of each such
Lender's Revolving Facility commitment. In addition,
the Issuing Bank shall receive a fronting fee equal
to 0.25% per annum on all outstanding letters of
credit, payable quarterly in arrears.
Commitment Fees: 0.50% per annum of the undrawn portion of the
- ---------------- commitments in respect of the Revolving Facility
(subject to reduction as set forth below under the
caption "Changes in Commitment Fees and Interest
Rates"), commencing to accrue upon the execution
and delivery of the Credit Agreement and payable
quarterly in arrears and upon the termination of any
commitment.
Tax Gross Up: All payments shall be made without withholding or
- ------------- deduction for, or on account of, any present or
future taxes or duties imposed or levied by or on
behalf of any governmental taxing authority or, if
any such withholding or deductions are required to
be made by law, with the payment of such additional
amounts as will
A-I-3
<PAGE>
result in holders receiving such amounts as they
would have received had no such withholding or
reduction been required. In connection with its
becoming a party to the Credit Agreement, each
Lender shall deliver such forms regarding the
applicability of U.S. withholding taxes to it as are
usual for facilities of this type. In addition, each
Lender, at the cost and expense of the Company,
shall agree, on customary terms, to take such
actions to mitigate withholdings taxes as are not
adverse to it in its sole judgment.
Changes in Commencing the date of delivery of the first
- ---------- quarterly financial statements after the Closing
Commitment Fees and Date, so long as no event of default shall have
- ------------------- occurred and be continuing, Applicable Margins in
Interest Rates: respect of Loans and commitment fees under the
- --------------- Senior Facilities will be determined by reference to
the Leverage Ratio as set forth in the following
tables:
Applicable Margin
for Adjusted LIBOR Loans
------------------------
<TABLE>
<CAPTION>
Term Loans A
and
Leverage Revolving
Ratio Facility Loans Term B Loans
-------- -------------- ------------
<S> <C> <C>
Less than or equal to 4.0 x 2.75% 3.25%
Less than 3.5 x 2.5% 3.00%
Less than 3.0 x 2.25% 3.00%
Less than 2.5 x 2.00% 3.00%
Less than 2.0 x 1.75% 3.00%
</TABLE>
The Applicable Margin for any Base Rate Loan shall
be equal to (i) the Base Rate plus the then
Applicable Margin for that tranche of Adjusted LIBOR
Loan, minus (ii) 1.00%.
Commitment Fees
---------------
Leverage
Ratio Fee
-------- --------------
Less than or equal to 4.0 x .500%
Less than 3.5 x .500%
Less than 3.0 x .375%
Less than 2.5 x .375%
Less than 2.0 x .375%
The Leverage Ratio shall be determined as at the
last day of each fiscal quarter; changes in interest
rates and commitment fees resulting from changes in
such ratio shall become effective on the first day
on which the financial statements covering the
quarter-end date as of which such ratio is computed
are available.
A-I-4
<PAGE>
ANNEX II
TO EXHIBIT A
Sources and Uses of Funds
-------------------------
(in millions)
(all figures are approximate)
<TABLE>
<CAPTION>
Uses of Funds Sources of Funds
- ------------- -----------------
<S> <C> <C>
Purchase Price of Cash On Hand
Equity $259.2 $60.0
Options 16.7 Revolving Facility\1\ 15.9
Transaction Expenses 17.5 Term Facility 120.0
-----
Mezzanine Facility 47.5
Equity Contribution
(including management
rollover) 50.0
Total Uses $293.4 Total Sources $293.4
====== ======
</TABLE>
- ------------------------
\1\ $25 million Revolving Facility of which approximately $15.9 million will be
drawn at Closing.
A-II-2
<PAGE>
EXHIBIT B
Mezzanine Loan Facility
-----------------------
Summary of Principal Terms and Conditions\1\
-------------------------------------------
Arranger and Credit Suisse First Boston ("CSFB" or the "Agent").
- ------------
Administrative Agent:
- ---------------------
Lenders: A syndicate of lenders (the "Lenders") identified in
- -------- consultation with and reasonably acceptable to the
Company. At the option of CSFB, the Mezzanine Loans
may be sold to "qualified institutional buyers" as
defined in Rule 144A of the Securities Act of 1933
and otherwise in compliance with Rule 144A. In such
event, Company shall fully cooperate with CSFB to
consummate such sale.
Borrower: Integrated Circuit Systems, Inc. (the "Company").
- ---------
Amount: Up to $47.5 million aggregate principal amount.
- -------
Rank: The loans to be made hereunder by each of the
- ----- Lenders (the "Mezzanine Loans") will be senior
subordinated, unsecured debt of the Company,
subordinated in right of payment to the Senior
Facilities (as defined in the Commitment Letter) and
to all other existing and future senior indebtedness
of the Company.
Guarantees: The obligations of the Company under the Mezzanine
- ----------- Loans will be unconditionally guaranteed on a senior
subordinated basis by each existing and subsequently
organized domestic subsidiary of the Company that
guarantees the Senior Facilities.
\1\ All capitalized terms used but not defined herein have the meanings given
to them in the Commitment Letter to which this term sheet is attached.
B-1
<PAGE>
Use of Proceeds: The proceeds of the Mezzanine Loans will be used by
- ---------------- the Company, together with up to $136.0 million of
the proceeds of the Senior Facilities and the
proceeds of the Equity Contribution and cash on hand
at the Company, solely (i) to finance the
Recapitalization, (ii) to repay the Existing
Indebtedness and (iii) to pay related fees and
expenses.
Funding: The Lenders will make the Mezzanine Loans available
- -------- on a date simultaneous with the consummation of the
other Transactions (the "Closing Date").
Refinancing: The Company will use all reasonable best efforts to
- ------------ refinance the Mezzanine Loans as promptly as
practicable after the Closing Date, including,
without limitation, by taking the actions described
under "Affirmative Covenants".
B-2
<PAGE>
Maturity: The Mezzanine Loans will mature on the date which
- --------- is 364 days after the Closing Date (the
"Mezzanine Maturity Date"). If any Mezzanine
Loan is not repaid in full on or prior to the
Mezzanine Maturity Date, the Lender thereof will
have the option at any time or from time to time
to receive, in exchange for such Mezzanine Loan
or portion thereof, exchange notes of the Company
(the "Exchange Notes") ranking pari passu with
the Mezzanine Loans and having the terms set
forth in the term sheet attached as Annex I to
this Exhibit B. If any Lender does not exchange
its Mezzanine Loan for Exchange Notes on the
Mezzanine Maturity Date, such Lender shall be
required to extend the maturity of such loan to
another date selected by such Lender. If, on or
prior to such extended maturity, such Lender does
not exchange its Mezzanine Loan, such Lender
shall be required again to extend the maturity of
such Mezzanine Loan to another date selected by
such Lender (provided, however, that such Lender
--------- -------
shall not be required to extend the maturity of
its Mezzanine Loans beyond the tenth anniversary
of the Closing Date (the "Final Maturity
Date")) and this sentence shall apply to each
extended maturity of its Mezzanine Loan prior to
the Final Maturity Date (it being understood
that, except to the extent specifically set forth
herein, the substantive economic terms of the
Mezzanine Loans and the Exchange Notes are
intended to be the same). Lenders shall not be
required to exchange their respective Mezzanine
Loans for Exchange Notes only upon the
determination by such Lender that such exchange
is prohibited by law, rule, regulation or order
applicable to such Lender or that such exchange
would reasonably be expected to have an adverse
effect on such Lender or would otherwise be
inconsistent with such Lender's business
objectives.
B-3
<PAGE>
Interest Rates: The Mezzanine Loans will bear interest at a rate of
- --------------- 13.0% per annum; increasing by .50% at the end of
each quarter thereafter until the Mezzanine Maturity
Date, but in no event in excess of 15% per annum.
In no event shall the interest rate on the Mezzanine
Loans exceed the highest lawful rate permitted under
applicable law.
Following the Mezzanine Maturity Date, all
outstanding Mezzanine Loans will accrue interest at
the rate provided for the Exchange Notes in Annex I
hereto.
Calculation of interest shall be on the basis of
actual days elapsed in a year of 360.
Interest Payments: Interest will be payable quarterly in arrears.
- ------------------
Tax Gross Up: All payments shall be made without withholding or
- ------------- deduction for, or on account of, any present or
future taxes or duties imposed or levied by or on
behalf of any governmental taxing authority or, if
any such withholding or deductions are required to
be made by law, with the payment of such additional
amounts as will result in holders receiving such
amounts as they would have received had no such
withholding or reduction been required. In
connection with its making or acquisition of
Mezzanine Loans, each Lender shall deliver such
forms regarding the applicability of U.S.
withholding taxes to it as are usual for facilities
of this type. In addition, each Lender, at the
reasonable cost and expense of the Company, shall
agree, on customary terms, to take such actions to
mitigate withholding taxes as are not adverse to it
in its reasonable discretion.
Mandatory Subject to compliance with the Senior Facilities,
- --------- the Mezzanine Loans will be required to be prepaid
Prepayments: (subject to exceptions to be agreed upon) with:
- ------------
B-4
<PAGE>
(a) subject to exceptions to be agreed upon, 100%
of the net cash proceeds of the issuance or
incurrence of debt by the Company or its
subsidiaries;
(b) a percentage to be agreed on of the net cash
proceeds from any issuance of equity
securities of the Company or its subsidiaries
in any public offering or private placement or
from any capital contribution; and
(c) certain asset sales.
Optional Prepayments: Mezzanine Loans may be repaid upon five days' prior
- --------------------- notice to the Agent, in whole or in part at the
option of the Company, in a minimum principal amount
and in multiples to be agreed upon, at any time on
or prior to the first anniversary of the Closing
Date, at the principal amount thereof, plus accrued
and unpaid interest, if any, to the repayment date,
and without premium or penalty at any time
thereafter.
Conditions to The obligations of CSFB and the Lenders to make the
- ------------- Mezzanine Loans on the Closing Date are subject to
Closing: the satisfaction or waiver of the conditions set
- -------- forth in Exhibit C to the Commitment Letter.
Representations and Customary for loans similar to the Mezzanine Loans
- ------------------- and such additional representations and warranties
Warranties: as may be agreed upon by the Agent and the Company,
- ----------- including: no Default or Event of Default; absence
of material adverse change; financial statements;
absence of undisclosed material liabilities or
material contingent liabilities; compliance with
laws; solvency; no conflicts with laws, charter
documents or agreements; good standing; payment of
taxes: and ownership of properties;
B-5
<PAGE>
Affirmative Customary for loans similar to the Mezzanine Loans
- ----------- and such others as may reasonably be required by the
Covenants: Agent, including: maintenance of corporate existence
- ---------- and rights; compliance with laws; performance of
obligations; maintenance of properties in good
repair; maintenance of appropriate and adequate
insurance; inspection of books and properties;
payment of taxes and other liabilities; notice of
defaults, litigation and other adverse action;
delivery of financial statements, financial
projections and compliance certificates; and further
assurances.
In addition, the Company will agree to file a
registration statement under the Securities Act or
prepare an offering memorandum covering senior notes
or other debt or equity securities of the Company
(the "Refinancing Securities") to be issued in a
public offering or private placement to refinance in
full the Mezzanine Facility (the "Loan Refinancing")
and to consummate such Loan Refinancing as soon as
reasonably possible after the Closing Date in an
amount sufficient to refinance all amounts
outstanding under the Mezzanine Facility and on such
terms and conditions (including interest rate,
yield, redemption prices and dates) as CSFB may in
its reasonable judgment determine to be appropriate
in light of prevailing circumstances and market
conditions and the financial condition and prospects
of the Company. The indenture for the Refinancing
Securities will be substantially in the form of
CSFB's standard indenture for high-yield senior
unsecured debt securities, modified as appropriate
to reflect the terms of this transaction and the
financial condition and prospects of the Company and
its subsidiaries, and in form and substance
reasonably satisfactory to CSFB and the Company. If
any Refinancing Securities are issued in a
transaction not
B-6
<PAGE>
registered under the Securities Act to effect the
Loan Refinancing, all such Refinancing Securities
shall be entitled to the benefit of registration
rights agreements to be entered into by the Company
in customary form reasonably acceptable to CSFB.
Negative Covenants: Customary for loans similar to the Mezzanine Loans
- ------------------- and such others as may be agreed upon by the Agent
and the Company, including: limitations on
incurrence of indebtedness (including no senior
subordinated debt other than the Mezzanine Loans);
limitations on loans, liens, investments and joint
ventures; limitations on guarantees or other
contingent obligations; limitations on restricted
payments (including dividends, redemptions and
repurchases of capital stock); limitations on
fundamental changes (including limitations on
mergers, acquisitions and asset sales); limitations
on transactions with affiliates; limitations on
dividend and other payment restrictions affecting
subsidiaries; limitations on lines of business;
limitations on amendment of indebtedness and other
material documents; and limitations on prepayment or
repurchase of other indebtedness.
Events of Default: Customary for loans similar to the Mezzanine Loans
- --------------------- and others to be agreed upon by the Agent and the
Company, including: nonpayment of principal,
interest, fees or other amounts when due; violation
of covenants; failure of any representation or
warranty to be true in all material respects;
cross-default and cross-acceleration; Change in
Control; bankruptcy events; material judgments;
ERISA; and actual or asserted invalidity of any
Mezzanine Loan Document.
B-7
<PAGE>
Yield Protection and Customary for facilities of this type.
- --------------------
Increased Costs:
- ----------------
Assignments and The Company may not assign its rights or obligations
- --------------- in connection with the definite documentation
Participations: relating to the Mezzanine Loans (the "Mezzanine Loan
- --------------- Documents") without the prior written consent of
all the Lenders.Lenders will have the right to
assign the Mezzanine Loans and their commitments
with the consent of the Company (such consent not to
be unreasonably withheld) and such assignments will
be by novation which will release the obligation of
the assigning Lender.
Lenders will be permitted to participate their
Mezzanine Loans to other financial institutions;
provided, however, that the Lenders granting
--------- -------
participations retain the voting rights to such
participated amounts. Participants will have the
same benefits as the selling Lenders would have with
regard to yield protection and increased costs, and
provision of information on the Company and its
subsidiaries.
Voting: Amendments and waivers of any provision of any
- ------- Mezzanine Loan Documents will require the approval
of the Company and Lenders holding commitments or
loans, as the case may be, representing a majority
of the aggregate amount of commitments or loans,
respectively, under the Mezzanine Loan Documents,
except that the consent of all affected Lenders
shall be required with respect to (a) increases in
commitments, (b) reductions of principal, interest
or fees, (c) extensions of the maturity date and (d)
releases of certain guarantors (except where the
release of a guarantor is made pursuant to a
transaction approved by requisite Lenders or
otherwise permitted by the Mezzanine Loans
Documents).
B-8
<PAGE>
Expenses and In addition to those reasonable out-of-pocket
- ------------ expenses reimbursable under the Commitment Letter,
Indemnification: all reasonable out-of-pocket expenses of the Agent
- ---------------- (and the Lenders for enforcement costs and
documentary taxes) associated with the preparation,
execution and delivery of any waiver or modification
requested by or for the benefit of the Company
(whether or not effective) of, and the enforcement
of, any Mezzanine Loan Document or any document
relating to the refinancing of the Mezzanine Loans
(including the reasonable fees, disbursements and
other charges of counsel for the Agent) are to be
paid by the Company. The Company will indemnify the
Agent and the other Lenders and hold them harmless
from and against all reasonable costs, expenses
(including reasonable fees and disbursements of
counsel) and liabilities arising out of or relating
to those matters set forth in the Commitment Letter,
including, without limitation, any litigation or
other proceeding (regardless of whether the Agent or
any such other Lender is a party thereto) that
relate to the Transactions, the Mezzanine Loans or
refinancing thereof; provided, however, that neither
--------- -------
the Agent nor any such other Lender will be
indemnified for any costs, expense or liability to
the extent resulting from such person's bad faith,
gross negligence or willful misconduct.
Counsel for the Skadden, Arps, Slate, Meagher & Flom LLP.
- ---------------
Arranger and the
- ----------------
Administrative Agent:
- ---------------------
Governing Law and New York.
- -----------------
Forum:
- ------
B-9
<PAGE>
ANNEX I
TO EXHIBIT B
Exchange Notes
--------------
Summary of Principal Terms and Conditions1
------------------------------------------
Issuer: The Company will issue Exchange Notes under an
- ------ indenture that complies with the Trust Indenture Act
(the "Indenture").
Principal Amount: The Exchange Notes will be available only in exchange
- ---------------- for the Mezzanine Loans. The face amount of any
Exchange Note will equal the aggregate principal amount
(including any accrued interest not required to be paid
in cash) of the Mezzanine Loan for which it is
exchanged.
Maturity: The Exchange Notes will mature on the tenth anniversary
- -------- of the Closing Date.
Interest Rate: Exchange Notes will bear interest at a fixed rate of
- ------------- 15.0% per annum.
In no event shall the interest rate on the Exchange
Notes exceed the highest lawful rate permitted under
applicable law.
Tax Gross Up: Same as Mezzanine Loans.
- ------------
- ------------------------
\1\ All capitalized terms used but not defined herein have the meanings given
to them in the Commitment Letter to which this term sheet is attached.
B-I-2
<PAGE>
Rank: Exchange Notes will rank pari passu with Mezzanine
- ----- ---- -----
Loans but will be subordinated in right of payment
to all existing and future senior indebtedness of
the Company.
Mandatory Redemption: Same as Mezzanine Loans.
- ---------------------
Optional Redemption: The Exchange Notes will be redeemable at the option
- -------------------- of the Company, in whole or in part, at any time
after the fifth anniversary of the Closing Date at
par plus accrued and unpaid interest to the
----
redemption date and a call premium to be determined;
provided that a portion (to be determined) of the
--------
proceeds of a public offering of Common Stock by the
Company may be used to redeem the Exchange Notes
prior to the fifth anniversary of the Closing Date
on terms to be agreed upon.
Registration Rights: The Company will use its reasonable best efforts to
- ------------------- cause to become effective an exchange offer
registration statement or a shelf registration
statement no later than 120 days from the date of
issuance of the Exchange Notes, and the Company will
use its reasonable best efforts to keep such
registration statement effective and available
(subject to customary exceptions) until it is no
longer needed to permit unrestricted resales of such
Exchange Notes, but in no event longer than one year
from the date of issuance of any such Exchange
Notes. If the registration statement ceases to be
effective or ceases to be useable in connection with
resales of such Exchange Notes (subject to customary
exceptions), cash interest will accrue and be
payable (in addition to interest otherwise accruing
on the Exchange Notes) at a rate of 0.50% per annum
until such default shall be cured.
B-I-3
<PAGE>
The Company agrees, at its expense, to assist CSFB
in connection with resales of any of the Exchange
Notes, including making its senior officers
available to CSFB, including making them available
to assist in the preparation of marketing materials
relating to any resales, to participate in due
diligence sessions and to participate in road shows
or other presentations to prospective purchasers of
such Exchange Notes.
Exchange Notes Escrowed: The Exchange Notes will be delivered on the Closing
- ------------------------ Date and held, undated, in escrow by a mutually
agreeable fiduciary.
Right to Transfer The holders of the Exchange Notes shall have the
- ----------------- absolute and unconditional right to transfer such
Exchange Notes: Exchange Notes to any third parties in compliance
- --------------- with applicable law.
Covenants: Those typical for an indenture governing a high-
- ---------- yield senior subordinated note issue, including a
"change in control" put provision, and, to the
extent deemed reasonably necessary by CSFBC and
reasonably satisfactory to the Company, certain
covenants contained in the Mezzanine Loan
documentation.
Events of Default: Those typical for an indenture governing a high-
- ----------------- yield senior subordinated note issue.
Governing Law New York.
- -------------
and Forum:
- ----------
B-I-4
<PAGE>
EXHIBIT C
CONDITIONS\1\
--------------
CSFB has conducted its due diligence with respect to the Facilities
and the Transactions and is pleased to inform you that it is satisfied with the
results thereof; however, the commitments of CSFB pursuant to the Letter are
subject to the condition that after the date of the Letter nothing becomes known
to CSFB that is inconsistent in a material and adverse manner with anything
disclosed to CSFB prior to the date of the Letter or anything previously
obtained by CSFB during such due diligence.
In addition to the foregoing, the commitments of CSFB pursuant to the
Letter are also subject to the following conditions:
(1) the preparation, execution and delivery of definitive
documentation in connection with the Facilities reasonably satisfactory
to CSFB, and the satisfaction (as reasonably determined by CSFB) of
customary closing conditions for transactions similar to the Senior
Facilities and the Mezzanine Facility, as applicable;
(2) CSFB and the Lenders shall be reasonably satisfied as of the
Closing Date with the material terms and conditions of the
Recapitalization Agreement and each other agreement entered into in
connection with the Transactions and with all legal, tax and accounting
matters (it being understood that a failure to obtain recapitalization
accounting treatment with respect to the Transactions will not give
rise to rights on the part of CSFB hereunder) relating to the
Transactions that would reasonably be expected to have a Material
Adverse Effect, including without limitation, any such matters
pertaining to pending or potential litigation with respect to the
Transactions and requisite stockholder or governmental consents or
approvals; provided, however, that the failure of the Merger and
related transactions to be eligible for recapitalization accounting
shall not be considered a failure to satisfy any of the conditions to
the commitments of CSFB stated herein;
(3) after giving effect to the Transactions and the other transactions
contemplated by the Letter, neither any Loan Party nor any of their
subsidiaries
- ---------------------------
\1\ All capitalized terms used but not defined herein have the meanings given to
them in the Commitment Letter to which this Exhibit C is attached.
C-1
<PAGE>
shall have outstanding any indebtedness or preferred stock other than (a) the
loans under the Senior Facilities, (b) the Alternative Securities or the loans
under the Mezzanine Facility, and (c) other indebtedness or preferred stock to
be agreed upon;
(4) there shall not have occurred and be continuing (a) any general
suspension of trading in securities on the New York or American Stock
Exchange or in the NASDAQ National Market System (other than circuit
breakers), (b) the declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States, or (c) any other
material adverse change in banking or capital market conditions that has
had a material adverse effect on the syndication of leveraged bank credit
facilities or the consummation of high yield offerings, as the case may be,
that CSFB reasonably determines makes it impracticable to consummate the
Alternative Securities Offering or successfully syndicate the Senior
Facilities or the Mezzanine Facility;
(5) CSFB's satisfaction that, immediately prior to and during the
marketing period for either the syndication of (a) the Senior Facilities or
(b) the Mezzanine Facility, there shall be no competing issues of debt
securities or commercial bank facilities (other than the Senior Facilities
and the Mezzanine Facility, or other permitted indebtedness thereunder) of
any Loan Party or any of their affiliates;
(6) the receipt by CSFB and, if applicable, the Lenders, on or before the
closing of the Transactions, of financial statements of the Company
(including notes thereto), consisting of (a) audited and pro forma balance
sheets as of the end of each period in the 3 fiscal-year period most
recently ended, (b) audited and pro forma statements of operations and cash
flows for each period in the 3 fiscal-year period ending June 30, 1998, (c)
consolidated financial statements for each period in the 3 fiscal-year
period most recently ending and supporting documentation satisfactory to
CSFB, (d) comparable unaudited historical and pro forma interim financial
statements covering all quarterly or other appropriate periods subsequent
to the fiscal year most recently ended, and (e) such final projections in
respect of the Loan Parties and their respective subsidiaries as CSFB may
reasonably request; and all such financial statements, historical or pro
forma, delivered pursuant to this paragraph (vi) shall be in compliance
with the requirements of Regulation S-X for a public
C-2
<PAGE>
offering registered under the Securities Act of 1933, and all financial
statements and projections referred to in this paragraph (vi) shall not be
materially inconsistent with financial statements, projections and
estimates previously provided to CSFB and, if applicable, the Lenders;
(7) payment of fees and expenses;
(8) since June 27, 1998, there shall not have occurred or become known to
CSFB any event or events, adverse condition or change that, individually or
in the aggregate, would reasonably be expected to have a Material Adverse
Effect; and
(9) the Closing Date shall occur on or before June 30, 1999.
In the event that anything arising under the first paragraph of this
Exhibit C comes to the attention of CSFB or that any of the other conditions set
forth above or in the Facilities Documents are not satisfied, CSFB reserves the
right, in its sole discretion, to either (x) suggest alternative financing
amounts or structures that ensure adequate protection for CSFB and the Lenders
(in consultation with, and as approved by, the Investors and the Company) or (y)
decline to participate in the proposed financings.
As used herein, a "Material Adverse Effect" shall mean the result of
one or more events, changes or effects which, individually or in the aggregate,
would reasonably be expected to have a material adverse effect on (i) the
business, results of operations, financial condition or prospects of the Company
and its subsidiaries, in each case, taken as a whole, or (ii) the validity or
enforceability of any of the documents entered into in connection with the
Transactions or the other transactions contemplated by the Letter or the rights,
remedies and benefits available to the parties thereunder.
C-3
<PAGE>
CONFIDENTIAL
Project Blender
Valuation Analysis
October 12, 1998
presented by
[LOGO OF PENNSYLVANIA MERCHANT GROUP APPEARS HERE]
<PAGE>
Table of Contents
Tab
---
Stock Price Performance I
Comparable Companies Analysis II
Discounted Cash Flow Analysis III
A. Case 1: New Products
B. Case 2: Current Products
C. Sensitivity Analysis
Merger and Acquisition Analysis IV
Conclusion V
Exhibit A:
Equity Risk Premium for Small-Cap Stocks
Exhibit B:
Control Premium Analysis
<PAGE>
Blender vs. S&P 500
Since January 1997
[LINE GRAPH APPEARS HERE]
1
<PAGE>
Market Data for Semiconductor Companies
(in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Dallas Lattice
3Dfx Interactive Actel Semiconductor Exar Semiconductor
Incorporated(1) Corporation(2) Corporation(3) Corporation(4) Corporation(5)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Market Price (10/09/98) $10.06 $7.75 $25.50 $14.38 $19.13
52 Week High $35.25 $17.00 $56.00 $27.25 $67.50
52 Week low $8.00 $7.31 $22.69 $12.00 $19.75
Symbol TDFX ACTL DS EXAR LSCC
Most Recent Fiscal Year End 12/31/97 12/28/97 12/28/97 03/31/98 03/28/98
Most Recent Quarter End 06/30/98 06/28/98 06/28/98 06/30/98 06/27/98
Common Shares Outstanding 15,561 21,511 27,989 9,575 23,518
Fully Diluted Shares [A] 18,161 25,763 33,185 11,768 26,393
Market Value of Common Equity $156,583 $166,170 $713,720 $137,641 $449,782
Total Debt & Preferred Stock $195 $0 $0 $0 $0
Cash & Marketable Securities $93,244 $72,973 $111,007 $77,177 $274,490
-------- ------- -------- ------- --------
Total Enterprise Value (TEV) $63,534 $93,737 $602,713 $60,464 $175,292
EPS Date 06/30/98 06/28/98 06/28/98 06/30/98 06/27/98
EPS (diluted)
- --------------
LTM EPS $0.55 $0.65 $2.09 $0.85 $2.18
12 Mos. ending 6/99 est. EPS [B] $0.74 $0.73 $2.04 $0.98 $1.80
1998/97A EPS ($0.16) $0.76 $2.19 $0.77 $2.37
1999/98E EPS [B] $1.01 $0.66 $1.89 $0.92 $1.71
2000/1999E EPS [B] $1.12 $0.88 $2.28 $1.29 $2.18
Price to LTM EPS 18.3 11.9 12.2 16.9 8.8
Price to June 1999E EPS 13.6 10.6 12.5 14.7 10.6
Price to 1999/98E EPS 10.0 11.7 13.5 15.6 11.2
Price to 2000/99E EPS 9.0 8.8 11.2 11.1 8.8
Market Capitalization Basis
- ---------------------------
LTM Revenue $140,966 $150,857 $362,945 $99,380 $232,302
Market/LTM Revenue 1.1 1.1 2.0 1.4 1.9
Market/Operating Cash Flow [C] 6.3 5.8 5.7 8.8 5.7
Market/Operating Profit 7.4 8.6 8.3 14.0 6.6
Market/Book 1.3 1.4 1.9 1.1 1.0
TEV Basis
- ---------
TEV/LTM Revenue 0.5 0.6 1.7 0.6 0.8
TEV/Operating Cash Flow [C] 2.6 3.3 4.8 3.8 2.2
TEV/Operating Profit 3.0 4.9 7.0 6.2 2.6
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
NeoMagic Comparable
Corporation(6) Median
- ---------------------------------------------------------------------------
Market Price (10/09/98) $11.63
52 Week High $22.88
52 Week low $10.50
Symbol NMGC
Most Recent Fiscal Year End 01/31/98
Most Recent Quarter End 07/31/98
Common Shares Outstanding 24,614
Fully Diluted Shares [A] 28,373
Market Value of Common Equity $286,138
Total Debt & Preferred Stock $0
Cash & Marketable Securities $69,834
--------
Total Enterprise Value (TEV) $216,304
EPS Date 07/31/98
EPS (diluted)
- --------------
LTM EPS $1.09
12 Mos. ending 6/99 est. EPS [B] $1.21
1998/97A EPS $0.82
1999/98E EPS [B] $1.12
2000/1999E EPS [B] $1.33
Price to LTM EPS 10.7 12.1
Price to June 1999E EPS 9.6 11.6
Price to 1999/98E EPS 10.4
Price to 2000/99E EPS 8.7
Market Capitalization Basis
- ---------------------------
LTM Revenue $182,937
Market/LTM Revenue 1.6
Market/Operating Cash Flow [C] 7.4
Market/Operating Profit 7.9
Market/Book 3.5 1.4
TEV Basis
- ---------
TEV/LTM Revenue 1.2 0.7
TEV/Operating Cash Flow [C] 5.6 3.6
TEV/Operating Profit 6.0 5.5
- -------------------------------------------------------------------------------
[A] Assumes the exercise of all outstanding options and warrants (regardless of
exercise price), and the conversion of all convertible debentures.
[B] Earnings estimates are provided by Zacks Investment Research as of 10/7/98.
[C] Operating cash flow equals operating profit plus depreciation and
amortization.
2
<PAGE>
Project Blender - LTM Gross Profits
[BAR GRAPH APPEARS HERE]
Peer Group Average 52.1%
3DFX Interactive Incorporation 48.3%
Actel Corporation 59.1%
Dallas Semiconductor Corporation 52.6%
Extar Corporation 50.6%
Lattice Semiconductor Corporation 60.0%
NeoMagic Corporation 42.0%
Project Blender 44.7%
3
<PAGE>
Project Blender - LTM Operating Profit
[BAR GRAPH APPEARS HERE]
Peer Group Average 18.4%
3DFX Interactive Incorporation 15.0%
Actel Corporation 12.8%
Dallas Semiconductor Corporation 23.7%
Extar Corporation 9.9%
Lattice Semiconductor Corporation 29.3%
NeoMagic Corporation 19.8%
Project Blender 20.1%
4
<PAGE>
--------------------------------------------
Project Blender - LTM Operating Cash Flows
--------------------------------------------
[BAR CHART APPEARS HERE]
3DFX Interactive Incorporated 17.5%
Actel Corporation 18.9%
Dallas Semiconductor Corporation 34.7%
Exar Corporation 15.8%
Lattice Semiconductor Corporation 33.9%
NeoMagic Corporation 21.1%
Project Blender 23.0%
Peer Group Average 23.7%
5
<PAGE>
-----------------------------------------------
Project Blender - Projected 1 Year EPS Growth
-----------------------------------------------
[BAR CHART APPEARS HERE]
3DFX Interactive Incorporated 34.5%
Actel Corporation 12.3%
Dallas Semiconductor Corporation -2.4%
Exar Corporation 15.3%
Lattice Semiconductor Corporation -21.1%
NeoMagic Corporation 11.0%
Project Blender -8.6%
Peer Group Average 8.3%
Earnings estimates are provided by Zacks Investment Research
6
<PAGE>
---------------------------------------------
Project Blender - Projected 5 Year EPS Growth
---------------------------------------------
3DFX Interactive Incorporated 28.3%
Actel Corporation 22.5%
Dallas Semiconductor Corporation 19.8%
Exar Corporation 20.0%
Lattice Semiconductor Corporation 24.4%
NeoMagic Corporation 30.0%
Project Blender 15.0%
Peer Group Avg. 24.2%
Earnings estimates are provided by Zacks Investment Research
7
<PAGE>
<TABLE>
<CAPTION>
Project Blender Case 1: New Products
Discounted Cash Flow Analysis
====================================================================================================================================
Historical & Projected Income Statements (1)
In Millions, except per share
------------------------------------------------------------------------
Historical Projected
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
At June 30, 1995 1996 1997 1998 1999 2000 2001 2002 2003
Current Product Revenue $97.7 $91.3 $104.3 $160.6 $144.0 $150.0 $179.0 $210.3 $247.1
New Product Revenue 6.0 15.0 17.9 21.0 24.7
----- ------ ----- ----- -----
Total Revenues 97.7 91.3 104.3 160.6 150.0 165.0 196.9 231.4 271.8
Cost of sales 45.6 54.8 59.1 88.9 85.5 94.1 112.2 131.9 155.0
----- ----- ------ ----- ----- ------ ----- ----- -----
Gross profit 52.1 36.5 45.2 71.8 64.5 71.0 84.7 99.5 116.9
Research & development 11.0 10.5 13.5 19.8 18.7 19.8 23.6 27.8 32.6
Selling, general & admin. 20.5 18.5 15.1 19.4 19.5 21.5 25.6 30.1 35.3
Special charges 7.4 3.3 11.2 0.2 0.0 0.0 0.0 0.0 0.0
----- ----- ------ ----- ----- ------ ----- ----- -----
Operating income 13.2 4.2 5.4 32.3 26.3 29.7 35.4 41.6 48.9
Interest and other income (1.1) (1.3) (1.8) (2.0) (1.6) (2.0) (2.8) (3.7) (4.6)
Interest expense 0.7 0.6 0.6 0.1 0.1 0.1 0.1 0.1 0.1
Impairment in equity investment - - 7.1 - - - - - -
Minority interest - (1.1) (0.2) - - - - - -
Equity loss of investee - - 0.9 - - - - - -
Income before taxes 13.6 6.0 (1.2) 34.2 27.8 31.6 38.2 45.3 53.5
Income tax expenses 5.2 1.4 6.3 12.8 8.3 9.5 11.4 13.6 16.0
----- ----- ------ ----- ----- ------ ----- ----- -----
Net income (loss) $8.5 $4.6 ($7.5) $21.4 $19.5 $22.1 $26.7 $31.7 $37.4
EPS $1.63 $1.49 $1.68 $1.99 $2.30 $2.72
Shares 13.1 13.1 13.1 13.4 13.8 13.8
</TABLE>
- -------------------
(1) Excludes discontinued operations
8
<PAGE>
Project Blender Case 1:New Products
Discounted Cash Flow Analysis
- --------------------------------------------------------------------------------
Historical & Projected Balance Sheets
In Millions, except per share
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
Historical Projected
Year Ended June 30, 1995 1996 1997 1998 1999 2000 2001 2002 2003
-------------------------------------------------------------------------------------------
Assets
- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash & marketable securities $22.5 $30.5 $26.4 $41.8 $40.4 $59.1 $81.8 $102.9 $128.6
Accounts receivable 18.8 15.4 20.7 20.3 23.6 26.0 31.0 36.4 42.8
Inventory, net 15.5 17.1 13.5 12.8 17.1 18.8 22.4 26.4 31.0
Other current assets 7.0 5.5 5.6 5.8 6.5 7.1 8.5 10.0 11.8
--- --- --- --- --- --- --- ---- ----
Total current assets 63.8 68.5 66.2 80.8 87.6 111.0 143.8 175.8 214.1
Property & equipment, net 13.4 14.6 14.1 17.9 19.0 21.1 24.2 27.3 30.4
Deposits on purchase contracts 4.2 5.6 8.0 7.9 18.0 16.0 10.0 10.0 10.0
Goodwill 0.4 1.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other assets 0.3 0.5 2.3 1.5 1.5 1.5 1.5 1.5 1.5
--- --- --- --- --- --- --- --- ---
Total assets $82.2 $91.0 $90.6 $108.0 $126.1 $149.6 $179.4 $214.5 $256.0
Liabilities & shareholders' equity
- ----------------------------------
Note payable to bank $0.0 $2.3 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Current long-term obligations 0.3 0.1 0.2 0.1 0.1 0.1 0.1 0.1 0.1
Accounts payable 5.9 10.2 12.6 11.0 10.2 11.1 13.3 15.6 18.3
Accrued salaries and bonuses 1.2 0.4 0.9 1.8 1.4 1.5 1.8 2.1 2.5
Other current liabilities 4.5 2.4 4.2 2.7 2.9 3.2 3.8 4.5 5.3
--- --- --- --- --- --- --- --- ---
Total current liabilities 11.9 15.5 18.0 15.7 14.6 16.0 19.0 22.4 26.2
Long-term debt, less current 3.5 1.6 1.5 1.4 1.2 1.1 1.0 0.8 0.7
Deferred income taxes 1.0 0.8 1.0 1.2 1.0 1.1 1.4 1.6 1.9
--- --- --- --- --- --- --- --- ---
Total liabilities 16.4 17.9 20.5 18.2 16.8 18.2 21.4 24.8 28.8
Minority interest 3.3 3.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Shareholders' equity 62.5 69.2 70.1 89.8 109.2 131.4 158.1 189.8 227.2
Total liabilities & equity $82.2 $91.0 $90.6 $108.0 $126.1 $149.6 $179.4 $214.5 $256.0
</TABLE>
<PAGE>
Project Blender Case 1: New Products
Discounted Cash Flow Analysis
================================================================================
<TABLE>
<CAPTION>
Ratio Analysis
Historical Projected
Year Ended June 30, 1995 1996 1997 1998 1999 2000 2001 2002 2003
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------
Balance Sheet
- -----------------------------
Ending days receivable 70.3 61.6 72.4 46.2 57.5 57.5 57.5 57.5 57.5
Ending inventory turnover 2.9 3.2 4.4 6.9 5.0 5.0 5.0 5.0 5.0
Ending other current assets/
% expenses 19.2% 18.2% 15.9% 11.1% 14.0% 14.0% 14.0% 14.0% 14.0%
Net capital investment/incr. sales NA -19.8% -4.0% 6.7% -10.3% 14.0% 9.7% 9.0% 7.7%
Deposits on purchases/% cogs 9.3% 10.2% 13.5% 8.8% 21.1% 17.0% 8.9% 7.6% 6.5%
Ending days payable 27.8 44.5 52.2 31.5 30.0 30.0 30.0 30.0 30.0
Accrued sales/% SG&A 6.0% 2.4% 6.2% 9.2% 7.0% 7.0% 7.0% 7.0% 7.0%
Other current/% SG&A 22.1% 12.7% 28.1% 13.7% 15.0% 15.0% 15.0% 15.0% 15.0%
Deferred taxes/% paid 19.4% 57.3% 16.2% 9.4% 12.0% 12.0% 12.0% 12.0% 12.0%
Avg. return on investments 5.0% 5.0% 6.3% 5.8% 4.0% 4.0% 4.0% 4.0% 4.0%
Avg. interest rate NA NA NA 4.4% 8.0% 8.0% 8.0% 8.0% 8.0%
Depreciation & amortization 3.1 3.3 3.7 4.6 4.9 4.9 4.9 4.9 4.9
Capital expenditures 6.0 7.0 8.0 8.0 8.0
- -----------------------------
Income Statement
- -----------------------------
Revenue growth 4.2% -6.6% 14.3% 53.9% -6.6% 10.0% 19.3% 17.5% 17.5%
Gross margin 53.3% 39.9% 43.3% 44.7% 43.0% 43.0% 43.0% 43.0% 43.0%
R&D/revenue 11.2% 11.5% 13.0% 12.3% 12.5% 12.0% 12.0% 12.0% 12.0%
SG&A/revenue 20.9% 20.2% 14.5% 12.1% 13.0% 13.0% 13.0% 13.0% 13.0%
Income tax rate 37.8% 22.9% NA 37.5% 30.0% 30.0% 30.0% 30.0% 30.0%
Return on avg. assets NA 5.4% -8.3% 21.5% 16.6% 16.0% 16.2% 16.1% 15.9%
Return on avg. equity 14.4% 7.0% -10.8% 26.7% 19.6% 18.4% 18.5% 18.2% 18.0%
Return on incremental equity NMF NMF NMF NMF -10.5% 11.2% 15.4% 14.1% 13.9%
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Project Blender Case 1: New Products
Discounted Cash Flow Analysis
- -----------------------------------------------------------------------------------------------------------------------------------
Option analysis
---------------------------------------------------------------------------------------------
Current In the money
---------------------------------------------------------------------------------------------
Avg. Aggregate Avg. Aggregate
Out Price Exercise Price Out Price Exercise Price
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1991 Plan 0 $0.000 $0.000 0 $ 0.000
1992 Plan 870,209 $l1.642 $10,130,563 870,209 $11.642 $10,130,563
52,062 $15.438 $803,733 52,062 $15.438 $803,733
12,000 $19.500 $234,000
9,550 $25.625 $244,719
1997 Equity Comp Plan 72,000 $35.250 $2,538,000
2,500 $20.250 $50,625
116,000 $24.813 $2,878,250
65,500 $16.063 $1,052,094 65,500 $16.063 $1,052,094
94,000 $14.438 $1,357,125 94,000 $14.438 $1,357,125
290,750 $12.688 $3,688,891 290,750 $12.688 $3,688,891
Outside Plan 378,750 $13.250 $5,018,438 378,750 $13.250 $5,018,438
5,000 $19.375 $96,875
162,755 $25.625 $4,170,597
SPEC Plan 18,000 $14.375 $258,750 18,000 $14.375 $258,750
5,000 $14.125 $70,625 5,000 $14.125 $70,625
Totals 2,154,076 $15.131 $32,593,283 1,774,271 $12.614 $22,380,218
Shares outstanding 13,099,000 13,099,000
Total 15,253,076 14,873,271
</TABLE>
11
<PAGE>
Project Blender Case 1: New Products
Discounted Cash Flow Analysis
================================================================================
Free Cash Flow
In Millions, except per share
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Projected
Year Ended June 30, 1999 2000 2001 2002 2003
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Income $ 26.3 $ 29.7 $ 35.4 $ 41.6 $ 48.9
Less: taxes 7.9 8.9 10.6 12.5 14.7
--- --- ---- ---- ----
Post-tax operating income 18.4 20.8 24.8 29.2 34.3
Add: depreciation & amortization 4.9 4.9 4.9 4.9 4.9
Add: increase in current liabilities (1.0) 1.4 3.1 3.3 3.9
Less: increase in current assets (8.3) (4.7) (10.1) (10.9) (12.8)
Less: capital expenditures (6.0) (7.0) (8.0) (8.0) (8.0)
Less: increase in deposits on purchases (10.1) 2.0 6.0 0.0 0.0
---- --- --- --- ---
Cash flow ($2.2) $ 17.4 $ 20.7 $ 18.5 $ 22.3
PV Factor 18.8% 0.841 0.708 0.596 0.501 0.422
PV of cash flows ($1.8) $ 12.3 $ 12.3 $ 9.3 $ 9.4
- ------------------------------------------------------------------------------------------------------------
Sum of PV's $ 41.5
- ------------------------------------------------------------------------------------------------------------
Terminal value 7.0x $ 342.5
PV Factor 0.422
-----
- ------------------------------------------------------------------------------------------------------------
PV of terminal value $ 144.5
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Cash flows + terminal value $ 186.1
- ------------------------------------------------------------------------------------------------------------
Add: cash & marketable securities $ 41.8
Add: exercise value of options $ 22.4
Less: interest bearing liabilities ($1.5)
----
- ------------------------------------------------------------------------------------------------------------
Current estimate of value $ 248.7
- ------------------------------------------------------------------------------------------------------------
Options and shares outstanding (including exercised options) 14.9
- ------------------------------------------------------------------------------------------------------------
Value per share $ 16.72
- ------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Project Blender
Discounted Cash Flow Analysis
- --------------------------------------------------------------------------------
Equity cost of capital
In Millions, except per share
Current long-term interest rate (30-year) 4.90%
Current equity premium 5.69%(1)
Beta 1.88 (2)
Cost of equity 15.57%
Small stock premium 3.02%(3)
Adjusted cost of equity 18.59%
Range - High 20.59%
Range - Low 16.59%
(1) Source: Ibbotson & Associates
(2) For the six months ended September 30, 1998
(3) Source: PricewaterhouseCoopers
13
<PAGE>
Project Blender Case 2: Current Products
Discounted Cash Flow Analysis
- --------------------------------------------------------------------------------
Historical & Projected Income Statements (1)
In Millions, except per share
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Historical Projected
At June 30, 1995 1996 1997 1998 1999 2000 2001 2002 2003
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current Product Revenue $97.7 $91.3 $104.3 $160.6 $144.0 $150.0 $179.0 $210.3 $247.1
New Product Revenue 0.0 0.0 0.0 0.0 0.0
--- --- --- --- ---
Total Revenues 97.7 91.3 104.3 160.6 144.0 150.0 179.9 210.3 247.1
Cost of sales 45.6 54.8 59.1 88.9 82.1 85.5 102.0 119.9 140.9
---- ---- ---- ---- ---- ---- ----- ----- -----
Gross profit 52.1 36.5 45.2 71.8 61.9 64.5 77.0 90.4 106.3
Research & development 11.0 10.5 13.5 19.8 18.7 18.0 21.5 25.2 29.7
Selling, general & admin. 20.5 18.5 15.1 19.4 18.7 19.5 23.3 27.3 32.1
Special charges 7.4 3.3 11.2 0.2 0.0 0.0 0.0 0.0 0.0
--- --- ---- --- --- --- --- --- ---
Operating income 13.2 4.2 5.4 32.3 24.5 27.0 32.2 37.9 44.5
Interest and other income (1.1) (1.3) (1.8) (2.0) (1.6) (2.0) (2.8) (3.6) (4.4)
Interest expense 0.7 0.6 0.6 0.1 0.1 0.1 0.1 0.1 0.1
Impairment in equity investment -- -- 7.1 -- -- -- -- -- --
Minority interest -- (1.1) (0.2) -- -- -- -- -- --
Equity loss of investee -- -- 0.9 -- -- -- -- -- --
Income before taxes 13.6 6.0 (1.2) 34.2 26.0 28.9 34.9 41.4 48.8
Income tax expense 5.2 1.4 6.3 12.8 7.8 8.7 10.5 12.4 14.7
--- --- --- ---- --- --- ---- ---- ----
Net income (loss) $8.5 $4.6 ($7.5) $21.4 $18.2 $20.2 $24.4 $29.0 $34.2
EPS $1.63 $1.39 $1.54 $1.82 $2.11 $2.49
Shares 13.1 13.1 13.1 13.4 13.8 13.8
</TABLE>
(1) Excludes discontinued operations
14
<PAGE>
Project Blender Case 2: Current Products
Discounted Cash Flow Analysis
- --------------------------------------------------------------------------------
Free Cash Flow
In Millions, except per share
<TABLE>
<CAPTION>
-------------------------------------------------------
Projected
Year Ended June 30, 1999 2000 2001 2002 2003
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Income $24.5 $27.0 $32.2 $37.9 $44.5
Less: taxes 7.4 8.1 9.7 11.4 13.3
--- --- --- ---- ----
Post-tax operating income 17.2 18.9 22.6 26.5 31.1
Add: depreciation & amortization 4.9 4.9 4.9 4.9 4.9
Add: increase in current liabilities (1.6) 0.5 2.8 3.0 3.5
Less: increase in current assets (6.5) (1.8) (9.1) (9.9) (11.6)
Less: capital expenditures (6.0) (7.0) (8.0) (8.0) (8.0)
Less: increase in deposits on purchases (10.1) 2.0 6.0 0.0 0.0
---- --- --- --- ---
Cash flow ($2.1) $17.5 $19.1 $16.5 $20.0
PV Factor 18.9% 0.841 0.707 0.595 0.500 0.421
PV of cash flows ($1.8) $12.4 $11.4 $8.3 $8.4
- -----------------------------------------------------------------------------------------------
Sum of PV's $38.6
- -----------------------------------------------------------------------------------------------
Terminal value 7.0 x $311.4
PV Factor 0.421
-----
- -----------------------------------------------------------------------------------------------
PV of terminal value $131.0
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Cash flows + terminal value $169.6
- -----------------------------------------------------------------------------------------------
Add: cash & marketable securities $41.8
Add: exercise value of options $21.3
Less: interest bearing liabilities ($1.5)
- -----------------------------------------------------------------------------------------------
Current estimate of value $231.2
- -----------------------------------------------------------------------------------------------
Options and shares outstanding (including exercised options) 14.8
- -----------------------------------------------------------------------------------------------
Value per share $15.62
- -----------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
Project Blender
Discounted Cash Flow Analysis
- --------------------------------------------------------------------------------
Sensitivity Analysis
In Millions, except per share
<TABLE>
<CAPTION>
Case 1: New Products
16.8% 17.8% 18.8% 19.8% 20.8%
---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Terminal 6.0 $16.24 $15.84 $15.38 $14.94 $14.52
Value 6.5 $16.98 $16.47 $15.99 $15.53 $15.08
Multiple 7.0 $17.76 $17.22 $16.70 $16.21 $15.74
7.5 $18.54 $17.96 $17.42 $16.90 $16.40
8.0 $19.32 $18.71 $18.13 $17.58 $17.06
---------------------------------------------------
Case 2: Current Products
16.9% 17.9% 18.9% 19.9% 20.9%
---------------------------------------------------
Terminal 6.0 $15.18 $14.81 $14.39 $13.99 $13.61
Value 6.5 $15.85 $15.39 $14.95 $14.52 $14.12
Multiple 7.0 $16.56 $16.07 $15.60 $15.15 $14.72
7.5 $17.27 $16.75 $16.25 $15.77 $15.32
8.0 $17.98 $17.42 $16.90 $16.39 $15.92
---------------------------------------------------
</TABLE>
16
<PAGE>
Project Blender
Mergers and Acquisition Analysis
- --------------------------------------------------------------------------------
Dates Effective January 1, 1996 to Present
Semiconductor Industry
<TABLE>
<CAPTION>
Target Financials LTM, except BV Acquisition Multiples Premium
-------------------------------- ------------------------- -------
Date Announced Target Per Share Value Net Sales Net Income ENT/Net Sales Equity/NI 1 day
Date Effective Target Business Equity Value Operating Income EPS ENT/Op. Income P/E 1 week
Date of Financials Acquiror Enterprise Value Cash Flow Book Value ENT/Cash Flow P/BV 1 month
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
07/24/98 Information Storage Devices $7.50 $51.8 ($9.3) 1.34 NMF 46.3%
Mnfr. Voice Recorded Circuits $76.4 ($11.6) ($0.96) NMF NMF 36.4%
04/04/98 Windbond Electronic Corp. $69.4 ($7.8) $5.80 NMF 1.3 44.6%
03/02/98 Benchmarq Microelectronics Inc. $18.81 $46.1 $7.7 3.15 19.1 15.8%
08/03/98 Mnfr. Microprocessors $146.8 $10.0 $1.00 14.5 18.8 14.0%
09/30/98 Unitrobe Corp. $145.1 $12.0 $4.70 12.1 4.0 67.2%
01/21/98 BKC Semiconductors Inc. $9.17 $11.8 $0.6 1.35 22.2 66.7%
05/15/98 Mnfr. Semiconductor Devices $13.3 $1.3 $0.50 12.2 18.3 59.5%
9/30/97 Microsemi Corp. $15.9 $1.3 $2.60 12.2 3.5 66.7%
07/28/97 Cyrix Corp. $27.69 $220.8 ($10.1) 2.82 NMF 30.3%
11/17/97 Mnfr. PC Units, Microprocessors $567.8 ($11.1) ($0.53) NMF NMF 29.5%
06/30/97 National Semiconductor Corp. $623.2 $15.9 $6.40 NMF 4.3 29.5%
07/28/97 Chips & Technologies Inc. $17.50 $159.8 $29.7 2.45 14.4 25.0%
02/02/98 Design Whl. Integrated Circuits $426.2 $22.2 $1.28 17.6 13.7 32.1%
09/30/97 Intel Corp. $391.3 $25.9 $5.90 15.1 3.0 68.7%
11/05/96 Panatech Research & Development $7.00 $10.9 $1.5 2.41 19.5 55.6%
03/14/97 Manufacture Semiconductors $29.2 $2.5 $0.37 10.5 18.8 55.6%
06/30/96 Harbour Group Ltd. $26.2 $2.9 $2.00 9.0 3.5 51.4%
07/01/96 Brooktree Corp. $15.00 $146.9 7.0 1.86 37.6 42.9%
09/25/96 Manufacture Semiconductors $262.9 -3.9 $0.38 NMF 39.2 64.4%
06/29/96 Rockwell International Corp. $273.4 $11.0 $8.60 NMF 1.7 16.5%
</TABLE>
Source: Securities Data Company
17
<PAGE>
Project Blender
Mergers and Acquisition Analysis
- --------------------------------------------------------------------------------
Dates Effective January 1, 1996 to Present
Semiconductor Industry
<TABLE>
<CAPTION>
Target Financials LTM, except BV Acquisition Multiples Premium
-------------------------------- ------------------------ -------
Date Announced Target Per Share Value Net Sales Net Income ENT/Net Sales Equity/NI 1 day
Date Effective Target Business Equity Value Operating Income EPS ENT/Op. Income P/E 1 week
Date of Financials Acquiror Enterprise Value Cash Flow Book Value ENT/Cash Flow P/BV 1 month
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
03/26/96 VLSI Technology $14.38 $587.1 $31.7 0.94 16.6 18.6%
03/22/96 Mnfr. Integrated Circuits $527.5 $46.7 $0.85 11.8 17.0 7.0%
12/30/94 Investor Group $551.6 $108.5 $7.00 5.1 2.1 18.6%
02/07/96 Catalyst Semiconductor Inc. $6.00 $53.9 $2.8 0.75 14.5 -2.0%
02/07/96 Manufacture Semiconductors $40.7 $3.2 $0.36 12.7 16.9 14.3%
09/30/95 United Microelectronic Corp. 40.5 $4.8 $1.70 8.4 3.5 11.6%
----------------------------------------------------
Averages: 1.9 20.5 33.2%
13.2 20.4 34.7%
10.3 3.0 41.6%
----------------------------------------------------
----------------------------------------------------
Median: 1.9 16.6 30.3%
11.8 17.0 32.1%
8.4 3.5 44.6%
----------------------------------------------------
</TABLE>
Source: Securities Data Company
18
<PAGE>
Project Blender
Summary of Estimated Values
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------
On-going Value Basis
- ----------------------------
Indicated Value
------------------------------------
Enterprise Equity Per
Median Blender Value Value Share Weighting
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Comparable Companies (as of 10/9/98)
- ------------------------------------
Price to LTM / EPS 12.1 $1.63 $19.73 20.0%
Price to June 99/ EPS (Case 1) 11.6 $1.49 $17.28 10.0%
Price to June 99/ EPS (Case 2) 11.6 $1.39 $16.12 10.0%
Market / Book 1.4 $89.8 $125.7 $9.59 10.0%
TEV / Revenue 0.7 $160.6 $112.4 $154.3 $11.78 16.7%
TEV / Operating Income 5.5 $32.3 $177.7 $219.5 $16.75 16.7%
TEV / Operating Cash Flow 3.6 $36.9 $132.8 $174.6 $13.33 16.7%
Weighted Average Implied Value $15.22
Discounted Cash Flow Analysis
- -----------------------------
Case 1 $16.70 50.0%
Case 2 $15.60 50.0%
Weighted Average Implied Value $16.15
-----------------------------------------------------------------------------------------------------------------
Average of Both Methodologies $15.68
Likely Range +/- $1.00 $14.68 to $16.68
-----------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
Project Blender
Summary of Estimated Values
- --------------------------------------------------------------------------------
- -----------------------------
Acquisition Value Basis
- -----------------------------
<TABLE>
<CAPTION>
Indicated Value
---------------------------
Comp. Enterprise Equity Per
Median Blender Value Value Share Weighting
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Merger & Acquisition Multiples
- ------------------------------
Enterprise Value/Sales 1.9 $ 160.6 $ 305.2 $ 347.0 $ 26.49 20.0%
Enterprise Value/Oper. Income 11.8 $ 32.3 $ 381.1 $ 423.0 $ 32.29 20.0%
Enterprise Value/Cash Flow 8.4 $ 36.9 $ 309.8 $ 351.6 $ 26.84 20.0%
Price/LTM Earnings 17.0 $ 1.63 $ 27.71 20.0%
Price/Book 3.5 $ 89.8 $ 314.2 $ 23.99 20.0%
Weighted Average Implied Value $ 27.46
Premium Over Current Stock Price (as of 10/09/98)
- -------------------------------------------------
One day 30.3% $ 10.69 $ 13.93 33.3%
One week 32.1% $ 10.63 $ 14.04 33.3%
One month 44.6% $ 9.38 $ 13.56 33.3%
Weighted Average Implied Value $ 13.84
Control Premium Analysis
- ------------------------
Low Value - On-Going Basis
Low Quarter for Last Year (1Q98) 28.9% $ 14.68 $ 18.93 25.0%
High Quarter for Last Year (2Q98) 31.2% $ 14.68 $ 19.27 25.0%
High Value - On-Going Basis
Low Quarter for Last Year (1Q98) 28.9% $ 16.68 $ 21.51 25.0%
High Quarter for Last Year (2Q98) 31.2% $ 16.68 $ 21.89 25.0%
Weighted Average Implied Value $ 20.40
----------------------------------------------------------------------------------------------------------
Average of Three Methodologies $ 20.57
Likely Range +/- $2.00 $18.57 to $22.57
----------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
Companies Ranked by Market Value of Equity Exhibit A
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Historical Equity Risk Premium: Average Since 1963
Data for Year Ending December 31, 1997
Smoothed
Portfolio Average Log of Number Beta Standard Geometric Arithmetic Arithmetic Average Small Average
Rank Mkt Value Average as of Annual Deviation Average Average Equity Risk Equity Risk Expected Stock Debt/
by Size ($mils.) Mkt Value 1997 Since '63 of Returns Return Return Premium Premium Premium Premium MVIC
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 48,272 4.68 47 0.91 15.78% 12.32% 13.48% 5.88% 2.75% 5.35% -2.60% 18.06%
2 13,968 4.15 45 0.93 15.66% 10.56% 11.67% 4.07% 4.65% 5.48% -0.83% 24.26%
3 8,687 3.94 42 0.89 15.18% 10.54% 11.64% 4.04% 5.37% 5.27% 0.10% 27.05%
4 5,791 3.76 48 0.98 16.79% 12.96% 14.23% 6.63% 5.99% 5.77% 0.22% 27.75%
5 4,568 3.66 47 1.00 17.33% 10.75% 12.09% 4.49% 6.36% 5.91% 0.45% 28.96%
6 3,620 3.56 49 0.97 17.01% 13.08% 14.37% 6.77% 6.71% 5.71% 1.00% 29.60%
7 3,038 3.48 56 0.97 17.25% 13.67% 14.96% 7.36% 6.98% 5.73% 1.25% 28.16%
8 2,444 3.39 54 1.02 18.18% 13.68% 15.09% 7.49% 7.31% 6.01% 1.31% 27.81%
9 2,185 3.34 54 1.06 19.47% 12.55% 14.17% 6.57% 7.49% 6.25% 1.24% 25.70%
10 1,838 3.26 53 1.21 20.94% 13.87% 15.76% 8.16% 7.75% 7.16% 0.59% 26.03%
11 1,546 3.19 49 1.15 20.55% 13.76% 15.59% 7.99% 8.02% 6.80% 1.21% 25.83%
12 1,218 3.09 60 1.08 19.37% 14.24% 15.87% 8.27% 8.38% 6.38% 2.00% 27.46%
13 1,064 3.03 60 1.17 21.55% 13.68% 15.72% 8.12% 8.59% 6.90% 1.69% 28.11%
14 886 2.95 62 1.06 19.90% 14.50% 16.17% 8.57% 8.87% 6.27% 2.60% 28.26%
15 754 2.88 71 1.17 21.32% 14.90% 16.97% 9.37% 9.12% 6.91% 2.20% 28.56%
16 600 2.78 72 1.20 22.41% 15.20% 17.38% 9.78% 9.46% 7.10% 2.37% 27.05%
17 521 2.72 68 1.21 23.19% 13.88% 16.20% 8.60% 9.68% 7.16% 2.53% 27.75%
18 450 2.65 76 1.20 24.26% 15.50% 17.95% 10.35% 9.90% 7.07% 2.83% 27.98%
19 378 2.58 81 1.29 24.69% 14.34% 17.05% 9.45% 10.17% 7.59% 2.59% 28.51%
20 311 2.49 112 1.28 25.42% 14.67% 17.42% 9.82% 10.47% 7.53% 2.94% 28.62%
21 231 2.36 104 1.24 24.41% 15.89% 18.35% 10.75% 10.93% 7.33% 3.59% 28.80%
22 191 2.28 87 1.34 26.75% 14.95% 17.97% 10.37% 11.22% 7.88% 3.34% 30.22%
23 147 2.17 145 1.32 26.19% 17.27% 20.15% 12.55% 11.62% 7.76% 3.86% 29.12%
24 100 2.00 215 1.36 27.32% 16.87% 20.00% 12.40% 12.21% 7.99% 4.21% 30.66%
25 35 1.54 545 1.42 33.76% 19.28% 23.57% 15.97% 13.83% 8.35% 5.47% 32.15%
- ----------------------------------------------------------------------------------------------------------------------------------
High financial risk 548 1.69 41.21% 15.32% 21.41% 13.81% 54.71%
- ----------------------------------------------------------------------------------------------------------------------------------
Large Stocks (Ibbotson SBBI data) 12.16% 13.29% 5.69%
Small Stocks (Ibbotson SBBI data) 15.70% 18.48% 10.88%
Long-Term Treasury Income (Ibbotson SBBI data) 7.58% 7.60%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Equity Risk Premium Study: Data through December 31, 1997
Data Smoothing with Regression Analysis
Dependent Variable: Average Premium
Independent Variable: Log of Average Market Value of Equity
Regression Output:
Constant 19.261%
Std Err of Y Est 1.065%
R Squared 86%
No. of Observations 25
Degrees of Freedom 23
X Coefficient(s) -3.526%
Std Err of Coef. 0.303%
t-Statistic -11.65
Smoothed Premium = 19.261% - 3.526% *Log(Mkt Value)
Smoothed Premium vs. Unadjusted Average
[LINE GRAPH APPEARS HERE]
(c) Price Waterhouse LLP
21
<PAGE>
Project Blender
Control Premium Analysis
================================================================================
Median Control Premium
3Q97 4Q97 1Q98 2Q98
---- ---- ---- ----
All domestic transaction 29.7% 28.9% 28.9% 31.2%
[LINE GRAPH APPEARS HERE]
(1) Source: Houlihan Lokey Howard & Zukin
22
<PAGE>
Project Blender
Background Analysis for
Fairness Opinion
October 15, 1998
presented by
-------------------------------------------------
[LOGO OF PMG Pennsylvania
APPEARS --------------
HERE] Merchant Group
-------------------------------------------------
Investment Banking . Brokerage . Asset Management
<PAGE>
Blender vs. PHLX Semicon
Since January 1997 (Constant Scale)
[LINE GRAPH APPEARS HERE]
(Note: Closing Index prices for the periods 3/24/98 through 4/24/98 and 5/5/98
through 5/13/98 were not available)
2
<PAGE>
Market Data for Semiconductor Companies
(in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Dallas Lattice Compar-
3Dfx Interactive Actel Semicondutor Exar Semiconductor NeoMagic able
Incorporated(1) Corporation(2) Corporation(3) Corporation(4) Cororation(5) Corporation(6) Median
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Market Price (10/15/98) $10.50 $8.75 $29.00 $14.75 $22.75 $13.44
52 Week High $35.25 $17.00 $56.00 $27.25 $67.50 $22.88
52 Week Low $8.00 $7.31 $22.69 $12.00 $19.75 $10.50
Symbol TDFX ACTL DS EXAR LSCC NMGC
Most Recent Fiscal Year End 12/31/97 12/28/97 12/28/97 03/31/98 03/28/98 01/31/98
Most Recent Quarter End 06/30/98 06/28/98 06/28/98 06/30/98 06/27/98 07/31/98
Common Shares Outstanding 15,561 21,511 27,989 9,575 23,518 24,614
Fully Diluted Shares(A) 18,161 25,763 33,185 11,768 26,393 28,373
Market Value of Common Equity $163,391 $188,221 $811,681 $141,231 $652,625 $330,751
Total Debt & Preferred Stock $195 $0 $0 $0 $0 $0
Cash & Marketable Securities $93,244 $72,973 $111,007 $77,177 $274,490 $69,834
-------- -------- -------- -------- -------- --------
Total Enterprise Value (TEV) $70,342 $115,248 $700,674 $64,054 $378,135 $260,917
EPS Date 06/30/98 06/28/98 06/28/98 06/30/98 06/27/98 07/31/98
EPS (diluted)
- ------------
LTM EPS $0.55 $0.65 $2.09 $0.85 $2.18 $1.09
12 Mos. ending 6/99 est. EPS(B) $0.74 $0.73 $1.99 $0.98 $1.78 $1.22
1998/97A EPS ($0.16) $0.76 $2.19 $0.77 $2.37 $0.82
1999/98E EPS (B) $1.01 $0.66 $1.85 $0.92 $1.71 $1.13
2000/1999E EPS (B) $1.12 $0.88 $2.19 $1.29 $2.13 $1.34
Price to LTM EPS 19.1 13.5 13.9 17.4 12.7 12.3 13.7
Price to June 1999E EPS 14.2 12.0 14.6 15.1 15.6 11.0 14.4
Price to 1999/98E EPS 10.4 13.3 15.7 16.0 16.2 11.9
Price to 2000/99E EPS 9.4 9.9 13.2 11.4 13.0 10.0
Market Capitalization Basis
- ---------------------------
LTM Revenue $140,966 $150,857 $362,945 $99,380 $232,302 $182,937
Market/LTM Revenue 1.2 1.2 2.2 1.4 2.8 1.8
Market/Operating Cash Flow (C) 6.6 6.6 6.4 9.0 8.3 8.6
Market/Operating Profit 7.7 9.7 9.4 14.4 9.6 9.1
Market/Book 1.4 1.6 2.1 1.1 1.5 4.1 1.6
TEV Basis
- ---------
TEV/LTM Revenue 0.5 0.8 1.9 0.6 1.6 1.4 1.1
TEV/Operating Cash Flow (C) 2.8 4.0 5.6 4.1 4.8 6.8 4.5
TEV/Operating Profit 3.3 6.0 8.1 6.5 5.5 7.2 6.3
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Assumes the exercise of all outstanding options and warrants (regardless of
exercise price), and the conversion of all convertible debentures.
(B) Earnings estimates are provided by Zacks Investment Research as of 10/14/98.
(C) Operating cash flow equals operating profit plus depreciation and
amortization.
3
<PAGE>
--------------------------------------------------
Project Blender - Projected 5 Year EPS Growth
--------------------------------------------------
[BAR CHART APPEARS HERE]
Peer Group Avg. 24.1%
3DFX Interactive Incorporated 28.3%
Actel Corporation 22.5%
Dallas Semiconductor Corporation 19.8%
Exar Corporation 20.0%
Lattice Semiconductor Corporation 24.2%
NeoMagic Corporation 30.0%
Project Blender 17.5%
Earnings estimates are provided by Zacks Investment Research as of 10/14/98
<PAGE>
-----------------------------------------------
Project Blender - Projected 1 Year EPS Growth
-----------------------------------------------
-------------------
7.8% Peer Group Avg.
-------------------
[BAR CHART APPEARS HERE]
3DFX Interactive Incorporated 34.5%
Actel Corporation 12.3%
Dallas Semiconductor Corporation -4.8%
Exar Corporation 15.3%
Lattice Semiconductor Corporation -22.2%
NeoMagic Corporation 11.9%
Project Blender -1.8%
Earnings estimates are provided by Zacks Investment Research as of 10/14/98.
5
<PAGE>
--------------------------------------------
Project Blender - LTM Operating Cash Flows
--------------------------------------------
-------------------
23.7% Peer Group Avg.
-------------------
[BAR CHART APPEARS HERE]
3DFX Interactive Incorporated 17.5%
Actel Corporation 18.9%
Dallas Semiconductor Corporation 34.7%
Exar Corporation 15.8%
Lattice Semiconductor Corporation 33.9%
NeoMagic Corporation 21.1%
Project Blender 23.0%
6
<PAGE>
------------------------------------------
Project Blender - LTM Operating Profit
------------------------------------------
[BAR CHART APPEARS HERE]
Peer Group Avg. 18.4%
3DFX Interactive Incorporated 15.0%
Actel Corporation 12.8%
Dallas Semiconductor Corporation 23.7%
Exar Corporation 9.9%
Lattice Semiconductor Corporation 29.3%
NeoMagic Corporation 19.8%
Project Blender 20.1%
<PAGE>
Project Blender - LTM Gross Profits
<TABLE>
<CAPTION>
3DFX Actel Dallas Exar Lattice NeoMagic Project Blender
Interactive Corporation Semiconductor Corporation Semiconductor Corporation
Incorporated Corporation Corporation
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
48.3% 59.1% 52.6% 50.6% 60.0% 42.0% 44.7%
</TABLE>
<PAGE>
Project Blender
Discounted Cash Flow Analysis
- --------------------------------------------------------------------------------
Historical & Projected Income Statements (1)
In Millions, except per share
<TABLE>
<CAPTION>
Historical Projected
----------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999 2000 2001 2002 2003
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
At June 30,
Total Revenues $ 97.7 $ 91.3 $ 104.3 $ 160.6 $ 154.8 $182.5 $ 235.0 $ 276.1 $ 323.6
Cost of sales 45.6 54.8 59.1 88.9 82.0 97.8 128.3 150.4 176.1
---- ---- ---- ---- ---- ---- ----- ----- -----
Gross profit 52.1 36.5 45.2 71.8 72.8 84.7 106.7 125.7 147.5
Gross profit margin 53.3% 39.9% 43.3% 44.7% 47.0% 46.4% 45.4% 45.5% 45.6%
Research & development 11.0 10.5 13.5 19.8 19.7 23.7 30.8 36.1 42.3
Selling, general & admin. 20.5 18.5 15.1 19.4 24.6 29.3 38.1 45.0 52.8
Special charges 7.4 3.3 11.2 0.2 0.0 0.0 0.0 0.0 0.0
--- --- ---- --- --- --- --- --- ---
Operating income 13.2 4.2 5.4 32.3 28.5 31.7 37.8 44.6 52.4
Operating margin 13.5% 4.6% 5.2% 20.1% 18.4% 17.4% 16.1% 16.2% 16.2%
Interest and other income (1.1) (1.3) (1.8) (2.0) (3.6) (4.7) (5.2) (6.2) (6.2)
Interest expense 0.7 0.6 0.6 0.1 0.0 0.0 0.0 0.0 0.0
Impairment in equity investment -- -- 7.1 -- -- -- -- -- --
Minority interest -- (1.1) (0.2) -- -- -- -- -- --
Equity loss of investee -- -- 0.9 -- -- -- -- -- --
Income before taxes 13.6 6.0 (1.2) 34.2 32.1 36.4 43.0 50.8 58.6
Income tax expense 5.2 1.4 6.3 12.8 10.9 12.1 13.8 16.0 18.4
--- --- --- ---- ---- ---- ---- ---- ----
Net income (loss) $ 8.5 $ 4.6 ($7.5) $ 21.4 $ 21.2 $ 24.3 $ 29.2 $ 34.8 $ 40.2
- -----------------------------------------------------------------------------------------------------------------------------------
EPS $ 1.63 $ 1.60 $ 1.80 $ 2.11 $ 2.47 $ 2.79
- -----------------------------------------------------------------------------------------------------------------------------------
Shares 13.1 13.3 13.5 13.8 14.1 14.4
EPS Growth Rate -1.7% 12.3% 17.6% 16.8% 13.1%
</TABLE>
- ---------------------
(1) Excludes discontinued operations
9
<PAGE>
Project Blender
Discounted Cash Flow Analysis
- --------------------------------------------------------------------------------
Historical & Projected Balance Sheets
In Millions, except per share
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Historical Projected
Year Ended June 30, 1995 1996 1997 1998 1999 2000 2001 2002 2003
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------
Assets
- --------------------------------
Cash & marketable securities $ 22.5 $ 30.5 $ 26.4 $ 41.8 $ 42.5 $ 60.8 $ 81.9 $ 105.1 $ 132.4
Accounts receivable 18.8 15.4 20.7 20.3 24.4 28.8 37.0 43.5 51.0
Inventory, net 15.5 17.1 13.5 12.8 16.4 19.6 25.7 30.1 35.2
Other current assets 7.0 5.5 5.6 5.8 7.7 9.1 11.6 13.6 15.9
--- --- --- --- --- --- ---- ---- ----
Total current assets 63.8 68.5 66.2 80.8 91.0 118.2 156.1 192.3 234.5
Property & equipment, net 13.4 14.6 14.1 17.9 19.0 21.1 24.2 27.3 30.4
Deposits on purchase contracts 4.2 5.6 8.0 7.9 18.0 16.0 10.0 10.0 10.0
Goodwill 0.4 1.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other assets 0.3 0.5 2.3 1.5 1.5 1.5 1.5 1.5 1.5
--- --- --- --- --- --- --- --- ---
Total assets $ 82.2 $ 91.0 $ 90.6 $ 108.0 $ 129.4 $ 156.8 $ 191.8 $ 231.1 $ 276.4
- --------------------------------
Liabilities & Equity
- --------------------------------
Note payable to bank $ 0.0 $ 2.3 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Current long-term obligations 0.3 0.1 0.2 0.1 0.1 0.1 0.1 0.1 0.1
Accounts payable 5.9 10.2 12.6 11.0 10.4 12.4 16.2 19.0 22.3
Accrued salaries and bonuses 1.2 0.4 0.9 1.8 1.7 2.1 2.7 3.2 3.7
Other current liabilities 4.5 2.4 4.2 2.7 3.7 4.4 5.7 6.8 7.9
--- --- --- --- --- --- --- --- ---
Total current liabilities 11.9 15.5 18.0 15.7 15.9 19.0 24.7 29.1 34.0
Long-term debt, less current 3.5 1.6 1.5 1.4 1.2 1.1 1.0 0.8 0.7
Deferred income taxes 1.0 0.8 1.0 1.2 1.3 1.5 1.7 1.9 2.2
--- --- --- --- --- --- --- --- ---
Total liabilities 16.4 17.9 20.5 18.2 18.5 21.5 27.3 31.8 36.9
Minority interest 3.3 3.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Shareholders' equity 62.5 69.2 70.1 89.8 111.0 135.3 164.5 199.3 239.5
Total liabilities & equity $ 82.2 $ 91.0 $ 90.6 $ 108.0 $ 129.4 $ 156.8 $ 191.8 $ 231.1 $ 276.4
</TABLE>
10
<PAGE>
Project Blender
Discounted Cash Flow Analysis
- --------------------------------------------------------------------------------
Ratio Analysis
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Historical Projected
Year Ended June 30, 1995 1996 1997 1998 1999 2000 2001 2002 2003
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------
Balance Sheet
- ---------------------------------
Ending days receivable 70.3 61.6 72.4 46.2 57.5 57.5 57.5 57.5 57.5
Ending inventory turnover 2.9 3.2 4.4 6.9 5.0 5.0 5.0 5.0 5.0
Ending other current assets/
% expenses 19.2% 18.2% 15.9% 11.1% 14.0% 14.0% 14.0% 14.0% 14.0%
Net capital investment/incr. sales NA -19.8% -4.0% 6.7% -18.9% 7.6% 5.9% 7.5% 6.5%
Deposits on purchases/% cogs 9.3% 10.2% 13.5% 8.8% 22.0% 16.4% 7.8% 6.6% 5.7%
Ending days payable 27.8 44.5 52.2 31.5 30.0 30.0 30.0 30.0 30.0
Accrued sales/% SG&A 6.0% 2.4% 6.2% 9.2% 7.0% 7.0% 7.0% 7.0% 7.0%
Other current/% SG&A 22.1% 12.7% 28.1% 13.7% 15.0% 15.0% 15.0% 15.0% 15.0%
Deferred taxes/% paid 19.4% 57.3% 16.2% 9.4% 12.0% 12.0% 12.0% 12.0% 12.0%
Avg. return on investments 5.0% 5.0% 6.3% 5.8% 8.5% 9.1% 7.3% 6.6% 5.2%
Avg. interest rate NA NA NA 4.4% 8.0% 8.0% 8.0% 8.0% 8.0%
Depreciation & amortization 3.1 3.3 3.7 4.6 4.9 4.9 4.9 4.9 4.9
Capital expenditures 6.0 7.0 8.0 8.0 8.0
- ---------------------------------
Income Statement
- ---------------------------------
Revenue growth 4.2% -6.6% 14.3% 53.9% -3.6% 17.9% 28.8% 17.5% 17.2%
Gross margin 53.3% 39.9% 43.3% 44.7% 47.0% 46.4% 45.4% 45.5% 45.6%
R&D/revenue 11.2% 11.5% 13.0% 12.3% 12.7% 13.0% 13.1% 13.1% 13.1%
SG&A/revenue 20.9% 20.2% 14.5% 12.1% 15.9% 16.1% 16.2% 16.3% 16.3%
Income tax rate 37.8% 22.9% NA 37.5% 34.0% 33.2% 32.1% 31.5% 31.4%
Return on avg. assets NA 5.4% -8.3% 21.5% 17.9% 17.0% 16.8% 16.5% 15.8%
Return on avg. equity 14.4% 7.0% -10.8% 26.7% 21.1% 19.7% 19.5% 19.1% 18.3%
Return on incremental equity NMF NMF NMF NMF -0.8% 11.3% 14.0% 14.3% 11.9%
Asset turnover 1.05 1.15 1.62 1.30 1.28 1.35 1.31 1.28
</TABLE>
11
<PAGE>
Project Blender
Discounted Cash Flow Analysis
- --------------------------------------------------------------------------------
Free Cash Flow
In Millions, except per share
<TABLE>
<CAPTION>
----------------------------------------------
Projected
Year Ended June 30, 1999 2000 2001 2002 2003
----------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Income $28.5 $31.7 $37.8 $44.6 $52.4
Less: taxes 9.7 10.5 12.1 14.0 16.5
--- ---- ---- ---- ----
Post-tax operating income 18.8 21.2 25.7 30.6 35.9
Add: depreciation & amortization 4.9 4.9 4.9 4.9 4.9
Add: increase in current liabilities 0.3 3.0 5.7 4.3 5.0
Less: increase in current assets (9.6) (8.9) (16.8) (12.9) (14.9)
Less: capital expenditures (6.0) (7.0) (8.0) (8.0) (8.0)
Less: increase in deposits on purchases (10.1) 2.0 6.0 0.0 0.0
---- --- --- --- ---
Free cash flow ($1.7) $15.2 $17.5 $18.9 $22.9
PV Factor 18.7% 0.843 0.710 0.598 0.504 0.425
PV of cash flows ($1.4) $10.8 $10.5 $9.5 $9.7
- ------------------------------------------------------------------------------------------
SUM OF PV's $39.1
- ------------------------------------------------------------------------------------------
Terminal value 7.0x $366.8
PV Factor 0.425
-----
- ------------------------------------------------------------------------------------------
PV of terminal value $155.8
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Cash flows + terminal value $194.9
- ------------------------------------------------------------------------------------------
Add: cash & marketable securities $41.8
Add: exercise value of options $22.4
Less: interest bearing liabilities ($1.5)
----
- ------------------------------------------------------------------------------------------
Current estimate of value $257.6
- ------------------------------------------------------------------------------------------
Shares and outstanding (including exercised options) 14.9
- ------------------------------------------------------------------------------------------
Value per share $17.32
- ------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Project Blender
Discounted Cash Flow Analysis
================================================================================
Equity cost of capital
In Millions, except per share
Current long-term interest rate (30-year) 5.00%
Current equity premium 5.69%(1)
Beta 1.88(2)
Cost of equity 15.67%
Small stock premium 3.00%(3)
Adjusted cost of equity 18.67%
Range - High 20.67%
Range - Low 16.67%
(1) Source: Ibbotson & Associates
(2) For the six months ended September 30, 1998
(3) Source: PricewaterhouseCoopers
13
<PAGE>
Project Blender
Mergers and Acquisition Analysis
================================================================================
Dates Effective January 1, 1996 to Present
Semiconductor Industry
<TABLE>
<CAPTION>
Target Financials LTM, except BV Acquisition Multiples Premium
-------------------------------- --------------------- --------
Date Announced Target Per Share Value Net Sales Net Income ENT/Net Sales Equity/NI 1 day
Date Effective Target Business Equity Value Operating Income EPS ENT/Op. Income P/E 1 week
Date of Financials Acquiror Enterprise Value Cash Flow Book Value ENT/Cash Flow P/BV 1 month
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
07/24/98 Information Storage Devices $7.50 $51.8 ($9.3) 1.34 NMF 46.3%
Mnfr. Voice Recorded Circuits $76.4 ($11.6) ($0.96) NMF NMF 36.4%
04/04/98 Windbond Electronic Corp. $69.4 ($7.8) $5.80 NMF 1.3 44.6%
03/02/98 Benchmarq Microelectronics Inc. $18.81 $46.1 $7.7 3.15 19.1 15.8%
08/03/98 Mnfr. Microprocessors $146.8 $10.0 $1.00 14.5 18.8 14.0%
09/30/98 Unitrobe Corp. $145.1 $12.0 $4.70 12.1 4.0 67.2%
01/21/98 BKC Semiconductors Inc. $9.17 $11.8 $0.6 1.35 22.2 66.7%
05/15/98 Mnfr. Semiconductor Devices $13.3 $1.3 $0.50 12.2 18.3 59.5%
9/30/97 Microsemi Corp. $15.9 $1.3 $2.60 12.2 3.5 66.7%
07/28/97 Cyrix Corp. $27.69 $220.8 ($10.1) 2.82 NMF 30.3%
11/17/97 Mnfr. PC Units, Microprocessors $567.8 ($11.1) ($0.53) NMF NMF 29.5%
06/30/97 National Semiconductor Corp. $623.2 $15.9 $6.40 NMF 4.3 29.5%
07/28/97 Chips & Technologies Inc. $17.50 $159.8 $29.7 2.45 14.4 25.0%
02/02/98 Design Whl. Integrated Circuits $426.2 $22.2 $1.28 17.6 13.7 32.1%
09/30/97 Intel Corp. $391.3 $25.9 $5.90 15.1 3.0 68.7%
11/05/96 Panatech Research & Development $7.00 $10.9 $1.5 2.41 19.5 55.6%
03/14/97 Manufacture Semiconductors $29.2 $2.5 $0.37 10.5 18.8 55.6%
06/30/96 Harbour Group Ltd. $26.2 $2.9 $2.00 9.0 3.5 51.4%
07/01/96 Brooktree Corp. $15.00 $146.9 7.0 1.86 37.6 42.9%
09/25/96 Manufacture Semiconductors $262.9 -3.9 $0.38 NMF 39.2 64.4%
06/29/96 Rockwell International Corp. $273.4 $11.0 $8.60 NMF 1.7 16.5%
</TABLE>
Source: Securities Data Company
14
<PAGE>
Project Blender
Mergers and Acquisition Analysis
================================================================================
Dates Effective January 1, 1996 to Present
Semiconductor Industry
<TABLE>
<CAPTION>
Target Financials LTM, except BV Acquisition Multiples Premium
-------------------------------- --------------------- -------
Date Announced Target Per Share Value Net Sales Net Income ENT/Net Sales Equity/NI 1 day
Date Effective Target Business Equity Value Operating Income EPS ENT/Op. Income P/E 1 week
Date of Financials Acquiror Enterprise Value Cash Flow Book Value ENT/Cash Flow P/BV 1 month
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
03/26/96 VLSI Technology $14.38 $587.1 $31.7 0.94 16.6 18.6%
03/22/96 Mnfr. Integrated Circuits $527.5 $46.7 $0.85 11.8 17.0 7.0%
12/30/94 Investor Group $551.6 $108.5 $7.00 5.1 2.1 18.6%
02/07/96 Catalyst Semiconductor Inc. $6.00 $53.9 $2.8 0.75 14.5 -2.0%
02/07/96 Manufacture Semiconductors $40.7 $3.2 $0.36 12.7 16.9 14.3%
09/30/95 United Microelectronic Corp. 40.5 $4.8 $1.70 8.4 3.5 11.6%
---------------------------------------------------
Averages: 1.9 20.5 33.2%
13.2 20.4 34.7%
10.3 3.0 41.6%
---------------------------------------------------
---------------------------------------------------
Median: 1.9 16.6 30.3%
11.8 17.0 32.1%
8.4 3.5 44.6%
---------------------------------------------------
</TABLE>
Source: Securities Data Company
15
<PAGE>
Project Blender
Summary of Results
================================================================================
- ---------------------------------
On-going Value Comparison
- ---------------------------------
<TABLE>
<CAPTION>
Indicated Value
------------------------------------
Enterprise Equity Per
Median Blender Value Value Share Weighting
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Comparable Companies (as of 10/15/98)
- -------------------------------------
Price to LTM/EPS 13.7 $1.63 $22.28 20.0%
Price to June 99/EPS 14.4 $1.60 $23.03 20.0%
Market/Book 1.6 $89.8 $143.6 $10.96 10.0%
TEV/Revenue 1.1 $160.6 $176.7 $218.5 $16.68 16.7%
TEV/Operating Income 6.3 $32.3 $203.5 $245.3 $18.73 16.7%
TEV/Operating Cash Flow 4.5 $36.9 $165.9 $207.8 $15.86 16.7%
Weighted Average Implied Value $18.70
Discounted Cash Flow Analysis $17.32
----------------------------------------------------------------------------------------------------------------
Average of Both Methodologies $18.01
Discussion Range $16.00 to $17.50
Implied Control Premium -11.2% to -2.8%
Historical Median Range, Latest Four Quarters (see Exhibit B) 28.9% to 31.2%
----------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
Project Blender
Summary of Results
================================================================================
- ---------------------------------
Acquisition Value Comparison
- ---------------------------------
<TABLE>
<CAPTION>
Indicated Value
----------------------------------
Comp. Enterprise Equity Per
Median Blender Value Value Share Weighting
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Merger & Acquisition Multiples
- ------------------------------
Enterprise Value/Sales 1.9 $ 160.6 $ 305.2 $ 347.0 $ 26.49 20.0%
Enterprise Value/Oper. Income 11.8 $ 32.3 $ 381.1 $ 423.0 $ 32.29 20.0%
Enterprise Value/Cash Flow 8.4 $ 36.9 $ 309.8 $ 351.6 $ 26.84 20.0%
Price/LTM Earnings 17.0 $ 1.63 $ 27.65 20.0%
Price/Book 3.5 $ 89.8 $ 314.2 $ 23.99 20.0%
Weighted Average Implied Value $ 27.45
Premium Over Current Stock Price (as of 10/15/98)
- -------------------------------------------------
One day 30.3% $ 11.50 $ 14.98 33.3%
One week 32.1% $ 10.00 $ 13.21 33.3%
One month 44.6% $ 10.19 $ 14.73 33.3%
Weighted Average Implied Value $ 14.31
Control Premium Analysis
- ------------------------
On-Going Basis: Comparable Companies Analysis
Low Quarter for Last Year (1Q98) 28.9% $ 18.70 $ 24.11 25.0%
High Quarter for Last Year (2Q98) 31.2% $ 18.70 $ 24.54 25.0%
On-Going Basis: Discounted Cash Flow Analysis
Low Quarter for Last Year (1Q98) 28.9% $ 17.32 $ 22.32 25.0%
High Quarter for Last Year (2Q98) 31.2% $ 17.32 $ 22.72 25.0%
Weighted Average Implied Value $ 23.42
--------------------------------------------------------------------------------------------------------------------
Average of Three Methodologies $ 21.73
Discussion Range $16.00 to $17.50
--------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Project Blender
Control Premium Analysis
================================================================================
Median Control Premium
3Q97 4Q97 1Q98 2Q98
---- ---- ---- ----
All domestic transaction 29.7% 28.9% 28.9% 31.2%
(1) Source: Houlihan Lokey Howard & Zukin
18
<PAGE>
January 15, 1999
Materials Reviewed by Special Committee
- --------------------------------------------------------------------------------
Market Data for Semiconductor Companies
(in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Pericom Semiconductor Actel Dallas Semiconductor Exar
Corporation (1) Corporation Corporation (3) Corporation
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Market Price (1/15/99) $12.13 $18.94 $42.00 $15.00
52 Week High $4.19 $22.63 $50.06 $25.69
52 Week Low $14.13 $7.25 $22.69 $12.00
Symbol PSEM ACTL DS EXAR
Most Recent Fiscal Year Ended 06/30/98 12/28/97 12/28/97 03/31/98
Most Recent Quarter End 09/30/98 10/04/98 09/27/98 09/30/98
Common Shares Outstanding 9,332 20,943 28,210 9,301
Fully Diluted Shares [A] 10,926 25,195 33,406 11,494
Market Value of Common Equity $113,151 $396,608 $1,184,820 $139,515
Total Debt & Preferred Stock $0 $0 $0 $0
Cash & Marketable Securities $24,913 $64,287 $122,677 $74,003
------- ------- -------- -------
Total Enterprise Value (TEV) $88,238 $332,321 $1,062,143 $65,512
EPS Date 09/30/98 10/04/98 09/27/98 09/30/98
EPS (diluted)
- -------------
LTM EPS $0.59 $0.65 $1.97 $0.83
12 Mos. ending 6/99
est. EPS [B] $0.69 $0.79 $1.95 $0.59
1998/97A EPS $0.55 $0.76 $2.19 $0.77
1999/98E EPS [B] $0.68 $0.69 $1.85 $0.71
2000/1999E EPS [B] $0.88 $0.90 $2.17 $0.82
Price to LTM EPS 20.6 29.1 21.3 18.1
Price to June 1999E EPS 17.6 24.0 21.5 25.4
Price to 1999/98E EPS 17.8 27.4 22.7 21.1
Price to 2000/99E EPS 13.8 21.0 19.4 18.3
Market Capitalization Basis
- ---------------------------
LTM Revenue $52,347 $151,265 $352,975 $92,643
Market/LTM Revenue 2.2 2.6 3.4 1.5
Market/Operating Cash Flow [C] 12.6 14.7 9.6 10.1
Market/Operating Profit 14.6 21.0 14.6 16.0
Market/Book 2.8 3.2 3.0 1.1
TEV Basis
- ---------
TEV/LTM Revenue 1.7 2.2 3.0 0.7
TEV/Operating Cash Flow [C] 9.8 12.3 8.6 4.7
TEV/Operating Profit 11.4 17.6 13.1 7.5
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Lattice Semiconductor NeoMagic Comparable
Corporation(5) Corporation(6) Median
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Market Price (1/15/99) $49.94 $18.63
52 Week High $57.00 $23.75
52 Week Low $18.88 $10.50
Symbol LSCC NMGC
Most Recent Fiscal Year Ended 03/28/98 01/31/98
Most Recent Quarter End 09/26/98 10/31/98
Common Shares Outstanding 23,430 24,614
Fully Diluted Shares [A] 26,305 28,373
Market Value of Common Equity $1,170,036 $458,436
Total Debt & Preferred Stock $0 $0
Cash & Marketable Securities $287,072 $74,348
-------- -------
Total Enterprise Value (TEV) $882,964 $384,088
EPS Date 09/26/98 10/31/98
EPS (diluted)
- -------------
LTM EPS $1.98 $1.17
12 Mos. ending 6/99
est. EPS [B] $1.75 $1.36
1998/97A EPS $2.37 $0.82
1999/98E EPS [B] $1.70 $1.20
2000/1999E EPS [B] $2.00 $1.43
Price to LTM EPS 25.2 15.9 21.0
Price to June 1999E EPS 28.5 13.7 22.8
Price to 1999/98E EPS 29.4 15.5
Price to 2000/99E EPS 25.0 13.0
Market Capitalization Basis
- ---------------------------
LTM Revenue $216,322 $213,192
Market/LTM Revenue 5.4 2.2
Market/Operating Cash Flow [C] 16.5 11.8
Market/Operating Profit 19.4 11.1
Market/Book 2.6 5.1 2.9
TEV Basis
- ---------
TEV/LTM Revenue 4.1 1.8 2.0
TEV/Operating Cash Flow [C] 12.4 9.9 9.9
TEV/Operating Profit 14.6 9.3 12.3
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[A] Assumes the exercise of all outstanding options and warrants (regardless of
exercise price), and the conversion of all convertible debentures.
[B] Earnings estimates are provided by Zacks Investment Research as of 1/15/99.
[C] Operating cash flow equals operating profit plus depreciation and
amortization.
<PAGE>
Project Blender
Summary of Results
================================================================================
- ---------------------------------
Acquisition Value Comparison
- ---------------------------------
<TABLE>
<CAPTION>
Indicated Value
--------------------------------
Comp. 12/31/98E Enterprise Equity Per
Median Blender Value Value Share Weighting
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Merger & Acquisition Multiples
- ------------------------------
Enterprise Value/Sales 2.0 $ 147.0 $ 294.0 $ 327.5 $ 25.00 20.0%
Enterprise Value/Oper. Income 12.3 $ 27.0 $ 331.5 $ 365.0 $ 27.87 20.0%
Enterprise Value/Cash Flow 9.9 $ 32.0 $ 316.7 $ 350.2 $ 26.74 20.0%
Price/LTM Earnings 21.0 $ 1.51 $ 31.71 20.0%
Price/Book 2.9 $ 95.9 $ 278.1 $ 21.23 20.0%
Weighted Average Implied Value $ 26.51
Premium Over Current Stock Price (as of 1/15/99)
- ------------------------------------------------
One day 30.3% $ 17.81 $ 23.21 33.3%
One week 32.1% $ 17.88 $ 23.61 33.3%
One month 44.6% $ 15.06 $ 21.78 33.3%
Weighted Average Implied Value $ 22.87
-------------------------------------------------------------------------------------------------------------------
Average of Two Methodologies $ 24.69
Discussion Range $ 21.25
-------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Project Blender
Summary of Results
================================================================================
- -----------------------------
On-going Value Comparison
- -----------------------------
<TABLE>
<CAPTION>
Indicated Value
----------------------------------
12/31/98E Enterprise Equity Per
Median Blender Value Value Share Weighting
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Comparable Companies (as of 1/15/99) (1)
- ----------------------------------------
Price to LTM/EPS 21.0 $ 1.51 $ 31.71 20.0%
Price to June 99/EPS 22.8 $ 1.41 $ 32.15 20.0%
Market/Book 2.9 $ 95.9 $ 278.1 $ 21.23 10.0%
TEV/Revenue 2.0 $ 147.0 $ 294.0 $ 327.5 $ 25.00 16.7%
TEV/Operating Income 12.3 $ 27.0 $ 331.5 $ 365.0 $ 27.87 16.7%
TEV/Operating Cash Flow 9.9 $ 32.0 $ 316.7 $ 350.2 $ 26.74 16.7%
Weighted Average Implied Value $ 28.16
Discounted Cash Flow Analysis $ 18.22
--------------------------------------------------------------------------------------------------------------------
Average of Both Methodologies $ 23.19
Discussion Range $20.00 to $21.25
Implied Control Premium -13.8% to -8.4%
Historical Median Range, Latest Four Quarters (see Exhibit B) 28.9% to 31.2%
--------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Comparable company medians are based on most recent available information
as of 1/15/99.
<PAGE>
Project Blender
Discounted Cash Flow Analysis
================================================================================
Equity cost of capital
In Millions, except per share
Current long-term interest rate (30-year) 5.11%
Current equity premium 5.69%(1)
Beta 1.88(2)
Cost of equity 15.78%
Small stock premium 2.95%(3)
Adjusted cost of equity 18.73%
Range-High 20.73%
Range-Low 16.73%
(1) Source: Ibbotson & Associates
(2) For the six months ended September 30, 1998
(3) Source:PricewaterhouseCoopers
<PAGE>
Project Blender
Discounted Cash Flow Analysis
================================================================================
Free Cash Flow
In Millions, except per share
<TABLE>
<CAPTION>
--------------------------------------------------------------
Projected
1999 2000 2001 2002 2003
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended June 30,
Operating Income $ 28.5 $ 31.7 $ 37.8 $ 44.6 $ 52.4
Less: taxes 9.7 10.5 12.1 14.0 16.5
--- ---- ---- ---- ----
Post-tax operating income 18.8 21.2 25.7 30.6 35.9
Add: depreciation & amortization 4.9 4.9 4.9 4.9 4.9
Add: increase in current liabilities 0.3 3.0 5.7 4.3 5.0
Less: increase in current assets (9.6) (8.9) (16.8) (12.9) (14.9)
Less: capital expenditures (6.0) (7.0) (8.0) (8.0) (8.0)
Less: increase in deposits on purchases (10.1) 2.0 6.0 0.0 0.0
---- --- --- --- ---
Free cash flow ($1.7) $ 15.2 $ 17.5 $ 18.9 $ 22.9
PV Factor 18.7% 0.879 0.740 0.624 0.525 0.442
PV of cash flows ($1.5) $ 11.3 $ 10.9 $ 9.9 $ 10.1
- --------------------------------------------------------------------------------------------------------
Sum of PV's $ 40.7
- --------------------------------------------------------------------------------------------------------
Terminal value 7.0x $366.8
PV Factor 0.442
-----
- --------------------------------------------------------------------------------------------------------
PV of terminal value $162.3
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Cash flows + terminal value $203.0
- --------------------------------------------------------------------------------------------------------
Add: cash & marketable securities (9/30/98) $ 47.2
Add: exercise value of options $ 22.4
Less: interest bearing liabilities (9/30/98) ($1.5)
----
- --------------------------------------------------------------------------------------------------------
Current estimate of value &271.1
- --------------------------------------------------------------------------------------------------------
Shares and outstanding (including exercised options) 14.9
- --------------------------------------------------------------------------------------------------------
Value per share $18.22
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(A) of the Securities Exchange Act of
1934
(Amendment No. 1)
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[_]Soliciting material pursuant
[X]Preliminary proxy statement toRule 14a-11(c) or Rule 14a-12
[_]Definitive proxy statement [_]Confidential, for use of the
Commission only (as permitted by
Rule 14a- 6(e)(2))
[_]Definitive additional materials
Integrated Circuit Systems, Inc.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (check the appropriate box):
[_]No fee required.
[X]Fee computed on table below per Exchange Act Rule 14a-6(i)(1) and 0-11
("Rule 0-11").
(1) Title of each class of securities to which transaction applies:
Common stock, no par value, of Integrated Circuit Systems, Inc.
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
11,883,100 shares of common stock and 2,052,367 options to purchase
shares of common stock.
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Rule 0-11:
$21.25 per share of common stock plus an aggregate of $12,500,532 in
consideration of outstanding options.
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $265,016,407
------------------------------------------------------------------------
(5) Total fee paid: $53,003
------------------------------------------------------------------------
[X]Fee paid previously with preliminary materials.
- -------------------------------------------------------------------------------
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
PRELIMINARY COPY, DATED MARCH 29, 1999
INTEGRATED CIRCUIT SYSTEMS, INC.
2435 Boulevard of The Generals
Norristown, Pennsylvania 19403
(610) 630-5300
Dear Shareholder:
You are cordially invited to attend the Special Meeting of the Shareholders
of Integrated Circuit Systems, Inc. to be held on , 1999, beginning at
10:00 a.m. (local time), at the offices of the Company, 2435 Boulevard of the
Generals, Norristown, Pennsylvania.
At this important meeting, you will be asked to consider and vote upon a
proposed merger between the Company and ICS Merger Corp., a corporation newly-
formed by Bain Capital, Inc. and Bear, Stearns & Co. Inc. In the proposed
merger, (i) the Company will be recapitalized and investment funds associated
with Bain Capital and Bear, Stearns, together with certain members of the
Company's management, will own substantially all of the outstanding common
stock of the Company and (ii) the existing shareholders of the Company (other
than certain members of management) will be entitled to receive $21.25 in cash
for each share of their common stock.
Consummation of the merger is subject to a number of conditions, including
the Company obtaining the necessary financing under existing commitments to
complete the merger. Accordingly, even if the shareholders approve the merger,
there can be no assurance that the merger will be consummated.
The merger agreement with ICS Merger Corp. has been unanimously approved by
your Board of Directors, acting on the unanimous recommendation of an
independent Special Committee of the Board of Directors. The Board of
Directors and Special Committee received the opinion of their investment
banker, Pennsylvania Merchant Group, dated January 19, 1999, to the effect
that the consideration to be received by the Company's unaffiliated
shareholders in the merger, as of such date, was fair to such shareholders
from a financial point of view. The Board of Directors has concluded that the
proposed merger is in the best interests of the Company's shareholders and,
therefore, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO
APPROVE AND ADOPT THE MERGER AGREEMENT.
The attached Notice of Special Meeting and Proxy Statement explain the
proposed merger and provide specific information concerning the Special
Meeting. Please read these materials carefully.
Whether or not you plan to attend the Special Meeting, we urge you to
complete, sign and promptly return the enclosed proxy card to assure that your
shares will be voted at the meeting. This will not prevent you from voting
your shares in person if you subsequently choose to attend. As soon as
practicable after the effectiveness of the merger, you will receive
instructions for surrendering your share certificates in exchange for $21.25
in cash and a letter of transmittal to be used for this purpose. You should
not submit your share certificates for exchange until you have received such
instructions and the letter of transmittal.
The merger is an important step for the Company and its shareholders. THE
MERGER CANNOT BE COMPLETED UNLESS THE COMPANY'S SHAREHOLDERS APPROVE AND ADOPT
THE MERGER AGREEMENT.
On behalf of the Board of Directors, I thank you for your support and urge
you to vote IN FAVOR OF the merger.
Very truly yours,
/s/ Rudolf S. Gassner
Rudolf S. Gassner
Chairman of the Board
<PAGE>
PRELIMINARY COPY, DATED MARCH 29, 1999
INTEGRATED CIRCUIT SYSTEMS, INC.
2435 Boulevard of The Generals
Norristown, Pennsylvania 19403
(610) 630-5300
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1999
----------------
To the Shareholders of
Integrated Circuit Systems, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Integrated
Circuit Systems, Inc., a Pennsylvania corporation (the "Company") will be held
at the offices of the Company, 2435 Boulevard of the Generals, Norristown,
Pennsylvania, on , 1999 at 10:00 a.m., local time, for the following
purposes:
1. To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger, dated January 20, 1999, as amended, between the
Company and ICS Merger Corp. ("Merger Corp."), a corporation newly-
formed by Bain Capital, Inc., and Bear, Stearns & Co. Inc., pursuant to
which (i) Merger Corp. will be merged into the Company and (ii) each
share of common stock of the Company (other than certain shares held by
members of management and shares held by shareholders who perfect their
appraisal rights) will be converted automatically into the right to
receive $21.25 per share in cash; and
2. To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof and any matters
incident to the conduct of the Special Meeting.
Holders of shares of the Company's common stock have the right to dissent
from the merger and to demand appraisal of, and payment for, their shares of
common stock by following the procedures set forth in Subchapter D of Chapter
15 of the Business Corporation Law of Pennsylvania, a copy of which is
attached hereto as Appendix C and summarized under "Appraisal Rights of
Dissenting Shareholders" in the accompanying Proxy Statement.
The Board of Directors has fixed the close of business on , 1999 as
the record date for the determination of shareholders entitled to receive
notice of, and vote at, the Special Meeting and any adjournment or
postponement thereof.
A form of proxy and a Proxy Statement containing more detailed information
with respect to the matters to be considered at the Special Meeting accompany
and form a part of this notice.
All shareholders are cordially invited to attend the meeting in person.
WHETHER OR NOT YOU EXPECT TO ATTEND IN PERSON, PLEASE PROMPTLY SIGN, DATE AND
MAIL THE ENCLOSED PROXY IN THE RETURN ENVELOPE. If you decide to attend the
meeting and wish to vote in person, you may revoke your proxy by written
notice to the Secretary of the Company at that time.
By order of the Board of Directors,
/s/ Hock E. Tan
Hock E. Tan
Secretary
<PAGE>
PRELIMINARY COPY, DATED MARCH 29, 1999
INTEGRATED CIRCUIT SYSTEMS, INC.
2435 Boulevard of The Generals
Norristown, Pennsylvania 19403
(610) 630-5300
----------------
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1999
----------------
This Proxy Statement is furnished to shareholders of Integrated Circuit
Systems, Inc., a Pennsylvania corporation (the "Company"), in connection with
the solicitation of proxies by the Board of Directors of the Company for use
at the Special Meeting of Shareholders to be held on , 1999, and at any
and all adjournments or postponements thereof. Proxies in the form enclosed
will be voted at the Special Meeting, if properly executed, returned to the
Company prior to the meeting and not revoked. This Proxy Statement and the
enclosed proxy card are first being mailed to shareholders of the Company on
or about , 1999.
At the Special Meeting, holders of the Company's common stock will be asked
to consider and vote upon a proposal to approve and adopt an Agreement and
Plan of Merger, dated January 20, 1999, as amended by Amendment No. 1 to the
Agreement and Plan of Merger, dated February 16, 1999 (as the same may be
further amended, the "Merger Agreement"), between the Company and ICS Merger
Corp. ("Merger Corp."), a corporation newly-formed by Bain Capital, Inc.
("Bain Capital") and Bear, Stearns & Co. Inc. ("Bear Stearns") pursuant to
which (i) Merger Corp. will be merged into the Company (the "Merger") and (ii)
each share of common stock of the Company (other than certain shares held by
certain members of the Company's management (the "Management Group") and
shares held by shareholders who perfect their appraisal rights) will be
converted automatically into the right to receive $21.25 per share in cash. A
copy of the Merger Agreement is attached as Appendix A to this Proxy
Statement.
The consummation of the Merger is subject to a number of conditions,
including the Company obtaining the necessary financing under existing
commitments to complete the Merger. Accordingly, even if shareholders approve
and adopt the Merger Agreement, there can be no assurance that the Merger will
be consummated.
The accompanying proxy, unless the shareholder otherwise specifies in the
proxy, will be voted (i) for adoption and approval of the Merger Agreement and
(ii) at the discretion of the proxy holders on any other matter that may
properly come before the meeting or any adjournment or postponement thereof.
Where shareholders have appropriately specified how their proxies are to be
voted, they will be voted accordingly. If any other matter or business is
brought before the Special Meeting, the proxy holders may vote the proxies in
their discretion. The directors do not know of any such other matter or
business.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT DOES NOT CONSTITUTE A
SOLICITATION OF A PROXY IN ANY JURISDICTION FROM ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN SUCH JURISDICTION. THE DELIVERY OF
THIS PROXY STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
<PAGE>
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This Proxy Statement (including information incorporated herein by
reference) contains forward-looking statements that are subject to risks and
uncertainties. Such forward-looking statements may be identified by, among
other things, the use of forward-looking terminology such as "believes,"
"expects," "forecasts," "estimates," "plans," "continues," "may," "will,"
"should," "anticipates" or "intends," or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy or
intentions. These forward-looking statements, such as statements regarding
anticipated future new product introductions, revenues, operating income,
capital expenditures, acquisitions, management and production activities, and
other statements regarding matters that are not historical facts, involve
predictions. The Company's actual results, performance or achievements could
differ materially from the results expressed in, or implied by, these forward-
looking statements. Potential risks and uncertainties that could affect the
Company's results, performance or achievements include, but are not limited
to, the Company's dependence on the continuous introduction of new products
based on the latest technology, the intensely competitive semiconductor and
personal computer component industries, the importance of frequency timing
generator products to the Company's total revenue, the Company's dependence on
the personal computer industry and third party suppliers and assemblers of
silicon wafers, risks associated with international business activities,
acquisitions and integration of acquired companies or product lines, the
Company's dependence on proprietary information and technology and on key
personnel, fluctuating quarterly results, product liability exposure, the
potential unavailability of insurance and general economic conditions,
including economic conditions related to the semiconductor and personal
computer industries. Given these risks and uncertainties, shareholders are
cautioned not to place undue reliance on any such forward-looking statements.
Furthermore, the Company disclaims any obligation or intent to update any such
factors or forward-looking statements to reflect future events or
developments. For a more complete discussion of risks and uncertainties faced
by the Company, refer to the Company's Annual Report on Form 10-K for the
fiscal year ended June 27, 1998 under the caption "Business--Risk Factors."
All future written and oral forward-looking statements by the Company or
persons acting on its behalf are expressly qualified in their entirety by the
cautionary statements contained or referred to above. Except for their ongoing
obligations to disclose material information as required by the federal
securities laws, the Company has no obligation or intention to release
publicly any revisions to any forward-looking statements to reflect events or
circumstances in the future or to reflect the occurrence of unanticipated
events.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
The date of this Proxy Statement is , 1999.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 1
SUMMARY OF PROXY STATEMENT................................................ 3
Parties to the Merger.................................................... 3
The Special Meeting...................................................... 3
The Merger............................................................... 4
Recommendation of the Special Committee and the Company's Board of
Directors............................................................... 5
Opinion of Financial Advisor............................................. 5
Conflicts of Interest.................................................... 6
Federal Income Tax Consequences.......................................... 6
Rights of Dissenting Shareholders........................................ 6
Financing of the Merger.................................................. 6
The Merger Agreement..................................................... 6
Market Prices for Common Stock and Dividends............................. 9
Summary Financial Information............................................ 10
Certain Projections of Future Operating Results.......................... 11
SPECIAL FACTORS........................................................... 12
Background of the Merger................................................. 12
Recommendations of the Special Committee and the Board of Directors...... 15
Reasons of the Company for the Merger.................................... 15
Fairness of the Merger................................................... 17
Equity Investors' Reasons for the Merger................................. 19
Opinion of Financial Advisor............................................. 19
Conflicts of Interest.................................................... 24
Recent Developments...................................................... 26
THE SPECIAL MEETING....................................................... 28
General.................................................................. 28
Record Date; Quorum...................................................... 28
Vote Required............................................................ 28
Proxies.................................................................. 28
Solicitation of Proxies.................................................. 29
Other Matters to be Considered........................................... 29
THE MERGER................................................................ 30
Effective Time and Consequences of the Merger............................ 30
Financing................................................................ 30
Federal Income Tax Consequences.......................................... 32
Accounting Treatment..................................................... 32
Rights of Dissenting Shareholders........................................ 33
Delisting and Deregistration of Common Stock............................. 33
Certain Regulatory Matters............................................... 33
THE MERGER AGREEMENT...................................................... 34
Overview................................................................. 34
Exchange of Certificates Representing the Common Stock................... 34
Treatment of Outstanding Options......................................... 35
Representations and Warranties........................................... 35
Conduct of Business Pending the Merger................................... 35
No Solicitation.......................................................... 36
Indemnification.......................................................... 36
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Directors' and Officers' Insurance....................................... 36
Conditions to the Merger................................................. 37
Termination of Merger Agreement.......................................... 37
Amendment of the Merger Agreement; Waiver of Conditions.................. 38
Fees and Expenses........................................................ 38
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS............................... 39
CERTAIN INFORMATION CONCERNING MERGER CORP. AND ITS AFFILIATES............ 40
BENEFICIAL OWNERSHIP OF COMMON STOCK...................................... 43
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING............................. 44
INDEPENDENT PUBLIC ACCOUNTANTS............................................ 44
DOCUMENTS INCORPORATED BY REFERENCE....................................... 44
AVAILABLE INFORMATION..................................................... 45
APPENDIX A--Agreement and Plan of Merger.................................. A-1
APPENDIX B--Opinion of Pennsylvania Merchant Group Dated January 19,
1999..................................................................... B-1
APPENDIX C--Dissenters Rights Provisions of the Pennsylvania Business
Corporation Law Subchapter D -Dissenters Rights Section 1571 et seq.,
Section 1906 and Section 1930............................................ C-1
</TABLE>
iv
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: With whom is the Company merging?
A: ICS Merger Corp., a corporation newly-formed by Bain Capital, Inc. and Bear,
Stearns & Co. Inc., will merge into the Company. In the proposed Merger, the
Company will be recapitalized and investment funds associated with Bain
Capital and Bear Stearns, together with certain members of the Company's
management, will own substantially all of the outstanding common stock of
the Company.
Q: What will I receive in the Merger?
A: Shareholders of the Company (other than certain members of the Company's
management and shareholders who perfect their appraisal rights) will be
entitled to receive $21.25 in cash, without interest, for each share of
their common stock of the Company.
Q: Why is the Board of Directors recommending that I vote to approve and adopt
the Merger Agreement?
A: In the opinion of the Special Committee and the Board of Directors, the
terms and provisions of the Merger Agreement and the Merger are fair to and
in the best interests of the Company and its shareholders. To review the
background of and reasons for the Merger, see pages 14 to 19.
Q: How many votes are required to approve and adopt the Merger Agreement?
A: A majority of the votes cast by all holders of outstanding shares of common
stock of the Company as of the record date is required to approve and adopt
the Merger Agreement and the transactions contemplated thereby, including
the Merger.
Q: If I am a shareholder, what do I need to do now?
A: After you read and consider carefully the information contained in this
Proxy Statement, please fill out, sign and date your proxy card and mail
your signed proxy card in the enclosed return envelope as soon as possible
so that your shares may be represented at the Special Meeting.
Q: What rights do I have if I oppose the Merger?
A: Shareholders who oppose the Merger may dissent from the Merger and seek to
receive the fair value of their shares but only if they comply with the
procedures of Pennsylvania law explained on page 39.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Yes, if you provide instructions to your broker on how to vote. You should
fill out, sign, date and return the proxy card and otherwise follow the
directions provided by your broker regarding how to instruct your broker to
vote your shares.
Q: Can I change my vote or revoke my proxy after I have mailed my signed proxy
card?
A: Yes, you can change your vote at any time before your proxy is voted at the
Special Meeting. You can do this in one of three ways. First, you can send a
written notice stating that you would like to revoke your proxy. Second, you
can complete and submit a new proxy card. If you choose either of these
methods, you must timely submit your notice of revocation or your new proxy
card to the Company. Third, you can attend the Special Meeting and vote in
person. Simply attending a meeting, however, will not revoke your proxy. If
you have instructed a broker to vote your shares, you must follow directions
received from your broker to change your vote.
Q: Should I send in my share certificates now?
A: No. Shortly after the Merger, you will receive a letter of transmittal with
instructions informing you how to send in your stock certificates to the
Company's paying agent.
Q: When do you expect the Merger to be completed?
A: We are working towards completing the Merger as soon as possible. For the
Merger to occur, it must be approved by the Company's shareholders. If the
shareholders approve the Merger, we expect to complete the Merger on or
about , 1999.
1
<PAGE>
Q: What are the tax considerations of the Merger?
A: The receipt of cash by a shareholder in exchange for the Company's common
stock in the Merger or the exercise of dissenters rights will, in each case,
constitute a taxable transaction for federal income tax purposes and may
also be a taxable transaction under state, local and foreign tax laws. In
general, a shareholder will recognize gain or loss equal to the difference
between $21.25 per share and such shareholder's adjusted tax basis in the
shares exchanged. To review the tax considerations of the Merger in greater
detail, see page 32.
Who Can Help Answer My Other Questions?
If you have more questions about the Merger, you should contact the Company's
solicitation agent:
Innisfree M&A Incorporated
Toll Free--1-888-750-5834
501 Madison Avenue
20th Floor
New York, NY 10022
2
<PAGE>
SUMMARY OF PROXY STATEMENT
This summary highlights selected information from this Proxy Statement and
may not contain all of the information that is important to you. To understand
the Merger fully, you should read carefully this entire Proxy Statement
(including the information incorporated herein by reference) and the
appendices. All references to a "fiscal" year of the Company refer to the
Company's fiscal year ending on the Saturday closest to June 30 of such year.
Parties to the Merger
The Company. The Company is an industry leader in the design, development
and marketing of mixed signal (analog and digital) integrated circuits ("ICs")
called frequency timing generators ("FTGs"). FTGs provide the various timing
signals or "clocks" necessary to synchronize high performance electronic
equipment. Initially, the Company's FTGs were utilized in video graphic
applications in personal computers, but uses have since expanded to include
motherboards and PC peripheral devices such as hard drives, audio cards and
laser printers as well as other non-PC applications. The Company also sells
customized mixed-signal ICs to meet the specific requirements of customer
applications when off-the-shelf solutions are technically inadequate. These
customized ICs are typically sold pursuant to development and product contracts
which generally provide for partial reimbursement of research costs and a
minimum purchase commitment by the customer. The Company also markets
transceiver chipsets for data communications applications.
The Company's principal executive offices are located at 2435 Boulevard of
the Generals, Norristown, Pennsylvania, 19403, and its telephone number is
(610) 630-5300.
ICS Merger Corp. Merger Corp. is a corporation newly-formed by Bain Capital
and Bear Stearns for the sole purpose of effecting the Merger. Merger Corp.'s
principal executive offices are located at Two Copley Place, Boston,
Massachusetts 02116, and its telephone number is c/o Bain Capital, Inc., (617)
572-3000.
Bain Capital. Bain Capital is one of the most experienced and successful
private equity investors in the United States. Since its founding in 1984, Bain
Capital has invested in more than 120 companies and currently manages more than
$4 billion of capital. Bain Capital's investment strategy is to acquire
businesses in partnership with exceptional management teams and improve the
long-term value of those businesses. Bain Capital's principal executive offices
are located at Two Copley Place, Boston, Massachusetts 02116, and its telephone
number is (617) 572-3000.
Bear Stearns Merchant Banking. Bear Stearns Merchant Banking was formed in
April 1997 to capitalize on the extensive global franchise of Bear Stearns by
investing in private equity transactions. Bear Stearns Merchant Banking has
committed approximately $135 million of equity in eleven separate transactions,
with individual commitments of up to $60 million. Bear Stearns Merchant Banking
is a division of Bear Stearns and its principal executive offices are located
at 245 Park Avenue, New York, New York 10167, and its telephone number is (212)
272-2000.
For additional information on the directors and executive officers of Merger
Corp., Bain Capital and Bear Stearns, see "Certain Information Concerning
Merger Corp. and its Affiliates."
The Special Meeting
Place and Purpose. The Special Meeting of the shareholders of the Company
will be held at the offices of the Company, 2435 Boulevard of the Generals,
Norristown, Pennsylvania, on , 1999 at
3
<PAGE>
10:00 A.M., local time. At the Special Meeting, the Company's shareholders will
be asked to consider and vote upon the approval and adoption of the Merger
Agreement attached hereto as Appendix A.
Record Date; Quorum. Only shareholders of record of the Company at the close
of business on April 2, 1999 (the "Record Date") will be entitled to notice of,
and to vote at, the Special Meeting. On the Record Date, there were
[12,166,450] shares of the Company's common stock outstanding. Except as noted
below, each holder of shares of the Company's common stock is entitled to one
vote for each such share so held, exercisable in person or by properly executed
and delivered proxy, at the Special Meeting. The presence of the holders of at
least a majority of the shares of the Company's common stock outstanding on the
Record Date and entitled to vote on the Merger Agreement, whether present in
person or by properly executed and delivered proxy, will constitute a quorum
for purposes of consideration of and action on the Merger Agreement.
Abstentions will be taken into account, and broker non-votes will not be taken
into account, in determining the presence of a quorum.
Vote Required. The affirmative vote of a majority of the votes cast at the
Special Meeting by all holders of record as of the Record Date is necessary to
approve and adopt the Merger Agreement. Where shareholders have appropriately
specified how their proxies are to be voted, they will be voted accordingly.
Abstentions and broker non-votes will not count for or against the Merger at
the Special Meeting.
The Merger Agreement provides that certain shares held by members of the
Management Group will be converted into shares of the surviving corporation in
the Merger while all other outstanding shares will be converted into the right
to receive $21.25 in cash, without interest. Under Section 1906 of the Business
Corporation Law of Pennsylvania ("PBCL"), such disparate treatment is permitted
if approved by a majority of votes cast by all shareholders entitled to vote on
the Merger Agreement. Approval by shareholders of the Merger Agreement will
also constitute approval of such treatment.
Security Ownership of Management. As of the Record Date, directors and
executive officers of the Company owned an aggregate of [421,282] shares of
common stock (approximately 3.0% of the outstanding common stock). The
directors and executive officers of the Company have indicated that they intend
to vote their shares of common stock in favor of the approval and adoption of
the Merger Agreement. See "Beneficial Ownership of Common Stock."
The Merger
Effective Time of the Merger. It is currently contemplated that the Merger
will be consummated as soon as practicable after the Special Meeting and
satisfaction of all closing conditions under the Merger Agreement (including
receipt of financing under existing commitments). The Merger will be effective
upon the filing of Articles of Merger with the Department of State of the
Commonwealth of Pennsylvania (the "Effective Time").
Consequences of the Merger. Pursuant to the Merger, Merger Corp. will be
merged into the Company, and the Company will be the surviving corporation (the
"Surviving Corporation"). Upon completion of the Merger, each share of the
Company's common stock (except for certain shares held by members of the
Management Group and shares held by shareholders who perfect their appraisal
rights) will be converted into the right to receive $21.25 in cash, without
interest (the "Merger Consideration"). Certain of the shares of the Company's
common stock held by members of the Management Group will be converted into
shares of the Surviving Corporation in the Merger (the "Converted Shares").
Shares of the Company's common stock held by shareholders who perfect their
appraisal rights under the PBCL ("Dissenting Shares" and, together with the
Converted Shares, the "Unconverted Shares") will not be converted into Merger
Consideration upon completion of the Merger.
As a result of the Merger, the entire equity interest in the Company will be
owned by investment funds associated with Bain Capital and Bear Stearns (the
"Equity Investors"), the Management Group and certain other investors
(collectively, the "Investors"). The shareholders of the Company (other than
members of the
4
<PAGE>
Management Group) will no longer have any interest in, and will not be
shareholders of the Company, and therefore will not participate in its future
earnings and growth. Instead, each such holder of the Company's common stock
will have the right to receive $21.25 in cash, without interest, for each share
held (other than the Unconverted Shares). Following the Merger, the Investors
will have the opportunity to benefit from any earnings and growth of the
Company, and will bear the risk of any decrease in the Company's value.
Following the Merger, the Company's common stock will no longer be traded on
the Nasdaq National Market, price quotations will no longer be available and
the registration of the Company's common stock under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), will be terminated. After such
registration is terminated, the Company will no longer be required to file
periodic reports with the Commission.
Recommendation of the Special Committee and the Company's Board of Directors
Because of the conflict of interests of Henry I. Boreen, a member of the
Board of Directors of the Company who is a member of the Management Group, the
Board established a special committee (the "Special Committee") for the purpose
of negotiating the price and other terms of the transactions with the Equity
Investors and evaluating the fairness of the Merger, the Merger Agreement and
the transactions contemplated thereby. The Special Committee is composed solely
of directors unaffiliated with any members of the Management Group.
The Special Committee and the Company's Board of Directors have each
determined that the terms of the Merger Agreement, which were established
through arm's-length negotiations with the Equity Investors, and the
transactions contemplated thereby, including the Merger, are fair to, and in
the best interests of, the Company and its shareholders. ACCORDINGLY, THE
SPECIAL COMMITTEE AND THE COMPANY'S BOARD OF DIRECTORS HAVE UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMEND THAT THE COMPANY'S
SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Opinion of Financial Advisor
Pennsylvania Merchant Group ("PMG") has delivered its written opinion to the
Special Committee and the Company's Board of Directors that, as of January 19,
1999, the Merger Consideration was fair, from a financial point of view, to the
Company's unaffiliated shareholders. PMG will be paid a fee upon consummation
of the Merger. See "Special Factors--Opinion of Financial Advisor."
PMG is a full service securities brokerage and investment banking firm. PMG
is a registered broker-dealer and investment advisor with the Commission and a
member firm of the NASD. PMG's principal office is located in the Philadelphia
area.
A copy of PMG's opinion, setting forth the assumptions made, procedures
followed, matters considered, limitations on and scope of the review by PMG, is
attached as Appendix B to this Proxy Statement. The Company's shareholders are
encouraged to read such opinion in its entirety. See "Special Factors--Opinion
of Financial Advisor."
Conflicts of Interest
In considering the recommendations of the Special Committee and the
Company's Board of Directors, the Company's shareholders should be aware that
certain members of the Management Group and of the Company's Board of Directors
have interests in the Merger that are in addition to the interests of the
Company shareholders generally and which create conflicts of interest. See
"Special Factors--Conflicts of Interest" and "The Merger Agreement--
Indemnification."
5
<PAGE>
Federal Income Tax Consequences
The receipt of cash by a shareholder in exchange for his or her shares of
the Company's common stock pursuant to the Merger or the exercise of dissenters
rights will, in each case, constitute a taxable transaction to such shareholder
for federal income tax purposes and may also be a taxable transaction under
applicable state, local and foreign tax laws. In general, a shareholder will
recognize gain or loss equal to the difference between $21.25 per share and
such shareholder's adjusted tax basis in the shares exchanged.
All shareholders should read carefully the discussion in "The Merger--
Federal Income Tax Consequences" and other sections of this Proxy Statement.
They are urged to consult their own tax advisors as to the specific
consequences to them of the Merger under federal, state, local and any other
applicable tax laws.
Rights of Dissenting Shareholders
Pursuant to the Merger Agreement and the PBCL, a shareholder of record of
the Company will have dissenters rights in connection with the Merger under
Sections 1571 through 1580 of Subchapter 15D Section 1906 and Section 1930 of
the PBCL and may object to the Merger Agreement and demand in writing that the
Company pay the fair value of their common stock. Sections 1571 through 1580 of
Subchapter 15D, Section 1906 and Section 1930 of the PBCL are included in this
Proxy Statement as Appendix C.
If any holders of common stock properly exercise dissenters rights of
appraisal in connection with the Merger under Subchapter 15D of the PBCL, any
shares held by such holders will not be converted into the right to receive
$21.25 per share, but instead will be converted into the right to receive the
"fair value" of such shares pursuant to Subchapter D of Chapter 15 of the PBCL.
See "Appraisal Rights of Dissenting Shareholders."
Financing of the Merger
The total amount of funds necessary to fund the Merger and related
transactions is expected to be approximately $293.4 million. These funds are
expected to come from the following sources: (i) an equity investment made by
the Equity Investors and certain other investors of approximately $40.0
million, (ii) an equity investment on the part of the Management Group of
approximately $10.0 million, consisting primarily of the Converted Shares
(valued at $21.25 per share) and certain existing options to purchase common
stock of the Company currently held by members of the Management Group (the
"Converted Options") which will be converted into options to purchase shares of
common stock of the Surviving Corporation (valued at the equity value of such
options, i.e. the difference between $21.25 and the exercise prices of such
options), (iii) cash of the Company on-hand at the Effective Time of
approximately $60.0 million and (iv) borrowings by the Company totaling
approximately $183.4 million under a senior secured credit facility and a
mezzanine loan facility.
The Equity Investors have received a financing commitment letter from Credit
Suisse First Boston ("CSFB") to provide the senior secured credit facility and
a financing commitment letter from CSFB and The Bear Stearns Companies Inc. to
provide the mezzanine loan facility. See "The Merger--Financing."
The Merger Agreement
Conditions of the Merger. Each party's obligation to effect the Merger is
subject to the satisfaction of a number of conditions, most of which may be
waived. The most significant conditions to consummating the Merger include:
. obtaining the affirmative vote of a majority of votes cast by holders of
the Company's common stock;
. obtaining all required consents and approvals;
6
<PAGE>
. the Company receiving the debt financing contemplated by the financing
commitment letter that has been delivered to the Company's Board of
Directors or from other financing sources that are reasonably
satisfactory to Bain Capital and Bear Stearns;
. the representations and warranties of the parties being true and correct
in all material respects as of the Effective Time of the Merger except
for certain changes that are specifically permitted; and
. the absence of any pending legal action by any governmental entity, or
by any person other than a governmental entity which has a reasonable
likelihood of success, seeking to restrain or prohibit the completion of
the Merger.
Even if the shareholders approve and adopt the Merger Agreement, there can
be no assurance that the Merger will be consummated. If the Company waives a
material condition to the Merger, it will then consider resoliciting
shareholder approval of the Merger. The decision to resolicit shareholders
approval will depend upon whether a shareholder could reasonably be expected to
take into account the waiver of the condition in deciding how to vote on the
Merger. See "The Merger Agreement--Conditions to the Merger."
No Solicitation. The Merger Agreement provides that neither the Company nor
any of its representatives will directly or indirectly
. initiate, solicit, or encourage or take any other action to facilitate
any inquiry or proposal that constitutes, or could reasonably be
expected to lead to, any Acquisition Proposal (as defined below) or
. enter into, maintain or continue negotiations with any person to obtain
an Acquisition Proposal or agree to or endorse any Acquisition Proposal.
Neither of these restrictions apply to persons to whom the Company provided,
within three months of the date of the Merger Agreement, non-public written
information in order to facilitate an Acquisition Proposal. The Company has
agreed to notify Merger Corp. of the relevant details relating to any
Acquisition Proposal inquiries and proposals that it receives and to provide
Merger Corp. with a reasonable opportunity to increase the Merger Consideration
in response to such Acquisition Proposal.
The Board of Directors of the Company, however, is not prohibited from
responding to any unsolicited written, bona fide Acquisition Proposal if
. the Board of Directors, after consultation with PMG, determines in good
faith that such Acquisition Proposal is more favorable to the Company
and its shareholders from a financial point of view than the Merger
(including any adjustment proposed by Merger Corp. in response to such
Acquisition Proposal) and
. the Board of Directors, after consultation with its independent legal
counsel, determines in good faith that such action is necessary for the
Board of Directors to comply with its fiduciary duties to shareholders
under applicable law (an Acquisition Proposal satisfying such criteria
is called a "Higher Offer").
Prior to accepting any Higher Offer, the Company must notify Merger Corp.
that it is taking such action and receive from such person or entity an
executed confidentiality agreement in reasonably customary form.
The Merger Agreement defines the term "Acquisition Proposal" as any proposal
that constitutes or may reasonably be expected to lead to: an acquisition,
purchase, merger, consolidation, share exchange, recapitalization, business
combination or other similar transaction involving any material portion of the
assets or any securities of, any merger, consolidation or business combination
with, or any public announcement of a proposal, plan, or intention to do any of
the foregoing by, the Company or any of its subsidiaries. See "The Merger
Agreement--No Solicitation."
7
<PAGE>
Termination. The Merger Agreement may be terminated and the Merger
abandoned, at any time prior to the Effective Time, whether before or after
approval by the Company's shareholders, by:
. the mutual written consent of Merger Corp. and the Company;
. either Merger Corp. or the Company if the Merger has not been
consummated by June 30, 1999, unless the terminating party has
materially breached the Merger Agreement;
. either Merger Corp. or the Company if the consummation of the Merger
would violate any nonappealable final order of court or other competent
authority;
. Merger Corp. if the Company's Board of Directors (a) fails to recommend
to the shareholders of the Company that they approve the Merger
Agreement and the Merger, (b) withdraws or modifies its approval or
recommendation of the Merger Agreement or Merger, (c) approves or
recommends an Acquisition Proposal, (d) resolves to effect any of the
foregoing or (e) otherwise takes steps to materially impede approval of
the Merger Agreement and Merger by the shareholders;
. the Company or Merger Corp. if the shareholders of the Company have not
duly approved the Merger and the Merger Agreement; or
. the Company if any person has made a bona fide proposal relating to an
Acquisition Proposal or has commenced a tender or exchange offer for the
common stock, and the Board of Directors or the Special Committee to the
Board of Directors determines in good faith after consultation with its
financial advisors, that such transaction constitutes a Higher Offer and
after consultation with counsel, that failure to approve such proposal
and terminate this Agreement could reasonably be expected to result in a
breach of the Board's fiduciary duties to the Company's shareholders
(assuming for such purpose that fiduciary duties are owed only to
shareholders). See "The Merger Agreement--Termination of Merger
Agreement."
Termination Fee and Expenses. If the Merger Agreement is terminated for any
reason other than the following, then the Company will reimburse Merger Corp.
for its out-of-pocket expenses and fees up to $3.0 million:
. the failure of the Company or Merger Corp. to satisfy certain conditions
of the Merger Agreement,
. primarily as a result of material adverse changes in the economy or
industry or
. solely on the account of the failure of Merger Corp. to obtain financing
for the Merger.
If the Merger Agreement is terminated:
. by the Company or Merger Corp. because the shareholders of the Company
fail to approve the Merger Agreement;
. by the Company if an Acquisition Proposal constitutes a Higher Offer and
failure of the Company to approve the Acquisition Proposal and terminate
the Merger Agreement could reasonably be expected to result in a breach
of the Board's fiduciary duties to the Company's shareholders;
. by Merger Corp. because the Merger was not consummated on or before June
30, 1999 and the Company materially breached the Merger Agreement; or
. by Merger Corp. because the Board of Directors failed to recommend or
modified its recommendation that the shareholders approve the Merger
Agreement; and
within 12 months after the date of such termination the Company enters into a
Business Combination, the Company will pay to Merger Corp. the sum of $6.0
million within three days following the consummation of such Business
Combination. See "The Merger Agreement--Fees and Expenses."
8
<PAGE>
The term "Business Combination" means (i) a merger, consolidation, share
exchange, business combination or similar transaction involving the Company as
a result of which the shareholders of the Company prior to such transaction in
the aggregate cease to own at least a majority of the voting securities of the
entity surviving or resulting from such transaction (or ultimate parent entity
thereof), (ii) a sale, lease, exchange, transfer or other disposition of more
than 50% of the assets of the Company and its subsidiaries, taken as a whole,
in a single transaction or a series of related transactions, or (iii) the
acquisition, by a person (other than Merger Corp. or any affiliate thereof) or
group (as such term is defined under Section 13(d) of the Exchange Act and the
rules and regulation thereunder) of beneficial ownership (as defined in Rule
13d-3 under the Exchange Act) of more than 25% of the common stock of the
Company whether by tender or exchange offer or otherwise.
Market Prices for Common Stock and Dividends
The Company's common stock is traded on the Nasdaq National Market under the
symbol "ICST." The following table sets forth the high and low sales prices for
the periods indicated:
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
Fiscal Year Ended June 28, 1997:
First Quarter................................................. $12.625 $ 6.875
Second Quarter................................................ 14.125 10.250
Third Quarter................................................. 17.500 13.000
Fourth Quarter................................................ 22.725 12.625
Fiscal Year Ended June 27, 1998:
First Quarter................................................. $39.813 $20.875
Second Quarter................................................ 42.750 20.125
Third Quarter................................................. 35.188 19.688
Fourth Quarter................................................ 21.375 12.375
Fiscal Year Ending July 3, 1999:
First Quarter................................................. $17.500 $ 6.500
Second Quarter................................................ 17.000 9.000
Third Quarter (through , 1999)...........................
</TABLE>
On January 19, 1999, the last trading day prior to the announcement of the
execution of the Merger Agreement, the closing price per share of the Company's
common stock as reported by Nasdaq was $18.50. On , 1999, the last trading
day prior to printing of this Proxy Statement, the closing price per share of
the Company's common stock as reported by Nasdaq was $ .
The Company has not paid cash dividends on its common stock and intends to
continue a policy of retaining any earnings for reinvestment in its business.
The Company's credit agreement with its senior lender permits the payment of
dividends only if such payment would not reduce shareholder's equity, as
determined under generally accepted accounting principles.
During fiscal 1997, fiscal 1998 and the first six months of fiscal 1999, the
Company repurchased 791,500, 487,200 and 229,000 shares of its common stock at
an aggregate cost of $10.5 million, $13.0 million and $3.0 million,
respectively.
At the Record Date, there were approximately beneficial holders of the
Company's common stock of which were holders of record.
Shareholders should obtain current market price quotations for the Company's
common stock in connection with voting their shares of common stock.
9
<PAGE>
Summary Financial Information
The following tables set forth selected financial information for the Company
for each of the five fiscal years in the period ended June 27, 1998 and for the
six months ended December 27, 1997 and December 26, 1998. Such information
should be read in conjunction with the historical financial statements of the
Company and the notes thereto which are incorporated herein by reference.
Selected financial information for the Company as of and for the six months
ended December 27, 1997 and December 26, 1998 has been derived from the
unaudited historical financial statements of the Company and, in the opinion of
the Company's management, includes all adjustments (consisting only of normal
recurring adjustments) that are considered necessary for a fair presentation of
the operating results for such interim periods. Results for the interim periods
are not necessarily indicative of results for the full year.
Integrated Circuit Systems, Inc.
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Years Ended, Six Months Ended,
-------------------------------------------------- -------------------------
June 30, June 30, June 29, June 28, June 27, December 27, December 26,
1994 1995 1996 1997 1998 1997 1998
-------- -------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenue................. $93,824 $97,745 $91,330 $104,359 $160,634 $ 81,630 $ 68,015
Cost of sales........... 45,798 45,649 54,848 59,137 88,859 44,510 35,593
Gross margin............ 48,026 52,096 36,482 45,222 71,775 37,120 32,422
Research and development
expenses............... 10,647 10,995 10,547 13,521 19,797 9,557 10,194
Selling, general and
administrative
expenses............... 19,269 20,450 18,478 15,118 19,444 10,168 10,372
Operating income........ 18,110 13,223 4,025 4,851 32,300 17,279 11,739
Income (loss) from
continuing operations.. 12,218 8,483 4,636 (7,510) 21,375 11,063 8,661
Loss from discontinued
operations............. -- (3,560) (721) (909) -- -- --
Net income (loss)....... 12,218 4,923 3,915 (8,419) 21,375 11,063 8,661
Basic income (loss) per
common share
(continuing
operations)............ 1.14 0.78 0.41 (0.65) 1.73 0.90 0.71
Basic income (loss) per
common share
(discontinued
operations)............ -- (0.33) (0.06) (0.08) -- -- --
------- ------- ------- -------- -------- -------- --------
Basic income (loss) per
common share........... 1.14 0.45 0.35 (0.73) 1.73 0.90 0.71
======= ======= ======= ======== ======== ======== ========
Basic shares used in
computing income (loss)
per common share....... 10,712 10,936 11,278 11,474 12,343 12,358 12,258
======= ======= ======= ======== ======== ======== ========
Diluted income (loss)
per common and common
equivalent share
(continuing
operations)............ 1.11 0.77 0.40 (0.65) 1.63 0.83 0.70
Diluted loss per common
and common equivalent
share (discontinued
operations)............ -- (0.32) (0.06) (0.08) -- -- --
------- ------- ------- -------- -------- -------- --------
Diluted income (loss)
per common and common
equivalent share....... 1.11 0.45 0.34 (0.73) 1.63 0.83 0.70
======= ======= ======= ======== ======== ======== ========
Diluted shares used in
computing income (loss)
per common and common
equivalent share....... 11,030 11,045 11,592 11,474 13,141 13,337 12,378
======= ======= ======= ======== ======== ======== ========
Selected Balance Sheet
Data
(at period end):
Working capital......... $35,227 $45,470 $48,023 $ 48,260 $ 65,113 $ 54,223 $ 57,613
Total assets............ 73,452 77,691 87,571 90,622 108,009 109,039 110,123
Long-term debt, less
current portion........ 3,775 3,480 1,631 1,503 1,380 1,442 1,318
Shareholders' equity.... 55,726 62,484 69,165 70,147 89,768 81,833 95,463
Ratio of earnings to
fixed charges.......... 37.49 18.49 15.92 (6.68)(a) 535.69 495.05 205.58
</TABLE>
- --------
(a) Earnings were insufficient to cover fixed charges by $484.
10
<PAGE>
<TABLE>
<CAPTION>
Year Ended Six Months Ended
June 27, 1998 December 26, 1998
------------- -----------------
<S> <C> <C>
Selected per Share Data (at period end):
Book value...................................... $ 6.85 $ 7.28
Cash dividends.................................. -- --
Common shares outstanding....................... 13,099 13,107
</TABLE>
Certain Projections of Future Operating Results
In connection with the review of the Company by the Equity Investors and in
the course of the negotiations between the Company and the Equity Investors as
described in "Special Factors--Background of the Merger," the Company provided
the Equity Investors with certain non-public business and financial
information. The non-public information provided by the Company included
certain projections of the Company's future operating performance. The
Company's projections (the "Company Projections") do not give effect to the
Merger or the financing of the Merger.
The Company does not as a matter of course publicly disclose projections as
to future revenues or earnings. The Company Projections were not prepared with
a view to public disclosure and are included in the Proxy Statement only
because such information was made available to the Equity Investors in
connection with their due diligence investigation of the Company. Accordingly,
it is expected that there will be differences between actual and projected
results, and actual results may be materially different than those set forth
below. The Company Projections were not: (i) prepared with a view to compliance
with the published guidelines of the Commission regarding projections, (ii)
prepared in accordance with the guidelines established by the American
Institute of Certified Public Accountants for preparation and presentation of
financial projections or (iii) reviewed by an independent public accounting
firm. The material assumptions underlying the Company Projections are as
follows: (i) an increase in sales of approximately 18% per year, (ii) no
significant changes in gross margins, (iii) an increase in spending for
research and development and selling, general and administrative expenses
proportionate year-over-year to sales growth to support the expected increase
in sales and (iv) completion of the sale of certain assets to 3Com Corporation
and the sale/leaseback of the Company's Valley Forge headquarters. These
forward-looking statements reflect numerous assumptions made by the Company's
management. In addition, factors such as industry performance, general
business, economic, regulatory, market and financial conditions, all of which
are difficult to predict, may cause the Company Projections or the underlying
assumptions to be inaccurate. Accordingly, there can be no assurance that the
Company Projections will be realized, and actual results may be materially
greater or less than those contained in the Company Projections. See "Forward-
Looking Statements May Prove Inaccurate."
The inclusion of the Company Projections herein should not be regarded as an
indication that the Investors or the Company or their respective financial
advisors considered or consider the Company Projections to be a reliable
prediction of future events, and the Company Projections should not be relied
upon as such. None of the Company, the Investors or any of their financial
advisors intends to update or otherwise revise the Company Projections to
reflect circumstances existing after the date when made or to reflect the
occurrence of future events even in the event that any or all of the
assumptions underlying the Company Projections are shown to be in error.
The Company provided to the Equity Investors the following Company
Projections:
<TABLE>
<CAPTION>
Fiscal Year Ending,
----------------------------------
1999 2000 2001 2002 2003
------ ------ ------ ------ ------
(In thousands, except per share
data)
<S> <C> <C> <C> <C> <C>
Revenue...................................... $151.8 $170.0 $210.0 $252.0 $293.0
Gross profit................................. 70.8 78.2 96.6 115.9 134.8
Operating income............................. 27.9 28.9 34.3 40.3 46.8
Net income................................... 20.2 22.2 27.3 31.6 37.5
Earnings per share........................... 1.64 1.67 2.02 2.30 2.68
</TABLE>
The Equity Investors took this information, together with their own analysis,
into account in determining to enter into the Merger Agreement.
11
<PAGE>
SPECIAL FACTORS
Background of the Merger
From time to time, the Company has engaged in discussions with potential
acquirors and with other parties regarding business combinations.
On May 13, 1998, after informing the Board of Directors of the Company (the
"Board") of their planned meeting, Henry I. Boreen, Chairman of the Board and
interim Chief Executive Officer, and Hock E. Tan, Chief Financial Officer of
the Company, met with representatives of Bain Capital and Bear Stearns to
explore the possibility of forming an investor group to undertake a leveraged
buyout of the Company. At such meeting, Messrs. Boreen and Tan made a general
presentation regarding the Company. On May 13, 1998, the Company signed a
confidentiality agreement with Bear Stearns. On May 15, 1998, the Company
signed a confidentiality agreement with Bain Capital. Upon execution of the
confidentiality agreements, the Company provided Bain Capital and Bear Stearns
with legal and financial information related to the Company.
On May 14, 1998, the Company announced that it had received an unsolicited
oral inquiry from Cypress Semiconductor, Inc. about a possible acquisition or
strategic alliance. Based on such an inquiry, the Board authorized management
to hold preliminary discussions with and provide publicly available
information to representatives of Cypress Semiconductor. No offer was received
by the Company, and following such discussions, on May 28, 1998, Cypress
Semiconductor informed the Company that it had decided to suspend further
discussions. On May 28, 1998, the Company announced that discussions with such
company had been suspended.
On June 4, 1998, in response to unsubstantiated rumors, the Company
publicly denied that acquisition discussions were ongoing with Texas
Instruments.
In June 1998, at a meeting of the Board, Mr. Boreen formally requested that
the Board consider a leveraged buyout of the Company by Mr. Boreen, certain
other members of senior management and the Equity Investors. Mr. Boreen
discussed with the Board the composition of the proposed investor group and
the general characteristics of the proposed transaction. The Board authorized
Mr. Boreen to continue his discussions with Bain Capital and Bear Stearns
regarding the proposed transaction and determined to discuss the matter
further if an acquisition proposal was submitted. Messrs. Boreen and Tan
retained independent legal counsel to represent them in connection with any
proposed transaction with the Company.
In June 1998, representatives of Bain Capital met with Mr. Boreen, Mr. Tan
and certain other members of the Management Group. At such meeting,
representatives of Bain Capital made a presentation to the management
attendees regarding Bain Capital, its investment history and strategy, and
current portfolio companies as well as a general description of the process
associated with a leveraged buyout. Following such meeting, representatives of
Bain Capital and Messrs. Boreen and Tan had several discussions regarding the
arrangements between the Management Group and the Equity Investors with
respect to a buyout of the Company. These discussions resulted in a general
understanding among such parties as to the approximate level of participation
of the Management Group in the buyout, the composition of the Surviving
Corporation's senior management team as well as the relative rights between
the Management Group and the Equity Investors with respect to their equity
ownership of the Surviving Corporation.
In July 1998, the Board formed the Special Committee consisting of the
three then independent board members (Messrs. Gassner, Esber and Pickitt) to
consider any transaction proposed by the Investors. At that time, the Special
Committee formally engaged the Company's outside corporate counsel as counsel
to the Special Committee.
During June and July 1998, management of the Company received inquiries
regarding possible business alliances from two parties. One of these parties
initially expressed a possible interest in a business combination, but it
later determined that it was only interested in securing intellectual property
rights from the Company in
12
<PAGE>
connection with product development efforts. Subsequently, discussions were
terminated by this party without reaching any agreement. A second party
expressed interest in exploring a strategic alliance with the Company to
develop frequency timing products for the personal computer market.
Discussions were held between representatives of this party and management of
the Company to explore the possibility of such an alliance and included the
possibility of a business combination. Discussions were later terminated by
this party without any offer being received by the Company. Both inquiries
were reviewed with the Board and the Board was kept informed of the progress
of discussions with both parties.
On August 12, 1998, the Special Committee held a meeting. At the meeting,
the Special Committee discussed the review of the Company being undertaken by
Bain Capital and Bear Stearns and determined, based upon the advice of legal
counsel, that the Special Committee should engage a financial advisor to be in
a position to analyze any transaction that might be proposed by the Investors.
On August 20, 1998, the Special Committee held a meeting at which it
unanimously decided to engage PMG as its financial advisor to analyze any
acquisition proposal for the Company. The Special Committee also discussed a
draft non-binding expression of interest that was submitted to the Company by
Bain Capital on behalf of the Investors, with respect to a transaction that
would value each share of common stock of the Company in the range of $17.50
to $22.50. After extensive discussion, the Special Committee determined that
certain aspects of the expression of interest were unacceptable, including the
non-binding nature of the expression of interest and the payment of a break-up
fee equal to 1.5% of the aggregate value of any alternative transaction under
certain circumstances. Mr. Gassner, on behalf of the Special Committee, and
counsel to the Special Committee discussed with Bain Capital the Special
Committee's unwillingness to execute the expression of interest with Bain
Capital on behalf of the Investors.
On August 25, 1998, Bain Capital submitted to the Special Committee a
revised draft of the non-binding expression of interest which replaced the
break-up fee provision with an expense reimbursement provision up to a maximum
amount of $1.5 million.
On August 26, 1998, the Special Committee held a meeting to discuss the
revised draft of the expression of interest. After extensive discussion, the
Special Committee again determined that the expression of interest was
unacceptable. The Special Committee unanimously agreed to grant the Investors
until September 4, 1998 to consider making a proposal with respect to a
transaction with the Company. Counsel to the Special Committee relayed this
message to counsel to the Equity Investors following the Special Committee
meeting.
On October 1, 1998, a representative of Bain Capital discussed with Mr.
Gassner that the Investors would be willing to make, under certain conditions,
a proposal to acquire the Company that would value each outstanding share of
common stock of the Company at a price in the range of $16.00 to $17.50. At a
Special Committee meeting held on October 1, 1998, PMG discussed its analysis
of the proposal. PMG indicated that, if a formal proposal were made by the
Investors within that price range, PMG could not provide an opinion that the
proposal would be fair to the Company's unaffiliated shareholders from a
financial point of view.
On October 7, 1998, a group of senior managers of the Company, including
current executive officers Hock Tan and Lewis Eggebrecht, as well as
Christopher Bland, Ed Christiansen, Paul Lessard, Justine Lien, Barry Olsen
and Greg Richmond, sent a letter to the Board supporting the Investors'
proposal and recommending that the Board accept the proposal and submit it to
the Company's shareholders for their approval.
PMG subsequently updated its October 1 analysis, and on October 12 prepared
and circulated a detailed valuation analysis. The Special Committee held
additional meetings on October 12 and October 13, and the Board met on October
14, in each case to discuss the proposal.
On October 19, 1998, the Company issued a press release stating that a
financial group led by the Company's management was currently pursuing a
possible buyout of the Company and that such group was hopeful that
discussions would progress to the point that an offering in the range of up to
$17.50 per share could be submitted.
13
<PAGE>
On October 19, 1998, the Special Committee held a meeting at which PMG
delivered a presentation with respect to a written opinion that it was
delivering to the Special Committee in connection with the publicly announced
buyout proposal. PMG discussed with the Special Committee its determination
that any proposal with a value not greater than $17.50 per share would not be
fair to the unaffiliated shareholders of the Company from a financial point of
view. The Special Committee, after extensive discussion, determined not to
pursue the proposal by the Investors. Counsel to the Special Committee
conveyed the Special Committee's rejection of the proposal to counsel to Bain
Capital and Bear Stearns. The Special Committee decided that the Company's
outside counsel would continue to represent the Special Committee with respect
to the potential transaction with the Investors and that the Company should
seek separate outside counsel in connection with other general corporate
matters.
On November 3, 1998, Mr. Gassner was elected as the Company's Vice
President of Corporate Development and was appointed to succeed Mr. Boreen as
the Chairman of the Board effective January 1, 1999.
On November 23, 1998, a representative of Bain Capital discussed with Mr.
Gassner Bain Capital's continued interest in making a proposal to acquire the
Company at a price in excess of $17.50. After several discussions between Bain
Capital and counsel to the Special Committee subsequent to November 23, 1998,
the Company allowed Bain Capital and Bear Stearns to conduct further legal and
accounting due diligence on the operations of the Company in order to
formulate an unconditional offer for the Company. Later in November 1998, Mr.
Gassner resigned as a member of the Special Committee as a result of his
assuming a more prominent role in the management of the Company. Since that
time, the Special Committee has consisted of Messrs. Esber and Pickitt.
On December 4, 1998, Bain Capital, on behalf of the Investors, proposed a
transaction with the Company that Bain Capital indicated would value each
share of the Company at $21.25. The consideration would be paid $19.75 in cash
and $1.50 in a preferred stock. The proposal included a break-up fee of $8.25
million, or approximately 3.1% of the total purchase price, plus reimbursement
of up to $3.0 million of expenses. Based upon the advice of its legal and
financial advisors, the Special Committee determined that the preferred stock
was not worth $1.50. In particular, the Special Committee considered the
advice of PMG that the preferred stock would have limited liquidity and that
its proposed dividend would result in a yield below that which investors would
seek in a highly leveraged technology company. Counsel to the Special
Committee contacted Bain Capital and its counsel and expressed the Special
Committee's view that the Investors should consider making a proposal to
acquire the Company at $21.25 per share in cash with a break-up fee not
exceeding 2% of the total purchase price. Bain Capital responded that it would
need to complete further due diligence to determine whether the Investors
wanted to proceed on such terms.
In mid-December 1998, PMG was contacted by a third party with respect to a
potential acquisition of the Company. The Board authorized the Special
Committee to engage in discussions with this potential acquiror. A
confidentiality agreement was entered into between the Company and the
potential acquiror on December 21, 1998 and the potential acquiror received
certain due diligence information regarding the Company. After several
discussions between PMG and the potential acquiror, the potential acquiror
determined that it was not interested in pursuing discussions further or in
making an acquisition proposal to the Company.
On December 15, 1998, the Special Committee met to discuss a proposal by
the Investors involving an all-cash purchase price of $21.25 per share,
subject to conditions requiring the Company to have a specified level of cash
at the Effective Time and the satisfactory completion of the Equity Investors'
due diligence review, as well as customary conditions. After extensive
discussions with its legal and financial advisors, the Special Committee
informed Bain Capital that it would not accept an offer with a due diligence
or minimum cash condition and directed its advisors to negotiate with Bain
Capital a transaction with the Investors that was fully financed and
unconditional other than customary conditions. Legal counsel for the parties
began drafting and negotiating definitive transaction documents, subject to
the approval of the Special Committee and the Board.
14
<PAGE>
On December 18, 1998, a group of senior managers of the Company, including
current executive officer Lewis Eggebrecht, as well as Christopher Bland, Paul
Lessard, Barry Olsen and Greg Richmond, sent a letter to the Board urging the
Board to accept the Investors' proposal in its then-current form and to submit
it to the Company's shareholders for their approval.
On January 4, 1999, the Board held a meeting at which the Board determined
to have PMG solicit indications of interest from a select group of potential
acquirors. Subsequent to that meeting, PMG contacted 12 potential strategic
acquirors, which were selected based upon (i) the markets they served, (ii)
their perceived ability to complete an acquisition of the Company, and (iii)
discussions between PMG and the Special Committee. Of the 12 potential
strategic acquirors selected, six expressed an interest in discussing the
possibility of an acquisition. PMG sent these six potential acquirors an
initial set of due diligence materials regarding the Company, with the
understanding that additional materials would be sent to any potential
acquiror that remained interested after reviewing the initial materials. In
subsequent discussions between PMG and these six potential acquirors, each of
the potential acquirors indicated that it had no interest in pursuing
discussions concerning a possible acquisition of the Company. The substance of
the discussions between PMG and these potential acquirors was not shared with
any of the Investors prior to the execution of the Merger Agreement.
On January 18, 1999, the Special Committee received a proposal from Bain
Capital, on behalf of the Investors, to engage in a merger of Merger Corp.
with the Company for a cash price of $21.25 per share. The proposal included
executed financing commitments, was subject only to customary conditions and
was accompanied by a letter stating that the proposal would be withdrawn if a
merger agreement were not entered into by the parties by 5:00 p.m. on January
19, 1999. The proposal included a break-up fee of $6 million, or approximately
2.3% of the total purchase price, plus reimbursement of up to $3.0 million of
expenses.
On January 19, 1999, the Special Committee met to consider the proposal. At
such meeting, PMG delivered its written opinion to the effect that the
consideration to be received by the Company's unaffiliated shareholders in the
Merger, as of such date, was fair to such shareholders from a financial point
of view. After a lengthy discussion regarding the terms of the Merger
Agreement, the Special Committee approved the terms of the Merger Agreement
and unanimously recommended to the Board that it approve the Merger Agreement.
On January 19, 1999, the Board, based on the unanimous recommendation of the
Special Committee, unanimously approved the terms of the Merger Agreement and
directed that it be submitted to the Company's shareholders for their
approval. On January 20, 1999, the parties executed the Merger Agreement.
In the weeks following the execution of the Merger Agreement, the Company
and the Investors negotiated certain changes to the Merger Agreement,
consisting primarily of technical and corrective changes. On February 12,
1999, the Board unanimously approved Amendment No. 1 to the Merger Agreement,
and on February 16, 1999, the parties executed Amendment No. 1 to the Merger
Agreement.
Recommendations of the Special Committee and the Board of Directors
On January 19, 1999, the Special Committee unanimously determined that the
Merger Agreement and the transactions contemplated thereby, including the
Merger, are fair to and in the best interests of the Company and its
shareholders, and recommended that the Board and the shareholders of the
Company approve and adopt the Merger Agreement and the transactions
contemplated thereby.
On January 19, 1999, the Board, based on the unanimous recommendation of
the Special Committee, unanimously determined that the Merger Agreement and
the transactions contemplated thereby, including the Merger, are fair to and
in the best interests of the shareholders, and recommended that the
shareholders of the Company approve and adopt the Merger Agreement and the
transactions contemplated thereby. Prior to participating in the
determinations and recommendations of the Board, Mr. Boreen identified his
participation in the Management Group and noted that as a result of such
participation he had a conflict of interest.
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Reasons of the Company for the Merger
Special Committee. In reaching its determinations referred to under
"Recommendations of the Special Committee and the Board of Directors," the
Special Committee considered the factors listed below. The following
discussion of the factors considered by the Special Committee is not intended
to be exhaustive but summarizes the material factors considered:
(i) The Special Committee considered the historical market prices and
recent trading activity of the Company's common stock and the fact that
the Merger Consideration would enable the shareholders to realize a
premium over the prices at which the Company's common stock has
recently traded. In particular, the Special Committee was advised by
PMG that the Merger Consideration represented a 14.9%, 21.4% and 39.3%
premium over the closing market prices on January 19, 1999 (the date on
which the Special Committee approved the Merger), January 12, 1999 (one
week before the Special Committee approved the Merger), and December
21, 1998 (approximately one month before the Special Committee approved
the Merger), respectively.
(ii) The Special Committee considered the written opinion of PMG to the
effect that, as of the date of such opinion, the Merger Consideration
of $21.25 in cash per share of the common stock to be received by the
Company's unaffiliated shareholders in the Merger was fair to such
shareholders from a financial point of view, and also considered the
analysis underlying such opinion. See "--Opinion of Financial
Advisor." A copy of PMG's opinion, setting forth the assumptions made,
matters considered and limitations on the review undertaken in
connection with such opinion, is attached as Appendix B to this Proxy
Statement and should be read carefully in its entirety.
(iii) The Special Committee considered information with respect to the
historical results of operations, business and prospects of the
Company, as well as the risks involved in achieving such prospects,
the composition of the Company's current management team and the
general economic and market conditions affecting the Company. In
particular, the Special Committee noted that the semiconductor
industry is highly volatile and very dependent upon retention of
talented scientific, engineering and management personnel, as well as
the fact that the Company had been conducting a search for a chief
executive officer and could not be certain that an acceptable
candidate could be hired in the near term.
(iv) The Special Committee considered the results of PMG's solicitation of
interest from potential acquirors on behalf of the Special Committee
and the prior discussions of the Company with other potential
acquirors, and was of the view that the Merger represented the most
attractive alternative available to maximize shareholder value. In
particular, no offers or proposals were received from other potential
acquirors as a result of PMG's activities. PMG further advised the
Special Committee that it did not believe that the existence and
magnitude of the break-up fee and expense reimbursement provision
proposed in the Merger Agreement would deter any potential acquirors
from making an acquisition proposal for the Company at a price
exceeding the price available to shareholders in the Merger.
(v) The Special Committee also considered the likelihood of the
consummation of the proposed transaction, the existence of signed
financing commitments, the proposed structure of the transaction and
anticipated closing date, and the conclusion that the Equity Investors
were significant participants in the capital markets with established
records of completing transactions.
(vi) The Special Committee considered the risks inherent in trying to
achieve the Company's long-term strategic plan in light of an
immediate return of value to the Company's shareholders reflected in
the Merger.
(vii) The Special Committee also considered the fact that consummation of
the Merger would preclude the shareholders from having the
opportunity to participate in the future growth prospects of the
Company. In addition, the Special Committee recognized that certain
members of management will have the opportunity to benefit from any
increases in the value of the Company following the Merger by reason
of their continuing equity interest in the Surviving Corporation.
(viii) The Special Committee also considered the terms and conditions of
the Merger Agreement, including the ability of the Company to: (a)
continue discussions with other potential purchasers who received
non-public
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information from the Company within three months prior to the date of
the Merger Agreement, (b) negotiate with any person or entity that makes
an unsolicited written proposal to acquire the Company and (c) terminate
the Merger Agreement under certain circumstances in the exercise of its
fiduciary duties, including accepting a Higher Offer (as defined in the
Merger Agreement).
Mr. Boreen had a conflict of interest due to his participation in the
Management Group. As a result, Mr. Boreen did not serve on the Special
Committee. Mr. Gassner initially served as a member of the Special Committee as
a non-employee director, but resigned as a member of the Special Committee in
connection with assuming a more prominent role in the management of the
Company. Mr. Gassner is not a member of the Management Group.
The Special Committee did not consider either the net book value or the
liquidation value of the Company since each was materially lower than the
Merger Consideration.
In view of the various factors considered by the Special Committee in
connection with its evaluation of the Merger and the Merger Consideration as
described above, the Special Committee did not find it necessary to quantify or
otherwise attempt to assign relative importance to the specific factors
considered in making its determination, nor did it evaluate whether such
factors were of equal importance. However, based upon these factors, the
evaluation of all the relevant information provided to them by the Company's
financial advisor and taking into account the existing trading ranges for the
Company's common stock, the Special Committee determined that the Merger,
including the Merger Consideration, was fair from a financial point of view, to
the Company's shareholders. In considering the factors described above,
individual members of the Special Committee may have given different weights to
different factors. The Special Committee did not consider any factors which led
the Special Committee to believe that the Merger was unfair to the
shareholders. As described further below, the Special Committee believes that
the Merger was considered in a manner that was procedurally fair to the
Company's shareholders.
Board of Directors. In reaching its determinations referred to under "--
Recommendations of the Special Committee and the Board of Directors," the Board
considered the following factors: (i) the determinations and recommendations of
the Special Committee; (ii) the analysis of the Special Committee referred to
above, which was expressly adopted by the Board; and (iii) the fact that the
Merger Consideration and the terms and conditions of the Merger Agreement were
the result of arm's-length negotiations between the Special Committee and the
Company, on the one hand, and the Equity Investors, on the other hand.
In view of the factors considered by the members of the Board in connection
with the evaluation of the Merger as described above, and the complexity of
such matters, the Board did not consider it practicable to, nor did it attempt
to, quantify, rank or otherwise assign relative weights to the specific factors
it considered in reaching its decision. The Board also relied on the experience
and expertise of the financial advisor to the Special Committee for
quantitative analysis of the financial terms of the Merger. See "--Opinion of
Financial Advisor." The Board did not find it necessary to quantify or
otherwise attempt to assign relative importance to the specific factors
considered in making its determination, nor did it evaluate whether such
factors were of equal importance. Rather, the Board conducted a discussion of,
among other things, the factors described above, including asking questions of
the Company's management and legal and financial advisors, and reached a
general consensus that the Merger was advisable and in the best interests of
the Company, its shareholders and the Company's other constituencies. In
considering the factors described above, individual members of the Board may
have given different weight to different factors. The Board did not consider
any factors which led the Board to believe that the Merger may be unfair to the
shareholders.
The Board determined that the Merger was procedurally fair because, among
other things: (i) the Special Committee consisted entirely of non-management,
non-affiliated independent directors appointed to represent the interests of
the shareholders; (ii) the Special Committee retained and was advised by
separate legal counsel; (iii) the Special Committee retained PMG as its
financial advisor to assist it in evaluating a potential transaction and
received advice from PMG; (iv) the Special Committee engaged in extensive
deliberations in evaluating the Merger and alternatives thereto; and (v) the
$21.25 per share price and the other terms and conditions of the
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Merger Agreement resulted from active arm's-length bargaining between the
Special Committee, the Company and their representatives, on the one hand, and
the Equity Investors and their respective representatives, on the other hand.
The Board believed that such safeguards were sufficient to assure that the
Merger is fair to, and in the best interests of the Company's unaffiliated
shareholders.
Fairness of the Merger
Company and Management Affiliates. Based on the factors set forth above,
the Company believes that the consideration to be received by its unaffiliated
shareholders pursuant to the Merger is fair. The members of the Management
Group who are executive officers or directors of the Company (the "Management
Affiliates") also believe that the consideration to be received by the
Company's unaffiliated shareholders pursuant to the Merger is fair. The
Management Affiliates base their belief on the following facts: (i) the fact
that the Special Committee and the Board, based on the factors discussed under
"--Reasons of the Company for the Merger; Fairness of the Merger," concluded
that the Merger is fair to, and in the best interests of, the Company's
shareholders, (ii) notwithstanding the fact that PMG's opinion was addressed
to the Special Committee and the Board, and that the Management Affiliates are
not entitled to rely upon such opinion, the fact that the Special Committee
and the Board received an opinion from PMG that, as of the date of such
opinion and based on and subject to certain matters stated in such opinion,
the consideration to be paid in the Merger is fair to the Company's
unaffiliated shareholders from a financial point of view and (iii) the
negotiations between the Equity Investors, on the one hand, and the Company
and the Special Committee, on the other hand, of the terms of the Merger
Agreement were conducted on an arm's-length basis. The Management Affiliates
did not find it practicable to assign, nor did they assign, relative weights
to the individual factors considered in reaching their conclusion as to
fairness.
Equity Investors. The Equity Investors, as the parties proposing to gain
control of the Company, did not participate in the deliberations of the
Special Committee or the Board regarding the fairness of the Merger to the
Company's unaffiliated shareholders, nor did the Equity Investors receive any
advice from the Company's financial advisor as to the fairness of the Merger.
As a result, the Equity Investors are not in a position to specifically adopt
the conclusions of the Special Committee or the Board as to the fairness of
the Merger. However, based upon their own knowledge from publicly available
information regarding the Company and their understanding from discussions
with senior management of the Company regarding the factors considered by the
Special Committee and the Board referred to in "--Reasons of the Company for
the Merger," the Equity Investors also believe that the Merger is fair to the
Company's unaffiliated shareholders. In addition, the results of the due
diligence investigation conducted by the Equity Investors, which included
discussions with management regarding the Company's business (including
estimates discussed above under "--Certain Projections of Future Operating
Results" in connection with the Company Projections), visits to the Company's
facilities, document review and an analysis of comparable companies in the
industry, validated the belief of the Equity Investors that the Merger
Consideration is fair to the Company's unaffiliated shareholders. The factor
the Equity Investors consider of greatest importance in their analysis of
fairness is the fact that the Merger Consideration represents a significant
premium over the recent and historical market trading prices for the Company's
common stock. The Merger Consideration represents a 14.9% premium over the
closing market price on January 19, 1999, the date the Special Committee
approved the Merger, and a 60.5% premium over the average closing price during
the 180 days prior to such approval. Furthermore, pursuant to the terms of the
Merger Agreement, the Company is permitted to continue discussions with other
potential purchasers who received non-public information from the Company
within three months prior to the date of the Merger Agreement, to negotiate
with any person or entity that makes an unsolicited written proposal to
acquire the Company and to terminate the Merger Agreement under certain
circumstances in the exercise of the fiduciary duties of the Board.
The Equity Investors did not consider net book value, going concern value
or liquidation value to be material factors in determining the fairness of the
transaction to the unaffiliated shareholders, because they believe that these
factors do not have any significant impact on the market trading prices of the
Company's common stock. Notwithstanding the relative insignificance of these
factors, the Equity Investors believe that the Merger Consideration represents
a significant premium over the net book value of the Company's common stock
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<PAGE>
and, although the Company's liquidation value was never quantified, a very
significant premium over the Company's liquidation value, since they believe
the Company's principal assets, its real estate and inventory, would not
result in any significant gains in a liquidation. The Equity Investors did not
rely on any report, opinion or appraisal in determining the fairness of the
transaction to the Company's unaffiliated shareholders, but do not disagree
with any of the conclusions expressed by PMG in its opinion to the Special
Committee and the Board. Except as otherwise disclosed in this proxy
statement, the Equity Investors have not made any prior purchases of the
Company's common stock, and are not aware of any firm offers made in the last
18 months by an unaffiliated person to merge or consolidate with the Company,
to acquire all or any substantial part of the assets of the Company or to
acquire control of the Company. Based upon their involvement negotiating the
terms of the Merger Agreement, including the amount and type of Merger
Consideration to be received by the Company's shareholders, the Equity
Investors believe that procedures used by the Company and the Special
Committee in negotiating the Merger Agreement were fair to the Company's
unaffiliated shareholders. The foregoing analysis is expressly adopted by the
other respective affiliates of the Equity Investors that are included as
filing persons on the Schedule 13E-3 filed by the Equity Investors with the
SEC in connection with this transaction.
Equity Investors' Reasons for the Merger
The purpose of the Equity Investors for engaging in the Merger is to gain
control of the Company through a recapitalization. The Equity Investors
believe that the Company's future business prospects can be improved through
their active participation in the strategic direction and operations of the
Company. In addition, the Equity Investors believe that the high consolidated
debt-to-equity ratio of the Company after the Merger may allow the value of
the Company's equity to increase more rapidly on a percentage basis than would
the value of the equity in an otherwise identical corporation with a larger
equity base and relatively less debt. This assessment is based upon publicly
available information regarding the Company, the Equity Investors' due
diligence investigation of the Company and the Equity Investors' experience in
investing in technology companies. While the Equity Investors' believe that
there will be significant opportunities associated with their investment in
the Company, there are also substantial risks that such opportunities may not
be fully realized.
The recapitalization of the Company has been structured as a merger in
order to permit the redemption of all of the Company's common stock (other
than the Converted Shares) and to preserve the Company's corporate identity
and existing contractual arrangements with third parties. The Equity Investors
did not consider other alternatives with respect to the structure of the
transaction.
Opinion of Financial Advisor
The Special Committee, on behalf of itself and the Board, retained PMG to
render an opinion as to whether the compensation to be paid to the holders of
the Company's common stock, other than members of the Management Group, in the
Merger is fair, from a financial point of view, to such holders.
ON JANUARY 19, 1999 PMG DELIVERED TO THE SPECIAL COMMITTEE AND BOARD ITS
WRITTEN OPINION TO THE EFFECT THAT, AS OF SUCH DATE, AND BASED UPON AND
SUBJECT TO THE VARIOUS ASSUMPTIONS AND CONSIDERATIONS SET FORTH IN SUCH
OPINION, THE MERGER CONSIDERATION OFFERED TO THE HOLDERS OF COMMON STOCK OF
THE COMPANY (OTHER THAN MEMBERS OF THE MANAGEMENT GROUP) WAS FAIR, FROM A
FINANCIAL POINT OF VIEW, TO SUCH HOLDERS. THE FULL TEXT OF THE OPINION OF PMG,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND SCOPE AND
LIMITATIONS OF THE REVIEW UNDERTAKEN AND PROCEDURES FOLLOWED BY PMG IN
RENDERING ITS OPINION, IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX B (WITH
PMG'S CONSENT) AND IS INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING
DESCRIPTION OF THE OPINION OF PMG IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF THE OPINION. SHAREHOLDERS OF THE COMPANY ARE URGED TO READ
CAREFULLY THE OPINION OF PMG IN ITS ENTIRETY.
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PMG's opinion is for the information of the Special Committee and the Board
only in addressing, as of January 19, 1999, the fairness, from a financial
point of view, to the Company's unaffiliated shareholders of the Merger
Consideration offered to such holders. Such opinion does not address any other
aspect of the Merger and does not constitute a recommendation to any
shareholder as to how such shareholder should vote with regards to the Merger.
PMG was not requested to opine as to, and its opinion does not in any manner
address, the underlying business decision to proceed with or effect the Merger
or the relative merits of the Merger as compared with any alternative business
strategies of the Company. PMG's position is that because, in accordance with
the terms of its engagement by the Company, it has no obligation to render an
opinion to anyone other than the Special Committee and the Board, it rendered
its opinion to assist the Special Committee and the Board in exercising their
business judgment, and it addressed the opinion solely to the Special
Committee and the Board, the Company's shareholders cannot rely on the opinion
to support any claims against PMG arising under applicable state law. The
issue of whether shareholders of the Company can rely on PMG's opinion turns
on matters of state law that can only be resolved by a court of competent
jurisdiction. Resolution of this question will have no effect on the rights
and responsibilities of the Special Committee or the Board under applicable
state law or the rights and responsibilities of PMG, the Special Committee or
the Board under the federal securities laws.
In conducting its analysis and arriving at PMG's opinion, PMG reviewed a
draft of the Agreement and Plan of Merger dated January 19, 1999.
Additionally, PMG held discussions with certain senior officers of the Company
concerning its business, operations and prospects. PMG also reviewed and
analyzed all publicly available business and financial information relating to
the Company that it believed to be relevant to its inquiry, as well as certain
financial forecasts and other data for the Company that are set forth
elsewhere in this Proxy Statement or that were otherwise discussed with PMG by
the management of the Company. PMG also reviewed, among other things, current
and historical market prices and trading volumes of the common stock. Based
upon the projected financial performance as adjusted for the sale of assets to
3Com Corporation, PMG made certain estimates as to the future cash flows and
terminal values, and, after applying a range of appropriate discount rates,
the present value of such cash flows and terminal value. Such analysis is
defined as a "Discounted Cash Flow Analysis." PMG also analyzed certain
financial, stock market and other publicly available information relating to
the businesses of other companies whose operations we considered relevant in
evaluating those of the Company. Furthermore, PMG examined the terms of
certain business combinations which it believed to be relevant and compared
the terms to the Merger.
The following are the material financial and other factors considered by
PMG in arriving at its opinion: (i) the current and historical trading markets
for the Company's common stock, including prices, trading volume, absolute
volatility and relative volatility compared to certain stock market indices;
(ii) the historical financial performance and the business prospects for the
Company; (iii) the current and historical trading markets, including prices
and valuation ratios, for the equity securities of certain companies that PMG
believes to be comparable to the Company; and (iv) the terms of certain other
business combinations that PMG believes to be relevant. PMG also took into
account its assessment of general economic, market and financial conditions,
certain industry trends and related matters and its experience in similar
transactions, as well as its experience in securities valuation in general.
PMG's opinion necessarily is based upon the foregoing and other conditions as
they existed and could be evaluated on the date of the opinion and on the
information made available to it as of such date.
No limitations were imposed by the Board upon PMG with respect to the
investigations made or procedures followed by PMG in its review and analysis.
In rendering its opinion, PMG has assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed
by or discussed with us and have further relied upon the assurances of the
management of the Company that they are not aware of any facts that would make
such information inaccurate or misleading. With respect to financial forecasts
and other information and data provided to or otherwise reviewed by or
discussed with PMG, it was advised by the management of the Company that such
forecasts and other information and data were reasonably prepared on bases
reflecting the best currently
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available estimates and judgments of the management of the Company as to its
future financial performance. PMG did not make and was not provided with an
independent evaluation or appraisal of the assets, liabilities (contingent or
otherwise) or reserves of the Company nor did it make any physical inspection
of the properties or assets of the Company. PMG's opinion is necessarily based
upon information available to it, and financial, stock market and other
conditions and circumstances existing and disclosed to it, as of the date
thereof.
PMG made qualitative judgments as to the significance and relevance of each
analysis and factor considered as a whole. PMG believes that its analyses must
be considered in the aggregate, and that selecting portions of its analyses or
the factors considered by it, without considering all factors and analyses,
could create a misleading or incomplete view of the process underlying its
opinion. The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analyses or summary description.
In arriving at its fairness opinion, PMG did not attribute any particular
weight to any analysis or factor considered by it. No company or transaction
used in the above analyses as a comparison is directly comparable to the
Company or the contemplated transaction. In performing its analyses, PMG made
numerous assumptions with respect to forecasts of future results, industry
performance, market and financial considerations and other matters. Analyses
based upon such forecasts are not necessarily indicative of actual future
results, which may be significantly more or less favorable than those
suggested by such analyses. In addition, analyses relating to the value of
businesses or securities do not purport to be appraisals or to reflect the
prices at which businesses or securities actually may be sold. PMG's
presentation to the Board was only one of many factors taken into
consideration by the Board in making its determination to approve the Merger
and related transactions.
The following is a summary of the material financial analyses utilized by
PMG in rendering its opinion.
Comparable Company Analysis. PMG compared selected financial data and
financial ratios of the Company to the corresponding data and ratios of
certain publicly traded manufacturers of semiconductors and integrated
circuits. The reference companies were selected based on general business,
operating and financial characteristics, including primary lines of business,
market capitalization, total revenues and various measures of profitability.
Specifically, the companies included in PMG's review were: Actel Corporation,
Dallas Semiconductor Corporation, Exar Corporation, Lattice Semiconductor
Corporation, NeoMagic Corporation and Pericom Semiconductor Corporation (the
"Comparable Companies").
PMG also compared multiples for the Merger implied by the Merger
Consideration and certain historical and projected financial data of the
Company, as adjusted for the sale of assets to 3Com Corporation, to the
corresponding implied trading multiples of the Comparable Companies. While
none of the Comparable Companies was identical to the Company, PMG considered
that certain valuation parameters established by the public markets and
imputed from stock prices with respect to the Comparable Companies, when
viewed in conjunction with certain qualitative factors, were relevant when
considering the valuation of the Company, since the Comparable Companies
exhibited certain business characteristics similar to those exhibited by the
Company. In this portion of its analysis, PMG compared (i) enterprise value
(value of equity plus net debt) as a multiple of latest twelve months ("LTM")
revenue, (ii) enterprise value as a multiple of LTM earnings before interest
and taxes ("EBIT"), (iii) equity value as a multiple of LTM earnings, (iv)
equity value as a multiple of projected twelve months ending July 3, 1999
earnings (projected earnings figures for the Comparable Companies were based
on quarterly information for calendar 1998 and 1999 from Zacks Investment
Research and independent research analysts; projected earnings figures for the
Company were based on the Company's fiscal 1999 internal plan, as adjusted for
the sale of assets to 3Com Corporation), and (v) equity value as a multiple of
book value.
The implied multiples for the Merger based on the Merger Consideration and
the Company's financial data, as adjusted for the sale of assets to 3Com
Corporation, compare as follows with the multiples for the Comparable
Companies using closing share prices as of January 19, 1999: (i) enterprise
value to LTM revenue ranged from 0.8x to 4.1x (with a median of 2.0x) for the
Comparable Companies versus 1.7x for the Merger, (ii) enterprise
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value to LTM EBIT ranged from 9.8x to 16.6x (with a median of 12.2x) for the
Comparable Companies versus 9.0x for the Merger, (iii) equity value to LTM
earnings ranged from 16.5x to 28.0x (with a median of 22.3x) for the
Comparable Companies versus 15.5x for the Merger, (iv) equity value to
projected 1999 earnings ranged from 14.2x to 33.6x (with a median of 22.5x)
for the Comparable Companies versus 13.0x for the Merger and (v) equity value
to book value ranged from 1.1x to 5.3x (with a median of 2.7x) for the
Comparable Companies versus 2.5x for the Merger.
However, because of the inherent differences between the businesses,
operations and prospects of the Company and the businesses, operations and
prospects of the Comparable Companies, PMG believed that it was inappropriate
to, and therefore did not, rely solely on the quantitative results of the
analysis (including the implied multiples for the Merger described above) and
accordingly also made qualitative judgements concerning differences between
the financial and operating characteristics and prospects of the Company and
the Comparable Companies which would affect the public trading values of the
Company and the Comparable Companies. The qualitative judgments included (i)
the lack of a chief executive officer and president since April 1998, as well
as a high level of turnover in the position; (ii) the dependence of the
Company on the frequency timing generator market, as well as the limited
potential upside in the market for personal computer frequency timing
generators, the Company's core product, due to the Company's dominant market
share in the area and forecasts of personal computer industry growth; (iii)
the risks and likelihood associated with the Company's products being replaced
or made obsolete and (iv) the relative attractiveness of the Company as a
strategic acquisition candidate due to the markets in which it competes. In
particular, PMG studied the Company's results and current forecasts for the
future quarters and compared those numbers with research analyst estimates of
the Company's current and future financial performance. In addition, PMG took
into consideration the fact that the Company competes in a highly competitive
market.
Discounted Cash Flow Analysis. PMG developed, with input from the Company,
a Discounted Cash Flow Analysis of the Company based on projected financial
statements, as adjusted for the sale of assets to 3Com Corporation, through
the fiscal year ending 2003. These projections assumed, among other things,
(i) that the year-over-year increases in revenue for the fiscal years ending
1999 through 2003 would range from 12.0% to 23.5%, and (ii) that the operating
margin (operating income as a percentage of revenues) for the fiscal years
ending 1999 through 2003 would range from 16.0% to 18.4%. Specifically, these
projections assumed (i) that revenues for the fiscal years ending 1999 through
2003 would be $151.8 million, $170.0 million, $210.0 million, $252.0 million
and $293.0 million, respectively; (ii) that gross profit for the fiscal years
ending 1999 through 2003 would be $70.8 million, $78.2 million, $96.6 million,
$115.9 million and $134.8 million, respectively (iii) that operating profit
for the fiscal years ending 1999 through 2003 would be $27.9 million, $28.9
million, $34.3 million, $40.3 million and $46.8 million, respectively; (iv)
that net income for the fiscal years ending 1999 through 2003 would be $20.2
million, $22.2 million, $27.3 million, $31.6 million and $37.5 million,
respectively; and (v) that net earnings per share for the fiscal years ending
1999 through 2003 would be $1.64, $1.67, $2.02, $2.30 and $2.68, respectively.
The projected cash flows consisted of the after-tax free cash flow for the
six months ending July 3, 1999 and the fiscal years ending 2000 through 2003
plus a terminal value at fiscal year end 2003. In estimating the appropriate
terminal value at fiscal year end 2003, PMG applied a multiple of 7.0x to
estimated EBIT in fiscal year 2003 with reference to the corresponding
multiples of the Comparable Companies. Acquisition and trading multiples from
time to time fluctuate considerably, and no assurance can be made that future
trading multiples will be comparable to historical levels.
The present value of the stream of projected cash flows was obtained by
discounting the cash flows to December 31, 1998 using a range of weighted
average costs of capital ("WACC") of 17.39% to 19.39% with a mid-point of
18.39% estimated based on the historic beta of the Company's common stock and
with consideration to the small market capitalization of the Company. The
foregoing analysis resulted in a range of estimated present values of $18.86
to $19.85 per share of the common stock, with a mid-point of $19.35.
22
<PAGE>
Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, PMG evaluated acquisitions of certain semiconductor
companies (the "Acquisitions Companies"). Each of the Acquisition Companies is
distinguishable from the Company in certain respects. The acquisitions used in
PMG's analysis were (target/acquirer): Integrated Process Equipment/Integrated
Device Tech Inc., Quality Semiconductor/Integrated Device Tech Inc., Benchmarq
Microelectronics Inc./Unitrode Corp., BKC Semiconductor Inc./Microsemi Corp.,
Cyrix Corp./National Semiconductor Corp., Chips & Technologies Inc./Intel
Corp., Panatech Research & Development/Harbour Group Ltd., Brooktree
Corp./Rockwell International Corp., VLSI Technology/Investor Group, and
Catalyst Semiconductor Inc./United Microelectronic Corp.
PMG calculated a range of multiples based on the ratio of (i) the implied
transaction value (calculated as equity value of the transaction plus assumed
debt) to LTM net sales and EBIT reported prior to the announcement of the
selected transaction, (ii) the implied equity value to LTM net income and
earnings reported prior to the announcement of the selected transaction, and
the stated book value prior to the announcement of the selected transaction,
and (iii) the implied equity value as a premium to the target's historical
stock price for one day, one week and one month prior to the announcement of
the selected transaction.
The implied multiples for the Merger based on the Merger Consideration and
the Company's financial data compare as follows with the multiples for the
Acquisition Companies: (i) implied transaction value to LTM revenue ranged
from 0.6x to 3.2x (with a median of 1.9x) for the Acquisition Companies versus
1.7x for the Merger, (ii) implied transaction value to EBIT ranged from 10.5x
to 17.6x (with a median of 12.5x) for the Acquisition Companies versus 9.0x
for the Merger, (iii) implied equity value to net income ranged from 14.4x to
37.6x (with a median of 19.1x) for the Acquisition Companies versus 15.0x for
the Merger, (iv) implied equity value to earnings ranged from 13.7x to 39.2x
(with a median of 18.3x) for the Acquisition Companies versus 15.5x for the
Merger and (v) implied equity value to stated book value ranged from 1.1x to
4.3x (with a median of 3.0x) for the Acquisition Companies versus 2.5x for the
Merger. The median implied equity value as a premium to the target's one day,
one week and one month historical stock prices was 30.3% (with a range of
- -2.9% to 66.7%), 32.1% (with a range of 0.0% to 146.2%) and 44.6% (with a
range of 11.6% to 131.3%), respectively, for the Acquisition Companies versus
19.7%, 18.1%, and 33.3%, respectively for the Merger. Assuming Merger
Consideration of $21.25 per share, the Merger multiples were within the range
of multiples of the Acquisition Companies. In evaluating the premium of the
Merger Consideration to the historical stock prices of the Company, PMG
considered the publicity associated with the Company since the Company's
October 19, 1998 press release describing a possible management led buyout,
the speculation of a possible revised offer by management following a
rejection of management's proposal, and the possible effect of such publicity
and speculation on the Company's stock price in the period between October 19,
1998 and the date the Merger was announced.
Stock Trading History. PMG reviewed, for the period from the Company's
initial public offering through January 19, 1999, the stock price performance
of the common stock, the historical trading volume of common stock, the
absolute volatility and the volatility of the common stock compared to the S&P
500 Index and the Philadelphia Semiconductor Index. PMG compared the absolute
and relative volatility of the Company's common stock to the volatility of the
Comparable Companies. Such comparison revealed that the Company had a 97.5
relative volatility compared to a median relative volatility of 71.1 for the
Comparable Companies for the six-month period prior to January 19, 1999. In
general, a higher relative volatility, particularly for companies whose
trading volumes for their common stock are relatively low, will result in a
higher desired rates of return, or discount rate, for investors.
Pursuant to a letter agreement dated August 17, 1998 (including amendments
thereto) between the Company and PMG, the Company paid PMG fees totalling
$325,000 in consideration of financial advisory services rendered to the
Special Committee, including the rendering of a written opinion on October 19,
1998. Pursuant to an amended and restated letter agreement dated as of August
17, 1998 and entered into on January 19, 1999, PMG received a fee of $125,000
in connection with PMG's delivery to the Special Committee and the Board of
23
<PAGE>
its fairness opinion dated January 19, 1999 relating to the Merger. Pursuant
to the amended and restated letter agreement, PMG will receive an additional
fee of $125,000 upon consummation of the Merger. In the event of a business
combination transaction with a party other than Bain Capital or its
affiliates, PMG would receive an additional fee of 0.5% of the cash plus the
fair value of any equity and debt securities issued to the Company's
shareholders in the transaction. In addition, the Company has agreed to
reimburse PMG for its reasonable costs and expenses (including legal fees and
disbursements) incurred in connection with rendering financial advisory
services. The Company has agreed to indemnify PMG for certain costs, expenses,
losses, claims, damages and liabilities, including those under federal
securities laws, related to or arising out of its rendering of services under
its engagement as financial advisor.
In performing its financial analyses, PMG made numerous assumptions with
respect to industry performance, general business and economic conditions, and
other matters, many of which are beyond the control of the Company. The
preparation of an opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances based upon experience and
judgment. Accordingly, notwithstanding the separate factors summarized above,
PMG believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors considered by it, without
considering all analyses and factors, could create an incomplete view of the
evaluation process underlying PMG's opinion.
Conflicts of Interest
In considering the recommendations of the Special Committee and the
Company's Board of Directors, the Company's shareholders should be aware that
certain members of the Management Group and of the Company's Board of
Directors have interests in the Merger beyond the interests of the
shareholders generally which create conflicts of interest.
Equity Investment. It is important to the Equity Investors that the
Company's key personnel continue to manage and operate the Company following
the Merger and that they have meaningful incentives, including equity
ownership interests, to make the Company financially successful. Accordingly,
certain members of the Management Group will: (i) receive shares of common
stock of the of the Surviving Corporation in exchange for certain of their
shares of common stock of the Company under the terms of the Merger Agreement,
(ii) be afforded the opportunity to convert certain of their existing stock
options into options to purchase shares of common stock of the Surviving
Corporation in such a manner as to preserve the equity value of such options
(i.e., the difference between $21.25 and the exercise prices of such options)
and (iii) be granted additional options, with an exercise price equal to or
greater than fair market value at the Effective Time, to purchase shares of
the Surviving Corporation's common stock (the "New Options"). In addition, the
Company expects to enter into deferred compensation arrangements with certain
members of the Management Group.
The Management Group consists of 13 members of management, including
Messrs. Boreen, Tan and Eggebrecht as well as the senior level managers of
virtually every functional and business unit in the Company. Besides Messrs.
Boreen, Tan and Eggebrecht, the Company's other executive officers and
directors are not members of the Management Group. As of the Record Date, the
Management Group owned an aggregate of approximately [766,300] shares of the
Company's common stock and held options to purchase an aggregate of [810,237]
shares of common stock.
24
<PAGE>
It is currently expected that the Management Group will invest an aggregate
of approximately $10.0 million in the Surviving Corporation. The amount to be
invested by the Management Group represents primarily the fair value of the
Converted Shares (valued at $21.25 per share) and the Converted Options
(valued at the equity value of such options). Certain members of the
Management Group will obtain a portion of the funds to be used to make their
respective equity investments through borrowings from the Surviving
Corporation. The approximate amount to be invested by each director or
executive officer of the Company who is a member of the Management Group is
set forth below:
<TABLE>
<CAPTION>
Amount
Name Invested
---- -------------
(in millions)
<S> <C>
Henry I. Boreen................................................ $4.59
Hock E. Tan.................................................... 0.81
Lewis C. Eggebrecht............................................ 0.30
</TABLE>
Following the Merger, it is expected that the Management Group will own, in
the aggregate, Converted Shares representing approximately 9.5% of the
Surviving Corporation's outstanding common stock on a fully-diluted basis,
Converted Options representing approximately 7.4% of the Surviving
Corporation's common stock on a fully-diluted basis and New Options
representing approximately 7.3% of the Surviving Corporation's common stock on
a fully-diluted basis.
Certain Arrangements with the Equity Investors. The Equity Investors will
receive shares representing approximately 67.8% of the Surviving Corporation's
common stock outstanding immediately after the Merger on a fully-diluted basis
for an aggregate consideration of approximately $40 million. The Equity
Investors will receive a transaction fee from the Surviving Corporation upon
the consummation of the Merger in the amount of approximately $5.1 million. In
addition, each of the Equity Investors will enter into an advisory agreement
with the Surviving Corporation pursuant to which each will render certain
management and advisory services to the Surviving Corporation for which the
Equity Investors will receive from the Surviving Corporation an aggregate fee
of $1 million. Each advisory agreement will be in effect for an initial term
of ten years, subject to termination by the Equity Investors or the Company
upon written notice 90 days prior to the expiration of the initial term. The
Equity Investors will receive a fee of 1% of the aggregate value for any
acquisition, divestiture or financing by the Company. Each advisory agreement
will include customary indemnification provisions in favor of each of the
Equity Investors.
In connection with the Merger, the Equity Investors and certain members of
the Management Group of the Surviving Corporation will enter into a
shareholders agreement, registration rights agreement and subscription
agreement, which will provide for, among other things, restrictions on
transfer, "drag-along" and "tag-along" rights, registration rights, and put
rights. The terms of these agreements are not yet finalized.
Employment and Consulting Agreements. In connection with the Merger, Mr.
Hock E. Tan is expected to enter into a three-year employment contract with
the Surviving Corporation. Under the terms of this agreement he will serve as
President and Chief Executive Officer of the Surviving Corporation with a base
salary of $250,000 per year. In addition to the base salary, Mr. Tan will be
eligible to earn an annual bonus of up to 100% of his base salary based upon
the Company attaining certain performance targets established annually by the
Board. During his term of employment, Bain Capital has agreed to nominate Mr.
Tan to serve as a member of the Board. If Mr. Tan is terminated without cause,
then he will be entitled to receive, during the remaining term of the
employment agreement or the twelve months following his termination, whichever
is longer, 125% of his base salary plus the target bonus he would have
otherwise been entitled to receive (in each case prorated for the number of
days of employment prior to termination). In the event of termination for
cause, Mr. Tan will be entitled to his base salary through the date of
termination. Mr. Tan's employment agreement will contain provisions
prohibiting him from disclosing confidential information and competing with
the Company. All
25
<PAGE>
inventions and intellectual property rights conceived, developed, made or
reduced to practice by Mr. Tan, other than those he develops entirely on his
own time without using the Company's property, will be assigned to the
Company.
Mr. Henry I. Boreen is expected to enter into a three-year consulting
contract with the Surviving Corporation. Under the terms of Mr. Boreen's
consulting agreement, he will be paid $350,000 per year in monthly
installments, and he will not be entitled to any fringe benefits or
perquisites from the Company. During the term of the consulting agreement, Mr.
Boreen will make himself reasonably available to render advice and services to
the Company as may be reasonably required by the Company and as are consistent
with the type of duties and services he has previously rendered to the
Company. In no event will Mr. Boreen be required to be available to the
Company for more than twelve days in any one-year period. The Company or Mr.
Boreen may terminate the consulting agreement upon thirty days prior written
notice. In the event the Company terminates Mr. Boreen for any reason, he
shall be entitled to receive the unpaid payments in a lump sum within thirty
days of his termination. Mr. Boreen's consulting agreement will contain
provisions prohibiting him from disclosing confidential information and
competing with the Company. If Mr. Boreen breaches the provisions prohibiting
him from competing with the Company, then he will no longer be entitled to
receive any further payments under the consulting agreement. All inventions
and intellectual property rights conceived, developed, made or reduced to
practice by Mr. Boreen, other than those that he develops entirely on his own
time without using the Company's property, will be assigned to the Company.
The terms of Mr. Tan's employment agreement and Mr. Boreen's consulting
agreement have not yet been finalized.
Treatment of Stock Options. Certain directors and executive officers of the
Company hold options to purchase the Company's common stock. Under the terms
of the Merger Agreement, each holder of outstanding options (other than the
Converted Options), whether or not such options are exercisable, will be
entitled to receive (subject to applicable withholding taxes) an amount in
cash equal to the product of (i) the difference between $21.25 and the
exercise price of such option and (ii) the number of shares of the Company's
common stock subject to such option. The directors and executive officers of
the Company who own options will receive this option consideration as a result
of the Merger for all of their options other than the Converted Options. As of
March , 1999, there were options outstanding to purchase an aggregate of
[2,325,484] shares of the Company's common stock at a weighted average
exercise price of [$15.00] per share.
The following table sets forth information as to the options outstanding on
February 12, 1999, for which cash payment will be received upon consummation
of the Merger, and the proceeds expected to be received upon termination of
such options by the directors and executive officers of the Company:
<TABLE>
<CAPTION>
No. of Cash
Name Options Payment
---- ------- ----------
<S> <C> <C>
Henry I. Boreen......................................... 88,000 $ 621,750
Hock E. Tan............................................. 50,000 510,938
Rudolf S. Gassner....................................... 235,000 1,726,625
Lewis C. Eggebrecht..................................... 2,879 41,563
John L. Pickitt......................................... 21,000 129,125
Edward M. Esber......................................... 20,000 44,000
All directors and executive officers as a group (6
persons)............................................... 416,879 $3,074,001
</TABLE>
Director and Officer Indemnification and Insurance. The Company agreed in
the Merger Agreement to indemnify after the Effective Time the Company's and
any of its subsidiaries' current and former officers and directors for any
losses, claims, damages, costs and other liabilities or claims made against
such persons because they were a director or officer of the Company to the
fullest extent permitted by the PBCL. In addition, the Merger Agreement
provides that for six years after the Effective Time, the Company will
maintain its current directors' and officers' liability insurance for the
benefit of its directors and officers (or substitute policies of at least the
same coverage and containing terms not materially adverse to the indemnified
parties); provided, however, the Company is not required to pay an annual
premium in excess of 200% of the last annual premium paid by the Company prior
to the date of the Merger Agreement. With respect to the pending action filed
in
26
<PAGE>
connection with the announcement of the proposed Merger, Henry I. Boreen and
Hock E. Tan are, and any other director or executive officer who may be named
as a defendant in the future would be, entitled to the foregoing
indemnification. See "Recent Developments."
Stock Ownership. An affiliate of Bain Capital owns 74,600 shares of common
stock of the Company, which was purchased by such affiliate for investment
purposes at a weighted average price per share equal to $12.74. These shares
will be converted into the Merger Consideration upon completion of the Merger.
Special Committee and Board Compensation. Compensation paid to the members
of the Special Committee and the Board for services rendered in their capacity
as members of the Special Committee or the Board for the period from June 1998
through June 19, 1999, including, among other things, their analysis and
evaluation of the acquisition proposals made by the Investors as well as their
negotiation of the terms of the Merger Agreement, amounted to $32,500 for Mr.
Gassner and Mr. Esber and $36,000 for Mr. Pickitt. Such amounts do not include
salary and benefits paid to Mr. Gassner as an officer of the Company since
November 3, 1998, or salary paid to Mr. Boreen as an executive officer of the
Company during 1998.
Recent Developments
On January 15, 1999, the Company entered into a definitive agreement to
sell the intellectual property and engineering hardware and software related
to its data communications product line to 3Com for $16.0 million in cash.
This transaction was consummated on February 18, 1999. Under the agreement,
the Company retained certain licensing and technical support rights, and will
continue to sell and support its existing and prospective networking
transceiver product family to current and new customers.
On January 18, 1999, the Company entered into an agreement of sale with BET
Investments III, L.P. to sell the land and property of the Company's Valley
Forge headquarters. The purchase price for the property is $5.3 million. On
January 29, 1999, the Company signed a lease with BET Investments IV, L.P. to
lease back the Valley Forge building for a term of eight years, which will go
into effect upon closing of the sale of the property by the Company. The
Company leased back the entire building of approximately 61,000 square feet,
with monthly rent beginning at approximately $51,000 for the first year and
progressively increasing each year to approximately $63,000 in the eighth
year. The Company also has a renewal option of three more years subsequent to
the initial eight year term. Neither BET Investments III, L.P. nor BET
Investments IV, L.P. is affiliated with the Company or any of the Investors.
On January 27, 1999, Harbor Finance Partners and John P. McCarthy Money
Purchase Plan, shareholders of the Company, filed a complaint on behalf of a
purported class of shareholders of the Company in the Court of Common Pleas of
Montgomery County, Pennsylvania against the Company and Henry I. Boreen in his
capacity as interim Chief Executive Officer of the Company alleging that the
Merger Consideration is inadequate and seeking to enjoin the Merger. In March
1999, the plaintiffs amended their complaint to add Hock E. Tan as a defendant
in his capacity as Senior Vice President, Chief Financial Officer, Chief
Operating Officer and Secretary of the Company. The Company believes that the
complaint is without merit and intends to vigorously defend the action.
The Company's Annual Meeting of Shareholders for fiscal 1998 was held on
February 1, 1999. At the meeting, the following nominees of the Company were
reelected to the Board: Henry I. Boreen, Edward M. Esber, Jr., Rudolf S.
Gassner and John L. Pickitt.
27
<PAGE>
THE SPECIAL MEETING
General
The Special Meeting of the shareholders of the Company will be held at the
offices of the Company, 2435 Boulevard of the Generals, Norristown,
Pennsylvania, on , 1999 at 10:00 a.m., local time to (i) consider and
vote upon the approval and adoption of the Merger Agreement and (ii) transact
such other business as may properly come before the Special Meeting or any
adjournment thereof.
The Company's Board of Directors has unanimously approved the Merger
Agreement and the transactions contemplated thereby and has determined that
such transactions are in the best interests of the Company and its
shareholders. The Company's Board of Directors unanimously recommends that the
Company's shareholders vote for approval and adoption of the Merger Agreement.
Record Date; Quorum
Only shareholders of record of the Company at the close of business on the
Record Date will be entitled to notice of, and to vote at, the Special
Meeting. On the Record Date, there were [12,166,450] shares of the Company's
common stock outstanding. Except as noted below, each holder of shares of the
Company's common stock outstanding on the Record Date is entitled to one vote
for each such share so held, exercisable in person or by properly executed and
delivered proxy, at the Special Meeting. The presence of the holders of at
least a majority of the shares of the Company's common stock outstanding on
the Record Date and entitled to vote on the Merger Agreement, whether present
in person or by properly executed and delivered proxy, will constitute a
quorum for purposes of consideration of and action on the Merger Agreement.
Brokers who hold shares in street name for customers that do not receive
voting instructions from customers do not have the authority under the rules
of the various stock exchanges to vote those shares with respect to the
approval and adoption of the Merger Agreement. Shares held by brokers that are
not voted on the Merger Agreement because the brokers have not received their
customers' voting instructions (referred to as "broker non-votes") are not
entitled to be voted at the Special Meeting and therefore will not be taken
into account in determining the presence of a quorum with respect to the vote
on the Merger Agreement, whereas shares with respect to which abstentions are
recorded are considered present for quorum purposes.
Vote Required
The affirmative vote of a majority of the votes cast at the Special Meeting
by all of the holders of record of the Company's common stock as of the Record
Date entitled to vote on the Merger Agreement is necessary to approve and
adopt the Merger Agreement. Where shareholders have appropriately specified
how their proxies are to be voted, they will be voted accordingly. Abstentions
and broker non-votes will not count for or against the Merger Agreement at the
Special Meeting.
In addition to the required vote described above, the Board considered
requiring an additional vote of a majority of the votes cast by all
shareholders unaffiliated with the Investors to approve and adopt the Merger
Agreement. However, because the Investors own an insubstantial amount of the
Company's common stock and applicable legal requirements did not mandate such
additional vote, the Board determined not to require any additional vote.
The Merger Agreement provides that certain shares held by members of
management will be converted into shares of the Surviving Corporation while
all other outstanding shares will be converted into Merger Consideration.
Under Section 1906 of the PBCL, such disparate treatment is permitted if
approved by a majority of votes cast by all shareholders entitled to vote on
the Merger Agreement. Approval by shareholders of the Merger Agreement will
also constitute approval of such treatment.
As of the Record Date, directors and executive officers of the Company
owned an aggregate of [421,282] shares of common stock (approximately 3.0% of
the outstanding common stock). The directors and executive officers of the
Company have indicated that they intend to vote their shares of common stock
in favor of the adoption of the Merger Agreement. See "Beneficial Ownership of
Common Stock."
28
<PAGE>
Proxies
Shareholders are requested to complete, date and sign the accompanying form
of proxy and return it promptly in the enclosed postage-paid envelope.
Any shareholder giving a proxy pursuant to this solicitation has the power
to revoke it at any time before it is voted at the Special Meeting. A later
dated proxy or written notice of revocation given prior to the vote at the
Special Meeting to the Secretary of the Company will serve to revoke such
proxy. Also, a shareholder who attends the Special Meeting in person may, if
he or she wishes, vote by ballot at the Special Meeting, thereby canceling any
proxy previously given. Mere presence at the Special Meeting will not serve to
revoke any proxy previously given.
Solicitation of Proxies
In addition to the use of mails, proxies may be solicited by persons
regularly employed by the Company, by personal interview, telephone and
telegraph. Such persons will receive no additional compensation for such
services, but will be reimbursed for any out-of-pocket expenses incurred by
them in connection with such services. Arrangements may also be made with
brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation materials to the beneficial owners of shares of the
Company's common stock held of record by such persons, and the Company may
reimburse such persons for reasonable out-of-pocket expenses incurred by them
in connection therewith.
The Company will bear the costs of the Special Meeting and of soliciting
proxies therefor. Innisfree M&A Incorporated will assist in the solicitation
of proxies by the Company for a base fee of $ plus reasonable out-of-
pocket expenses.
Other Matters to be Considered
The Company's Board of Directors is not aware of any other matter which
will be brought before the Special Meeting. If, however, other matters are
presented, proxies will be voted in accordance with the discretion of the
holders of such proxies.
29
<PAGE>
THE MERGER
Effective Time and Consequences of the Merger
If approved by the requisite vote of the shareholders of the Company and if
all other conditions to the consummation of the Merger are satisfied or
waived, the Merger will become effective, unless the Merger Agreement is
terminated as provided therein, upon the making of certain filings with the
Department of State of the Commonwealth of Pennsylvania pursuant to the PBCL.
At the Effective Time, the Merger Corp. will be merged with and into the
Company, which will be the Surviving Corporation in the Merger, and the
separate corporate existence and identity of the Merger Corp. will cease. The
corporate existence and identity of the Company will continue unaffected by
the Merger, although it will become an affiliate of both Bain Capital and Bear
Stearns.
It is currently contemplated that the Effective Time of the Merger will
occur as promptly as practicable after the approval of the Merger by the
Company's shareholders at the Special Meeting, subject to the conditions
described under "Merger Agreement--Conditions to Merger."
As a result of the Merger, the entire equity interest in the Company will
be owned by the Investors. The shareholders of the Company (other than the
Management Group) will no longer have any interest in, and will not be
shareholders of, the Company, and therefore will not participate in its future
earnings and growth. Instead, each such holder of the Company's common stock
will have the right to receive $21.25 in cash, without interest, for each
share held (other than the Unconverted Shares). Following the Merger, the
Investors will have the opportunity to benefit from any earnings and growth of
the Company, and will bear the risk of any decrease in the Company's value.
Following the Merger, the Company's common stock will no longer be traded on
the Nasdaq National Market, price quotations will no longer be available and
the registration of the Company's common stock under the Exchange Act will be
terminated. After such registration is terminated, the Company will no longer
be required to file periodic reports with the Commission.
At the Effective Time, the present Board of Directors of the Company, other
than Mr. Boreen, will be replaced with individuals selected by Bain Capital
and Bear Stearns and Mr. Tan. Mr. Boreen has agreed to serve as a member of
the Board of Directors as long as he owns at least 50% of the common stock of
the Surviving Corporation he obtained at the Effective Time and the Equity
Investors collectively own at least 51% of the common stock of the Surviving
Corporation. The representatives of Bain Capital who will serve as directors
of the Company as of the Effective Time are David Dominik, Michael A. Krupka,
and Prescott Ashe, and the representative of Bear Stearns who will serve as a
director of the Company as of the Effective Time is John Howard. The officers
of the Company will be the officers of the Surviving Corporation after the
Effective Time. See "Certain Information Concerning Merger Corp. and its
Affiliates."
The Equity Investors expect that, following consummation of the Merger, the
business and operations of the Company will be continued substantially as they
are currently being conducted. The board of directors and management of the
Company will, however, continue to evaluate the Company's business,
operations, corporate structure and organization and will make such changes as
they deem appropriate.
As a result of the borrowings to be incurred to finance the Merger and the
Company's post-Merger operations, the consolidated indebtedness of the Company
following the Effective Time will be substantially greater than current
levels. In addition, the interest rates on the new indebtedness are expected
to be higher than the Company's current rates, and the covenants applicable to
the new indebtedness are expected to be more restrictive than current
covenants. As a result, the Company's financial and operating flexibility will
be reduced.
Financing
The total amount of funds necessary to fund the Merger and related
transactions is expected to be approximately $293.4 million. These funds are
expected to come from the following sources: (i) an equity investment made by
the Equity Investors and certain other investors of approximately $40.0
million, (ii) an
30
<PAGE>
equity investment on the part of the Management Group of approximately $10.0
million, consisting primarily of the Converted Shares (valued at $21.25 per
share) and the Converted Options (valued at the equity value of such options),
(iii) cash on-hand at the Effective Time of approximately $60.0 million and
(iv) borrowings by the Company totaling approximately $183.4 million under a
senior secured credit facility and a mezzanine loan facility described below.
Senior Secured Credit Facility. The Equity Investors have obtained a
commitment from Credit Suisse First Boston ("CSFB") to provide the Company
with a senior secured credit facility (the "Senior Facility") in an aggregate
amount of $145 million. The Senior Facility will be comprised of (i) a $120
million term facility, which includes (x) a $50 million term loan tranche
maturing five years from the closing date of the Merger (the "Term A") and (y)
a $70 million term loan tranche maturing seven years from the closing date of
the Merger (the "Term B") and (ii) a $25 million revolving credit facility
(the "Revolver") maturing five years from the closing date of the Merger. The
Revolver will have a sublimit available for the issuance of letters of credit.
The Company will be the borrower under the Senior Facility and all existing
and subsequently acquired/organized domestic subsidiaries of the Company will
guarantee the Senior Facility. In addition, the Senior Facility will be
secured by (i) substantially all of the assets of the Company and its existing
and subsequently acquired/organized domestic subsidiaries and (ii) a pledge of
all of the capital stock of such domestic subsidiaries and 65% of the capital
stock of the Company's material foreign subsidiaries.
The interest rates under the Senior Facility will be, at the Company's
option, either (i) the Base Rate (higher of the prime lending rate or 1/2 of
1% in excess of the Federal funds effective rate) plus a margin or (ii)
Adjusted LIBOR plus a margin. The initial margin on the Term A and Revolver
will be 2% over the Base Rate and 3% over Adjusted LIBOR, and the initial
margin on the Term B will be 2.5% over the Base Rate and 3.5% over Adjusted
LIBOR. These margins will vary according to a pricing grid based upon the
Company's consolidated leverage ratio and on each of the Term A and Revolver,
will range from 1.75%-.75% for Base Rate and from 2.75%-1.75% for Adjusted
LIBOR and on the Term B, will range from 2.25%-2.00% for Base Rate and from
3.25%-3.00% for Adjusted LIBOR.
The documents for the Senior Facility will contain affirmative, negative
and financial covenants and events of default customary for credit facilities
of a size and type similar to the Senior Facility.
The Mezzanine Facility. The Equity Investors have obtained a commitment
from CSFB and The Bear Stearns Companies Inc. ("BSCI") to provide the Company
with up to $47.5 million in senior subordinated mezzanine loans (the
"Mezzanine Facility" and together with the Senior Facility, the "Facilities")
to assist in financing the Merger and related transactions. The Mezzanine
Facility will be made available to the Company, as borrower, and will be
guaranteed by each of the domestic subsidiaries of the Company that guarantees
the Senior Facility. The Mezzanine Facility will mature on the date which is
364 days after the closing of the Merger. If the Mezzanine Facility is not
repaid in full prior to that date, loans thereunder will be exchanged for
exchange notes with registration rights, bearing interest at a rate of 15% per
annum. The exchange notes, if issued, would mature 10 years from the date of
the closing of the Merger.
The Mezzanine Facility will bear interest at a rate of 13% per annum,
increasing by .50% at the end of each quarter until maturity, with an overall
cap on the interest rate of 15% per annum. The Mezzanine Facility will have
affirmative and negative covenants and events of default customary for a
facility of a similar size and type.
The holders of loans under the Mezzanine Facility will receive warrants to
purchase a percentage of common stock of the Company. The number of warrants
received by such holders varies depending upon the amount of time that the
Mezzanine Facility is outstanding (prior to refinancing, resale or conversion
into exchange notes), whether the loans under the Mezzanine Facility have been
sold to other holders or whether such loans have been refinanced with long-
term notes. In any event, the number of warrants issued in connection with the
Mezzanine Facility will not exceed an amount sufficient to purchase up to 7%
of the Company on a fully diluted basis.
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Conditions to Funding the Facilities. The funding of the Facilities is
subject to the satisfaction of customary conditions for debt financings
including, without limitation, the following:
(i) preparation, execution and delivery of definitive documentation in
connection with the Facilities;
(ii) satisfaction with material terms and conditions of the agreements
related to the Merger;
(iii) payment of fees and expenses;
(iv) closing of the Merger prior to June 30, 1999;
(v) delivery of appropriate financial statements of the Company and its
subsidiaries, including those statements covering the three fiscal-year
periods most recently ended and delivery of appropriate projections;
and
(vi) since June 27, 1998, the absence of one or more events, changes or
effects which would reasonably be expected to have a material adverse
effect on (x) the business, results of operations, financial condition
or prospects of the Company and its subsidiaries taken as a whole or
(y) the validity or enforceability of any of the documents entered
into in connection with the Merger or the related transactions.
Federal Income Tax Consequences
Shareholders who exchange all of their shares of the Company's common stock
for cash pursuant to the Merger or who exercise appraisal rights will
recognize gain or loss equal to the difference between the cash received in
the Merger or pursuant to the exercise of appraisal rights and such
shareholder's adjusted tax basis in the shares exchanged. Gain or loss
recognized will be treated as a capital gain or loss if the shares are held as
capital assets and the shareholder is not a shareholder after the Merger. If
the shares of the Company's common stock that are exchanged have a holding
period of more than one year at the Effective Time, then the capital gain will
be long term. For individuals, the maximum federal income tax rate on long
term capital gain is 20%.
THE FOREGOING PARAGRAPH PRESENTS THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER. THE FOREGOING DISCUSSION DOES NOT DISCUSS TAX
CONSEQUENCES UNDER THE LAWS OF STATES OR LOCAL GOVERNMENTS OR OF ANY OTHER
JURISDICTION OR TAX CONSEQUENCES TO CATEGORIES OF SHAREHOLDERS THAT MAY BE
SUBJECT TO SPECIAL RULES, SUCH AS FOREIGN PERSONS, TAX-EXEMPT ENTITIES,
INSURANCE COMPANIES, FINANCIAL INSTITUTIONS AND DEALERS IN STOCKS AND
SECURITIES. THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO A SHAREHOLDER
WHO ACQUIRED SHARES OF THE COMPANY'S COMMON STOCK PURSUANT TO THE EXERCISE OF
STOCK OPTIONS OR OTHERWISE AS COMPENSATION AND DOES NOT ADDRESS THE TAX
CONSEQUENCES OF SHAREHOLDERS WHO WILL HAVE A CONTINUING EQUITY INTEREST IN THE
COMPANY. EACH HOLDER OF SHARES OF THE COMPANY'S COMMON STOCK IS URGED TO
OBTAIN, AND SHOULD RELY UPON, SUCH HOLDER'S OWN TAX ADVICE.
Accounting Treatment
The Company expects that the Merger will be accounted for as a
recapitalization for accounting purposes because it will not constitute a
change of control under generally accepted accounting principles. Under the
recapitalization method of accounting, the historical cost basis of the
Company's assets and liabilities will be carried forward to the Surviving
Corporation with the aggregate cost of repurchasing the common stock accounted
for as a charge to shareholders' equity. The cost of repurchasing and
canceling the outstanding options will be accounted for as compensation
expense by the Surviving Corporation. Neither the obligation of Merger Corp.
to consummate the Merger nor the obligation of the lenders under the
Facilities is conditioned upon the Merger being accounted for as a
recapitalization.
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<PAGE>
Rights of Dissenting Shareholders
If any holders of the Company's common stock properly exercise appraisal
rights in connection with the Merger under Subchapter 15D of the PBCL, any
shares held by such holders will not be converted into the right to receive
$21.25 per share, but instead will be converted into the right to receive the
"fair value" of such shares pursuant to Subchapter D of Chapter 15 of the
PBCL. See "Appraisal Rights of Dissenting Shareholders."
Delisting and Deregistration of Common Stock
Following the Merger, the Company's common stock will be no longer traded
on the Nasdaq National Market, price quotations will no longer be available
and the registration of the Company's common stock under the Exchange Act will
be terminated. After such registration is terminated, the Company will no
longer be required to file periodic reports with the Commission.
Certain Regulatory Matters
Consummation of the Merger is conditioned upon receipt by Merger Corp. and
the Company of such regulatory and other approvals as are required under
applicable law. Other than matters described below, Merger Corp. and the
Company know of no such regulatory or other approvals required by law.
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act"), certain acquisition transactions may not be consummated unless certain
information has been furnished to the Federal Trade Commission (the "FTC") and
the Antitrust Division of the Justice Department (the "Antitrust Division")
and certain waiting period requirements have expired or been terminated.
Merger Corp. and the Company are each reviewing whether the proposed Merger is
subject to the notification and reporting requirements of the HSR Act.
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<PAGE>
THE MERGER AGREEMENT
Overview
The terms and conditions of the Merger are set forth in the Merger
Agreement, the text of which is attached to this Proxy Statement as Appendix
A. The summary of the Merger Agreement contained in this Proxy Statement does
not purport to be complete and is qualified in its entirety by reference to
the complete text of such document.
At the time the Merger becomes effective, the Merger Corp. will be merged
with and into the Company in accordance with the PBCL. As a result of the
Merger, the separate corporate existence of the Merger Corp. (which was formed
solely for the purposes of the Merger and has not engaged in any operations or
business) will cease, and the corporate existence and identity of the Company
will continue, unaffected by the Merger.
Upon the consummation of the Merger, each share of the Company's common
stock (other than the Unconverted Shares) will be converted into the right to
receive $21.25 in cash, without interest.
Exchange of Certificates Representing Common Stock
Instructions with regard to the surrender of the Company's stock
certificates, together with a letter of transmittal to be used for this
purpose, will be mailed to the Company's shareholders as promptly as
practicable after the Effective Time. In order to receive the Merger
Consideration, the shareholders of the Company will be required to surrender
their stock certificates after the Effective Time, together with a duly
completed and executed letter of transmittal, to a paying agent (the "Paying
Agent") selected by Bain Capital and Bear Stearns. Promptly after the
Effective Time, the cash amount of the Merger Consideration will be deposited
in trust with the Paying Agent. Upon receipt of such stock certificates and
letter of transmittal, the Paying Agent will deliver the Merger Consideration
to the registered holder or his transferee of the shares of the Company's
common stock. No interest will be paid or accrued on the amounts payable upon
the surrender of stock certificates.
SHAREHOLDERS SHOULD NOT SUBMIT THEIR STOCK CERTIFICATES FOR EXCHANGE UNTIL
THE INSTRUCTIONS AND LETTER OF TRANSMITTAL ARE RECEIVED.
If the Merger Consideration is to be delivered to a person other than the
person in whose name the certificate for the shares of the Company's common
stock surrendered in exchange therefor is registered, it will be a condition
of such payment of such Merger Consideration that the stock certificate so
surrendered be properly endorsed and otherwise in proper form for transfer,
and that the person requesting such payment (i) pay in advance any transfer or
other taxes required by reason of the payment of the Merger Consideration to a
person other than the registered holder of the stock certificate surrendered
or (ii) establish to the satisfaction of the Paying Agent that such tax has
been paid or is not applicable.
After the Effective Time, there will be no further transfers on the stock
transfer books of the Company of the shares of the Company's common stock that
were outstanding immediately prior to the Effective Time. If a certificate
representing such shares is presented for transfer, subject to compliance with
the requisite transmittal procedures, it will be canceled and exchanged for
the Merger Consideration.
Each certificate representing shares of the Company's common stock
immediately prior to the Effective Time (other than the Unconverted Shares)
will, at the Effective Time, be deemed for all purposes to represent only the
right to receive the Merger Consideration into which the shares of the
Company's common stock represented by such certificate were converted in the
Merger.
Any Merger Consideration delivered or made available to the Paying Agent
and not exchanged for stock certificates within 180 days after the Effective
Time will be returned by the Paying Agent to the Company, which will
thereafter act as Paying Agent. None of Bain, Bear Stearns, the Company or the
Paying Agent will be liable to a holder of shares of the Company's common
stock for any of the Merger Consideration delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
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Treatment of Outstanding Options
The Merger Agreement provides that holders of options (other than the
Converted Options), whether or not such options are exercisable, will be
entitled to receive (subject to applicable withholding taxes) an amount in
cash equal to the product of (i) the difference between $21.25 and the
exercise price of such option and (ii) the number of shares of the Company's
common stock subject to such option. As of February 12, 1999, there were
options outstanding to purchase an aggregate of 2,325,484 shares of the
Company's common stock at a weighted average exercise price of $15.00 per
share. The members of the Management Group will not receive this option
consideration with respect to the Converted Options, which will be converted
into options to purchase common stock of the Surviving Corporation. See
"Special Factors--Conflicts of Interest."
Representations and Warranties
The Merger Agreement contains various representations and warranties of the
parties, including representations and warranties by the Company with respect
to its corporate existence and power, capital structure, corporate
authorization, noncontravention, consents and approvals, SEC filings,
information supplied, compliance with applicable laws, litigation, taxes,
pension and benefit plans and ERISA, absence of certain changes or events,
absence of undisclosed material liabilities, opinion of financial advisor,
vote required, labor matters, intangible property, environmental matters, real
property, board recommendation, material contracts, related party
transactions, indebtedness, liens, and other matters.
Merger Corp. has also made certain representations and warranties with
respect to corporate existence and power, corporate authorization,
noncontravention, financing, beneficial ownership of shares, information
supplied, litigation, and other matters.
Conduct of Business Pending the Merger
The Company has agreed that during the period from the date of the Merger
Agreement to the Effective Time, except as otherwise provided in the Merger
Agreement or consented to by Merger Corp., each of the Company and its
subsidiaries will conduct its operations according to its ordinary and usual
course of business and consistent with past practice and use its and their
respective commercially reasonable efforts to preserve intact their current
business organizations, keep available the services of their current officers
and employees and preserve their relationships with customers, suppliers,
licensors, licensees, advertisers, distributors and others having business
dealings with them and to preserve goodwill. The Company has further agreed
that it will not or permit its subsidiaries to take certain enumerated actions
which include the following: (i) declare or pay any dividends on or make any
other distributions in respect of any of its capital stock; (ii) make or agree
to make any acquisition of assets which is material to the Company and its
subsidiaries, taken as a whole, except for purchases of inventory in the
ordinary course of business or pursuant to purchase orders entered into in the
ordinary course of business which do not call for payments in excess of
$2,500,000 per annum; (iii) sell, lease, license, mortgage or otherwise
encumber or subject to any lien or otherwise dispose of any its properties or
assets other than immaterial properties or assets (or immaterial portions of
properties or assets), except in the ordinary course of business consistent
with past practice; (iv) expend funds for capital expenditures in excess of
$1,000,000; (v) incur any indebtedness for borrowed money; (vi) amend its
articles of incorporation, as amended, by-laws or equivalent organizational
documents or alter through merger, liquidation, reorganization, restructuring
or in any other fashion the corporate structure or ownership of any subsidiary
of the Company; (vii) authorize for issuance, issue, deliver, sell or agree or
commit to issue, sell, grant or deliver, pledge, dispose of or otherwise
encumber any shares of its capital stock or the capital stock of any of its
subsidiaries, any other voting securities or any securities convertible into,
or any rights, warrants, calls, commitments or options to acquire, any such
shares, voting securities or convertible securities or any other securities or
equity equivalents (including without limitation stock appreciation rights)
(other than issuances upon exercise of options or pursuant to the Stock
Plans); (viii) except with respect to annual bonuses made in the ordinary
course of business consistent with past practice, adopt or amend in any
material respect any bonus, profit sharing, compensation, severance,
termination, stock option, stock appreciation right, pension, retirement,
employment or other employee benefit agreement, trust, plan or other
arrangement for the benefit or welfare of any director, officer or employee of
the Company or
35
<PAGE>
any of its subsidiaries or increase in any manner the compensation or fringe
benefits of any director, officer or employee of the Company or any of its
subsidiaries or pay any benefit not required by any existing agreement or
place any assets in any trust for the benefit of any director, officer or
employee of the Company or any of its subsidiaries (in each case, except with
respect to employees and directors in the ordinary course of business
consistent with past practice); and (ix) settle or compromise any shareholder
derivative suits arising out of the transactions contemplated by the Merger
Agreement or any other litigation or settle, pay or compromise any claims not
required to be paid, except that the Company may settle, pay and compromise
claims in an aggregate amount not in excess of $1,000,000 in consultation and
cooperation with Merger Corp.
No Solicitation
The Merger Agreement provides that neither the Company nor any of its
representatives will directly or indirectly (i) initiate, solicit, or
encourage or take any other action to facilitate any inquires or proposals
that constitute, or could reasonably be expected to lead to, any Acquisition
Proposal, (ii) enter into, maintain, or continue discussions or negotiations
with any person in furtherance of such inquiries or to obtain an Acquisition
Proposal; except that the foregoing restrictions shall not apply to persons to
whom the Company or any of its representatives have already provided, within
the three months prior the Merger Agreement, non-public written information
about the Company to facilitate an Acquisition Proposal; (iii) agree to or
endorse any Acquisition Proposal; or (iv) enter into any agreement,
arrangement or understanding requiring it to abandon, terminate or fail to
consummate the Merger or any other transaction contemplated by the Merger
Agreement.
Prior to the approval of the Merger by the shareholders of the Company, the
Merger Agreement does not prohibit the Board from (A) furnishing information
to, and engaging in discussions or negotiations with, any person or entity
that makes an unsolicited written, bona fide proposal to acquire the Company
and/or its subsidiaries pursuant to a merger, consolidation, share exchange,
tender offer or other similar transaction if it would constitute a Higher
Offer, (B) failing to make, withdrawing or modifying its recommendation that
the shareholders of the Company approve the Merger and (C) disclosing to the
shareholders the terms of a tender offer. Within five days of accepting the
Higher Offer, the Company Board must notify Merger Corp. The exercise of its
rights under clause (A), (B) or (C) above shall not constitute a breach by the
Company of the Merger Agreement.
Indemnification
The Merger Agreement provides that the Company will, from and after the
Effective Time, indemnify, defend and hold harmless the present and former
officers, directors, employees and agents of the Company and its subsidiaries
(the "Indemnified Parties") against all judgments, fines, losses, claims,
damages, costs or expenses (including reasonable attorneys' fees) or
liabilities arising out of or related to matters, actions or omissions or
alleged actions or omissions occurring at or prior to the Effective Time
whether asserted or claimed prior to or after the Effective Time ("Indemnified
Liabilities") (i) to the full extent permitted by the PBCL or, if the
protections afforded thereby to an Indemnified Party are greater, (ii) to the
same extent and on the same terms and conditions (including with respect to
advancement of expenses) provided for in the Company's articles of
incorporation and by-laws and agreements in effect at the date hereof, which
provisions will survive the Merger and continue in full force and effect after
the Effective Time. The Company will pay expenses in advance of the final
disposition of any such action or proceeding to each Indemnified Party to the
full extent permitted by law.
All rights to indemnification, including provisions relating to advances of
expenses incurred in defense of any action or suit, existing in favor of the
Indemnified Parties shall survive the consummation of the Merger at the
Effective Time, are intended to benefit the Company and the Indemnified
Parties, shall be binding on all successors and assigns of Merger Corp. and
shall be enforceable by the Indemnified Parties.
Directors' and Officers' Insurance
For a period of six years after the Effective Time, the Company shall cause
to be maintained in effect the current policies of directors' and officers'
liability insurance maintained by the Company (provided that after the
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<PAGE>
Effective Time, the Company may substitute therefor other policies of at least
the same coverage amounts and containing terms and conditions not less
advantageous to the beneficiaries of the current policies). After the
Effective Time, the Company shall not be required to pay an annual premium for
such insurance in excess of 200% of the last annual premium paid by the
Company prior to the date of the Merger Agreement but in such case shall
purchase as much coverage as possible for such amount.
Conditions to the Merger
Each party's obligation to effect the Merger is subject to the satisfaction
of a number of conditions, most of which may be waived by a specified party or
parties. These conditions include the Merger Agreement and the Merger being
approved and adopted by a majority of the votes cast by the holders of the
Company's common stock as of the Record Date and no temporary restraining
order, preliminary or permanent injunction or other order issued by any court
of competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger being in effect. If the Company waives a
material condition to the Merger, it will then consider resoliciting
shareholder approval of the Merger. The decision whether to resolicit
shareholder approval will depend upon whether a shareholder could reasonably
be expected to take into account the waiver of the condition in deciding how
to vote on the Merger.
In addition, the obligations of the Merger Corp. to effect the Merger are
subject to the satisfaction of additional conditions, which include the
following: (i) the representations and warranties of the Company in the Merger
Agreement are true and correct as of the Effective Time, except as otherwise
contemplated by the Merger Agreement and except in those instances where the
aggregate amounts represented by all breaches (other than breaches for which
the Company has obtained the consent of the Merger Corp.) of such
representations and warranties are not likely to result in a material adverse
effect on the Company; (ii) the Company shall have performed its obligations
under the Merger Agreement in all material respects at or prior to the
Effective Time; (iii) Merger Corp. shall have received evidence of all
licenses, permits, consents and approvals as set forth in the Merger
Agreement; (iv) the absence of any pending legal action by any governmental
entity, or by any person other than a governmental entity which has a
reasonable likelihood of success, seeking to restrain or prohibit the
completion of the Merger; and (v) the Company shall have received the proceeds
of the debt financing for the transactions contemplated by the Merger
Agreement on terms substantially as outlined in the financing commitment
letter obtained by Bain Capital and Bear Stearns in connection with the
execution of the Merger Agreement or involving such other financing sources as
are reasonably acceptable to Bain Capital and Bear Stearns.
In addition, the obligation of the Company to effect the Merger is subject
to the satisfaction of certain additional conditions which include the
representations and warranties of the Merger Corp. set forth in the Merger
Agreement being true and correct as of the Effective Time, except as otherwise
contemplated by the Merger Agreement.
Termination of Merger Agreement
The Merger Agreement may be terminated and the Merger abandoned, at any
time prior to the Effective Time, whether before or after the approval by the
Company's shareholders, (i) by the mutual written consent of Merger Corp. and
the Company; (ii) by Merger Corp. or the Company if the Merger shall not have
been consummated on or before June 30, 1999; but neither Merger Corp. nor the
Company may terminate the Merger Agreement at such time if such party has
materially breached the Merger Agreement; (iii) by either Merger Corp. or the
Company if the consummation of the Merger would violate any nonappealable
final order, decree or ruling of any court or governmental body or agency
having competent jurisdiction; (iv) by Merger Corp. if the Board of Directors
of the Company (x) fails to recommend or modifies or withdraws its
recommendation to the shareholders that they approve the Merger, (y) approves
or recommends an Acquisition Proposal or (z) resolves to do any of the
foregoing or otherwise materially impedes approval of the Merger by the
shareholders; (v) by the Company if any person has made a bona fide proposal
relating to an Acquisition Proposal or has commenced
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<PAGE>
a tender or exchange offer for the Company's common stock and the Board of
Directors of the Company determines in good faith (A) after consultation with
its financial advisors, that such transaction constitutes a Higher Offer and
(B) after consultation with counsel, that failure to approve such proposal and
terminate this Agreement could reasonably be expected to result in a breach of
fiduciary duties owed only to shareholders; however, termination of the Merger
Agreement by the Company on such grounds will not be treated as a violation of
any other obligation of the Company; or (vi) by either Merger Corp. or the
Company if the shareholders do not approve the Merger at a duly held meeting
of shareholders or at any adjournment or postponement thereof.
If Merger Corp. or the Company terminates the Merger Agreement as provided
above, there will be no liability on the part of any party or its officers,
directors or shareholders, except as described in "Fees and Expenses" below.
Amendment of the Merger Agreement; Waiver of Conditions
The Merger Agreement may be amended by the Merger Corp. and the Company by
written agreement at any time before or after the approval of the Merger
Agreement by the Company's shareholders, provided that after such shareholder
approval no amendment or modification may be made without the further approval
of such shareholders that decreases the Merger Consideration or that the Board
of Directors of the Company determines would adversely affect the rights of
the Company's shareholders. Each party may, to the extent legally permitted,
extend the time for the performance of any of the obligations of the other
party, waive any inaccuracies in the representations or warranties of the
other contained in the Merger Agreement or in any other writing delivered
pursuant to the Merger Agreement or waive compliance by the other with any
agreements or conditions contained in the Merger Agreement.
Fees and Expenses
The Merger Agreement provides that all costs and expenses in connection
with the Merger Agreement and the transactions contemplated thereby shall be
paid by the party incurring such expense whether or not the Merger is
consummated except as otherwise provided in the Merger Agreement and except
with respect to claims for damages incurred as a result of the breach of the
Merger Agreement. In addition, the Company has agreed to pay Merger Corp. a
fee equal to $6,000,000 ("Termination Fee") if the Company consummates or
agrees to consummate a Business Combination within 12 months of the
termination of the Merger Agreement and the Merger Agreement is terminated (a)
pursuant to paragraph (v) or (vi) in the Section immediately above entitled
"Termination of the Merger Agreement;" or (b) by Merger Corp. pursuant to
paragraph (ii) or (iv) in the Section immediately above entitled "Termination
of the Merger Agreement." In the event the Termination Fee becomes payable, it
must be paid in cash by wire transfer within three business days following the
consummation of a Business Combination.
If the Merger Agreement is terminated for any reason other than (i) on
account of any of certain customary conditions in the Merger Agreement not
being satisfied, (ii) primarily as a result of material adverse changes in the
economy or industry occurring after the date of the Merger Agreement or
(iii) solely on account of Merger Corp.'s failure to obtain the financing as
set forth in the Merger Agreement, the Company has agreed to reimburse Merger
Corp. for all out-of-pocket expenses and fees incurred prior to, on or after
the date of the Merger Agreement in connection with the Merger and the
consummation of all transactions contemplated thereby up to $3 million.
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<PAGE>
Estimated fees and expenses in connection with the Merger and related
transactions (assuming consummation thereof) are as follows:
<TABLE>
<CAPTION>
Description Amount
----------- ------
(in millions)
<S> <C>
Financial advisor fees and expenses........................ $ 5.2
Debt financing fees........................................ 6.6
Investment banking fees.................................... 2.9
Legal, accounting and filing fees, printing costs and other
expenses.................................................. 2.8
-----
Total.................................................... $17.5
</TABLE>
The Surviving Corporation will pay all or a portion of these costs out of
the proceeds of the financing.
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS
If the Merger is consummated, shareholders who fully comply with the
statutory procedures for exercising appraisal rights set forth in the PBCL
will be entitled to receive cash for the fair value of their common stock as
determined pursuant to the procedures prescribed by the PBCL. Merely voting
against the Merger Agreement will not perfect a shareholder's appraisal
rights. Shareholders are urged to review carefully the dissenting
shareholders' rights provisions of the PBCL, a description of which is
provided below and the full text of which is attached to this Proxy Statement
as Appendix C and incorporated herein by reference. SHAREHOLDERS WHO FAIL TO
COMPLY STRICTLY WITH THE APPLICABLE PROCEDURES WILL FORFEIT THEIR APPRAISAL
RIGHTS IN CONNECTION WITH THE MERGER.
Sections 1571-80 of the PBCL ("Subchapter D"), 1906 and 1930 of the PBCL,
copies of which are attached to this Proxy Statement as Appendix C, entitle
any holder of record of common stock who objects to the Merger, in lieu of
receiving the consideration for such common stock provided under the Merger
Agreement, to demand in writing that he be paid in cash the fair value of his
common stock. Section 1572 of the PBCL defines "fair value" as: "The fair
value of shares immediately before the effectuation of the corporate action to
which the dissenter objects, taking into account all relevant factors, but
excluding any appreciation or depreciation in anticipation of the corporate
action."
Any shareholder contemplating making demand for fair value is urged to
review carefully the provisions of Subchapter D, particularly the procedural
steps required to perfect his appraisal rights thereunder. APPRAISAL RIGHTS
WILL BE LOST IF THE PROCEDURAL REQUIREMENTS OF SUBCHAPTER D ARE NOT FULLY AND
PRECISELY SATISFIED. The following summary does not purport to be a complete
statement of the provisions of Subchapter D of the PBCL and is qualified in
its entirety by reference to Appendix C and the PBCL.
Filing Notice of Intention to Demand Fair Value. If you wish to exercise
your appraisal right or to preserve the right to do so, then before the vote
of the shareholders is taken on the Merger you must deliver to the Company a
written notice of intention to demand that you be paid the fair value of your
common stock if the Merger is effected. Such written notice must be sent to
Rudolf Gassner, the Chairman of the Company, at Integrated Circuit Systems,
Inc., 2435 Boulevard of the Generals, Norristown, PA 19403. A vote against the
Merger is not sufficient to satisfy the requirement of delivering a written
notice to the Company. In addition, you must continuously hold your common
stock from the date of filing the notice with the Company through the
consummation of the Merger, and you must not vote your common stock in favor
of the Merger. Your failure to comply with any of the foregoing will result in
the forfeiture of any right to payment of fair value for your common stock.
Once the demand has been properly made, the determination of "fair value" will
be made pursuant to the provisions of Pennsylvania law, including an ultimate
court determination if applicable.
Notice to Demand Payment. If the Merger is approved by the shareholders,
the Company will mail you a further notice if you gave due notice of your
intention to exercise your statutory appraisal right and you refrained
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from voting in favor of the Merger. This notice will provide you with certain
instructions for demanding payment and will notify you of a date by which such
right must be exercised.
Record Owners and Beneficial Owners. If you are a record holder of common
stock held in whole or in part for the benefit of another person, you may
assert appraisal rights as to fewer than all of the common stock registered in
your name only if you dissent with respect to all the common stock
beneficially owned by such person and disclose the name and address of the
person or persons on whose behalf you dissent. If you are a beneficial owner
of common stock and are not the record holder, you may assert appraisal rights
with respect to common stock held on your behalf if you submit to the Company
the written consent of the record holder not later than the time of assertion
of appraisal rights. If you are a beneficial owner, you may not dissent with
respect to fewer than all of your common stock, whether or not such common
stock is registered in your name.
CERTAIN INFORMATION CONCERNING MERGER CORP. AND ITS AFFILIATES
Merger Corp.. Merger Corp. is a Pennsylvania corporation incorporated on
January 20, 1999 at the direction of Bain Capital and Bear Stearns for the
purpose of gaining control of the Company through a recapitalization. It is
anticipated that Merger Corp. will not have any significant assets or
liabilities prior to the Effective Date nor engage in any activities other
than those involving the Merger.
The services of Bain Capital and Bear Stearns and each of their affiliates
in connection with the Merger include the formation of Merger Corp., planning
of the capital structure of the Merger Corp. and the Surviving Corporation,
obtaining commitments and negotiating definitive agreements with respect to
the financing and negotiation of the Merger Agreement.
Bain Capital. Bain Capital is one of the most experienced and successful
private equity investors in the United States. Since its founding in 1984,
Bain Capital has invested in more than 120 companies and currently manages
more than $4 billion of capital. Bain Capital's investment strategy is to
acquire businesses in partnership with exceptional management teams and
improve the long-term value of those businesses.
The investment to be made in Merger Corp. by Bain Capital is expected to be
made by Bain Capital Fund VI, L.P., a Delaware limited partnership ("Fund
VI"), BCIP Associates II, BCIP Associates II-B and BCIP Associates II-C, each
a Delaware general partnership (collectively, the "BCIP Entities"). Bain
Capital Partners VI, L.P., a Delaware limited partnership ("BCPVI"), is the
sole general partner of Fund VI. Bain Capital Investors, Inc., a Delaware
corporation ("Bain Investors VI"), is the sole general partner of BCPVI. Bain
Capital is the sole managing partner of the BCIP Entities. Mr. W. Mitt Romney
is the sole stockholder, sole director, Chief Executive Officer and President
of Bain Investors VI and Bain Capital.
The other executive officers of Bain Investors VI and Bain Capital are as
follows:
<TABLE>
<CAPTION>
Name Title
---- -----
<S> <C>
Joshua Bekenstein.......................................... Managing Director
Edward Conard.............................................. Managing Director
John P. Connaughton........................................ Managing Director
David Dominik.............................................. Managing Director
Paul B. Edgerley........................................... Managing Director
Robert C. Gay.............................................. Managing Director
Adam Kirsch................................................ Managing Director
Michael A. Krupka.......................................... Managing Director
Jonathan A. Lavine......................................... Managing Director
Ronald P. Mika............................................. Managing Director
Mark E. Nunnelly........................................... Managing Director
Stephen G. Pagliuca........................................ Managing Director
Geoffrey S. Rehnert........................................ Managing Director
Robert F. White............................................ Managing Director
Marc B. Wolpow............................................. Managing Director
</TABLE>
40
<PAGE>
Messrs. Ed Brakeman and Domenic Ferrante also serve as Managing Directors
of Bain Capital. Each of the executive officers of Bain Investors VI and Bain
Capital has served as a Managing Director and/or a Principal of Bain Capital
during the last five years. Each director and/or executive officer of Bain
Investors VI and Bain Capital is a citizen of the United States. Certain of
the Managing Directors of Bain Investors VI and Bain Capital hold similar
positions at other investment funds associated with Bain Capital. The address
for Fund VI, BCPVI, Bain Investors VI, Bain Capital, Mr. Mitt Romney and all
of the other executive officers of Bain Investors VI and Bain Capital is
Two Copley Place, Boston, Massachusetts 02116.
Bear Stearns Merchant Banking. Bear Stearns Merchant Banking capitalizes on
the extensive global franchise, long-standing relationships in the financial
community and breadth of financial advisory activities of Bear Stearns to
offer proprietary investment opportunities in a broad range of industries.
Formed in April 1997, Bear Stearns Merchant Banking has committed
approximately $135 million of equity in eleven separate transactions, with
individual commitments of up to $60 million. Bear Stearns Merchant Banking is
a division of Bear Stearns, which is a wholly-owned subsidiary of The Bear
Stearns Companies Inc. ("BSCI").
Set forth below is the name, principal position and business experience of
each director and executive officer of BSCI. All such members are citizens of
the United States.
<TABLE>
<CAPTION>
Name Title Business Experience
---- ----- -------------------
<C> <C> <S>
Alan C. Greenberg..... Chairman of the Chairman of the Board of
Board of Directors Directors of BSCI
James E. Cayne........ President and Chief President and Chief Executive
Executive Officer Officer of BSCI
Carl D. Glickman...... Director Private Investor; Director,
Continental Health Affiliates,
Inc., Infutech, Inc., Lexington
Capital Properties Trust and
OfficeMax Inc.
Donald J. Harrington.. Director President, St. John's University
William L. Mack....... Director President and Senior Managing
Partner, The Mack Organization;
Founder and Managing Partner, The
Apollo Real Estate Investment
Funds
Fred T. Nickell....... Director President and Chief Executive
Officer of Kelso & Company
Frederic V. Salerno... Director Senior Executive Vice President
and CFO/Strategy and Business
Development and Director of Bell
Atlantic Corporation
Vincent Tese.......... Director Chairman and Director of Wireless
Cable International Inc.
Fred Wilpon........... Director Chairman of the Board of
Directors of Sterling Equities,
Inc.
</TABLE>
The Management Group consists of 13 members of management, including
Messrs. Boreen, Tan, and Eggebrecht as well as the senior level managers of
virtually every functional and business unit in the Company. Each member of
the Management Group is a citizen of the United States and has a business
address at 2435 Boulevard of The Generals, Norristown, Pennsylvania 19403. For
further information concerning the Management Group, see "Special Factors--
Conflicts of Interest."
None of the above persons was, during the past five years, convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) or
was, during the past five years, a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
further violations of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws.
41
<PAGE>
Subsequent to the consummation of the Merger, it is anticipated that the
directors and executive officers of the Surviving Corporation will be as
follows:
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
Henry I. Boreen.............. Director
Hock E. Tan.................. Chief Executive Officer, President and Director
Lewis C. Eggebrecht.......... Vice President and Chief Scientist
David Dominik................ Director
Michael A. Krupka............ Director
Prescott Ashe................ Director
John Howard.................. Director
</TABLE>
Set forth below is a brief description of the business experience for each
of the new directors of the Surviving Corporation:
David Dominik joined Bain Capital in 1990 as a Managing Director. Prior to
joining Bain Capital, Mr. Dominik was a general partner of Zero Stage Capital,
a venture capital firm focused on early-stage companies. Previously, Mr.
Dominik was a venture capital investor and assistant to the Chairman of
Genzyme Corporation, a biotechnology firm. From 1982 to 1984, Mr. Dominik was
a management consultant at Bain & Company. Mr. Dominik serves on the Board of
Directors of Oasis Healthcare, Therma-Wave, Inc. and Dynamic Details,
Incorporated.
Michael A. Krupka joined Bain Capital in 1991 and has been a Managing
Director since 1997. Prior to joining Bain Capital, Mr. Krupka spent several
years as a management consultant at Bain & Company where he focused on
technology and technology-related companies. In addition, he has served in
several senior operating roles at Bain Capital portfolio companies. Mr. Krupka
currently serves on the Board of Directors of Sealy Mattress Co.
Prescott Ashe joined Bain Capital in 1991 and has been a Principal at Bain
Capital since 1998. Prior to Bain Capital, Mr. Ashe was a management
consultant at Bain & Company. Mr. Ashe currently serves on the Board of
Directors of Dynamic Details, Incorporated.
John Howard joined Bear Stearns in March of 1997 as a Senior Managing
Director and Head of Merchant Banking. Prior to joining Bear Stearns, Mr.
Howard founded Gryphon Capital Partners, a private investment firm. From 1990
to 1996, he was co-Chief Executive Officer of Vestar Capital Partners, Inc., a
private investment firm specializing in management buyouts. In addition, Mr.
Howard was a Senior Vice President and partner of Wesray Capital Corporation,
a private equity sponsor of leveraged buyouts, from 1985 to 1990. Formerly,
Mr. Howard was a Vice President in the mergers and acquisitions group of Bear
Stearns. Mr. Howard is a director of Celestial Seasonings Inc., Dyersburg
Corporation, MSS-Delaware, Inc., Nice-Pak Holdings, Inc. and Safety 1st, Inc.
42
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of February 1, 1999 for (i) each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of common stock, (ii) each director of the Company, (iii)
the Company's chief executive officer and each of the Company's other
executive officers listed in the Summary Compensation Table included in the
Company's proxy statement dated November 25, 1998 and (iv) all of the
directors and executive officers of the Company as a group. Except pursuant to
applicable community property laws and except as otherwise indicated, each
shareholder identified in the table possesses sole voting and investment power
with respect to its or his shares.
<TABLE>
<CAPTION>
Number of
Shares Percent of
Beneficially Shares
Name Owned (1) Outstanding
- ---- ------------ -----------
<S> <C> <C>
Pilgrim Baxter & Associates, Ltd. (2).............. 1,126,500 9.1%
Wellington Management Company, LLP (3)............. 854,000 7.0%
Henry I. Boreen.................................... 438,540 4.0%
Edward M. Esber, Jr................................ 15,000 *
Rudolf Gassner..................................... 79,000 *
John L. Pickitt.................................... 24,000 *
Hock E. Tan........................................ 92,052(4) *
Martin Goldberg (5)................................ -- --
K. Venkateswaren (5)............................... 24,107 *
Greg Richmond (5).................................. 26,384 *
Stavro Prodromou (5)............................... 113,500 *
All directors and executive officers as a group (6
persons).......................................... 651,471(4) 5.2%
</TABLE>
- --------
*Less than 1% of the outstanding shares.
(1) Includes options exercisable within 60 days of the above date to purchase
the following respective shares of the Company's common stock: Mr.
Boreen--88,000, Mr. Esber--15,000, Mr. Gassner--66,500, Mr. Pickitt--
21,000, Mr. Tan--75,000, Mr. Goldberg--0, Dr. Venkateswaren--22,500, Mr.
Richmond--22,700, Dr. Prodromou--107,500 and all directors and executive
officers as a group--268,379; as well as shares issued pursuant to and
being held by the Company's 401(k) plan as determined from reports of the
plan administrator: Mr. Tan--1,242, Dr. Venkateswaren--1,607, Mr.
Richmond--1,381 and all directors and executive officers as a group--
4,249.
(2) Pursuant to a Schedule 13G filed with the Commission on February 2, 1998,
Pilgrim Baxter & Associates, Ltd. ("Pilgrim") reported beneficial
ownership of 1,126,500 shares of common stock, including sole voting power
with respect of 1,092,300 shares and shared voting and dispositive power
with respect to 1,126,500 shares. The address for Pilgrim is 825 Duportail
Road, Wayne, Pennsylvania 19087.
(3) Pursuant to a Schedule 13G filed with the Commission on February 8, 1999,
Wellington Management Company, LLP ("WMC") reported beneficial ownership
of 854,000 shares of common stock, including shared voting power with
respect to 444,000 shares and shared dispositive power with respect to
854,000 shares. The address for WMC is 75 State Street, Boston,
Massachusetts 02109.
(4) 15,810 of these shares are held in a trust, of which Mr. Tan is the sole
trustee, for the benefit of members of Mr. Edward H. Arnold's family. Mr.
Arnold was formerly Chairman Emeritus of the Board of Directors. Mr. Tan
disclaims beneficial ownership of such shares.
(5) Messrs. Goldberg, Venkateswaren, Richmond and Prodromou no longer serve as
executive officers of the Company.
43
<PAGE>
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Due to the contemplated consummation of the Merger, the Company does not
currently expect to hold a 1999 Annual Meeting of Shareholders because,
following the Merger, the Company will not be a publicly traded company. In
the event that the Merger is not completed, any shareholder proposal intended
to be presented at the 1999 Annual Meeting of Shareholders must be received by
the Company at least 50 days and not more than 75 days prior to the date of
such meeting and otherwise comply with the provisions set forth in the
Company's by-laws relating to advance notice of shareholder proposals in order
to be eligible for consideration by shareholders at such meeting. Any such
proposal must be received by the Company by July 28, 1999 in order to be
considered for inclusion in the Company's proxy materials for the 1999 Annual
Meeting of Shareholders. In addition, the execution of a proxy solicited by
the Company in connection with the 1999 Annual Meeting of Shareholders shall
confer on the designated proxy holder discretionary voting authority to vote
on any shareholder proposal which is not included in the Company's proxy
materials and for which the Company has not received notice at least 50 days
and not more than 75 days prior to the date of such meeting.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company's consolidated balance sheets as of June 28, 1997 and June 27,
1998, and the related consolidated statements of operations, shareholders
equity and cash flows for each of the years in the three year period ended
June 27, 1998, incorporated by reference in this Proxy Statement, have been
audited by KPMG LLP, independent public accountants. A representative of KPMG
LLP will be at the Special Meeting to answer questions from shareholders and
will have the opportunity to make a statement if so desired.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents of the Company are incorporated by reference
herein:
(i) Annual Report on Form 10-K for the year ended June 27, 1998, as
amended;
(ii) Quarterly Reports on Form 10-Q for the interim periods ending
September 26, 1998 and December 26, 1998; and
(iii) Current Reports on Form 8-K, dated February 18, 1999, January 28,
1999, January 22, 1999, January 20, 1999 and October 19, 1998.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act after the date hereof and prior
to the date of the Special Meeting shall be deemed to be incorporated by
reference herein and shall be a part hereof from the date of filing of such
documents. Any statements contained in a document incorporated by reference
herein or contained in this Proxy Statement shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained herein
(or in any other subsequently filed document which also is incorporated by
reference herein) modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed to constitute a part hereof except
as so modified or superseded.
This proxy statement incorporates documents by reference which are not
presented herein or delivered herewith. Such documents (other than exhibits to
such documents unless such exhibits are specifically incorporated by
reference) are available, without charge, to any person, including any
beneficial owner, to whom this proxy statement is delivered, on written or
oral request to the Company at 2435 Boulevard of the Generals, Norristown,
Pennsylvania 19403 Attn: Investor Relations Department (telephone number 610-
630-5300). Such documents will be provided to such person by first class mail
or other equally prompt means within one business day of receipt of such
request. In order to ensure delivery of the documents prior to the special
meeting, requests should be received by , 1999.
44
<PAGE>
AVAILABLE INFORMATION
The Company, Merger Corp., the Equity Investors and the Management Group
have filed with the Commission a Rule 13e-3 Transaction Statement on Schedule
13E-3 (including any amendments thereto, the "Schedule 13E-3") under the
Exchange Act with respect to the Merger. This Proxy Statement does not contain
all of the information set forth in the Schedule 13E-3 and the exhibits
thereto, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. The Company is subject to the informational
requirements of the Exchange Act and, in accordance therewith, files reports,
proxy statements and other information with the Commission.
The Schedule 13E-3 and the exhibits thereto, as well as such reports, proxy
statements and other information filed by the Company, can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at (i) Seven World Trade Center, 13th Floor, New York, New
York 10048, (ii) Suite 500 East, Tishman Building, 5757 Wilshire Boulevard,
Los Angeles, California, 90036, and (iii) 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511.
Copies of such materials also can be obtained at prescribed rates from the
Public Reference Section of the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission maintains an Internet site on the
World Wide Web at "http://www.sec.gov" which contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission.
45
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
ICS MERGER CORP.
AND
INTEGRATED CIRCUIT SYSTEMS, INC.
January 20, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
ARTICLE 1
THE MERGER........................................................... A-1
Section 1.1 The Merger............................................. A-1
Section 1.2 Closing and Effective Time............................. A-1
Section 1.3 Effects of the Merger.................................. A-1
Section 1.4 Articles of Incorporation and By-Laws of the Surviving
Corporation............................................ A-2
Section 1.5 Directors.............................................. A-2
Section 1.6 Officers............................................... A-2
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE COMPANY............. A-2
Section 2.1 Effect on Capital Stock................................ A-2
(a) Merger Consideration................................... A-2
(b) Conversion of Shares................................... A-2
(c) Cancellation of Treasury Stock......................... A-3
(d) Dissenting Shares...................................... A-3
Section 2.2 Options; Stock Plans................................... A-3
Section 2.3 Payment for Common Shares.............................. A-3
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................ A-5
Section 3.1 Organization and Qualification; Subsidiaries........... A-5
Section 3.2 Capitalization; Subsidiaries........................... A-5
Section 3.3 Authority Relative to this Agreement................... A-6
Section 3.4 No Violation........................................... A-6
Section 3.5 SEC Reports and Financial Statements................... A-7
Section 3.6 Compliance with Applicable Laws........................ A-7
Section 3.7 Litigation............................................. A-7
Section 3.8 Information............................................ A-8
Section 3.9 Certain Approvals...................................... A-8
Section 3.10 Employee Benefit Plans................................. A-8
Section 3.11 Taxes.................................................. A-9
Section 3.12 Environmental Matters.................................. A-10
Section 3.13 Absence of Certain Changes............................. A-11
Section 3.14 Brokers................................................ A-12
Section 3.15 Opinion of Investment Banker........................... A-12
Section 3.16 Material Contracts..................................... A-12
Section 3.17 Board Recommendation................................... A-12
Section 3.18 Required Company Vote.................................. A-13
Section 3.19 Intellectual Property.................................. A-13
Section 3.20 Related Party Transactions............................. A-13
Section 3.21 State Takeover Statutes................................ A-13
Section 3.22 Labor Relations and Employment......................... A-14
Section 3.23 Year 2000.............................................. A-14
Section 3.24 Real Estate............................................ A-15
(a) Owned Properties....................................... A-15
(b) Leased Properties...................................... A-15
(c) Real Property Disclosure............................... A-15
(d) No Proceedings......................................... A-15
(e) Current Use............................................ A-15
(f) Condition and Operation of Improvements................ A-16
(g) Permits................................................ A-16
Section 3.25 Absence of Certain Changes or Events with Respect to
the Company............................................ A-16
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ICS................................. A-16
Section 4.1 Organization and Qualification.......................... A-16
Section 4.2 Authority Relative to this Agreement.................... A-16
Section 4.3 No Violation............................................ A-17
Section 4.4 Information............................................. A-17
Section 4.5 Financing............................................... A-17
Section 4.6 Pennsylvania Law........................................ A-17
Section 4.7 Beneficial Ownership of Shares.......................... A-17
Section 4.8 Brokers................................................. A-17
Section 4.9 Formation of ICS; No Prior Activities................... A-17
Section 4.10 Litigation.............................................. A-18
ARTICLE 5
COVENANTS............................................................. A-18
Section 5.1 Conduct of Business of the Company...................... A-18
Section 5.2 Access to Information................................... A-19
Section 5.3 Efforts................................................. A-19
Section 5.4 Title Insurance and Surveys............................. A-21
Section 5.5 Public Announcements.................................... A-21
Section 5.6 Employee Benefit Arrangements........................... A-21
Section 5.7 Indemnification; Directors' and Officers' Insurance..... A-21
Section 5.8 Notification of Certain Matters......................... A-22
Section 5.9 State Takeover Laws..................................... A-22
Section 5.10 No Solicitation......................................... A-22
Section 5.11 Interim Liabilities..................................... A-23
Section 5.12 Reports................................................. A-23
Section 5.13 Shareholders' Meeting................................... A-23
Section 5.14 Conveyance Taxes........................................ A-24
Section 5.15 Delisting............................................... A-24
Section 5.16 Solvency Letters........................................ A-24
ARTICLE 6
CONDITIONS TO CONSUMMATION OF THE MERGER................................. A-24
Section 6.1 Conditions.............................................. A-24
(a) Shareholder Approval.................................... A-24
(b) Solvency Letters........................................ A-25
(c) Orders and Injunctions.................................. A-25
(d) Illegality.............................................. A-25
(e) HSR Act................................................. A-25
Section 6.2 Conditions to Obligations of ICS........................ A-25
(a) Representations and Warranties.......................... A-25
(b) Performance of Obligations of the Company............... A-25
(c) Consents, Etc........................................... A-25
(d) No Litigation........................................... A-25
(e) Financing............................................... A-26
Section 6.3 Conditions to Obligation of the Company................. A-26
(a) Representations and Warranties.......................... A-26
(b) Performance of Obligations of ICS....................... A-26
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE 7
TERMINATION; AMENDMENTS; WAIVER........................................ A-26
Section 7.1 Termination.............................................. A-26
Section 7.2 Effect of Termination.................................... A-27
Section 7.3 Fees and Expenses........................................ A-27
Section 7.4 Amendment................................................ A-28
Section 7.5 Extension; Waiver........................................ A-28
ARTICLE 8
MISCELLANEOUS.......................................................... A-28
Section 8.1 Non-Survival of Representations and Warranties........... A-28
Section 8.2 Entire Agreement; Assignment............................. A-28
Section 8.3 Validity................................................. A-28
Section 8.4 Notices.................................................. A-29
Section 8.5 Governing Law............................................ A-29
Section 8.6 Descriptive Headings..................................... A-29
Section 8.7 Counterparts............................................. A-29
Section 8.8 Parties in Interest...................................... A-29
Section 8.9 Certain Definitions...................................... A-30
Section 8.10 Specific Performance..................................... A-30
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of January 20,
1999, by and between ICS Merger Corp., a Pennsylvania corporation ("ICS"), and
Integrated Circuit Systems, Inc., a Pennsylvania corporation (the "Company").
WHEREAS, the respective Boards of Directors of ICS and the Company have
approved the merger of ICS with and into the Company, as set forth below (the
"Merger"), in accordance with the Business Corporation Law of the Commonwealth
of Pennsylvania (the "BCL") and upon the terms and subject to the conditions
set forth in this Agreement, holders of shares of common stock, no par value,
of the Company (the "Common Shares") issued and outstanding immediately prior
to the Effective Time (as defined below) will be entitled, subject to the
terms hereof and other than as set forth herein, the right to receive cash in
this Agreement or, in the case of certain specifically designated holders of
Common Shares, the right to receive shares of common stock of the Surviving
Corporation (as defined below) (the "Rollover Shares");
WHEREAS, the Board of Directors of the Company (the "Company Board") has,
in light of and subject to the terms and conditions set forth herein, (i)
determined that (A) the consideration to be paid for each Common Share (except
for Rollover Shares) in the Merger (as hereinafter defined) is fair to the
shareholders of the Company, and (B) the Merger is otherwise in the best
interests of the Company and its shareholders, and (ii) resolved to approve
and adopt this Agreement and the transactions contemplated hereby and to
recommend approval and adoption by the shareholders of the Company of this
Agreement;
WHEREAS, the Merger requires the vote of a majority of the votes cast by
all of the issued and outstanding Common Shares entitled to vote for the
approval thereof (the "Company Shareholder Approval");
WHEREAS, ICS and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger, and also
to prescribe various conditions to the Merger; and
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, ICS
and the Company agree as follows:
ARTICLE 1
The Merger
Section 1.1 The Merger. Upon the terms and subject to the satisfaction or
waiver of the conditions hereof, and in accordance with the applicable
provisions of this Agreement and the BCL, at the Effective Time ICS shall be
merged with and into the Company. Following the Merger, the separate corporate
existence of ICS shall cease and the Company shall continue as the surviving
corporation (the "Surviving Corporation").
Section 1.2 Closing and Effective Time. The closing of the Merger (the
"Closing") will take place at 10:00 a.m., local time, on the fifth business
day after satisfaction or waiver of all of the conditions set forth in Article
4 of this Agreement (other than conditions that are to be satisfied at the
Closing, which shall be satisfied or waived at the Closing) or such other date
and time as ICS and the Company may agree upon (the "Closing Date"), at the
offices of Kirkland & Ellis, New York, New York. Immediately following the
Closing the parties hereto shall cause the Merger to become effective by
filing Articles of Merger with the Department of State of the Commonwealth of
Pennsylvania in accordance with the relevant provisions of the BCL, and the
parties shall take such other and further actions as may be required by law to
make the Merger effective. The time the Merger becomes effective in accordance
with applicable law is referred to herein as the "Effective Time."
Section 1.3 Effects of the Merger. The Merger shall have the effects set
forth in the BCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the properties, rights,
privileges,
A-1
<PAGE>
powers and franchises of the Company and ICS shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and ICS
shall become the debts, liabilities and duties of the Surviving Corporation.
Section 1.4 Articles of Incorporation and By-Laws of the Surviving
Corporation.
(a) The Articles of Incorporation, as amended, of the Company, as in effect
immediately prior to the Effective Time and as further amended to provide for
the number and types of shares of capital stock designated on the Rollover
Schedule (as hereinafter defined), shall be the Articles of Incorporation of
the Surviving Corporation until thereafter amended in accordance with the
provisions thereof and hereof and applicable law.
(b) The By-Laws of the Company in effect at the Effective Time shall be the
By-Laws of the Surviving Corporation until amended, subject to the provisions
of Section 5.7 of this Agreement, in accordance with the provisions thereof
and applicable law.
Section 1.5 Directors. Subject to applicable law, the directors of ICS
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation and shall hold office until their respective successors
are duly elected and qualified, or their earlier death, resignation or
removal.
Section 1.6 Officers. The officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation and
shall hold office until their respective successors are duly elected and
qualified, or their earlier death, resignation or removal.
ARTICLE 2
Effect of the Merger on the Capital Stock of the Company
Section 2.1 Effect on Capital Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holders of any Common
Shares or any shares of capital stock of ICS:
(a) Merger Consideration. The Merger Consideration shall be equal to
$21.25 per share (the "Merger Consideration").
(b) Conversion of Shares.
(i) Each issued and outstanding Common Share (except for (x)
Dissenting Shares (as defined herein) and (y) those Common Shares held
by those holders of record listed in the Rollover Schedule, but only up
to the aggregate levels indicated in such Rollover Schedule (the
"Rollover Shares")) shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into the right
to receive from ICS the Merger Consideration without interest upon
surrender of the certificate formerly representing such Common Share in
the manner provided in, and otherwise in accordance with, Section 2.3
hereof. All such Common Shares, when so converted, 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
Common Shares shall cease to have any rights with respect thereto,
except the right to receive the Merger Consideration therefor upon the
surrender of such certificate in the manner provided in, and in
accordance with, Section 2.3 hereof.
(ii) At the Effective Time, (i) each Rollover Share and (ii) each
share of common stock, par value $.01 per share, of ICS issued and
outstanding immediately prior to the Effective Time shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into and become such number and type of shares of the
Surviving Corporation as shall be designated on a schedule (the
"Rollover Schedule") to be provided by ICS to the Company and consented
to in writing by each shareholder listed thereon as to such
shareholder's shares, prior to February 10, 1999.
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(c) Cancellation of Treasury Stock. Each Common Share that is owned by
the Company or by any wholly owned subsidiary of the Company shall
automatically be canceled and retired and shall cease to exist, and no cash
or other consideration shall be delivered or deliverable in exchange
therefor.
(d) Dissenting Shares. Common Shares issued and 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 payment
of the fair value for such holder's Common Shares as determined by
appraisal for such Common Shares in accordance with the BCL prior to the
Effective Time ("Dissenting Shares") shall not be converted into, or be
exchangeable for, a right to receive the Merger Consideration, unless and
until such holder shall have failed to perfect or shall have withdrawn or
otherwise lost such holder's right to appraisal. If after the Effective
Time such holder shall have failed to perfect or shall have withdrawn or
lost such holder's right to appraisal, such Common Shares shall be treated
as if they had been converted as of the Effective Time into a right to
receive the Merger Consideration. The Company shall give ICS prompt notice
of any demands received by the Company for appraisal of Common Shares, and
ICS 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 ICS, make any payment with respect to, or settle or
offer to settle, any such demands.
Section 2.2 Options; Stock Plans. Immediately prior to the Effective Time,
each holder of a then-outstanding employee stock option, whether or not fully
exercisable, to purchase Common Shares (an "Option") granted under the
Company's 1991 and 1992 Stock Option Plan and 1997 Equity Compensation Plan
(the "Stock Plans") will be entitled to receive in settlement of such Option a
cash payment from the Company equal to the product of (i) the total number of
Common Shares previously subject to such Option and (ii) the excess of the
Merger Consideration over the exercise price per Common Share subject to such
Option, subject to any required withholding of taxes. If necessary or
appropriate, the Company will, upon the request of ICS, use reasonable efforts
to obtain the written acknowledgment of each employee holding an Option that
the payment of the amount of cash referred to above will satisfy in full the
Company's obligation to such employee pursuant to such Option and take such
other action as is necessary to effect the provisions of this Section 2.2. The
amounts payable pursuant to this Section 2.2 shall be paid as soon as
reasonably practicable following the Closing Date and shall be subject to and
made net of all applicable withholding taxes. The Company will solicit from
each Retained Employee, as such term is defined in that certain asset purchase
agreement among 3COM Corporation, the Company and ICS Technologies, Inc., an
agreement by each such employee who owns an Option (as defined in such
agreement) to accept, in lieu of stock upon the exercise of the Option, the
amount of cash such employee would have received if they received the cash
payments described in this Section 2.2 (the "Option Payment") which shall be a
condition to any agreement by the Company to pay such Option Payment in
respect of such Options.
Section 2.3 Payment for Common Shares.
(a) Prior to the Effective Time, ICS and the Company shall designate the
Company's registrar and transfer agent or such other bank or trust company as
may be approved by ICS and the Company Board, to act as exchange agent for the
holders of Common Shares in connection with the Merger, pursuant to an
agreement providing for the matters set forth in this Section 2.3 and such
other matters as may be appropriate and the terms of which shall be reasonably
satisfactory to the Company and ICS (the "Exchange Agent"), to receive the
funds to which holders of Common Shares shall become entitled pursuant to
Section 2.1(b) hereof. At the Effective Time, ICS shall deposit, or ICS shall
otherwise take all steps necessary to cause to be deposited, in trust with the
Exchange Agent in an account for the benefit of holders of Common Shares (the
"Exchange Fund") the aggregate Merger Consideration to which holders of Common
Shares shall be entitled at the Effective Time pursuant to Section 2.1(b)
hereof.
(b) Promptly after the Effective Time, and in any event not later than
three business days following the Effective Time, ICS shall cause the Exchange
Agent to mail to each record holder of certificates (the "Certificates") that
immediately prior to the Effective Time represented Common Shares a form of
letter of
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transmittal which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of
the Certificates or an Affidavit of Loss in Lieu of Lost Certificate (as
defined below) to the Exchange Agent and instructions for use in surrendering
such Certificates and receiving the Merger Consideration in respect thereof.
(c) In effecting the payment of the Merger Consideration in respect of
Common Shares represented by Certificates entitled to payment of the Merger
Consideration pursuant to Section 2.1(b) hereof, upon the surrender of each
such Certificate, together with a letter of transmittal duly executed, the
Exchange Agent shall promptly, and in any event not later than three business
days following receipt of such Certificates and letter of transmittal, pay the
holder of such Certificate the Merger Consideration multiplied by the number
of Common Shares represented by such Certificate, in consideration therefor.
Upon such payment such Certificate shall forthwith be canceled.
(d) Until surrendered in accordance with paragraph (c) above, each such
Certificate (other than Certificates representing Common Shares held by ICS or
any of its affiliates, in the treasury of the Company or by any wholly owned
subsidiary of the Company or Dissenting Shares or Rollover Shares) shall
represent solely the right to receive the aggregate Merger Consideration
relating thereto. No interest or dividends shall be paid or accrued on the
Merger Consideration. If the Merger Consideration (or any portion thereof) is
to be delivered to any person other than the person in whose name the
Certificate formerly representing Common Shares surrendered therefor is
registered, it shall be a condition to such right to receive such Merger
Consideration that the Certificate so surrendered shall be properly endorsed
or otherwise be in proper form for transfer and that the person surrendering
such Common Shares shall pay to the Exchange Agent any transfer or other taxes
required by reason of the payment of the Merger Consideration to a person
other than the registered holder of the Certificate surrendered, or shall
establish to the satisfaction of the Exchange Agent that such tax has been
paid or is not applicable.
(e) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the Person (who shall be the
record owner of such Certificate) claiming such Certificate to be lost, stolen
or destroyed (an "Affidavit of Loss in Lieu of Lost Certificate"), the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration deliverable in respect thereof, provided
that the Person to whom the Merger Consideration is paid shall, as a condition
precedent to the payment thereof, give the Surviving Corporation a bond in
such sum as it may direct or otherwise indemnify the Surviving Corporation in
a manner satisfactory to it against any claim that may be made against the
Surviving Corporation with respect to the Certificate claimed to have been
lost, stolen or destroyed.
(f) No dividends or other distributions with respect to Common Shares with
a record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the Common Shares represented
thereby until the surrender of such Certificates or delivery of an Affidavit
of Loss in Lieu of Lost Certificate in accordance with this Section 2.3.
(g) Promptly following the date which is 180 days after the Effective Time,
the Exchange Agent shall deliver to the Surviving Corporation all cash,
Certificates and other documents in its possession relating to the
transactions described in this Agreement, and the Exchange Agent's duties
shall terminate. Thereafter, each holder of a Certificate formerly
representing a Common Share may surrender such Certificate to the Surviving
Corporation and (subject to applicable abandoned property, escheat and similar
laws) receive in consideration therefor the aggregate Merger Consideration
relating thereto, without any interest or dividends thereon.
(h) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of any Common Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates formerly representing Common Shares (other than the
Rollover Shares) are presented to the Surviving Corporation or the Exchange
Agent, they shall be surrendered and canceled in return for the payment of the
aggregate Merger Consideration relating thereto, as provided in this Article
2.
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(i) None of ICS, the Company or Exchange Agent shall be liable to any
person in respect of any cash from the Exchange Fund delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law. If any Certificates shall not have been surrendered prior to seven years
after the Effective Time, any such shares, cash, dividends or distributions in
respect of such Certificate shall, to the extent permitted by applicable law,
become the property of the Surviving Corporation, free and clear of all claims
or interest of any person previously entitled thereto.
ARTICLE 3
Representations and Warranties of the Company
The Company represents and warrants to ICS as follows:
Section 3.1 Organization and Qualification; Subsidiaries. The Company and
each of its Subsidiaries (as hereinafter defined) is a corporation duly
organized, validly existing and in good standing under the laws of its state
or jurisdiction of incorporation and has all requisite corporate power and
corporate authority to own, lease and operate its properties and to carry on
its business as now being conducted and is in good standing as a foreign
corporation in each jurisdiction where the properties owned, leased or
operated, or the business conducted, by it require such qualification and
where failure to be in good standing or to so qualify would have a Material
Adverse Effect on the Company. The term "Material Adverse Effect on the
Company," as used in this Agreement, means any effect, event, occurrence,
change or state of facts that, or aggregated with other effects, events,
occurrences, changes or states of facts, is, or is reasonably likely to be,
materially adverse to (i) the assets, liabilities, business, property,
operations, condition as a whole (financial or otherwise) of the Company and
its Subsidiaries taken as a whole, or (ii) the ability of the Company and its
Subsidiaries to perform in all material respects their obligations under this
Agreement. The Company has heretofore made available to ICS a complete and
correct copy of its Articles of Incorporation, as amended, and By-Laws. Set
forth on Section 3.1 of the Disclosure Schedule is a list of every
corporation, limited liability company, partnership or other business
organization or entity of which the Company owns either directly or through
its Subsidiaries, (a) more than 50% of (i) the total combined voting power of
all classes of voting securities of such entity, (ii) the total combined
equity interests therein, or (iii) the capital or profit interests therein, in
the case of a partnership; or (b) or otherwise has the power to vote or direct
the voting of sufficient securities to elect a majority of the board of
directors or similar governing body of such entity (the "Subsidiaries").
Section 3.2 Capitalization; Subsidiaries. The authorized capital stock of
the Company consists of 50,000,000 Common Shares and 5,000,000 shares of
preferred stock, no par value ("Preferred Stock"). As of the close of business
on January 19, 1999, 12,298,425 Common Shares were issued and outstanding
(which includes certain treasury shares), all of which are entitled to vote on
this Agreement except for those shares held in treasury. The Company has no
shares of Preferred Stock issued and outstanding. As of January 18, 1999,
except for (i) 2,396,646 Common Shares reserved for issuance pursuant to
outstanding Options and rights granted under the Stock Plans, there are not
now, and at the Effective Time there will not be, any existing options,
warrants, calls, subscriptions, or other rights, or other agreements or
commitments, obligating the Company to issue, transfer or sell any shares of
capital stock of the Company or any of its Subsidiaries. Section 3.2 of the
Disclosure Schedule sets forth the name of each holder of an outstanding
Option under the Stock Plans, and with respect to each Option held by any such
holder, the grant date, vesting schedule, exercise price and number of Common
Shares for which such Option is exercisable. All issued and outstanding Common
Shares are, and all Common shares which may be issued pursuant to the exercise
of outstanding Options will be, when issued in accordance with the respective
terms thereof, validly issued, fully paid, nonassessable and free of
preemptive rights. All of the outstanding shares of capital stock of each of
the Company's Subsidiaries have been validly issued and are fully paid and
non-assessable and, except as set forth on Section 3.2 of the Disclosure
Schedule, are owned by either the Company or another of its Subsidiaries free
and clear of all liens, charges, claims or encumbrances. There are no
outstanding options, warrants, calls, subscriptions, or other rights, or other
agreements or commitments, obligating any Subsidiary of the Company to issue,
transfer or sell any shares of its capital stock.
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Section 3.3 Authority Relative to this Agreement.
(a) The Company has all necessary corporate power and authority to execute
and deliver this Agreement and, except for the approval of this Agreement by
the shareholders of the Company, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
the Company Board and no other corporate proceedings on the part of the
Company or on the part of the shareholders of the Company are necessary to
authorize this Agreement or to consummate the transactions so contemplated,
other than the approval of this Agreement by the holders of a majority of the
outstanding Common Shares of the Company. This Agreement has been duly and
validly executed and delivered by the Company, and, assuming this agreement
constitutes a valid and binding obligation of ICS, this Agreement constitutes
a valid and binding agreement of the Company, enforceable against the Company
in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the rights of creditors generally, general
equitable principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing.
(b) Except as set forth in Section 3.3 of the Disclosure Schedule, the
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
of this Agreement will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of consent, termination, purchase, cancellation or acceleration of
any obligation or to loss of any property, rights or benefits under, result in
the imposition of any additional obligation under, or result in the creation
of any Lien (as defined herein) upon any of the properties or assets of the
Company or any of its Subsidiaries under or constitute a "change of control"
under, require the consent from, or the giving of notice to, a third party
pursuant to (i) the organizational documents of the Company or any of its
Subsidiaries, (ii) any contract, instrument, permit, concession, franchise,
license, loan or credit agreement, note, bond, mortgage, indenture, lease or
other property agreement, partnership or joint venture agreement or other
legally binding agreement or obligation, whether oral or written (a
"Contract"), applicable to the Company or any of its Subsidiaries or their
respective properties or assets or (iii) subject to the governmental filings
and other matters referred to in the following paragraph, any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Company
or any of its Subsidiaries or their respective properties or assets, other
than, in the case of clauses (ii) and (iii), any such conflicts, violations,
defaults, rights, Liens, adverse consequences resulting from such change of
control or where the failure to obtain such consents or provide such notices
that, individually or in the aggregate, would not have a Material Adverse
Effect on the Company. For purposes of this Agreement, "Lien" shall mean, with
respect to any asset, any imperfection of title, lien, lease, pledge,
encumbrance, mortgage, claim, option, voting trust, preemptive right,
attachment, encroachment or other charge or security interest in or on such
asset.
(c) Other than in connection with, or in compliance with, the provisions of
the BCL with respect to the transactions contemplated hereby, the Securities
Exchange Act of 1934 (the "Exchange Act"), the securities laws of the various
states and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), no authorization, consent or approval of, or filing
with, any Governmental Entity (as hereinafter defined) is necessary for the
consummation by the Company of the transactions contemplated by this Agreement
other than authorizations, consents and approvals the failure to obtain, or
filings the failure to make, which would not, in the aggregate, have a
Material Adverse Effect on the Company. As used in this Agreement, the term
"Governmental Entity" means any government or subdivision thereof, domestic,
foreign or supranational or any administrative, governmental or regulatory
authority, agency, commission, tribunal or body, domestic, foreign or
supranational.
Section 3.4 No Violation. Neither the execution or delivery of this
Agreement by the Company nor the consummation by the Company of the
transactions contemplated hereby will (i) constitute a breach or violation of
any provision of the Articles of Incorporation, as amended, or By-Laws of the
Company or (ii) except as set forth on Section 3.4 of the Disclosure Schedule,
constitute a breach, violation or default (or any event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or
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accelerate the performance required by, or permit a third party to terminate
or accelerate vesting or repurchase rights, or result in the creation of any
Lien upon any of the properties or assets of the Company or any of its
Subsidiaries, or any other detriment under, any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument to
which the Company or any of its Subsidiaries is a party or by which they or
any of their respective properties or assets are bound, other than breaches,
violations, defaults, terminations, accelerations or creation of Liens which,
in the aggregate, would not have a Material Adverse Effect on the Company.
Section 3.5 SEC Reports and Financial Statements. Since January 1, 1995,
the Company has filed all forms, reports and documents ("SEC Reports") with
the SEC required to be filed by it pursuant to the federal securities laws and
the SEC rules and regulations thereunder. Copies of all such SEC Reports have
been made available to ICS by the Company or are publicly available on EDGAR.
None of such SEC Reports (as of their respective filing dates) contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading except as subsequently disclosed. The audited and unaudited
consolidated financial statements of the Company included in the SEC Reports
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as otherwise stated in such financial
statements, including the related notes) and fairly present the financial
position of the Company and its consolidated Subsidiaries as of the dates
thereof and the results of their operations and changes in financial position
for the periods then ended, subject, in the case of the unaudited financial
statements, to year-end audit adjustments. Except as set forth in the SEC
Reports and except as disclosed in Section 3.5 of the Disclosure Schedule, at
the date of the most recent audited financial statements of the Company
included in the SEC Reports, neither the Company nor any of its Subsidiaries
had, and since such date neither the Company nor any of such Subsidiaries has
incurred, any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) which, individually or in the aggregate,
would be required to be disclosed in a balance sheet of the Company prepared
in accordance with generally accepted accounted principles except liabilities
incurred in the ordinary and usual course of business and consistent with past
practice, liabilities incurred in connection with the transactions
contemplated by this Agreement, and liabilities that would not reasonably be
expected to have a Material Adverse Effect with respect to the Company.
Section 3.6 Compliance with Applicable Laws. Except as set forth on Section
3.6 of the Disclosure Schedule and except for matters relating to
Environmental Laws (which matters are covered in Section 3.12 hereof) or
matters relating to real estate (which matters are covered in Section 3.24
hereof), (i) the Company and its Subsidiaries possess all permits, licenses,
certifications and other governmental or regulatory authorizations and
approvals necessary to enable the Company and its Subsidiaries to carry on
their business as presently conducted except for such failures to have such
permits, licenses, certifications or regulatory authorizations or approvals
that would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect, and all such permits are valid, and in full
force and effect and there exists no default thereunder and (ii) the
operations of the Company and its Subsidiaries have been conducted in
compliance with all laws, ordinances, regulations, judgments and decrees of
any Governmental Entity applicable to the Company or such Subsidiary or by
which it may be bound, except for possible violations which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
Section 3.7 Litigation. Section 3.7 of the Disclosure Schedule sets forth
any suit, claim, action, proceeding or investigation pending or, to the
knowledge of the Company, threatened, at law or in equity, or before any
Governmental Entity, against the Company or any of its Subsidiaries, none of
which, individually or in the aggregate, would reasonably be expected to have
a Material Adverse Effect on the Company or would reasonably be expected to
prevent or materially delay the consummation of the transactions contemplated
by this Agreement. Except as disclosed in the SEC Reports filed prior to the
date of this Agreement, neither the Company nor any of its Subsidiaries is
subject to any outstanding order, writ, injunction or decree which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on the Company or could prevent or materially delay
the consummation of the transactions contemplated hereby.
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Section 3.8 Information. None of the information supplied by the Company in
writing specifically for inclusion or incorporation by reference in (i) the
Proxy Statement (as hereinafter defined) or (ii) any other document to be
filed with the SEC or any other Governmental Entity in connection with the
transactions contemplated by this Agreement (the "Other Filings") will, at the
respective times filed with the SEC or other Governmental Entity and, in
addition, in the case of the Proxy Statement, at the date it or any amendment
or supplement is mailed to shareholders, at the time of the Special Meeting
(as hereinafter defined) 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
light of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing, no representation is made by the Company with
respect to (i) any forward-looking information which may have been supplied by
the Company, or (ii) statements made in any of the foregoing documents based
upon information supplied by ICS.
Section 3.9 Certain Approvals. The Company Board has taken any and all
necessary and appropriate action to approve the Merger and the transactions
contemplated by this Agreement, including for the purposes of Sections
2538(b)(1) and 2555(1) of the BCL.
Section 3.10 Employee Benefit Plans.
(a) Section 3.10(a) of the Disclosure Schedule includes a true and complete
list of all material employee benefit plans and programs providing benefits to
any employee or former employee of the Company and its Subsidiaries sponsored
or maintained by the Company or any of its Subsidiaries or to which the
Company or any of its Subsidiaries contributes or is obligated to contribute
("Plans"). Without limiting the generality of the foregoing, the term "Plans"
includes all employee welfare benefit plans within the meaning of Section 3(1)
of the Employee Retirement Income Security Act of 1974, as amended, and the
regulations thereunder ("ERISA"), and all employee pension benefit plans
within the meaning of Section 3(2) of ERISA.
(b) With respect to each Plan, the Company has made available to ICS a
true, correct and complete copy of: (i) all plan documents, benefit schedules,
trust agreements, and insurance contracts and other funding vehicles; (ii) the
most recent Annual Report (Form 5500 Series) and accompanying schedule, if
any; (iii) the current summary plan description, if any; (iv) the most recent
annual financial report, if any; (v) the most recent actuarial report, if any;
and (vi) the most recent determination letter from the United States Internal
Revenue Service (the "IRS"), if any.
(c) The Company and each of its Subsidiaries has complied, and is now in
compliance, in all material respects with all provisions of ERISA, the
Internal Revenue Code of 1986, as amended, including the Treasury Regulations
thereunder (the "Code") and all laws and regulations applicable to the Plans.
With respect to each Plan that is intended to be a "qualified plan" within the
meaning of Section 401(a) of the Code ("Qualified Plans"), (i) such Plan is a
Qualified Plan within the meaning of Section 401(a) of the Code, (ii) such
Qualified Plans are within the remedial amendment period and (iii) the Company
will submit such Qualified Plans to the IRS for a favorable determination
letter within the remedial amendment period.
(d) All contributions required to be made to any Plan by applicable law or
regulation or by any plan document or other contractual undertaking, and all
premiums due or payable with respect to insurance policies funding any Plan,
for any period through the date hereof have been timely made or paid in full
or, to the extent not required to be made or paid on or before the date
hereof, have been fully reflected in the financial statements of the Company
included in the SEC Reports to the extent required under generally accepted
accounting principles.
(e) Except as set forth on Section 3.10(e) of the Disclosure Schedule, no
Plan is subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of
the Code. Without limiting the generality of the foregoing, no Plan is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA (a
"Multiemployer Plan") or a plan that has two or more contributing sponsors at
least two of whom are not under common control, within the meaning of Section
4063 of ERISA and which is subject to Title IV of ERISA (a "Multiple Employer
Plan").
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(f) There does not now exist, nor do any circumstances exist that could
result in, any material liability under (i) Title IV of ERISA, (ii) Section
302 of ERISA, (iii) Sections 412 and 4971 of the Code, (iv) the continuation
coverage requirements of section 601 et seq. of ERISA and Section 4980B of the
Code, or (v) corresponding or similar provisions of foreign laws or
regulations, other than a liability that arises solely out of, or relates
solely to, the Plans, that would be a liability of the Company or any of its
Subsidiaries following the Effective Time. Without limiting the generality of
the foregoing, none of the Company, its Subsidiaries nor any ERISA Affiliate
of the Company or any of its Subsidiaries has engaged in any transaction
described in Section 4069 or Section 4204 or 4212 of ERISA. An "ERISA
Affiliate" means any entity, trade or business that is a member of a group
described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1)
of ERISA that includes the Company or any of its Subsidiaries, or that is a
member of the same "controlled group" as the Company or any of its
Subsidiaries, pursuant to Section 4001(a)(14) of ERISA.
Section 3.11 Taxes.
(a) The Company and each of its Subsidiaries has timely filed all federal,
state, local and foreign income Tax Returns (as hereinafter defined) required
to be filed by it in all jurisdictions in which it is required to do so, and
all other material Tax Returns required to be filed by it, and such Tax
Returns are true and complete in all material respects, and the Company and
each of its Subsidiaries has paid or caused to be paid all Taxes (as
hereinafter defined) shown due on such Tax Returns and has made adequate
provision in the Company's financial statements for payment of all Taxes that
are not payable as of the date hereof or have not been paid, in respect of all
taxable periods or portions thereof ending on or before the date hereof,
except where the failure to so file or pay or make adequate provision would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company. All Tax Returns for the Company in respect of all years not barred by
the statute of limitations have heretofore been made available by the Company
to ICS and are listed in Section 3.11 of the Disclosure Schedule. There are no
outstanding Agreements, waivers or requests for waivers extending the
statutory period of limitation applicable to any Tax Return of the Company or
any of its Subsidiaries. Except as set forth on Section 3.11 of the Disclosure
Schedule, neither the Company nor any of its Subsidiaries (i) has been a
member of a group filing consolidated returns for federal income tax purposes
(except for the group of which the Company is the common parent), (ii) is a
party to or has any liability pursuant to a Tax sharing or Tax indemnity
agreement or any other agreement of a similar nature that remains in effect or
(iii) has any liability for the Taxes of any person (other than any of the
Company or its Subsidiaries) under Treas. Reg. (S) 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor, by
contract, or otherwise. The Company will attach to its June 27, 1998, Tax
Return the statement required under Treasury Regulation Section 1.1502-
20(c)(3) related to the disposition of its shares in Voyetra Technologies,
Inc. Except as set forth in Section 3.11 of the Disclosure Schedule, no claim
has ever been made by a taxing authority in a jurisdiction where the Company
or any of its Subsidiaries does not file Tax Returns that such person is or
may be subject to taxation by such jurisdiction. None of the Company or its
Subsidiaries will be required to include any item of income in, or exclude any
item of deduction from, taxable income for any taxable period (or portion
thereof) ending after the Closing Date as a result of any (i) change in method
of accounting for a taxable period ending on or prior to the Closing Date
under Code (S) 481(c) (or any corresponding or similar provision of state,
local or foreign income Tax law), (ii) "closing agreement" as described in
Code (S) 7121 (or any corresponding or similar provision of state, local or
foreign income Tax law) or (iii) deferred intercompany gain or any excess loss
account described in Treasury Regulations under Code Section 1502. None of the
Company or its Subsidiaries is a party to any agreement, contract, arrangement
or plan that has resulted or would result, separately or in the aggregate, in
the payment of any "excess parachute payment" within the meaning of Code (S)
280G (or any corresponding provision of state, local or foreign income Tax
law).
(b) For purposes of this Agreement, the term "Taxes" means all taxes,
charges, fees, levies or other assessments, including, without limitation,
income, gross receipts, excise, property, sales, transfer, license, payroll,
withholding, capital stock and franchise taxes, imposed by the United States
or any state, local or foreign government or subdivision or agency thereof,
including any interest, penalties or additions thereto. For
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purposes of this Agreement, the term "Tax Return" means any report, return or
other information or document required to be supplied to a taxing authority in
connection with Taxes.
Section 3.12 Environmental Matters.
Except as set forth on Section 3.12 of the Disclosure Schedule and except
for such matters that, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect:
(a) with respect to the Business, the Company and its Subsidiaries have
complied and are in compliance with all Environmental and Safety
Requirements;
(b) without limiting the generality of the foregoing, the Company and
its Subsidiaries have obtained and complied with, and are in compliance
with, all permits, licenses and other authorizations that may be required
pursuant to Environmental and Safety Requirements for the occupation of
their facilities and the operation of the Business and all such permits,
licenses and authorizations may be relied upon for the lawful operation of
the Business and such facilities on and after the Closing without transfer,
reissuance or other governmental action;
(c) neither the Company nor any Subsidiary has received any written or
oral notice, report or other information regarding any actual or alleged
violation of Environmental and Safety Requirements, or any liabilities or
potential liabilities (whether accrued, absolute, contingent, unliquidated
or otherwise), including any investigatory, remedial or corrective
obligations, relating to the Business or its past or current facilities and
arising under Environmental and Safety Requirements;
(d) none of the following exists at any property or facility owned or
operated by the Company or any Subsidiary in connection with the Business:
(i) underground storage tanks; (ii) asbestos-containing material in any
form or condition; (iii) materials or equipment containing polychlorinated
biphenyls; or (iv) landfills, surface impoundments, or disposal areas;
(e) with respect to the Business, neither the Company nor any Subsidiary
has treated, stored, disposed of, arranged for or permitted the disposal
of, transported, handled, or released any substance, including without
limitation any hazardous substance, or owned or operated any property or
facility (and no such property or facility is contaminated by any such
substance) in a manner that has given or would give rise to liabilities,
including any liability for response costs, corrective action costs,
personal injury, property damage, natural resources damages or attorney
fees, or any investigative, corrective or remedial obligations, pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA") or the Solid Waste Disposal Act, as amended
("SWDA") or any other Environmental and Safety Requirements;
(f) no facts, events or conditions relating to the past or present
facilities, properties or operations of the Company, any Subsidiary, or any
of their respective affiliates or predecessors the Business will prevent,
hinder or limit continued compliance by the Business with Environmental and
Safety Requirements, give rise to any investigatory, remedial or corrective
obligations pursuant to Environmental and Safety Requirements, or give rise
to any other liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) pursuant to Environmental and Safety
Requirements, including without limitation any relating to onsite or
offsite releases or threatened releases of hazardous materials, substances
or wastes, personal injury, property damage or natural resources damage;
(g) neither this Agreement nor the consummation of the transaction that
is the subject of this Agreement will result in any obligations for site
investigation or cleanup, or notification to or consent of government
agencies or third parties, pursuant to any of the so-called "transaction-
triggered" or "responsible property transfer" Environmental and Safety
Requirements;
(h) with respect to the Business, neither the Company nor any Subsidiary
has, either expressly or by operation of law, assumed or undertaken any
liability, including without limitation any obligation for corrective or
remedial action, of any other person relating to Environmental and Safety
Requirements; and
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(i) for purposes of this Agreement, "Environmental and Safety
Requirements" shall mean all federal, state, local and foreign statutes,
regulations, ordinances and similar provisions having the force or effect
of law, all judicial and administrative orders and determinations, all
contractual obligations and all common law concerning public health and
safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the
presence, use, production, generation, handling, transportation, treatment,
storage, disposal, distribution, labeling, testing, processing, discharge,
release, threatened release, control, or cleanup of any hazardous
materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products
or byproducts, asbestos, polychlorinated biphenyls, noise or radiation, as
such of the foregoing are enacted or in effect, prior to, on, or after the
Closing Date.
Section 3.13 Absence of Certain Changes. Except as set forth in Section
3.13 of the Disclosure Schedule, or except as disclosed in the SEC Reports,
from June 27, 1998, through the date of this Agreement the Company (a) has
conducted its business only in the ordinary course consistent with past
practice and (b) has not:
(i) incurred any indebtedness for borrowed money, except borrowings from
banks (or other financial institutions) necessary to meet ordinary course
working capital requirements and to finance ordinary course capital
expenditures;
(ii) mortgaged, pledged or subjected to any Lien, any asset or related
group of assets having a net book value in excess of $500,000;
(iii) sold, leased, assigned or transferred any tangible asset or
related group of assets having a net book value in excess of $500,000
except for the sale of inventory and obsolete or used machinery and
equipment in the ordinary course of business consistent with past practice;
(iv) sold, leased, assigned or transferred any interest in real estate
having a net book value in excess of $500,000;
(v) sold, licensed, assigned or transferred any patents, trademarks,
trade names, copyrights, trade secrets or other intangible assets having a
fair market value in excess of $500,000 individually or in the aggregate;
(vi) waived or relinquished any right or claim or related group of
rights or claims except any such item which the Company believes has a fair
value of less than $500,000 individually or in the aggregate;
(vii) (x) issued or sold any of its Common Shares or other equity
securities or any warrants, options or other rights to acquire its Common
Shares or other securities of the Company except for the issuance of Common
Shares upon exercise of Options outstanding as of June 27, 1998, or (y)
purchased or redeemed or agreed to purchase or redeem any Common Shares or
other equity securities;
(viii) made or entered into binding commitment for any capital
expenditures or related group of capital expenditures in excess of
$2,500,000;
(ix) modified or amended in any material manner or terminated any
Material Contract (as hereinafter defined) other than the termination of
any such contract by its terms;
(x) granted any increase in the base compensation of, or made any other
material change in the employments terms for, any of its directors,
officers, and employees other than normal periodic increases or changes
reflecting or based upon changed responsibilities or duties made in the
ordinary course of business consistent with past practice or changes made
pursuant to any collective bargaining agreements or existing contracts;
(xi) adopted, modified, or terminated any bonus, profit-sharing,
incentive, severance or other plan or contract for the benefit of any of
its directors, officers, and employees, other than for changes which do not
materially increase the aggregate cost of such plan or contract or which
are required by law or a collective bargaining agreement; or
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(xii) declared or paid any dividend or other distribution with respect
to the Common Shares.
Section 3.14 Brokers. Except as set forth on Section 3.14 of the Disclosure
Schedule and except for the engagement of the Investment Banker (as defined in
Section 3.15 hereof), none of the Company, any of its Subsidiaries, or any of
their respective officers, directors or employees has employed any broker or
finder or incurred any liability for any brokerage fees, commissions or
finder's fees in connection with the transactions contemplated by this
Agreement.
Section 3.15 Opinion of Investment Banker. The Company has received the
written opinion of Pennsylvania Merchant Group (the "Investment Banker") to
the effect that, as of the date hereof and subject to certain matters stated
in such opinion, the consideration to be received by the holders of Common
Shares pursuant to the Merger is fair to the Company's shareholders from a
financial point of view.
Section 3.16 Material Contracts. Except as set forth on Section 3.16 of the
Disclosure Schedule, neither the Company nor any of its Subsidiaries is a
party to any: (i) collective bargaining agreement or contract with any labor
union; (ii) bonus, pension, profit sharing, retirement or other form of
deferred compensation plan; (iii) stock purchase, stock option, stock
appreciation or similar plan; (iv) contract for the employment of any officer,
individual employee or other person on a full-time or consulting basis
involving an annual compensation commitment by the Company or a Subsidiary in
excess of $200,000; (v) agreement or indenture relating to the borrowing of
money in excess of $1,000,000 or to mortgaging, pledging or otherwise placing
a Lien (other than a Permitted Lien (as defined herein)) on any material
portion of the Company's assets; (vi) guaranty of any obligation for borrowed
money in excess of $1,000,000; (vii) lease or agreement under which it is
lessee of, or holds or operates any personal property owned by any other
party, for which the annual rental exceeds $250,000, (viii) contract or group
of related contracts with the same party for the purchase of inventories,
supplies or services, under which the undelivered balance of such inventories,
supplies or services has a selling price in excess of $1,000,000; (ix)
contract or group of related contracts with the same party for the sale of
products or services under which the undelivered balance of such products or
services has a sales price in excess of $1,000,000; (x) agreement pertaining
to Intellectual Property (as hereinafter defined) including, license
agreements or similar arrangements; or (xi) contract which prohibits or
materially limits the Company or a Subsidiary in any material respect from
freely engaging in business in the United States or anywhere else in the world
(all such contracts and agreements, "Material Contracts"). The Company has
provided or made available to ICS (i) true and complete copies of all written
Material Contracts, or (ii) with respect to such Material Contracts that have
not been reduced to writing, a written description thereof, each of which is
listed on Section 3.16 of the Disclosure Schedule. Neither the Company nor any
of its Subsidiaries is, or has received any notice or has any knowledge that
any other party is, in default in any respect under any such Material
Contract, except for those defaults which would not reasonably be likely,
either individually or in the aggregate, to have a Material Adverse Effect
with respect to the Company; and there has not occurred any event that, with
the lapse of time or the giving of notice or both, would constitute such a
material default. For purposes of this Agreement, "Permitted Liens" shall mean
(i) Liens for Taxes (other than those pursuant to Section 412 of the Code) or
governmental assessments, charges or claims, the payment of which is not yet
due, or for Taxes, the validity of which are being contested in good faith by
appropriate proceedings; (ii) statutory Liens incurred in the ordinary course
of business for sums not yet due or being contested in good faith; (iii) Liens
relating to deposits made in the ordinary course of business; and (iv) Liens
which do not individually or in the aggregate materially interfere with or
materially impair the conduct of the Business as it is currently being
conducted, or the value, marketability, use or ownership of the asset to which
it attaches.
Section 3.17 Board Recommendation. The Company Board, at a meeting duly
called and held, has (a) determined that this Agreement and the transactions
contemplated hereby, taken together, are advisable and in the best interests
of the Company and its shareholders, and (b) subject to the other provisions
hereof, resolved to recommend that the holders of the Common Shares approve
this Agreement and the transactions contemplated hereby, including the Merger.
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Section 3.18 Required Company Vote. The Company Shareholder Approval, being
the affirmative vote of a majority of the votes cast by Common Shares entitled
to vote, is the only vote of the holders of any class or series of the
Company's securities necessary to approve this Agreement, the Merger and the
other transactions contemplated hereby.
Section 3.19 Intellectual Property.
(a) Section 3.19 of the Disclosure Schedule contains a complete and
accurate list of all (i) patented or registered Intellectual Property owned or
filed by the Company or any Subsidiary, (ii) pending patent applications and
applications for registration of other Intellectual Property filed by or on
behalf of the Company or any Subsidiary, (iii) material unregistered trade
names, corporate names, or Internet domain names owned or used by the Company
or any Subsidiary, (iv) material unregistered trademarks, service marks,
copyrights and mask works owned or used by the Company or any Subsidiary, (v)
all computer software owned and/or used by the Company or any of its
Subsidiaries (other than mass-marketed software with a license fee of less
than $10,000) that is material to the Business, and (vi) all material licenses
or similar agreements or arrangements pertaining to Intellectual Property to
which the Company or its Subsidiaries is a party, either as licensee or
licensor.
(b) Except as set forth on Section 3.19 of the Disclosure Schedule, (i) the
Company or one of its Subsidiaries owns all right, title and interest to, or
has a valid and enforceable license to use, all Intellectual Property
necessary for the operation of the businesses of the Company and its
Subsidiaries as presently conducted and free and clear of all Liens or other
encumbrances or restrictions; (ii) no claim by any other Person contesting the
validity, enforceability, use or ownership of any of the Intellectual Property
owned or used by the Company or any of its Subsidiaries (the "Company
Intellectual Property") has been made, is currently outstanding or, to the
knowledge of the Company, is threatened (including, without limitation, any
demand or request that the Company or its Subsidiaries license any rights from
a third Person); (iii) neither the Company nor its Subsidiaries have received
any notices of, nor are aware of any facts which indicate a likelihood of, any
infringement or misappropriation by, or conflict with, any third Person with
respect to the Company Intellectual Property that would reasonably be expected
to have a Material Adverse Effect; (iv) to the knowledge of the Company,
neither the Company nor its Subsidiaries have infringed, misappropriated, or
otherwise conflicted with any Intellectual Property or other rights of any
third Persons and neither the Company nor its Subsidiaries is aware of any
infringement, misappropriation or conflict which will occur as a result of the
continued operation of the business of the Company or its Subsidiaries as
currently conducted; (v) no loss or expiration of any of the material Company
Intellectual Property is threatened, pending or reasonably foreseeable; (vi)
the transactions contemplated by this Agreement will have no Material Adverse
Effect on the right, title and interest in and to the Company Intellectual
Property; and (vii) the Company and its Subsidiaries have taken all necessary
and desirable action to maintain and protect the Company Intellectual Property
and will continue to maintain and protect the Company Intellectual Property to
ensure that there is no affect on any of the Company Intellectual Property
that would have a Material Adverse Effect.
Section 3.20 Related Party Transactions. Except as set forth in Section
3.20 of the Disclosure Schedule hereto, no director, officer, partner,
"affiliate" or "associate" (as such terms are defined in Rule 12b-2 under the
Exchange Act) of the Company or any of its Subsidiaries (or, with respect to
clause (i) of this sentence, to the knowledge of the Company, its employees)
(i) has borrowed any monies from or has outstanding any indebtedness or other
similar obligations to the Company or any of its Subsidiaries; (ii) owns any
direct or indirect interest of any kind in, or is a director, officer,
employee, partner, affiliate or associate of, or consultant or lender to, or
borrower from, or has the right to participate in the management, operations
or profits of, any person or entity which is (1) a competitor, supplier,
customer, distributor, lessor, tenant, creditor or debtor of the Company or
any of its Subsidiaries, (2) engaged in a business related to the business of
the Company or any of its Subsidiaries, (3) participating in any transaction
to which the Company or any of its Subsidiaries is a party or (iii) otherwise
a party to any contract, arrangement or understanding with the Company or any
of its Subsidiaries.
Section 3.21 State Takeover Statutes. The Company Board has taken such
action so that no statute, takeover statute or similar statute or regulation
of the Commonwealth of Pennsylvania, to the knowledge of the
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Company, any other state, prevents the consummation of the Merger, or any of
the other transactions contemplated hereby on the terms and subject to the
conditions of this Agreement. Except as set forth in Section 3.21 of the
Disclosure Schedule, neither the Company nor any of its Subsidiaries has any
rights plan, preferred stock or similar arrangement that causes any statute,
takeover statute or similar statute or regulation of the Commonwealth of
Pennsylvania, to the knowledge of the Company, any other state that prevents
the consummation of the transactions contemplated hereby on the terms and
subject to the conditions of this Agreement.
Section 3.22 Labor Relations and Employment.
(a) Except as set forth on Section 3.22(a) of the Disclosure Schedule and
except for matters which would not (other than in the case of clause (iii) or
(iv) of this sentence) be reasonably likely to result in a Material Adverse
Effect, (i) there is no labor strike, dispute, slowdown, stoppage or lockout
actually pending, or, to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries, and during the past three years there has
not been any such action; (ii) to the knowledge of the Company, no union
claims to represent the employees of the Company or any of its Subsidiaries;
(iii) neither the Company nor any of its Subsidiaries is a party to or bound
by any collective bargaining or similar agreement with any labor organization,
or work rules or practices agreed to with any labor organization or employee
association applicable to employees of the Company or any of its Subsidiaries;
(iv) none of the employees of the Company or any of its Subsidiaries is
represented by any labor organization and the Company does not have any
knowledge of any current union organizing activities among the employees of
the Company or any of its Subsidiaries, nor does any question concerning
representation exist concerning such employees; (v) the Company and its
Subsidiaries are, and have at all times been, in material compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, and are not engaged in any unfair labor practices as defined in the
National Labor Relations Act or other applicable law, ordinance or regulation;
(vi) there is no unfair labor practice charge or complaint against the Company
or any of its Subsidiaries pending or, to the knowledge of the Company,
threatened before the National Labor Relations Board or any similar state or
foreign agency; (vii) there is no grievance arising out of any collective
bargaining agreement or other grievance procedure; (viii) no charges with
respect to or relating to the Company or any of its Subsidiaries are pending
before the Equal Employment Opportunity Commission or any other agency
responsible for the prevention of unlawful employment practices; (ix) neither
the Company nor any of its Subsidiaries has received notice of the intent of
any federal, state, local or foreign agency responsible for the enforcement of
labor or employment laws to conduct an investigation with respect to or
relating to the Company or any of its Subsidiaries and no such investigation
is in progress; and (x) there are no complaints, lawsuits or other proceedings
pending or to the knowledge of the Company threatened in any forum by or on
behalf of any present or former employee of the Company or any of its
Subsidiaries alleging breach of any express or implied contract of employment,
any law or regulation governing employment or the termination thereof or other
discriminatory, wrongful or tortious conduct in connection with the employment
relationship.
(b) To the knowledge of the Company, since the enactment of the Worker
Adjustment and Retraining Notification ("WARN") Act, there has not been (i) a
"plant closing" (as defined in the WARN Act) affecting any site of employment
or one or more facilities or operating units within any site of employment or
facility of the Company or any of its Subsidiaries; or (ii) a "mass layoff"
(as defined in the WARN Act) affecting any site of employment or facility of
the Company or any of its Subsidiaries; nor has the Company or any of its
Subsidiaries been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application of any
similar state or local law. Except as set forth in Section 3.22(b) of the
Disclosure Schedule, to the best knowledge of the Company, none of the
employees of the Company or any of its Subsidiaries has suffered an
"employment loss" (as defined in the WARN Act) since three months prior to the
date of this Agreement.
Section 3.23 Year 2000. The Company and each of its Subsidiaries have
conducted a thorough inventory and assessment of the hardware, software and
embedded microcontrollers in noncomputer equipment
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(collectively, the "Computer Systems") used by the Company and its
Subsidiaries in its business, in order to determine which parts of the
Computer Systems are not Year 2000 Compliant (as defined below) and to
estimate the cost of rendering such Computer Systems Year 2000 Compliant prior
to January 1, 2000 or such earlier date on which the Computer Systems may shut
down or may produce incorrect calculations or otherwise malfunction without
becoming totally inoperable. Based on the above inventory and assessment, the
estimated total cost of rendering the Computer Systems Year 2000 Compliant is
$200,000, which expenditure has been included in the budget adopted by the
Company. For purposes of this Agreement, "Year 2000 Compliant" means that all
of the Computer Systems will correctly differentiate between years in
different centuries that end in the same two digits, and will accurately
process date/time data (including but not limited to calculating, comparing
and sequencing) from, into and between the twentieth and twenty-first
centuries, including leap year calculations.
Section 3.24 Real Estate.
(a) Owned Properties. Section 3.24 of the Disclosure Schedule sets forth a
list of all owned real property (the "Owned Real Property") used by the
company in the operation of the Company's business. With respect to each such
parcel of Owned Real Property: (i) such parcel is free and clear of all
encumbrances (except for Permitted Liens); (ii) except as disclosed in Section
3.24 of the Disclosure Schedule, there are no leases, subleases, licenses,
concessions, or other agreements, written or oral, granting to any person the
right of use or occupancy of any portion of such parcel; and (iii) there are
no outstanding actions or rights of first refusal to purchase such parcel.
(b) Leased Properties. Section 3.24 of the Disclosure Schedule sets forth a
list of all of the leases and subleases ("Leases") and each leased and
subleased parcel of real property in which the company has a leasehold and
subleasehold interest (the "Leased Real Property"). Each of the Leases are in
full force and effect, and the Company holds a valid and existing leasehold or
subleasehold interest under each of the Leases described in Schedule 3.24.
With respect to each Lease set forth on Section 3.24 of the Disclosure
Schedule: (i) the Lease is legal, valid, binding, enforceable and in full
force and effect; (ii) the Lease will continue to be legal, valid, binding,
enforceable and in full force and effect on identical terms following the
Closing; (iii) neither the Company, nor, to the Knowledge of the Company, any
other party to the Lease, is in breach or default, and no event has occurred
which, with notice or lapse of time, would constitute such a breach or default
by the Company or permit termination, modification or acceleration under the
Lease by any other party thereto; (iv) the Company has not, and, to the
Knowledge of the Company, no third party has repudiated any provision of the
Lease; (v) there are no disputes, oral agreements, or forbearance programs in
effect as to the Lease; (vi) the Lease has not been modified in any respect,
except to the extent that such modifications are disclosed by the documents
delivered to ICS; (vii) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the Lease (except for
Permitted Liens); and (viii) the Lease is fully assignable to ICS without the
necessity of any consent or the Company shall obtain all necessary consents
prior to the Closing.
(c) Real Property Disclosure. Except as disclosed on Section 3.24 of the
Disclosure Schedule, there is no Real Property leased or owned by the Company
used in the Company's business. The Owned Real Property and Leased Real
Property is referred to collectively herein as the "Real Property."
(d) No Proceedings. There are no proceedings in eminent domain or other
similar proceedings pending or, to the knowledge of the Company, threatened,
affecting any portion of the Real Property (except for Permitted Liens). There
exists no writ, injunction, decree, order or judgment outstanding, nor any
litigation, pending or threatened, relating to the ownership, lease, use,
occupancy or operation by any person of the Real Property (except for
Permitted Liens).
(e) Current Use. The current use of the Owned Real Property does not
violate in any material respect any instrument of record or agreement
affecting such Owned Real Property. There is no violation of any covenant,
condition, restriction, easement, agreement or order of any governmental
authority having jurisdiction over any
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of the Owned Real Property that affects such real property or the use or
occupancy thereof (except for Permitted Liens). No damage or destruction has
occurred with respect to any of the Owned Real Property that, individually or
in the aggregate, has had or resulted in, or will have or result in, a
Material Adverse Effect on the Company.
(f) Condition and Operation of Improvements. All buildings and other
improvements included within the Real Property (the "Improvements") are in
good condition and repair and adequate to operate such facilities as currently
used, and, to the best of the Company's knowledge and belief, there are no
facts or conditions affecting any of the Improvements which would,
individually or in the aggregate, interfere in any significant respect with
the use, occupancy or operation thereof which would reasonably be expected to
have a Material Adverse Effect on the Company as currently used, occupied or
operated or intended to be used, occupied or operated. No Improvement or
portion thereof is dependent for its access, operation or utility on any land,
building or other improvement not included in the Real Property.
(g) Permits. All required or appropriate certificates of occupancy,
permits, licenses, franchises, approvals and authorizations (collectively, the
"Real Property Permits") of all governmental authorities having jurisdiction
over the Real Property, the absence of which could have a Material Adverse
Effect on the Company, have been issued to the Company to enable the Real
Property to be lawfully occupied and used for all of the purposes for which it
is currently occupied and used have been lawfully issued and are, as of the
date hereof, in full force and effect. The Company has delivered complete and
correct copies of the Real Property Permits to ICS. The Company has not
received or been informed by a third party of the receipt by it of any notice
which could have a Material Adverse Effect on the Company from any
governmental authority having jurisdiction over the Real Property threatening
a suspension, revocation, modification or cancellation of any Real Property
Permit and, to the best knowledge of the Company, there is no basis for the
issuance of any such notice or the taking of any such action.
Section 3.25 Absence of Certain Changes or Events with Respect to the
Company. Except as set forth in Section 3.13 of the Disclosure Schedule, since
June 27, 1998, the Company has not (a) suffered a Material Adverse Effect or
(b) materially changed the Company's accounting principles, practices,
articles or methods, except as required by generally accepted accounting
principles or applicable law.
ARTICLE 4
Representations and Warranties of ICS
ICS represents and warrants to the Company as follows:
Section 4.1 Organization and Qualification. ICS is a corporation duly
organized, validly existing and in good standing under the laws of its state
or jurisdiction of incorporation and is in good standing as a foreign
corporation in each other jurisdiction where the properties owned, leased or
operated, or the business conducted, by it require such qualification and
where failure to be in good standing or to so qualify would have a Material
Adverse Effect on ICS. The term "Material Adverse Effect on ICS", as used in
this Agreement, means any change in or effect on the business, financial
condition, results of operations or reasonably foreseeable prospects of ICS or
any of its Subsidiaries that would be materially adverse to ICS.
Section 4.2 Authority Relative to this Agreement.
(a) ICS has full corporate power and authority to execute and deliver 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 and validly authorized by the
Board of Directors of ICS and no other corporate proceedings on the part of
ICS are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly
executed and delivered by ICS and, assuming this Agreement constitutes a valid
and binding obligation of the Company, this Agreement constitutes a valid and
binding agreement of ICS, enforceable against ICS in accordance with its
terms.
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(b) Other than in connection with, or in compliance with, the provisions of
the BCL, the Exchange Act, the securities laws of the various states and the
HSR Act, no authorization, consent or approval of, or filing with, any
Governmental Entity is necessary for the consummation by ICS of the
transactions contemplated by this Agreement other than authorizations,
consents and approvals the failure to obtain, or filings the failure to make,
which would not, in the aggregate, have a Material Adverse Effect on ICS.
Section 4.3 No Violation. Neither the execution or delivery of this
Agreement by ICS nor the consummation by ICS of the transactions contemplated
hereby will (i) constitute a breach or violation of any provision of the
Articles of Incorporation, as amended, or By-Laws of ICS or (ii) constitute a
breach, violation or default (or any event which, with notice or lapse of time
or both, would constitute a default) under, or result in the termination of,
or accelerate the performance required by, or result in the creation of any
Lien upon any of the properties or assets of ICS under, any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument to which ICS is a party or by which it or any of its properties or
assets are bound, other than breaches, violations, defaults, terminations,
accelerations or creation of Liens which, in the aggregate would not have a
Material Adverse Effect on ICS.
Section 4.4 Information. None of the information supplied by ICS in writing
(other than projections of future financial performance) specifically for
inclusion or incorporation by reference in (i) the Proxy Statement or (ii) the
Other Filings will, at the respective times filed with the SEC or other
Governmental Entity and, in addition, in the case of the Proxy Statement, at
the date it or any amendment or supplement is mailed to shareholders, at the
time of the Special Meeting 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
light of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing, no representation is made by ICS with respect
to statements made in any of the foregoing documents based upon information
supplied by the Company.
Section 4.5 Financing. Section 6.2(e) of the Disclosure Schedule sets forth
true and complete copies of written documentation from third parties which
provides for financing in amounts sufficient to consummate the transactions
contemplated hereby as contemplated by Section 6.2(e) hereof. The commitment
fees set forth in such financing documents which are due and payable have been
paid.
Section 4.6 Pennsylvania Law. ICS was not immediately prior to the
execution of this Agreement, an "interested stockholder" within the meaning of
Sections 2538 and 2553 of the BCL.
Section 4.7 Beneficial Ownership of Shares. As of the date hereof, ICS does
not "beneficially own" (as defined in Rule 13d-3 under the Exchange Act) more
than 1% of the outstanding shares of Common Shares or any securities
convertible into, or exchangeable for, Common Shares. ICS will not buy
additional Common Shares between the date of this Agreement and the Closing.
Section 4.8 Brokers. Except as set forth on Schedule 4.8 of the Disclosure
Schedule, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
ICS, that is or will be payable by the Company or any of its Subsidiaries. No
fee is due to any such person if the transactions contemplated hereby are not
consummated.
Section 4.9 Formation of ICS; No Prior Activities. ICS was formed solely
for the purpose of engaging in the transactions contemplated by this
Agreement. As of the date hereof and the Effective Time, except for (a)
obligations or liabilities incurred in connection with its incorporation or
organization and the transactions contemplated by this Agreement, and (b) this
Agreement and any other agreements or arrangements contemplated by this
Agreement or in furtherance of the transactions contemplated hereby, ICS has
not
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incurred, directly or indirectly, through any subsidiary or affiliate, any
obligations or liabilities, owned any assets or engaged in any business
activities of any type or kind whatsoever or entered into any agreements or
arrangements with any Person.
Section 4.10 Litigation. There is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of ICS, threatened, at law or in
equity, or before any Governmental Entity, against ICS, which could prevent or
materially delay the consummation of the transactions contemplated by this
Agreement.
ARTICLE 5
Covenants
Section 5.1 Conduct of Business of the Company. Except as contemplated by
this Agreement or as expressly agreed to in writing by ICS, during the period
from the date of this Agreement to the Effective Time, the Company will, and
will cause each of its Subsidiaries to, conduct its operations according to
its ordinary and usual course of business and consistent with past practice
and use its and their respective commercially reasonable efforts to preserve
intact their current business organizations, keep available the services of
their current officers and employees and preserve their relationships with
customers, suppliers, licensors, licensees, advertisers, distributors and
others having business dealings with them and to preserve goodwill. Without
limiting the generality of the foregoing, and except as (x) otherwise
expressly provided in this Agreement, (y) required by law, or (z) set forth on
Section 5.1 of the Disclosure Schedule, prior to the Effective Time, the
Company will not, and will cause its Subsidiaries not to, without the consent
of ICS (which consent shall not be unreasonably withheld):
(a) except with respect to annual bonuses made in the ordinary course of
business consistent with past practice, adopt or amend in any material
respect any bonus, profit sharing, compensation, severance, termination,
stock option, stock appreciation right, pension, retirement, employment or
other employee benefit agreement, trust, plan or other arrangement for the
benefit or welfare of any director, officer or employee of the Company or
any of its Subsidiaries or increase in any manner the compensation or
fringe benefits of any director, officer or employee of the Company or any
of its Subsidiaries or pay any benefit not required by any existing
agreement or place any assets in any trust for the benefit of any director,
officer or employee of the Company or any of its Subsidiaries (in each
case, except with respect to employees and directors in the ordinary course
of business consistent with past practice);
(b) incur any indebtedness for borrowed money;
(c) expend funds for capital expenditures in excess of $1,000,000;
(d) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of its properties or assets other than
immaterial properties or assets (or immaterial portions of properties or
assets), except in the ordinary course of business consistent with past
practice;
(e) (x) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock (except (A) for
dividends paid by Subsidiaries to the Company with respect to capital
stock), (y) split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock or (z) purchase, redeem
or otherwise acquire any shares of capital stock of the Company or any of
its Subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities;
(f) authorize for issuance, issue, deliver, sell or agree or commit to
issue, sell, grant or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise), pledge, dispose of or otherwise encumber any shares of its
capital stock or the capital stock of any of its Subsidiaries, any other
voting securities or any securities convertible into, or any rights,
warrants, calls, commitments or options to acquire, any such shares, voting
securities or convertible securities or any other securities or equity
equivalents (including without limitation stock appreciation rights) (other
than issuances upon exercise of Options or pursuant to the Stock Plans);
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(g) amend its Articles of Incorporation, as amended, By-Laws or
equivalent organizational documents or alter through merger, liquidation,
reorganization, restructuring or in any other fashion the corporate
structure or ownership of any Subsidiary of the Company;
(h) make or agree to make any acquisition of assets which is material to
the Company and its Subsidiaries, taken as a whole, except for (x)
purchases of inventory in the ordinary course of business or (y) pursuant
to purchase orders entered into in the ordinary course of business which do
not call for payments in excess of $2,500,000 per annum;
(i) settle or compromise any shareholder derivative suits arising out of
the transactions contemplated hereby or any other litigation (whether or
not commenced prior to the date of this Agreement) or settle, pay or
compromise any claims not required to be paid; provided, however, that the
Company may settle, pay and compromise claims in an aggregate amount not in
excess of $1,000,000 in consultation and cooperation with ICS; or
(j) take any action which is not set forth on Section 3.13 of the
Disclosure Schedule, if taken after June 27, 1998, but prior to the date
hereof, that would have caused the representations and warranties contained
in Section 3.13 hereof to be untrue.
Section 5.2 Access to Information. From the date of this Agreement until
the Effective Time, the Company will, and will cause its Subsidiaries, and
each of their respective officers, directors, employees, agents or other
representatives (including, without limitation, any investment banker,
attorney or accountant retained by the Company or its Subsidiaries) (the
"Company Representatives") to, give ICS and their respective officers,
employees, agents or other representatives (including, without limitation, any
investment banker, attorney or accountant retained by ICS) (the "ICS
Representatives") and representatives of financing sources identified by ICS
reasonable access, upon reasonable notice and during normal business hours, to
the offices and other facilities and to the books and records of the Company
and its Subsidiaries and will cause the Company Representatives and the
Company's Subsidiaries to furnish ICS and the ICS Representatives and
representatives of financing sources identified by ICS with such financial and
operating data and such other information with respect to the business and
operations of the Company and its Subsidiaries as ICS and representatives of
financing sources identified by ICS may from time to time reasonably request.
ICS agrees that any information furnished pursuant to this Section 5.2 will be
subject to the provisions of the letter agreement dated May 15, 1998, between
Bain Capital, Inc. and the Company (the "Confidentiality Agreement").
Section 5.3 Efforts.
(a) Each of the Company and ICS shall, and the Company shall cause each of
its Subsidiaries to, use commercially reasonable efforts to take all action to
do all things necessary to consummate and make effective the transactions
contemplated by this Agreement (including the satisfaction, but not waiver, of
the closing conditions set forth in Article 6). In furtherance and not in
limitation of the foregoing, each of the Company and ICS shall, and the
Company shall cause each of its Subsidiaries to, make all necessary filings
with Governmental Entities as promptly as practicable in order to facilitate
prompt consummation of the transactions contemplated by this Agreement. In
addition, each of ICS and the Company will use its commercially reasonable
efforts (including, without limitation, payment of any required fees) and will
cooperate fully with each other to (i) comply as promptly as practicable with
all governmental requirements applicable to the transactions contemplated by
this Agreement, including the making of all filings necessary or proper under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, but not limited to,
the Proxy Statement or other foreign filings and any amendments to any thereof
and (ii) obtain promptly all consents, waivers, approvals, authorizations or
permits of, or registrations or filings with or notifications to (any of the
foregoing being a "Consent"), any Governmental Entity necessary for the
consummation of the transactions contemplated by this Agreement (except for
such Consents the failure of which to obtain would not prevent or materially
delay the consummation of the Merger). Subject to the Confidentiality
Agreement, ICS and the Company shall furnish to one and other such necessary
information and reasonable assistance as ICS or the Company may reasonably
request in connection with the foregoing.
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(b) Without limiting Section 5.3(a) hereof, ICS and the Company shall each
(i) promptly make or cause to be made the filings required of such party under
the HSR Act with respect to the Merger; (ii) use its best efforts to avoid the
entry of, or to have vacated or terminated, any decree, order, or judgment
that would restrain, prevent or delay the consummation of the Merger,
including without limitation defending through litigation on the merits any
claim asserted in any court by any third party; and (iii) take any and all
steps which, in such party's judgment, are commercially reasonable to avoid or
eliminate each and every impediment under any antitrust, competition, or trade
regulation law that may be asserted by any Governmental Entity with respect to
the Merger so as to enable consummation thereof to occur as soon as reasonably
possible. Each party hereto shall promptly notify the other parties of any
communication to that party from any Governmental Entity and permit the other
parties to review in advance any proposed communication to any Governmental
Entity. ICS and the Company shall not (and shall cause their respective
affiliates and representatives not to) agree to participate in any meeting
with any Governmental Entity in respect of any filings, investigation or other
inquiry unless it consults with the other party in advance and, to the extent
permitted by such Governmental Entity, gives the other party the opportunity
to attend and participate thereat. Subject to the Confidentiality Agreement,
each of the parties hereto will coordinate and cooperate fully with the other
parties hereto in exchanging such information and providing such assistance as
such other parties may reasonably request in connection with the foregoing and
in seeking early termination of any applicable waiting periods under the HSR
Act or in connection with other Consents. Each of the Company and ICS agrees
to respond promptly to and comply fully with any request for additional
information or documents under the HSR Act. Subject to the Confidentiality
Agreement, the Company will provide ICS, and ICS will provide the Company,
with copies of all correspondence, filings or communications (or memoranda
setting forth the substance thereof) between such party or any of its
representatives, on the one hand, and any Governmental Entity or members of
its staff, on the other hand, with respect to this Agreement and the
transactions contemplated hereby.
(c) ICS shall use commercially reasonable efforts to cause the financing
necessary for satisfaction of the condition in Section 6.2(e) hereof to be
obtained on the terms set forth in the commitment letters attached to Section
6.2(e) of the Disclosure Schedule; provided, however, that ICS shall be
entitled to (i) enter into commitments for equity and debt financing with
other nationally recognized financial institutions, which commitments will
have substantially the same terms as those set forth in the commitment letters
and which commitments may be substituted for such commitment letters and (ii)
modify the capital structure set forth in such commitment letters so long as
(A) the total committed common equity equals at least $50 million (including
Rollover Shares), (B) the Merger Consideration paid to all shareholders of the
Company is no less than otherwise would have been paid in accordance with this
Agreement and (C) such modified financing is no less certain than that set
forth in such commitment letter.
(d) The Company agrees to provide, and will cause its Subsidiaries and its
and their respective officers, employees and advisors to provide, all
reasonable cooperation in connection with the arrangement of any financing in
respect of the transactions contemplated by this Agreement, including, without
limitation, (i) participation in meetings, due diligence sessions and road
shows, (ii) assisting the preparation of offering memoranda, private placement
memoranda, prospectuses and similar documents, and (iii) the execution and
delivery of any commitment letters, underwriting or placement agreements,
pledge and security documents, other definitive financing documents, or other
requested certificates or documents as may be requested by ICS; provided that
the form and substance of any of the material documents referred to in clause
(ii), and the terms and conditions of any of the material agreements and other
documents referred to in clause (iii), shall be substantially consistent with
the terms and conditions of the financing required to satisfy the condition
set forth in Section 6.2(e) hereof; and provided, further, that no such person
or entity will be required to incur any costs or expenses in connection with
this Section 5.3(d) or to execute or deliver any of the agreements or other
documents referred to in clause (iii) unless Bain Capital, Inc. and Bear,
Stearns & Co., Inc. shall have agreed to indemnify such person or entity
against all costs and expenses arising in connection with this Section 5.3(d)
and any liability arising under such agreements or other documents in the
event the transactions contemplated by this Agreement are not consummated.
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Section 5.4 Title Insurance and Surveys. In the event that the Company has
not consummated the transactions related to the sale/leaseback of the Valley
Forge facility by the Closing, the Company shall use its reasonable efforts to
assist ICS in obtaining: (1) a title insurance policy of the Valley Forge
facility together with all affidavits, undertakings, endorsements and other
title clearance documents necessary to issue such title policy to ICS and its
lender and (2) an ALTA Survey certified to ICS, its lender and any other party
reasonably requested by ICS.
Section 5.5 Public Announcements. The Company, on the one hand, and ICS, on
the other hand, agree to consult promptly with each other prior to issuing any
material press release or announcement or otherwise making any material public
statement with respect to the Merger and the other transactions contemplated
hereby, agree to provide to the other party for review a copy of any such
press release or statement, and shall not issue any such press release or make
any such public statement prior to such consultation and review, unless
required by applicable law or any listing agreement with a securities exchange
or the Nasdaq Stock Market, Inc.
Section 5.6 Employee Benefit Arrangements.
(a) The Company will honor, and, from and after the Effective Time, the
Surviving Corporation will honor, in accordance with their respective terms as
in effect on the date hereof, the employment, severance and bonus agreements
and arrangements to which the Company is a party.
(b) The Company agrees that for a period of one year following the
Effective Time, the Surviving Corporation shall continue the (i) compensation
(including bonus and incentive awards) programs and plans and (ii) employee
benefit and welfare plans, programs, contracts, agreements and policies
(including insurance and pension plans), fringe benefits and vacation policies
which are currently provided by the Company; provided that notwithstanding
anything in this Agreement to the contrary the Surviving Corporation shall not
be required to maintain any individual plan or program so long as the benefit
plan and agreements maintained by the Surviving Corporation are, in the
aggregate, not materially less favorable than those provided by the Company
immediately prior to the date of this Agreement; and, provided, further, that
nothing in this sentence shall be deemed to limit or otherwise affect the
right of the Surviving Corporation to terminate employment or change the place
of work, responsibilities, status or designation of any employee or group of
employees as the Surviving Corporation may determine in the exercise of its
business judgment and in compliance with applicable laws.
Section 5.7 Indemnification; Directors' and Officers' Insurance.
(a) The Company and, from and after the Effective Time, the Surviving
Corporation, shall indemnify, defend and hold harmless the present and former
officers, directors, employees and agents of the Company and its Subsidiaries
(the "Indemnified Parties") against all judgments, fines, losses, claims,
damages, costs or expenses (including reasonable attorneys' fees) or
liabilities arising out of or related to matters, actions or omissions or
alleged actions or omissions occurring at or prior to the Effective Time
whether asserted or claimed prior to or after the Effective Time (i) to the
full extent permitted by Pennsylvania law or, if the protections afforded
thereby to an Indemnified Person are greater, (ii) to the same extent and on
the same terms and conditions (including with respect to advancement of
expenses) provided for in the Company's Articles of Incorporation, as amended,
and By-Laws and agreements in effect at the date hereof (to the extent
consistent with applicable law), which provisions will survive the Merger and
continue in full force and effect after the Effective Time. Without limiting
the foregoing, (i) ICS shall, and shall cause the Surviving Corporation to,
periodically advance expenses (including attorney's fees) as incurred by an
Indemnified Person with respect to the foregoing to the full extent permitted
under applicable law, and (ii) any determination required to be made with
respect to whether an Indemnified Party shall be entitled to indemnification
shall, if requested by such Indemnified Party, be made by independent legal
counsel selected by the Surviving Corporation and reasonably satisfactory to
such Indemnified Party.
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(b) ICS agrees that the Company, and, from and after the Effective Time,
the Surviving Corporation, shall cause to be maintained in effect for not less
than six years from the Effective Time the current policies of the directors'
and officers' liability insurance maintained by the Company; provided that the
Surviving Corporation may substitute therefor other policies of at least the
same coverage amounts and which contain terms and conditions not less
advantageous to the beneficiaries of the current policies and, provided
further, that such substitution shall not result in any gaps or lapses in
coverage with respect to matters occurring on or prior to the Effective Time;
and provided further, that the Surviving Corporation shall not be required to
pay an annual premium in excess of 200% of the last annual premium paid by the
Company prior to the date hereof and if the Surviving Corporation is unable to
obtain the insurance required by this Section 5.7(b) it shall obtain as much
comparable insurance as possible for an annual premium equal to such maximum
amount.
(c) This Section 5.7 shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, the Surviving Corporation
and the Indemnified Parties, shall be binding on all successors and assigns of
ICS and the Surviving Corporation, and shall be enforceable by the Indemnified
Parties.
Section 5.8 Notification of Certain Matters. ICS and the Company shall
promptly notify each other of (i) the occurrence or non-occurrence of any fact
or event which would be reasonably likely (A) to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any
material respect at any time from the date hereof to the Effective Time or (B)
to cause any covenant, condition or agreement under this Agreement not to be
complied with or satisfied and (ii) any failure of the Company, or ICS, as the
case may be, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder; provided, however, that no such
notification shall affect the representations or warranties of any party or
the conditions to the obligations of any party hereunder. Each of the Company
and ICS shall give prompt notice to the other parties hereof of any notice or
other communication from any third party alleging that the consent of such
third party is or may be required in connection with the transactions
contemplated by this Agreement.
Section 5.9 State Takeover Laws. The Company shall, upon the request of
ICS, take all reasonable steps to assist in any challenge by ICS to the
validity or applicability to the transactions contemplated by this Agreement,
including the Merger, of any state takeover law.
Section 5.10 No Solicitation.
(a) From and after the date hereof until the termination of this Agreement,
the Company and its affiliates shall not, and shall instruct the Company
Representatives not to:
(i) directly or indirectly solicit, initiate, or encourage (including by
way of furnishing nonpublic information or assistance), or take any other
action to facilitate, any inquiries or proposals from any person that
constitute, or may reasonably be expected to lead to, an acquisition,
purchase, merger, consolidation, share exchange, recapitalization, business
combination or other similar transaction involving any material portion of
the assets or any securities of, any merger, consolidation or business
combination with, or any public announcement of a proposal, plan, or
intention to do any of the foregoing by, the Company or any of its
Subsidiaries (such transactions being referred to herein as "Acquisition
Proposals"); except that none of the foregoing restrictions shall apply
with respect to persons to whom the Company or a Company Representative has
already provided, within the three months prior to the date of this
Agreement, non-public written information about the Company to facilitate
an Acquisition Proposal;
(ii) enter into, maintain, or continue discussions or negotiations with
any person in furtherance of such inquiries or to obtain an Acquisition
Proposal; except that none of the foregoing restrictions shall apply with
respect to persons to whom the Company or a Company Representative has
already provided, within the three months prior to the date of this
Agreement, non-public written information about the Company to facilitate
an Acquisition Proposal;
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(iii) agree to or endorse any Acquisition Proposal;
(iv) enter into any agreement, arrangement or understanding requiring it
to abandon, terminate or fail to consummate the Merger or any other
transaction contemplated by this Agreement, or
(v) authorize or permit the Company Representatives to take any such
action except to the extent that such action may be taken under clause (i)
or (ii) of this Section 5.10(a);
provided, however, that prior to the approval of the Merger by the
shareholders of the Company nothing in this Agreement shall prohibit the
Company Board or a special committee of the Company Board (the "Special
Committee") from (A) furnishing information to, and engaging in discussions or
negotiations with, any person or entity that makes an unsolicited written,
bona fide proposal to acquire the Company and/or its Subsidiaries pursuant to
a merger, consolidation, share exchange, tender offer or other similar
transaction, but only to the extent that the Company Board or the Special
Committee determines in good faith by a majority vote, based upon advice from
independent legal counsel (who may be the Company's regularly engaged outside
legal counsel), a description of which is provided to ICS, that failure to
furnish such information or engage in such discussions or negotiations with
such person or entity would be reasonably likely to constitute a breach of the
fiduciary duties to shareholders of the Company Board or the Special Committee
under applicable law (assuming for such purpose that fiduciary duties are owed
only to shareholders), and such a proposal is, in the opinion of the
Investment Banks more favorable to the Company and the shareholders of the
Company from a financial point of view then than the transactions contemplated
by this Agreement (including any adjustment to the terms and conditions of
such transactions proposed by ICS in response to such Acquisition Proposal)
(any such Acquisition Proposal satisfying such criteria, a "Higher Offer"),
provided that, prior to accepting the Higher Offer, the Company Board notifies
ICS of its intentions and obtains an executed confidentiality agreement from
the appropriate parties substantially similar to the Confidentiality
Agreement, (B) failing to make or withdrawing or modifying its recommendation
referred to in Section 5.13 hereof if the Company Board, after consultation
with independent legal counsel (who may be the Company's regularly engaged
outside legal counsel), determines in good faith that such action is
consistent with the Company Board's fiduciary duties to shareholders under
applicable law, provided that ICS is given five days' prior written notice of
its intentions to do so, and (C) disclosing to the Company's shareholders a
position contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange
Act with respect to any tender offer, or taking any other legally required
action (including, without limitation, the making of public disclosure as may
be necessary or advisable under applicable securities laws); and, provided
further, that the Company Board's or the Special Committee's exercise of its
rights under clause (A), (B) or (C) above shall not constitute a breach by the
Company of this Agreement.
(b) The Company will promptly notify ICS of the receipt of any Acquisition
Proposal, the terms and conditions of such proposal and, if not prohibited by
the terms of such proposal, the identity of the person making it. The Company
will have no obligation to notify ICS of any change to or modification of such
Acquisition Proposal or the terms and conditions thereof, but shall provide
ICS with a reasonable opportunity to increase the Merger Consideration in
response to such Acquisition Proposal.
Section 5.11 Interim Liabilities. The Surviving Corporation will pay,
consistent with past practice, all liabilities, including all accounts payable
and other expenses, which arise in the ordinary course of business prior to
the Closing Date.
Section 5.12 Reports. The Company shall provide ICS with monthly financial
statements, broken out by business segment, no later than the fifth business
day following the end of each calendar month following the date of this
Agreement until the Effective Date.
Section 5.13 Shareholders' Meeting.
(a) The Company, acting through the Company Board, shall, in accordance
with applicable law:
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(i) duly call, give notice of, convene and hold a special meeting of its
shareholders (the "Special Meeting") as soon as practicable following the
execution of this Agreement for the purpose of considering and taking
action upon this Agreement;
(ii) prepare and file with the SEC a preliminary proxy statement
relating to this Agreement, and use its reasonable efforts (A) to obtain
and furnish the information required to be included by the SEC in a
definitive proxy statement (the "Proxy Statement") and, after consultation
with ICS, to respond promptly to any comments made by the SEC with respect
to the preliminary proxy statement and cause the Proxy Statement to be
mailed to its shareholders and (B) to obtain the necessary approvals of the
Merger and this Agreement by its shareholders; and
(iii) subject to the fiduciary duties of the Company Board, include in
the Proxy Statement the recommendation of the Company Board that
shareholders of the Company vote in favor of the approval of this
Agreement.
(b) The Company covenants that the Proxy Statement will comply in all
material respects with the provisions of applicable federal securities laws
and, on the date filed with the SEC and on the date first published, sent or
given to the Company's shareholders, shall not 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 light of
the circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information supplied by
ICS in writing for inclusion in the Proxy Statement. Each of the Company, on
the one hand, and ICS, on the other hand, agree promptly to correct any
information provided by either of them for use in the Proxy Statement if and
to the extent that it shall have become false or misleading, and the Company
further agrees to take all steps necessary to cause the Proxy Statement as so
corrected to be filed with the SEC and to be disseminated to the holders of
Shares, in each case, as and to the extent required by applicable federal
securities laws.
Section 5.14 Conveyance Taxes. ICS and the Company shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value-added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees or any similar taxes which become
payable by the Company or any of its Subsidiaries in connection with the
transactions contemplated by this Agreement that are required or permitted to
be filed on or before the Effective Time.
Section 5.15 Delisting. Each of the parties agrees to cooperate with each
other in taking, or causing to be taken, all actions necessary to delist the
Common Shares from NASDAQ and to terminate registration under the Exchange
Act, provided that such delisting and termination shall not be effective until
after the Effective Time of the Merger.
Section 5.16 Solvency Letters. The Company Board or Special Committee shall
engage an independent appraisal firm to deliver a letter addressed to the
Company Board, as to the solvency of the Company and its Subsidiaries on a
consolidated basis after giving effect to the transactions contemplated by
this Agreement, including all financings contemplated hereby.
ARTICLE 6
Conditions to Consummation of the Merger
Section 6.1 Conditions. The respective obligations of ICS and the Company
to consummate the Merger are subject to the satisfaction, at or before the
Effective Time, of each of the following conditions:
(a) Shareholder Approval. The shareholders of the Company shall have
duly approved the transactions contemplated by this Agreement (the
"Shareholder Approval"), if required by applicable law.
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(b) Solvency Letters. The Company shall have received a solvency letter,
in form and substance and from an independent evaluation firm reasonably
satisfactory to it, as to the solvency of the Company and its Subsidiaries
on a consolidated basis after giving effect to the transactions
contemplated by this Agreement, including all financings contemplated
hereby.
(c) Orders and Injunctions. No order shall have been entered in any
action or proceeding before any United States federal or state court or
governmental agency or other United States regulatory or administrative
agency or commission (an "Order"), and no preliminary or permanent
injunction by a United States court of competent jurisdiction shall have
been issued and remain in effect (an "Injunction"), which, in either case,
would have the effect of (i) preventing consummation of the Merger, or (ii)
imposing material limitations on the ability of ICS effectively to acquire
or hold the business of the Company and its Subsidiaries taken as a whole;
provided, however, that in order to invoke this condition, ICS shall have
used in its judgment, its commercially reasonable efforts to prevent such
Order or Injunction or ameliorate the effects thereof.
(d) Illegality. There shall not have been any United States federal or
state statute, rule or regulation enacted or promulgated after the date of
this Agreement that could in the reasonable judgment of ICS result in any
of the material adverse consequences referred to in paragraph (c) above.
(e) HSR Act. Any waiting period (and any extension thereof) under the
HSR Act applicable to the Merger shall have expired or terminated.
Section 6.2 Conditions to Obligations of ICS. The obligations of ICS to
effect the Merger are further subject to the following conditions:
(a) Representations and Warranties. The representations and warranties
of the Company set forth in this Agreement shall be true and correct in the
aggregate in all material respects, as of the date of this Agreement and as
of the Closing Date as though made on and as of the Closing Date. For
purposes of determining whether any representation or warranty is true and
correct, any requirement that a fact or event be or not be material or have
or not have a Material Adverse Effect on the Company (a "Materiality
Qualifier") shall be ignored. The condition in the first sentence of this
Section 6.2(a) shall be deemed satisfied only if the failure of the
representations and warranties of the Company to be true and correct in the
aggregate (determined without giving effect to any Materiality Qualifier)
does not constitute a Material Adverse Effect on the Company. ICS shall
have received a certificate signed on behalf of the Company by the Chairman
of the Board and the chief financial officer of the Company to the effect
set forth in this paragraph.
(b) Performance of Obligations of the Company. The Company shall have
performed the obligations required to be performed by it under this
Agreement in all material respects at or prior to the Closing Date, except
for such failures to perform as have not had or would not, individually or
in the aggregate, have a Material Adverse Effect with respect to the
Company or materially adversely affect the ability of the Company to
consummate the transactions contemplated hereby.
(c) Consents, Etc. ICS shall have received evidence, in form and
substance reasonably satisfactory to it, that all licenses, permits,
consents, approvals, authorizations, qualifications and orders of
governmental authorities and other third parties set forth in Section 3.3
of the Disclosure Schedule shall have been obtained.
(d) No Litigation. There shall not be pending by any Governmental Entity
any suit, action or proceeding (or by any other person any suit, action or
proceeding which has a reasonable likelihood of success), (i) challenging
or seeking to restrain or prohibit the consummation of the Merger or any of
the other transactions contemplated by this Agreement or seeking to obtain
from ICS or any of their affiliates any damages that are material to any
such party (ii) seeking to prohibit or limit the ownership or operation by
the Company or any of its Subsidiaries of any material portion of the
business or assets of the Company or any of its Subsidiaries, to dispose of
or hold separate any material portion of the business or
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assets of the Company or any of its Subsidiaries, as a result of the Merger
or any of the other transactions contemplated by this Agreement or (iii)
seeking to impose limitations on the ability of ICS (or any shareholder of
ICS), to acquire or hold, or exercise full rights of ownership of, any
Common Shares, including, without limitation, the right to vote Common
Shares on all matters properly presented to the shareholders of the
Company.
(e) Financing. The Company shall have received the proceeds of financing
pursuant to the commitment letters set forth on Section 6.2(e) of the
Disclosure Schedule on terms and conditions set forth therein (or, as
modified in accordance with Section 5.3(c) hereof) and on such other terms
and conditions consistent therewith, or involving such other financing
sources, as are reasonably satisfactory to ICS in its sole discretion, in
amounts sufficient to consummate the transactions contemplated by this
Agreement, including, without limitation: (i) to pay, with respect to all
Common Shares in the Merger, the Merger Consideration pursuant to Section
2.1(b) hereof; (ii) to refinance the outstanding indebtedness of the
Company; (iii) to pay any fees and expenses in connection with the
transactions contemplated by this Agreement or the financing thereof; and
(iv) to provide for the working capital needs of the Company following the
Merger, including, without limitation, if applicable, letters of credit.
Section 6.3 Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger is further subject to the following conditions:
(a) Representations and Warranties. The representations and warranties
of ICS set forth in this Agreement shall be true and correct in all
respects, in each case as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date. The Company
shall have received certificates signed on behalf of ICS, respectively, by
an authorized officer of ICS, respectively, to the effect set forth in this
paragraph.
(b) Performance of Obligations of ICS. ICS shall have performed the
obligations required to be performed by it under this Agreement at or prior
to the Closing Date (except for such failures to perform as have not had or
could not reasonably be expected, either individually or in the aggregate,
to have a Material Adverse Effect with respect to ICS or adversely affect
the ability of ICS to consummate the transactions herein contemplated or
perform its obligations hereunder).
ARTICLE 7
Termination; Amendments; Waiver
Section 7.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the shareholders of the Company:
(a) by the mutual written consent of ICS and the Company, by action of
their respective Boards of Directors;
(b) by ICS or the Company if the Merger shall not have been consummated
on or before May 31, 1999; provided, however, that neither ICS nor the
Company may terminate this Agreement pursuant to this Section 7.1(b) if
such party shall have materially breached this Agreement;
(c) by ICS or the Company if any court of competent jurisdiction in the
United States or other United States Governmental Entity has issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other
action shall have become final and nonappealable; provided, however, that
the party seeking to terminate this Agreement shall have used its
commercially reasonable efforts to remove or lift such order, decree,
ruling or other action;
(d) by the Company if, prior to the Effective Time, any person has made
a bona fide proposal relating to an Acquisition Transaction, or has
commenced a tender or exchange offer for the Common Shares, and
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the Company Board or Special Committee determines in good faith (i) after
consultation with its financial advisors, that such transaction constitutes
a Higher Offer and (ii) after consultation with counsel, that failure to
approve such proposal and terminate this Agreement could reasonably be
expected to result in a breach of fiduciary duties to shareholders
(assuming for such purpose that fiduciary duties are owed only to
shareholders), as they would exist in the absence of any limitations in
this Agreement, of the Company Board to the Company's shareholders;
provided, however, that, notwithstanding anything in this Agreement to the
contrary, the termination of this Agreement by the Company in compliance
with this Section 7.1(d) shall not be deemed to violate any other
obligations of the Company under this Agreement, and, provided further,
that the Company shall have notified ICS of its intent to terminate prior
to the effective date of such termination;
(e) by ICS, if the Company Board shall have (i) failed to recommend to
the shareholders of the Company that they give the Shareholder Approval,
(ii) withdrawn or modified in a manner adverse to ICS its approval or
recommendation of this Agreement or the Merger, (iii) shall have approved
or recommended an Acquisition Transaction, (iv) shall have resolved to
effect any of the foregoing or (v) shall have otherwise taken steps to
materially impede the Shareholder Approval; or
(f) by either ICS or the Company, if the Shareholder Approval shall not
have been obtained by reason of the failure to obtain the required vote
upon a vote held at a duly held meeting of shareholders or at any
adjournment or postponement thereof.
Section 7.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.1 hereof, this Agreement shall forthwith
become void and have no effect, without any liability on the part of any party
or its directors, officers or shareholders, other than the provisions of the
last sentence of Section 5.2 hereof and the provisions of this Section 7.2 and
Section 7.3 hereof, which shall survive any such termination. Nothing
contained in this Section 7.2 shall relieve any party from liability for any
breach of any covenant of this Agreement or any breach of warranty or
misrepresentation.
Section 7.3 Fees and Expenses.
(a) In the event that this Agreement is terminated for any reason other
than (i) on account of any of the conditions set forth in Section 6.1(c),
6.1(d), 6.1(e), 6.2(d), 6.3(a) or 6.3(b) hereof not being satisfied, (ii)
primarily as a result of material adverse changes in the economy or industry
occurring after the date hereof, or (iii) solely on account of ICS's failure
to obtain the financing described in Section 6.2(e) hereof, the Company shall
promptly reimburse ICS for all out-of-pocket expenses and fees (including,
without limitation, fees payable to all banks, investment banking firms and
other financial institutions, and their respective agents and counsel, and all
out-of-pocket fees and expenses, including bank commitment fees and expenses,
attorneys' and accountants' fees, and costs associated with financial
printers, experts and consultants to ICS and its affiliates, collectively
referred to as "Costs"), whether incurred prior to, on or after the date
hereof, in connection with the Merger and the consummation of all transactions
contemplated by this Agreement, and the financing thereof up to $3 million.
Except as otherwise specifically provided for herein, whether or not the
Merger is consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated by this Agreement shall be paid by
the party incurring such expenses.
(b) In the event that this Agreement is terminated (i) pursuant to Sections
7.1(d) or 7.1(f) hereof or by ICS pursuant to Section 7.1(b) hereof based upon
a material breach of this Agreement by the Company or by ICS pursuant to
Section 7.1(e) hereof, and (ii) within 12 months after the date of termination
the Company enters into a legally binding acquisition agreement for a Business
Combination (as defined herein) or a Business Combination is consummated, the
Company will, within three business days following the consummation of such a
Business Combination, pay to ICS in cash by wire transfer in immediately
available funds to an account designated by ICS a payment in an amount equal
to $6 million (the "Termination Fee"), provided that in no event shall more
than one Termination Fee be payable by the Company. For purposes of this
Section 7.3, the term "Business Combination" means (i) a merger,
consolidation, share exchange, business combination or
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similar transaction involving the Company as a result of which the
shareholders of the Company prior to such transaction in the aggregate cease
to own at least a majority of the voting securities of the entity surviving or
resulting from such transaction (or ultimate parent entity thereof), (ii) a
sale, lease, exchange, transfer or other disposition of more than 50% of the
assets of the Company and its Subsidiaries, taken as a whole, in a single
transaction or a series of related transactions, or (iii) the acquisition, by
a person (other than ICS or any affiliate thereof) or group (as such term is
defined under Section 13(d) of the Exchange Act and the rules and regulation
thereunder) of beneficial ownership (as defined in Rule 13d-3 under the
Exchange Act) of more than 25% of the Common Shares whether by tender or
exchange offer or otherwise.
(c) The prevailing party in any legal action undertaken to enforce this
Agreement or any provision hereof shall be entitled to recover from the other
party the costs and expenses (including attorneys' and expert witness fees)
incurred in connection with such action.
Section 7.4 Amendment. This Agreement may be amended by the Company and ICS
at any time before or after any approval of this Agreement by the shareholders
of the Company but, after any such approval, no amendment shall be made which
decreases the Merger Consideration or which the Company Board or Special
Committee determines adversely affects the rights of the Company's
shareholders hereunder without the approval of such shareholders. This
Agreement may not be amended except by an instrument in writing signed on
behalf of all the parties.
Section 7.5 Extension; Waiver. At any time prior to the Effective Time,
ICS, on the one hand, and the Company, on the other hand, may (i) extend the
time for the performance of any of the obligations or other acts of the other,
(ii) waive any inaccuracies in the representations and warranties contained
herein of the other or in any document, certificate or writing delivered
pursuant hereto by the other or (iii) waive compliance by the other with any
of the agreements or conditions. Any agreement on the part of any party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE 8
Miscellaneous
Section 8.1 Non-Survival of Representations and Warranties. The
representations and warranties made in this Agreement shall not survive beyond
the Effective Time.
Section 8.2 Entire Agreement; Assignment.
(a) This Agreement (including the documents and the instruments referred to
herein) and the Confidentiality Agreement constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof and thereof.
(b) Neither this Agreement nor any of the rights, interests or obligations
hereunder will be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other party
(except that ICS may assign its rights, interest and obligations to any
affiliate or Subsidiary of ICS without the consent of the Company, provided
that no such assignment shall relieve ICS of any liability for any breach by
such assignee). 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 successors and assigns.
Section 8.3 Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
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Section 8.4 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by overnight courier or telecopier to the
respective parties as follows:
If to ICS: Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attention:Michael Krupka
Telecopier:(617) 572-3274
with a copy to: Kirkland & Ellis
655 15th Street N.W. Suite 1200
Washington, D.C. 20005
Attention:Jack M. Feder, Esq.
Telecopier: (202) 879-5200
If to the Company:Integrated Circuit Systems, Inc.
23435 Boulevard of the Generals
P.O. Box 968
Valley Forge, PA 19482
Attention:Chairman
Telecopier:
with a copy to: Pepper Hamilton LLP
3000 Two Logan Square
18th and Arch Streets
Philadelphia, PA 19103-2799
Attention:Barry M. Abelson, Esq.
Telecopier:(215) 981-4750
and: Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19103-6993
Attention:David King, Esq.
Telecopier:(215) 963-5299
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above;
provided that notice of any change of address shall be effective only upon
receipt thereof.
Section 8.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
Section 8.6 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
Section 8.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
Section 8.8 Parties in Interest. Except with respect to Sections 2.2, 5.5
and 5.6 hereof (which are intended to be for the benefit of the persons
identified therein, and may be enforced by such persons), 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 confer upon any
other person any rights or remedies of any nature whatsoever under or by
reason of this Agreement.
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Section 8.9 Certain Definitions. As used in this Agreement:
(a) the term "affiliate", as applied to any person, shall mean any other
person directly or indirectly controlling, controlled by, or under common
control with, that person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as applied to any person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that person, whether through
the ownership of voting securities, by contract or otherwise; and
(b) "Business" shall mean the businesses of the Company and its
Subsidiaries as currently conducted.
(c) "Intellectual Property" means (i) all patents, patent applications
and patent disclosures; all inventions (whether or not patentable and
whether or not reduced to practice); (ii) all trademarks, service marks,
trade names, logos, slogans, corporate names and Internet domain names, and
all the goodwill associated with each of the foregoing; (iii) all mask
works and registrations and applications for registry thereof; (iv) all
registered and unregistered statutory and common law copyrights; (v) all
registrations, applications and renewals for any of the foregoing; and (vi)
all trade secrets, confidential information, ideas, formulae, compositions,
know-how, manufacturing and production processes and techniques, research
information, drawings, specifications, designs, plans, improvements,
proposals, technical and computer data, documentation and software,
financial business and marketing plans, customer and supplier lists and
related information and marketing materials and all other proprietary
rights.
(d) the term "Person" or "person" shall include individuals,
corporations, partnerships, trusts, other entities and groups (which term
shall include a "group" as such term is defined in Section 13(d)(3) of the
Exchange Act).
(e) "Knowledge of the Company" or words of similar import means the
actual knowledge of the following members of the Company's senior
management (including members of management holding Rollover Shares): Hock
E. Tan and Rudolph Gassner.
Section 8.10 Specific Performance. The parties hereto 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 or were
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of
the United States or any state having jurisdiction, this being in addition to
any other remedy to which they are entitled at law or in equity.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its respective officer thereunto duly authorized,
all as of the day and year first above written.
INTEGRATED CIRCUIT SYSTEMS, INC.
/s/ Rudolf Gassner
By: _________________________________
Name: Rudolf Gassner
Title:Chairman of the Board
ICS MERGER CORP.
/s/ Michael A. Krupka
By: _________________________________
Name: Michael A. Krupka
Title:Managing Director
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AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
AMENDMENT No. 1 (this "Amendment"), dated February 16, 1999, by and among
Integrated Circuit Systems, Inc., a Pennsylvania corporation (the "Company"),
and ICS Merger Corp., a Pennsylvania corporation ("ICS"). All capitalized
terms used herein and not otherwise defined shall have the respective meanings
provided such terms in the Merger Agreement (as defined below).
WITNESSETH:
WHEREAS, the Company and ICS are parties to a certain Agreement and Plan of
Merger dated January 20, 1999 (the "Merger Agreement"); and
WHEREAS, the parties hereto wish to amend the Merger Agreement as herein
provided;
NOW, THEREFORE, it is agreed:
1. Section 1.1 of the Merger Agreement is hereby amended to insert in
the first sentence the words "(including Section 1906 thereof, which shall
be applicable to the transactions contemplated hereby,)" after the words
"this Agreement and the BCL" and before the words "at the Effective Time".
2. Section 2.1(b)(ii) of the Merger Agreement is hereby amended to
delete the date "February 10, 1999" from the end of that Section and to
insert the date "March 3, 1999" in lieu thereof.
3. Section 2.2 of the Merger Agreement is hereby deleted in its entirety
and the following new Section 2.2 shall be inserted in lieu thereof.
"Section 2.2 Options; Stock Plans. Immediately prior to the Effective
Time, each holder of a then-outstanding employee stock option, whether
or not fully exercisable, to purchase Common Shares (an "Option")
granted under the Company's 1992 Stock Option Plan and 1997 Equity
Compensation Plan (the "Stock Plans") and all other outstanding
options, in each case as reflected in Section 3.2 of the Disclosure
Schedule, will be entitled to receive in settlement of such Option (a)
a cash payment from the Company equal to the product of (i) the total
number of Common Shares previously subject to such Option and (ii) the
excess of the Merger Consideration over the exercise price per Common
Share subject to such Option, subject to any required withholding of
taxes (the "Option Spread"), (b) new stock options ("New Options") in
the Company pursuant to new stock option agreements between the
Company, ICS and certain members of Management or (c) some combination
of (a) and (b) above. The Company will, upon the request of ICS, use
reasonable efforts to obtain the written acknowledgment of each
employee holding an Option that the payment of the amount of cash or
New Options referred to above will satisfy in full the Company's
obligation to such employee pursuant to such Option and take such other
action as is necessary to effect the provisions of this Section 2.2.
The amounts payable pursuant to this Section 2.2 shall be paid as soon
as reasonably practicable following the Closing Date and shall be
subject to and made net of all applicable withholding taxes. The
Company will solicit from each Retained Employee, as such term is
defined in that certain asset purchase agreement among 3COM
Corporation, the Company and ICS Technologies, Inc., an agreement by
each such employee who owns an Option (as defined in such agreement) to
accept, in lieu of stock upon the exercise of the Option, the amount of
cash such employee would have received if they received the cash
payments described in this Section 2.2 (the "Option Payment") which
shall be a condition to any agreement by the Company to pay such Option
Payment in respect of such Options."
4. Section 3.2 of the Merger Agreement is hereby amended to delete the
second full sentence and the following new sentence shall be inserted in
lieu thereof.
"As of the close of business on January 19, 1999, 12,106,225 Common
Shares were issued and outstanding, all of which are entitled to vote
on this Agreement. "
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5. Section 3.2 of the Merger Agreement is hereby amended to delete the
fourth full sentence and the following new sentence shall be inserted in
lieu thereof.
"As of January 19, 1999, except for (i) 2,356,709 Common Shares
reserved for issuance pursuant to outstanding Options, there are no
existing options, warrants, calls, subscriptions, or other rights, or
other agreements or commitments, obligating the Company to issue,
transfer or sell any shares of capital stock of the Company or any of
its Subsidiaries."
6. Section 3.25 of the Merger Agreement is hereby amended to delete the
first clause that reads "Except as set forth in Section 3.13 of the
Disclosure Schedule," and the following new clause shall be inserted in
lieu thereof.
"Except with respect to any matter set forth in Section 3.7, 3.13 or
3.22(a) of the Disclosure Schedule,"
7. Section 5.2 of the Merger Agreement is hereby deleted in its entirety
and the following new Section 5.2 shall be inserted in lieu thereof.
"From the date of this Agreement until the Effective Time, the Company
will, and will cause its Subsidiaries, and each of their respective
officers, directors, employees, agents or other representatives
(including, without limitation, any investment banker, attorney or
accountant retained by the Company or its Subsidiaries) (the "Company
Representatives"), to give ICS and their respective officers,
employees, agents or other representatives (including, without
limitation, any investment banker, attorney or accountant retained by
ICS) (the "ICS Representatives") and representatives of financing
sources identified by ICS who do not compete with the Company in the
integrated circuit industry ("Financing Sources"), so long as such ICS
Representatives and representatives of Financing Sources agree in
writing (with the Company as a party or expressly set forth as a third
party beneficiary to such agreement) to maintain the confidentiality of
any non-public confidential information about the Company and its
Subsidiaries in a manner consistent with market practice for
acquisition financing transactions, reasonable access, upon reasonable
notice and during normal business hours, to the offices and other
facilities and to the books and records of the Company and its
Subsidiaries and will cause the Company Representatives and the
Company's Subsidiaries to furnish ICS and the ICS Representatives and
Financing Sources identified by ICS with such financial and operating
data and such other information with respect to the business and
operations of the Company and its Subsidiaries as ICS and
representatives of Financing Sources may from time to time reasonably
request.
In addition, the Company agrees that so long as the Financing Sources
and the representatives agree in writing (with the Company as a party
or expressly set forth as a third party beneficiary to such agreement)
to maintain the confidentiality of any non-public confidential
information about the Company and its Subsidiaries in a manner
consistent with market practice for acquisition financing transactions,
ICS and the ICS Representatives may directly furnish financial and
operating data and such other information about the Company and its
Subsidiaries as they reasonably deem necessary, to representatives of
Financing Sources or any ICS Representative. ICS agrees that it will
receive and hold any information furnished pursuant to this Section 5.2
subject to the provisions of the letter agreement dated May 13, 1998,
between Bear Stearns Merchant Fund Corp. and the Company and the letter
agreement dated May 15, 1998, between Bain Capital Inc. and the Company
(the "Confidentiality Agreements")."
8. Section 5.10 of the Merger Agreement is hereby amended to delete the
words "Investment Banks" from the proviso after the words "in the opinion
of" and before the words "more favorable to the Company" and to insert the
words "Investment Banker" in its place .
9. Section 5.10 of the Merger Agreement is hereby amended to delete the
word "then" from the proviso after the words "from a financial point of
view" and before the words "than the transactions contemplated by this
Agreement."
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10. Section 6.2(d) of the Merger Agreement is hereby amended to add the
following new clause to the beginning of the first sentence of Section
6.2(d).
"Except as set forth in Section 3.7 or 3.22(a) of the Disclosure
Schedule,"
11. Sections 7.1(b) of the Merger Agreement is hereby deleted in its
entirety and the following new Section 7.1(b) shall be inserted in lieu
thereof.
"(b) by ICS or the Company if the Merger shall not have been
consummated on or before June 30, 1999; provided, however, that neither
ICS nor the Company may terminate this Agreement pursuant to this
Section 7.1(b) if such party shall have materially breached this
Agreement."
12. Section 7.1(d) of the Merger Agreement is hereby amended to delete
the word "Transaction" from the second line and to insert the word
"Proposal" in its place.
13. Section 7.1(d) of the Merger Agreement is hereby amended to delete
subsection (ii) up to the proviso and the following new clause 7.1(d)(ii)
shall be inserted before the proviso in lieu thereof.
"(ii) after consultation with counsel, that failure to approve such
proposal and terminate this Agreement could reasonably be expected to
result in a breach of the Company's Board's fiduciary duties to
shareholders (assuming for such purpose that fiduciary duties are owed
only to shareholders), as they would exist in the absence of any
limitations in this Agreement;"
14. Section 7.1(e)(iii) of the Merger Agreement is hereby amended to
delete the word "Transaction" and to insert the word "Proposal" in its
place.
15. Section 3.2 of the Disclosure Schedule of the Merger Agreement is
hereby amended to delete the following clause from the end of the sentence
referring to the Incentive Stock Option to purchase 112,000 shares granted
to R. Gassner:
", and providing for accelerated vesting in the event the fair market
value of the common stock exceeds $20 for ten consecutive trading days,
subject to certain limitations"
16. The Company's grant of an option on February 2, 1999 to each of
Henry Boreen, Edward Esber and John Pickitt, the Company's three non-
employee directors, to purchase 8,000 shares of the Company's Common Stock
at a per share price of $18.375 pursuant to the non-discretionary annual
grant provision of the Company's 1997 Equity Compensation Plan shall be
deemed to be included on the appropriate Optionee Statements attached to
Section 3.2 of the Disclosure Schedule of the Merger Agreement effective as
of the date of the Merger Agreement.
17. Section 3.13 of the Disclosure Schedule of the Merger Agreement is
hereby amended to include the following effective as of the date of the
Merger Agreement:
"Any resignation by any person who was an Executive Officer of the
Company as of January 19, 1999, and is no longer an Executive Officer of
the Company as of February 16, 1999.
18. Section 5.1 of the Disclosure Schedule of the Merger Agreement is
hereby amended to include the following effective as of the date of the
Merger Agreement:
"4. The Company's 1997 Equity Compensation Plan provides for the non-
discretionary annual grant of an option on February 2, 1999 to each of
the Company's three Independent Directors to purchase 8,000 shares of
the Company's Common Stock at the Fair Market Value on the date of the
grant."
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19. ICS agrees that it will cause item (ix) of Exhibit C to the Senior
Secured Credit Facilities and Mezzanine Facility Loan Commitment Letter
dated January 18, 1999 from Credit Suisse First Boston ("Loan Commitment
Letter") to be amended to read in its entirety as follows:
"(ix) the Closing Date shall occur on or before June 30, 1999."
20. ICS further agrees that it will cause item (ii) of Exhibit C to the
Loan Commitment Letter to be amended by inserting at the end of that
section the following:
"; provided, however, that the failure of the Merger and related
transactions to be eligible for recapitalization accounting shall not
be considered a failure to satisfy any of the conditions to the
commitments of CSFB stated herein;"
21. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Merger
Agreement.
22. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.
23. This Amendment and the rights and obligations of the parties
hereunder shall be construed in accordance with and governed by the laws of
the Commonwealth of Pennsylvania.
24. From and after the date hereof, except as the context otherwise
requires, all references in the Merger Agreement to the Merger Agreement
shall be deemed to be references to the Merger Agreement as modified
hereby.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment
No. 1 to be duly executed and delivered as of the date first above written.
INTEGRATED CIRCUIT SYSTEMS, INC.
/s/ Hock E. Tan
By: _________________________________
Name: Hock E. Tan
Title: Senior Vice President,
Chief Operating Officer and
Chief Financial Officer
ICS MERGER CORP.
/s/ Michael A. Krupka
By: _________________________________
Name: Michael A. Krupka
Title: Managing Director
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APPENDIX B
[Letterhead of Pennsylvania Merchant Group]
January 19, 1999
The Special Committee of the Board of Directors and
The Board of Directors
Integrated Circuit Systems, Inc.
2435 Boulevard of the Generals
P.O. Box 968
Valley Forge, PA 19482-0968
Gentlemen:
We understand that Integrated Circuit Systems, Inc. ("ICS" or the "Company") is
considering entering into a transaction with Bain Capital, Inc., Bear Stearns &
Co. and current members of management (collectively, the "Buyout Group")
pursuant to which ICS would merge with an entity formed by the Buyout Group
and, as part of the merger, each outstanding share of common stock of ICS,
other than certain shares held by members of management (the "Rollover
Series"), will be exchanged for $21.25 in cash (the "Proposed Transaction").
The holders of shares which are not Rollover Shares are referred to herein as
"Unaffiliated Shareholders".
We have been requested by the Special Committee of the Board of Directors of
the Company to render our opinion with respect to the fairness, from a
financial point of view, to the Company's Unaffiliated Shareholders of the
consideration to be offered to such Unaffiliated Shareholders in the Proposed
Transaction. We have not been requested to opine as to, and our opinion does
not in any manner address, the Company's underlying business decision of
whether or not to proceed with or effect the Proposed Transaction.
In conducting our analysis and arriving at our opinion as expressed herein, we
have reviewed a draft of the Agreement and Plan of Merger between ICS and the
Buyout Group dated January 19, 1999. Additionally, we have held discussions
with certain senior officers of ICS concerning the business, operations and
prospects of ICS. We have also reviewed and analyzed all publicly available
business and financial information relating to ICS that we believe to be
relevant to our inquiry, as well as certain financial forecasts and other data
for ICS which were provided to or otherwise discussed with us by the management
of ICS. We also reviewed, among other things, current and historical market
prices and trading volumes of the Common Stock. Based upon the projected
financial performance, we have made certain estimates as to the future cash
flows and terminal values, and, after applying a range of appropriate discount
rates, the present value of such cash flows and terminal value, which analysis
is defined as a "Discounted Cash Flow Analysis". We also analyzed certain
financial, stock market and other publicly available information relating to
the business of other companies whose operations we considered relevant in
evaluating those of ICS. Furthermore, we examined the terms of certain business
combinations which we believe to be relevant and compared the terms to the
Proposed Transaction. In addition to the foregoing, we conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as we deemed appropriate in arriving at our valuation.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed
by or discussed with us and have further relied upon the assurances of the
management of ICS that they are not aware of any facts that would make such
information inaccurate or misleading. With respect to financial forecasts and
other information and data provided to or otherwise reviewed by or discussed
with us,
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we have been advised by the management of ICS that such forecasts and other
information and data were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of ICS as to the
future financial performance of ICS. We have not made or been provided with an
independent evaluation or appraisal of the assets, liabilities (contingent or
otherwise) or reserves of ICS nor have we made any physical inspection of the
properties or assets of ICS. Our opinion is necessarily based upon information
available to us, and financial, stock market and other conditions and
circumstances existing and disclosed to us, as of the date hereof.
Based upon and subject to the foregoing, we are of the opinion as of the date
hereof that, from a financial point of view, the consideration to be offered
to the Unaffiliated Shareholders of the Company in the Proposed Transaction
is, as of the date of this letter, fair to such Unaffiliated Shareholders.
This opinion is for the use and benefit of the Special Committee of the Board
of Directors of the Company and the Board of Directors of the Company and is
rendered to the Special Committee of the Board of Directors and the Board of
Directors in connection with its consideration of the Proposed Transaction.
We have acted as financial advisor to the Special Committee of the Board of
Directors in connection with its evaluation of the Proposed Transaction and
will receive a fee for our services, a portion of which is contingent upon the
closing of the Proposed Transaction or a similar transaction with a person or
entity other than the Buyout Group. In addition, the Company has agreed to
indemnify us for certain liabilities that may arise out of the rendering of
this opinion. We also have performed various investment banking services for
the Company in the past (including acting as sole manager of the Company's
initial public offering and as co-manager of a secondary offering) and have
received customary fees for such services. In the ordinary course of our
business, we and our affiliates may actively trade or hold the securities of
ICS for our own account or for the account of our customers and, accordingly,
may at any time hold a long or short position in such securities.
Very truly yours,
/s/ Pennsylvania Merchant Group
PENNSYLVANIA MERCHANT GROUP
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APPENDIX C
PURDON'S PENNSYLVANIA CONSOLIDATED STATUTES ANNOTATED
TITLE 15. CORPORATIONS AND UNINCORPORATED ASSOCIATIONS
PART II. CORPORATIONS
SUBPART B. BUSINESS CORPORATIONS
ARTICLE B. DOMESTIC BUSINESS CORPORATIONS GENERALLY
CHAPTER 15. CORPORATE POWERS, DUTIES AND SAFEGUARDS
SUBCHAPTER D. DISSENTERS RIGHTS
Current through Act 1998-48.
(S) 1571. APPLICATION AND EFFECT OF SUBCHAPTER.--
(a) General rule.--Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any
corporate action, or to otherwise obtain fair value for his shares, where this
part expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of
election).
Section 2907(a) (relating to proceedings to terminate breach of
qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.--
(1) Except as otherwise provided in paragraph (2), the holders of the shares
of any class or series of shares that, at the record date fixed to determine
the shareholders entitled to notice of and to vote at the meeting at which a
plan specified in any of section 1930, 1931(d), 1932(c) or 1952(d) is to be
voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of any such
shares under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in the
case of:
(i) Shares converted by a plan if the shares are not converted solely
into shares of the acquiring, surviving, new or other corporation or solely
into such shares and money in lieu of fractional shares.
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(ii) Shares of any preferred or special class unless the articles, the
plan or the terms of the transaction entitle all shareholders of the class
to vote thereon and require for the adoption of the plan or the
effectuation of the transaction the affirmative vote of a majority of the
votes cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under section 1906(c)
(relating to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase, lease,
exchange or other disposition all or substantially all of the shares, property
or assets of another corporation by the issuance of shares, obligations or
otherwise, with or without assuming the liabilities of the other corporation
and with or without the intervention of another corporation or other person,
shall not be entitled to the rights and remedies of dissenting shareholders
provided in this subchapter regardless of the fact, if it be the case, that
the acquisition was accomplished by the issuance of voting shares of the
corporation to be outstanding immediately after the acquisition sufficient to
elect a majority or more of the directors of the corporation.
(c) Grant of optional dissenters rights.--The bylaws or a resolution of the
board of directors may direct that all or a part of the shareholders shall
have dissenters rights in connection with any corporate action or other
transaction that would otherwise not entitle such shareholders to dissenters
rights.
(d) Notice of dissenters rights.--Unless otherwise provided by statute, if
a proposed corporate action that would give rise to dissenters rights under
this subpart is submitted to a vote at a meeting of shareholders, there shall
be included in or enclosed with the notice of meeting:
(1) A statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair value
of their shares by complying with the terms of this subchapter; and
(2) A copy of this subchapter.
(e) Other statutes.--The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part
that makes reference to this subchapter for the purpose of granting dissenters
rights.
(f) Certain provisions of articles ineffective.--This subchapter may not be
relaxed by any provision of the articles.
(g) Cross references.--See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
(S) 1572. DEFINITIONS
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
"Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation,
division, conversion or otherwise of that issuer. A plan of division may
designate which of the resulting corporations is the successor corporation for
the purposes of this subchapter. The successor corporation in a division shall
have sole responsibility for payments to dissenters and other liabilities
under this subchapter except as otherwise provided in the plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to and does
assert dissenters rights under this subchapter and who has performed every act
required up to the time involved for the assertion of those rights.
"Fair value." The fair value of shares immediately before the effectuation
of the corporate action to which the dissenter objects, taking into account
all relevant factors, but excluding any appreciation or depreciation in
anticipation of the corporate action.
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"Interest." Interest from the effective date of the corporate action until
the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid by the corporation on its principal bank loans.
(S) 1573. RECORD AND BENEFICIAL HOLDERS AND OWNERS.--
(a) Record holders of shares.--A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of
the same class or series beneficially owned by any one person and discloses
the name and address of the person or persons on whose behalf he dissents. In
that event, his rights shall be determined as if the shares as to which he has
dissented and his other shares were registered in the names of different
shareholders.
(b) Beneficial owners of shares.--A beneficial owner of shares of a
business corporation who is not the record holder may assert dissenters rights
with respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the
corporation not later than the time of the assertion of dissenters rights a
written consent of the record holder. A beneficial owner may not dissent with
respect to some but less than all shares of the same class or series owned by
the owner, whether or not the shares so owned by him are registered in his
name.
(S) 1574. NOTICE OF INTENTION TO DISSENT.--
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect
no change in the beneficial ownership of his shares from the date of such
filing continuously through the effective date of the proposed action and must
refrain from voting his shares in approval of such action. A dissenter who
fails in any respect shall not acquire any right to payment of the fair value
of his shares under this subchapter. Neither a proxy nor a vote against the
proposed corporate action shall constitute the written notice required by this
section.
(S) 1575. NOTICE TO DEMAND PAYMENT.--
(a) General rule.--If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice
of intention to demand payment of the fair value of their shares and who
refrained from voting in favor of the proposed action. If the proposed
corporate action is to be taken without a vote of shareholders, the
corporation shall send to all shareholders who are entitled to dissent and
demand payment of the fair value of their shares a notice of the adoption of
the plan or other corporate action. In either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.
(2) Inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is
received.
(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the
shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment.--The time set for receipt of
the demand and deposit of certificated shares shall be not less than 30 days
from the mailing of the notice.
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(S) 1576. FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC.--
(a) Effect of failure of shareholder to act.--A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1575
(relating to notice to demand payment) shall not have any right under this
subchapter to receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares.--If the shares are not
represented by certificates, the business corporation may restrict their
transfer from the time of receipt of demand for payment until effectuation of
the proposed corporate action or the release of restrictions under the terms
of section 1577(a) (relating to failure to effectuate corporate action).
(c) Rights retained by shareholder.--The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
(S) 1577. RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES.--
(a) Failure to effectuate corporate action.--Within 60 days after the date
set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares
from any transfer restrictions imposed by reason of the demand for payment.
(b) Renewal of notice to demand payment.--When uncertificated shares have
been released from transfer restrictions and deposited certificates have been
returned, the corporation may at any later time send a new notice conforming
to the requirements of section 1575 (relating to notice to demand payment),
with like effect.
(c) Payment of fair value of shares.--Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are
certificated) have deposited their certificates the amount that the
corporation estimates to be the fair value of the shares, or give written
notice that no remittance under this section will be made. The remittance or
notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer of
the shares held or owned by the dissenter for a fiscal year ending not more
than 16 months before the date of remittance or notice together with the
latest available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of the
shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(d) Failure to make payment.--If the corporation does not remit the amount
of its estimate of the fair value of the shares as provided by subsection (c),
it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such
certificate or on the records of the corporation relating to any such
uncertificated shares that such demand has been made. If shares with respect
to which notation has been so made shall be transferred, each new certificate
issued therefor or the records relating to any transferred uncertificated
shares shall bear a similar notation, together with the name of the original
dissenting holder or owner of such shares. A transferee of such shares shall
not acquire by such transfer any rights in the corporation other than those
that the original dissenter had after making demand for payment of their fair
value.
(S) 1578. ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES.--
(a) General rule.--If the business corporation gives notice of its estimate
of the fair value of the shares, without remitting such amount, or remits
payment of its estimate of the fair value of a dissenter's shares as
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permitted by section 1577(c) (relating to payment of fair value of shares) and
the dissenter believes that the amount stated or remitted is less than the
fair value of his shares, he may send to the corporation his own estimate of
the fair value of the shares, which shall be deemed a demand for payment of
the amount or the deficiency.
(b) Effect of failure to file estimate.--Where the dissenter does not file
his own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to no
more than the amount stated in the notice or remitted to him by the
corporation.
(S) 1579. VALUATION PROCEEDINGS GENERALLY.--
(a) General rule.--Within 60 days after the latest of:
(1) Effectuation of the proposed corporate action;
(2) Timely receipt of any demands for payment under section 1575
(relating to notice to demand payment); or
(3) Timely receipt of any estimates pursuant to section 1578 (relating
to estimate by dissenter of fair value of shares);
If any demands for payment remain unsettled, the business corporation may
file in court an application for relief requesting that the fair value of the
shares be determined by the court.
(b) Mandatory joinder of dissenters.--All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served
on each such dissenter. If a dissenter is a nonresident, the copy may be
served on him in the manner provided or prescribed by or pursuant to 42
Pa.C.S. Ch. 53 (relating to bases of jurisdiction and interstate and
international procedure).
(c) Jurisdiction of the court.--The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery.--Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found
to exceed the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application.--If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim against
the corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file
an application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of the
shares and no more, and may bring an action to recover any amount not
previously remitted.
(S) 1580. COSTS AND EXPENSES OF VALUATION PROCEEDINGS.--
(a) General rule.--The costs and expenses of any proceeding under section
1579 (relating to valuation proceedings generally), including the reasonable
compensation and expenses of the appraiser appointed by the court, shall be
determined by the court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and assessed as the
court deems appropriate against all or some of the dissenters who are parties
and whose action in demanding supplemental payment under section 1578
(relating to estimate by dissenter of fair value of shares) the court finds to
be dilatory, obdurate, arbitrary, vexatious or in bad faith.
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(b) Assessment of counsel fees and expert fees where lack of good faith
appears.--Fees and expenses of counsel and of experts for the respective
parties may be assessed as the court deems appropriate against the corporation
and in favor of any or all dissenters if the corporation failed to comply
substantially with the requirements of this subchapter and may be assessed
against either the corporation or a dissenter, in favor of any other party, if
the court finds that the party against whom the fees and expenses are assessed
acted in bad faith or in a dilatory, obdurate, arbitrary or vexatious manner
in respect to the rights provided by this subchapter.
(c) Award of fees for benefits to other dissenters.--If the court finds
that the services of counsel for any dissenter were of substantial benefit to
other dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of
the amounts awarded to the dissenters who were benefited.
(S) 1906. SPECIAL TREATMENT OF HOLDERS OF SHARES OF SAME CLASS OR SERIES.--
(a) General rule.--Except as otherwise restricted in the articles, an
amendment or plan may contain a provision classifying the holders of shares of
a class or series into one or more separate groups by reference to any facts
or circumstances that are not manifestly unreasonable and providing mandatory
treatment for shares of the class or series held by particular shareholders or
groups of shareholders that differs materially from the treatment accorded
other shareholders or groups of shareholders holding shares of the same class
or series (including a provision modifying or rescinding rights previously
created under this section) if:
(1) (i) such provision is specifically authorized by a majority of the
votes cast by all shareholders entitled to vote on the amendment or plan,
as well as by a majority of the votes cast by any class or series of shares
any of the shares of which are so classified into groups, whether or not
such class or series would otherwise be entitled to vote on the amendment
or plan; and
(ii) the provision voted on specifically enumerates the type and
extent of the special treatment authorized; or
(2) under all the facts and circumstances, a court of competent
jurisdiction finds such special treatment is undertaken in good faith,
after reasonable deliberation and is in the best interest of the
corporation.
(b) Statutory voting rights upon special treatment.--Except as provided in
subsection (c), if an amendment or plan contains a provision for special
treatment, each group of holders of any outstanding shares of a class or
series who are to receive the same special treatment under the amendment or
plan shall be entitled to vote as a special class in respect to the plan
regardless of any limitations stated in the articles or bylaws on the voting
rights of any class or series.
(c) Dissenters rights upon special treatment.--If any amendment or plan
contains a provision for special treatment without requiring for the adoption
of the amendment or plan the statutory class vote required by subsection (b),
the holder of any outstanding shares the statutory class voting rights of
which are so denied, who objects to the amendment or plan and complies with
Subchapter D of Chapter 15 (relating to dissenters rights), shall be entitled
to the rights and remedies of dissenting shareholders provided in that
subchapter.
(d) Exceptions.--This section shall not apply to:
(1) The creation or issuance of securities, contracts, warrants or
other instruments evidencing any shares, option rights, securities having
conversion or option rights or obligations authorized by section 2513
(relating to disparate treatment of certain persons).
(2) A provision of an amendment or plan that offers to all holders of
shares of a class or series the same option to elect certain treatment.
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(3) An amendment or plan that contains an express provision that this
section shall not apply or that fails to contain an express provision that
this section shall apply. The shareholders of a corporation that proposes
an amendment or plan to which this section is not applicable by reason of
this paragraph shall have the remedies contemplated by section 1105
(relating to restriction on equitable relief).
(S) 1930. DISSENTERS RIGHTS.--
(a) General rule.--If any shareholder of a domestic business corporation
that is to be a party to a merger or consolidation pursuant to a plan of
merger or consolidation objects to the plan of merger or consolidation and
complies with the provisions of Subchapter D of Chapter 15 (relating to
dissenters rights), the shareholder shall be entitled to the rights and
remedies of dissenting shareholders therein provided, if any. See also section
1906(c) (relating to dissenters rights upon special treatment).
(b) Plans adopted by directors only.--Except as otherwise provided pursuant
to section 1571(c) (relating to grant of optional dissenters rights),
Subchapter D of Chapter 15 shall not apply to any of the shares of a
corporation that is a party to a merger or consolidation pursuant to section
1924(b)(1)(i) (relating to adoption by board of directors).
(c) Cross references.--See sections 1571(b) (relating to exceptions) and
1904 (relating to de facto transaction doctrine abolished).
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INTEGRATED CIRCUIT SYSTEMS, INC.
2435 BOULEVARD OF THE GENERALS
NORRISTOWN, PENNSYLVANIA 19403
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Rudolf S. Gassner, Edward M. Esber, Jr.
and John L. Pickett, and either of them, proxies (each with full power of
substitution) to vote, as indicated below and in their discretion upon such
other matters as may properly come before the meeting, all shares which the
undersigned would be entitled to vote at the Special Meeting of the
Shareholders of the Company to be held on , 1999, at 10:00 a.m.,
local time, and at any adjournment or postponement thereof, as indicated on
the reverse side.
1. A proposal to approve and adopt the Merger Agreement as defined and
described in the Proxy Statement
[_] FOR [_] AGAINST [_] ABSTAIN
CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THIS PROXY
ALSO DELEGATES DISCRETIONARY AUTHORITY WITH RESPECT TO ANY OTHER BUSINESS
WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT
THEREOF AND MATTERS INCIDENT TO THE CONDUCT OF THE SPECIAL MEETING.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL
MEETING AND PROXY STATEMENT.
PLEASE SIGN AND DATE THIS PROXY BELOW
Date: , 1999
__________________________________________
__________________________________________
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS
ON LEFT. WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, GUARDIAN OR
CORPORATE OFFICIAL, PLEASE GIVE FULL
TITLE.
<PAGE>
The Board of Directors and Shareholders
We have audited the accompanying consolidated balance sheets of Integrated
Circuit Systems, Inc. and subsidiaries as of June 27, 1998 and June 28, 1997 and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended June 27, 1998.
In connection with our audits of the consolidated financial statements, we have
also audited the consolidated financial statement schedule, for each of the
years in the three-year period ended June 27, 1998. These consolidated financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Integrated Circuit
Systems, Inc. and subsidiaries as of June 27, 1998 and June 28, 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 27, 1998, in conformity with generally accepted
accounting principles.
Also in our opinion, the related financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania August 3, 1998
